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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F/A

(Amendment No. 1)

 

(Mark One)

 

o

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

OR

 

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019

 

 

OR

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

OR

 

 

o

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

 

For the transition period from                       to                        

 

Commission file number  001-39109

 

Fangdd Network Group Ltd.

(Exact name of Registrant as specified in its charter)

 

N/A

(Translation of Registrant’s name into English)

 

Cayman Islands

(Jurisdiction of incorporation or organization)

 

18/F, Unit B2, Kexing Science Park

15 Keyuan Road, Technology Park

Nanshan District, Shenzhen 518057

People’s Republic of China

(Address of principal executive offices)

 

Jiaorong Pan
Chief Financial Officer
Fangdd Network Group Ltd.
18/F, Unit B2, Kexing Science Park
15 Keyuan Road, Technology Park
Nanshan District, Shenzhen 518057
People’s Republic of China
Phone: +86 755 2699 8968

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

American depositary shares, each representing 25 Class A ordinary shares, par value US$0.0000001 per share

 

DUO

 

The Nasdaq Global Market

Class A ordinary shares, par value US$0.0000001 per share*

 

 

 

The Nasdaq Global Market*

 


* Not for trading, but only in connection with the listing on the Nasdaq Global Market of American depository shares, each representing 25 Class A ordinary shares

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

None

(Title of Class)

 

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

As of December 31, 2019, there were (i) 1,203,322,178 Class A ordinary shares issued and outstanding, par value of US$0.0000001 per share and (ii) 619,938,058 Class B ordinary shares issued and outstanding, par value of US$0.0000001 per share.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o  No x

 

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x   No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Emerging growth company x

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP x

 

International Financial Reporting Standards as issued by the International Accounting Standards Board o

 

Other o

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. o Item 17    o Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x

 

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o   No o

 


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EXPLANATORY NOTE

 

3

 

 

 

ITEM 18. FINANCIAL STATEMENTS.

 

3

 

 

 

ITEM 19. EXHIBITS.

 

3

 

 

 

SIGNATURES

 

6

 

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EXPLANATORY NOTE

 

This Amendment No. 1 (“Amendment No. 1”) to our annual report on Form 20-F for the year ended December 31, 2019 originally filed with the U.S. Securities and Exchange Commission on April 15, 2020 (the “Original 2019 Form 20-F”) is being filed solely to add the following heading of a line item of the consolidated balance sheet appeared on page F-3 of the Report of Independent Registered Public Accounting Firm issued by KPMG Huazhen LLP, which was inadvertently omitted due to a clerical error:

 

“Accounts payable (including accounts payable of consolidated VIE without recourse to the Company of RMB1,107,836 and RMB1,897,219, as of December 31, 2018 and 2019, respectively. Note 1)”.

 

As required by Rule 12b-15 of the Securities and Exchange Act of 1934, as amended, we are also filing as exhibits to Amendment No. 1 the certifications required under Section 302 of the Sarbanes-Oxley Act of 2002.

 

Other than the matters described above, this Amendment No. 1 does not amend or modify any information included in any of the disclosure presented in the Original 2019 Form 20-F.

 

The Original 2019 Form 20-F, as amended by this Amendment No. 1, speaks as of the original filing date of the Original 2019 Form 20-F and does not reflect events that may have occurred subsequent to the original filing date of the Original 2019 Form 20-F.

 

ITEM 18.  FINANCIAL STATEMENTS.

 

Included at the end of this annual report.

 

ITEM 19.  EXHIBITS.

 

Exhibit No.

 

Description of Exhibit

1.1

 

Fifth Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated herein by reference to Exhibit 3.2 to our registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

2.1

 

Registrant’s Specimen American Depositary Receipt (incorporated herein by reference to Exhibit 4.1 to our registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

2.2

 

Registrant’s Specimen Certificate for Class A ordinary shares (incorporated herein by reference to Exhibit 4.2 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

2.3

 

Deposit Agreement among the Registrant, the depositary and the owners and holders of American Depositary Shares, dated as of October 31, 2019 (incorporated herein by reference to Exhibit 4.3 to the registration statement on Form S-8 (File No. 333-237506), filed with the SEC on March 31, 2020)

2.4

 

Amended and Restated Shareholders’ Agreement, dated as of June 30, 2015, by and among the Registrant and the holders of the Registrant’s ordinary and preferred shares (incorporated herein by reference to Exhibit 4.4 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

2.5

 

Amendment to the Amended and Restated Shareholders Agreement, dated as of October 8, 2019, by and among the Registrant and the holders of the Registrant’s ordinary and preferred shares (incorporated herein by reference to Exhibit 4.5 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

2.6†

 

Letter Agreement, dated as of October 31, 2019, by and among the Registrant, certain shareholders of the Registrant and other parties

2.7†

 

Description of Securities

4.1

 

Amended and Restated 2018 Share Incentive Plan (incorporated by reference to Exhibit 10.1 to our S-8 registration statement (File No. 333-237506) filed with the SEC on March 31, 2020)

4.2

 

Form of Indemnification Agreement between the Registrant and its director and executive officers (incorporated herein by reference to Exhibit 10.2 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

 

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4.3

 

Form of Director Agreement between the Registrant and its directors (incorporated herein by reference to Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

4.4

 

Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.4 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

4.5

 

English translation of the Business Operation Agreement, dated as of June 8, 2017 entered by and among Shenzhen Fangdd Information Technology Co., Ltd., Shenzhen Fangdd Network Technology Co., Ltd., and each shareholder of Shenzhen Fangdd Network Technology Co., Ltd. (incorporated herein by reference to Exhibit 10.5 to our registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

4.6

 

English translation of the Powers of Attorney, dated as of June 8, 2017, issued by each shareholder of Shenzhen Fangdd Network Technology Co., Ltd. to irrevocably appoint Mr. Jiancheng Li as such shareholder’s attorney-in-fact to exercise all shareholder rights (incorporated herein by reference to Exhibit 10.6 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

4.7

 

English translation of the Equity Interest Pledge Agreement, dated as of March 21, 2014 and December 20, 2017, respectively, entered by and among Shenzhen Fangdd Information Technology Co., Ltd., Shenzhen Fangdd Network Technology Co., Ltd., and each shareholder of Shenzhen Fangdd Network Technology Co., Ltd. (incorporated herein by reference to Exhibit 10.7 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

4.8

 

English translation of the Supplementary Agreement to the Equity Interest Pledge Agreement, dated as of August 1, 2018, entered by and among Shenzhen Fangdd Network Technology Co., Ltd., Shenzhen Fangdd Network Technology Co., Ltd., and several shareholders of Shenzhen Fangdd Network Technology Co., Ltd. (incorporated herein by reference to Exhibit 10.8 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

4.9

 

English translation of the Technology Development and Application Service Agreement, dated as of March 21, 2014, entered by and among Shenzhen Fangdd Information Technology Co., Ltd. and Shenzhen Fangdd Network Technology Co., Ltd. (incorporated herein by reference to Exhibit 10.9 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

4.10

 

English translation of the Operation Maintenance Service Agreement, dated as of March 21, 2014, entered by and among Shenzhen Fangdd Information Technology Co., Ltd. and Shenzhen Fangdd Network Technology Co., Ltd. (incorporated herein by reference to Exhibit 10.10 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

4.11

 

English translation of the Option Agreements entered by and among Shenzhen Fangdd Information Technology Co., Ltd., Shenzhen Fangdd Network Technology Co., Ltd., and each shareholder of Shenzhen Fangdd Network Technology Co., Ltd. (incorporated herein by reference to Exhibit 10.11 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

4.12

 

English translation of the Supplementary Agreement to the Option Agreement, dated August 1, 2018, entered by and among Shenzhen Fangdd Information Technology Co., Ltd., Shenzhen Fangdd Network Technology Co., Ltd., and several shareholders of Shenzhen Fangdd Network Technology Co., Ltd. (incorporated herein by reference to Exhibit 10.12 to the registration statement on Form F-1 (File No. 333-234130), as amended, initially filed with the SEC on October 8, 2019)

8.1†

 

Principal subsidiaries of the Registrant

11.1

 

Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement on Form F-1 (File No. 333-234130) filed with the SEC on October 8, 2019)

12.1*

 

Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

12.2*

 

Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

13.1†

 

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

 

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13.2†

 

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

15.1†

 

Consent of KPMG Huazhen LLP, Independent Registered Public Accounting Firm

15.2†

 

Consent of Global Law Office

101.INS* 

 

XBRL Instance Document

101.SCH*

 

XBRL Taxonomy Extension Schema Document

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE* 

 

XBRL Taxonomy Extension Presentation Linkbase Document

 


*                 Filed herewith

                 Previously filed or furnished with the Original 2019 Form 20-F

 

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SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Amendment No. 1 to its annual report on its behalf.

 

 

Fangdd Network Group Ltd.

 

 

 

By:

/s/ Yi Duan

 

Name: Yi Duan

 

Title: Chairman of the Board of Directors and Co-Chief Executive Officer

 

Date: May 12, 2020

 

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FANGDD NETWORK GROUP LTD.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

CONTENTS

 

PAGE(S)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

F-2

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 AND 2019

 

F-3 – F-6

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019

 

F-7 – F-8

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019

 

F-9 – F-10

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019

 

F-11 – F-12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

F-13 – F-81

 

F-1


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Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors
Fangdd Network Group Ltd.:

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Fangdd Network Group Ltd. (the Company) as of December 31, 2018 and 2019, the related consolidated statements of comprehensive income (loss), changes in (deficit) equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ KPMG Huazhen LLP

 

We have served as the Company’s auditor since 2016.

 

Shenzhen, China

April 15, 2020

 

F-2


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Fangdd Network Group Ltd.

CONSOLIDATED BALANCE SHEETS

(All amounts in thousands, except for share and per share data)

 

 

 

As of December 31,

 

 

 

2018

 

2019

 

 

 

RMB

 

RMB

 

US$

 

 

 

 

 

 

 

Unaudited
(Note 2(e))

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

443,586

 

1,103,747

 

158,543

 

Restricted cash

 

350,632

 

230,125

 

33,055

 

Short-term investments

 

71,483

 

11,500

 

1,652

 

Accounts receivable, net

 

1,352,596

 

2,189,980

 

314,571

 

Prepayments and other current assets

 

210,996

 

194,668

 

27,962

 

Total current assets

 

2,429,293

 

3,730,020

 

535,783

 

Non-current assets

 

 

 

 

 

 

 

Property, equipment and software, net

 

15,450

 

8,298

 

1,192

 

Equity method investments

 

346,159

 

579,263

 

83,206

 

Long-term equity investment

 

56,000

 

40,000

 

5,746

 

Deferred tax assets

 

8,467

 

7,289

 

1,047

 

Other non-current assets

 

23,915

 

7,255

 

1,042

 

Total non-current assets

 

449,991

 

642,105

 

92,233

 

Total assets

 

2,879,284

 

4,372,125

 

628,016

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Short-term bank borrowings (including short-term bank borrowings of consolidated VIE without recourse to the Company of RMB395,000 and RMB490,000 as of December 31, 2018 and 2019, respectively. Note 1)

 

395,000

 

490,000

 

70,384

 

Accounts payable (including accounts payable of consolidated VIE without recourse to the Company of RMB1,107,836 and RMB1,897,219, as of December 31, 2018 and 2019, respectively. Note 1)

 

1,128,248

 

1,897,611

 

272,575

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

F-3


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Fangdd Network Group Ltd.

CONSOLIDATED BALANCE SHEETS (Continued)

(All amounts in thousands, except for share and per share data)

 

 

 

As of December 31,

 

 

 

2018

 

2019

 

 

 

RMB

 

RMB

 

US$

 

 

 

 

 

 

 

Unaudited 
(Note 2(e))

 

Customers’ refundable fees (including customers’ refundable fees of consolidated VIE without recourse to the Company of RMB41,697 and RMB44,916 as of December 31, 2018 and 2019, respectively. Note 1)

 

41,697

 

44,916

 

6,452

 

Accrued expenses and other payables (including accrued expenses and other payables of consolidated VIE without recourse to the Company of RMB392,251 and RMB283,749 as of December 31, 2018 and 2019, respectively. Note 1)

 

425,470

 

338,626

 

48,641

 

Income tax payables (including income tax payables of consolidated VIE without recourse to the Company of RMB297 and RMB7 as of December 31, 2018 and 2019, respectively. Note 1)

 

369

 

7

 

1

 

Total current liabilities

 

1,990,784

 

2,771,160

 

398,053

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Income tax payables (including income tax payables of consolidated VIE without recourse to the Company of RMB11,916 and RMB11,061 as of December 31, 2018 and 2019, respectively. Note 1)

 

12,646

 

11,910

 

1,711

 

Total non-current liabilities

 

12,646

 

11,910

 

1,711

 

 

 

 

 

 

 

 

 

Total liabilities

 

2,003,430

 

2,783,070

 

399,764

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 19)

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

F-4


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Fangdd Network Group Ltd.

CONSOLIDATED BALANCE SHEETS (Continued)

(All amounts in thousands, except for share and per share data)

 

 

 

As of December 31,

 

 

 

2018

 

2019

 

 

 

RMB

 

RMB

 

US$

 

 

 

 

 

 

 

Unaudited
(Note 2(e))

 

Mezzanine equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A-2 Redeemable Convertible Preferred Shares (US$0.0000001 par value, 148,147,900 shares authorized, issued and outstanding as of December 31, 2018, Redemption value of RMB102,743 and Liquidation value of RMB1,327,471 as of December 31, 2018)

 

102,743

 

 

 

 

 

 

 

 

 

 

 

Series B Redeemable Convertible Preferred Shares (US$0.0000001 par value, 177,834,496 shares authorized, issued and outstanding as of December 31, 2018, Redemption value of RMB463,266 and Liquidation value of RMB1,818,209 as of December 31, 2018)

 

446,889

 

 

 

 

 

 

 

 

 

 

 

Series C Redeemable Convertible Preferred Shares (US$0.0000001 par value, 286,959,017 shares authorized, issued and outstanding as of December 31, 2018 , Redemption value of RMB2,295,740 and Liquidation value of RMB3,950,470 as of December 31, 2018)

 

2,193,512

 

 

 

Total mezzanine equity

 

2,743,144

 

 

 

 

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Fangdd Network Group Ltd.

CONSOLIDATED BALANCE SHEETS (Continued)

(All amounts in thousands, except for share and per share data)

 

 

 

As of December 31,

 

 

 

2018

 

2019

 

 

 

RMB

 

RMB

 

US$

 

 

 

 

 

 

 

Unaudited
(Note 2(e))

 

(Deficit) Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares (US$0.0000001 par value, 2,275,948,587 shares authorized, 945,712,030 shares issued and outstanding as of December 31, 2018)

 

 

 

 

Class A Ordinary shares (US$0.0000001 par value, 5,000,000,000 shares authorized including Class A and Class B ordinary shares, 1,203,322,178 shares issued and outstanding as of December 31, 2019)

 

 

1

 

 

Class B Ordinary shares (US$0.0000001 par value, 5,000,000,000 shares authorized including Class A and Class B ordinary shares, 619,938,058 shares issued and outstanding as of December 31, 2019)

 

 

 

 

Series A-1 Convertible Preferred Shares (US$0.0000001 par value, 102,102,318 shares authorized, issued and outstanding as of December 31, 2018)

 

5,513

 

 

 

Additional paid-in capital

 

55,052

 

4,880,135

 

700,988

 

Accumulated other comprehensive loss

 

(274,540

)

(368,897

)

(52,989

)

Accumulated deficit

 

(1,653,315

)

(2,922,184

)

(419,747

)

Total (deficit) equity

 

(1,867,290

)

1,589,055

 

228,252

 

 

 

 

 

 

 

 

 

Total liabilities, mezzanine equity and (deficit) equity

 

2,879,284

 

4,372,125

 

628,016

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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Fangdd Network Group Ltd.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(All amounts in thousands, except for share and per share data)

 

 

 

For the Year Ended December 31,

 

 

 

2017

 

2018

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

US$

 

 

 

 

 

 

 

 

 

Unaudited
(Note 2(e))

 

Revenue

 

1,798,521

 

2,282,216

 

3,599,436

 

517,027

 

Cost of revenue

 

(1,416,933

)

(1,805,588

)

(2,842,394

)

(408,284

)

Gross profit

 

381,588

 

476,628

 

757,042

 

108,743

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing expenses

 

(38,461

)

(59,099

)

(48,395

)

(6,952

)

Product development expenses

 

(191,662

)

(202,877

)

(724,983

)

(104,137

)

General and administrative expenses

 

(156,329

)

(145,277

)

(520,421

)

(74,754

)

Total operating expenses

 

(386,452

)

(407,253

)

(1,293,799

)

(185,843

)

(Loss) Income from operations

 

(4,864

)

69,375

 

(536,757

)

(77,100

)

 

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(13,034

)

(1,118

)

(8,719

)

(1,252

)

Foreign currency exchange (loss) gain, net

 

(787

)

684

 

237

 

34

 

Gain on short-term investments

 

3,255

 

5,512

 

2,771

 

398

 

Impairment loss for long-term equity investment

 

 

 

(16,000

)

(2,298

)

Government grants

 

12,402

 

8,792

 

22,351

 

3,211

 

Other income, net

 

3,141

 

5,648

 

7,724

 

1,110

 

Share of profit from equity method investees, net of income tax

 

2,902

 

19,566

 

21,772

 

3,127

 

Income (loss) before income tax

 

3,015

 

108,459

 

(506,621

)

(72,770

)

Income tax expense

 

(2,366

)

(4,433

)

(3,766

)

(541

)

Net income (loss)

 

649

 

104,026

 

(510,387

)

(73,311

)

Accretion of Redeemable Convertible Preferred Shares

 

(228,468

)

(248,186

)

(116,308

)

(16,707

)

Deemed dividend to preferred shareholder

 

 

 

(642,174

)

(92,243

)

Net loss attributable to ordinary shareholders

 

(227,819

)

(144,160

)

(1,268,869

)

(182,261

)

 

F-7


Table of Contents

 

Fangdd Network Group Ltd.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Continued)

(All amounts in thousands, except for share and per share data)

 

 

 

For the Year Ended December 31,

 

 

 

2017

 

2018

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

US$

 

 

 

 

 

 

 

 

 

Unaudited
 (Note 2(e))

 

Net income (loss)

 

649

 

104,026

 

(510,387

)

(73,311

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

110,667

 

(119,487

)

(94,357

)

(13,554

)

Total comprehensive income (loss), net of tax

 

111,316

 

(15,461

)

(604,744

)

(86,865

)

Net loss per share attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

- Basic and diluted

 

(0.24

)

(0.15

)

(1.17

)

(0.17

)

 

 

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares outstanding used in computing net loss per share

 

 

 

 

 

 

 

 

 

- Basic and diluted

 

945,712,030

 

945,712,030

 

1,087,910,999

 

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

F-8


Table of Contents

 

Fangdd Network Group Ltd.

CONSOLIDATED STATEMENTS OF CHANGES IN (DEFICIT) EQUITY

(All amounts in thousands, except for share and per share data)

 

 

 

Ordinary
shares

 

Series A-1 Convertible
Preferred Shares

 

Additional
paid-in
capital

 

Accumulated
other
comprehensive
(loss) income

 

Accumulated
deficit

 

Total (deficit)
equity

 

 

 

Shares

 

RMB

 

Shares

 

RMB

 

RMB

 

RMB

 

RMB

 

RMB

 

Balance as of January 1, 2017

 

945,712,030

 

 

102,102,318

 

5,513

 

55,052

 

(265,720

)

(1,281,336

)

(1,486,491

)

Net income for the year

 

 

 

 

 

 

 

649

 

649

 

Redeemable Convertible Preferred Shares redemption value accretion

 

 

 

 

 

 

 

(228,468

)

(228,468

)

Foreign currency translation adjustments, net of nil tax

 

 

 

 

 

 

110,667

 

 

110,667

 

Balance as of December 31, 2017

 

945,712,030

 

 

102,102,318

 

5,513

 

55,052

 

(155,053

)

(1,509,155

)

(1,603,643

)

Net income for the year

 

 

 

 

 

 

 

104,026

 

104,026

 

Redeemable Convertible Preferred Shares redemption value accretion

 

 

 

 

 

 

 

(248,186

)

(248,186

)

Foreign currency translation adjustments, net of nil tax

 

 

 

 

 

 

(119,487

)

 

(119,487

)

Balance as of December 31, 2018

 

945,712,030

 

 

102,102,318

 

5,513

 

55,052

 

(274,540

)

(1,653,315

)

(1,867,290

)

 

F-9


Table of Contents

 

Fangdd Network Group Ltd.

CONSOLIDATED STATEMENTS OF CHANGES IN (DEFICIT) EQUITY (Continued)

(All amounts in thousands, except for share and per share data)

 

 

 

Ordinary shares

 

Class A Ordinary
shares

 

Class B Ordinary
shares

 

Series A-1 Convertible
Preferred Shares

 

Additional
paid-in
capital

 

Accumulated
other
comprehensive
(loss) income

 

Accumulated
deficit

 

Total
(deficit)
equity

 

 

 

Shares

 

RMB

 

Shares

 

RMB

 

Shares

 

RMB

 

Shares

 

RMB

 

RMB

 

RMB

 

RMB

 

RMB

 

Balance as of December 31, 2018

 

945,712,030

 

 

 

 

 

 

102,102,318

 

5,513

 

55,052

 

(274,540

)

(1,653,315

)

(1,867,290

)

Net loss for the year

 

 

 

 

 

 

 

 

 

 

 

 

(510,387

)

(510,387

)

Redeemable Convertible Preferred Shares redemption value accretion

 

 

 

 

 

 

 

 

 

 

 

(116,308

)

(116,308

)

Deemed dividend to preferred shareholder

 

 

 

 

 

 

 

 

 

642,174

 

 

(642,174

)

 

Foreign currency translation adjustments, net of nil tax

 

 

 

 

 

 

 

 

 

 

 

(94,357

)

 

(94,357

)

Re-designating ordinary shares to Class B ordinary shares

 

(619,938,058

)

 

 

 

619,938,058

 

 

 

 

 

 

 

 

Re-designating ordinary shares to Class A ordinary shares

 

(325,773,972

)

 

325,773,972

 

 

 

 

 

 

 

 

 

 

Conversion of Series A-1 Preferred Shares to Class A ordinary shares

 

 

 

102,102,318

 

 

 

 

(102,102,318

)

(5,513

)

5,513

 

 

 

 

Conversion of Series A-2, B and C Redeemable Convertible Preferred Shares to Class A ordinary shares

 

 

 

612,941,413

 

1

 

 

 

 

 

2,933,087

 

 

 

2,933,088

 

Issuance of Class A ordinary shares upon initial public offering (“IPO”), net of offering cost

 

 

 

162,504,475

 

 

 

 

 

 

498,436

 

 

 

498,436

 

Share-based compensation

 

 

 

 

 

 

 

 

 

745,873

 

 

 

745,873

 

Balance as of December 31, 2019

 

 

 

1,203,322,178

 

1

 

619,938,058

 

 

 

 

4,880,135

 

(368,897

)

(2,922,184

)

1,589,055

 

US$ Unaudited (Note 2(e))

 

 

 

 

 

 

 

 

 

 

 

 

 

700,988

 

(52,989

)

(419,747

)

228,252

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

F-10


Table of Contents

 

Fangdd Network Group Ltd.

CONSOLIDATED STATEMENTS OF CASHFLOWS

(All amounts in thousands, except for share and per share data)

 

 

 

For the Year Ended December 31,

 

 

 

2017

 

2018

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

US$

 

 

 

 

 

 

 

 

 

Unaudited
(Note 2(e))

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

649

 

104,026

 

(510,387

)

(73,311

)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

30,440

 

14,254

 

4,842

 

696

 

Share-based compensation expenses

 

 

 

745,873

 

107,138

 

Gain on short-term investments

 

(3,255

)

(5,512

)

(2,771

)

(398

)

Impairment loss for long-term equity investment

 

 

 

16,000

 

2,298

 

Share of profit from equity method investments, net of income tax

 

(2,902

)

(19,566

)

(21,772

)

(3,127

)

Other income, net

 

 

(493

)

(8,321

)

(919

)

Dividend received from equity method investments

 

2,779

 

127

 

9,602

 

1,379

 

Allowances for doubtful accounts

 

10,715

 

42,337

 

58,981

 

8,472

 

Loss on disposal of property and equipment

 

698

 

831

 

439

 

63

 

Foreign currency exchange loss (gain)

 

787

 

(684

)

(237

)

(34

)

Deferred income tax benefit

 

(911

)

(2,107

)

1,178

 

169

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(641,518

)

(564,317

)

(893,223

)

(128,303

)

Deposits with real estate developers

 

(394,498

)

397,868

 

 

 

Prepayments and other assets

 

(14,664

)

(19,063

)

29,846

 

4,287

 

Accounts payable

 

338,364

 

534,779

 

769,363

 

110,512

 

Customers’ refundable fees

 

(17,747

)

(17,181

)

3,219

 

462

 

Accrued expenses and other payables

 

13,135

 

(344,494

)

(84,943

)

(12,201

)

Income tax payables

 

3,502

 

8,673

 

822

 

(158

)

Net cash (used in) provided by operating activities

 

(674,426

)

129,478

 

118,511

 

17,025

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

F-11


Table of Contents

 

Fangdd Network Group Ltd.

CONSOLIDATED STATEMENTS OF CASHFLOWS (Continued)

(All amounts in thousands, except for share and per share data)

 

 

 

For the Year Ended December 31,

 

 

 

2017

 

2018

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

US$

 

 

 

 

 

 

 

 

 

Unaudited
(Note 2(e))

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchase of property, equipment and software

 

(4,628

)

(8,442

)

(1,695

)

(243

)

Proceeds from disposal of property, equipment and software

 

 

 

3,566

 

512

 

Investment in equity method investments

 

(63,000

)

(404,204

)

(579,492

)

(83,239

)

Investment in long-term equity investment

 

 

(56,000

)

 

 

Return of capital from equity method investees

 

17,500

 

148,858

 

358,558

 

51,504

 

Proceeds from disposal of an equity method investment

 

 

3,400

 

4,500

 

646

 

Cash paid for short-term investments

 

(756,000

)

(1,267,483

)

(456,167

)

(65,524

)

Proceeds from disposal of short-term investments

 

1,018,255

 

1,234,012

 

518,921

 

74,538

 

Net cash provided by (used in) investing activities

 

212,127

 

(349,859

)

(151,809

)

(21,806

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from initial public offering, net of offering cost

 

 

 

498,436

 

71,596

 

Cash proceeds from short-term bank borrowings

 

663,100

 

415,000

 

540,030

 

77,570

 

Repayment for short-term bank borrowings

 

 

(683,100

)

(445,030

)

(63,925

)

Net cash provided by (used in) financing activities

 

663,100

 

(268,100

)

593,436

 

85,241

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(40,020

)

19,076

 

(20,484

)

(2,944

)

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

160,781

 

(469,405

)

539,654

 

77,516

 

Cash, cash equivalents and restricted cash at the beginning of the year

 

1,102,842

 

1,263,623

 

794,218

 

114,082

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash at the end of the year

 

1,263,623

 

794,218

 

1,333,872

 

191,598

 

 

 

 

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

 

 

 

 

Interest paid

 

(14,527

)

(17,214

)

(18,411

)

(2,645

)

Income tax paid

 

(298

)

(729

)

(1,717

)

(247

)

Disposal of a subsidiary with net liability

 

 

 

(1,900

)

(273

)

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

F-12


Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data)

 

1.         Organization and principal activities

 

Fangdd Network Group Ltd. (the “Company”) was incorporated in the Cayman Islands on September 19, 2013 as an exempted company with limited liability under the Companies Law (2011 Revision) (as consolidated and revised) of the Cayman Islands. The registered office of the Company is at the offices of Appleby Trust (Cayman) Ltd., Clifton House, 75 Fort Street, P.O. Box 1350, Grand Cayman KY1-1108, Cayman Islands.

 

The Company is an investment holding company. The Company, through its consolidated subsidiaries, variables interest entity and variables interest entity’s subsidiaries (together, “the Group”) is principally engaged in the provision of real estate information services through its online platform which also offers integrated marketing services for individual customers, real estate developers and agents in the People’s Republic of China (the “PRC”).

 

The accompanying Consolidated Financial Statements include the financial statements of the Company, its subsidiaries, variable interest entity (“VIE”) and the VIE’s subsidiaries.

 

Variable interest entity

 

The Group conducts the business in the PRC through Shenzhen Fangdd Network Technology Co. Ltd. (“Shenzhen Fangdd”), a limited liability company established under the laws of the PRC on October 10, 2011. Shenzhen Fangdd holds the necessary PRC operating licenses for the real estate agency and online business. The equity interests of Shenzhen Fangdd are legally held by individuals who act as nominee equity holders of Shenzhen Fangdd on behalf of Shenzhen Fangdd Information Technology Co. Ltd. (“Fangdd Information”). Shenzhen Fangdd entered into a series of contractual agreements with its legal shareholders and Fangdd Information, including the Business Operation Agreement, Powers of Attorney, Equity Interest Pledge Agreements, Exclusive Option Agreements, Operation Maintenance Service Agreement and Technology Development and Application Service Agreement (collectively, the “Shenzhen Fangdd VIE Agreements”) in March 2014 and were subsequently amended in 2017 to reflect the registration of the Equity Interest Pledge Agreements with the relevant registration authority and amended when certain nominee equity holders transferred their nominal shareholdings in Shenzhen Fangdd to other nominee equity holders.

 

Pursuant to the Shenzhen Fangdd VIE Agreements, the Group, through Fangdd Information, is able to exercise effective control over, bears the risks of, enjoys substantially all of the economic benefits of Shenzhen Fangdd, and has an exclusive option to purchase all or part of the equity interests in Shenzhen Fangdd when and to the extent permitted by PRC law at a nominal price. The Company’s management concluded that Shenzhen Fangdd is a consolidated VIE of the Group and Fangdd Information is the primary beneficiary of Shenzhen Fangdd. As such, the financial results of Shenzhen Fangdd and its subsidiaries are included in the Consolidated Financial Statements of the Company.

 

F-13


Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

The principal terms of the agreements entered into among Shenzhen Fangdd, the nominee equity holders and Fangdd Information are further described below.

 

·             Business Operation Agreement

 

Fangdd Information, Shenzhen Fangdd and Shenzhen Fangdd’s shareholders have entered into a business operation agreement, pursuant to which Shenzhen Fangdd and its shareholders undertake not to enter into any transactions that may have material effects on the Shenzhen Fangdd’s assets, obligations, rights or business operations without Fangdd Information’s prior written consent.

 

Additionally, Shenzhen Fangdd’s shareholders undertake that, without the Fangdd Information’s prior written consent, they shall not (a) sell, transfer, pledge or otherwise dispose of any rights associated with their equity interests in Shenzhen Fangdd, (b) approve any merger or acquisition of Shenzhen Fangdd, (c) take any actions that may have a material adverse effect on Shenzhen Fangdd’s assets, businesses and liabilities, or sell, transfer, pledge or otherwise dispose or impose other encumbrances of any assets, businesses or income of Shenzhen Fangdd, (d) request Shenzhen Fangdd to declare dividend or make other distribution, (e) amend Shenzhen Fangdd’s articles of association, (f) increase, decrease or otherwise change Shenzhen Fangdd’s registered capital. Fangdd Information may request Shenzhen Fangdd to transfer at any time all the intellectual property rights held by Shenzhen Fangdd to Fangdd Information or any person designated by Fangdd Information. Shenzhen Fangdd and certain of its shareholders, including Yi Duan, Jiancheng Li and Xi Zeng, shall be jointly and severally responsible for the performance of their obligations under this agreement. This agreement has a term of ten years, which may be extended upon Fangdd Information’s unilateral written confirmation prior to the expiry. Shenzhen Fangdd has no right of transfer without Fangdd information’s written confirmation or right of early termination while Fangdd Information may unilaterally transfer its rights and obligations under this agreement to third parties at any time through written notification and may early terminate this agreement via a 30-day prior written notice.

 

·             Powers of Attorney

 

Each of the shareholders of Shenzhen Fangdd has issued a power of attorney, irrevocably appointing Mr. Jiancheng Li, a director of Fangdd Information, as such shareholder’s attorney-in-fact to exercise all shareholder rights, including, but not limited to, the right to call shareholders’ meeting, the right to vote on all matters of Shenzhen Fangdd that require shareholders’ approval, and the right to dispose of all or part of the shareholder’s equity interest in Shenzhen Fangdd, on behalf of such shareholder. The foregoing authorization is conditioned upon Mr. Jiancheng Li’s continuing directorship at Fangdd Information and Fangdd Information’s written consent to such authorization. In the event that Mr. Jiancheng Li ceases to serve as a director of Fangdd Information or that Fangdd Information requests the shareholders to terminate the authorization in writing, the power of attorney will terminate immediately and the shareholder shall then appoint any person designated by Fangdd Information as his or her attorney-in-fact to exercise all shareholder rights. Other than the foregoing circumstances, the power of attorney will remain in force until the termination of the business operation agreement and during its effective term, shall not be amended or terminated without consent of Fangdd Information.

 

F-14


Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

·             Equity Interest Pledge Agreements

 

Each of the shareholders of Shenzhen Fangdd has entered into an equity interest pledge agreement with Fangdd Information and Shenzhen Fangdd, pursuant to which, the shareholders have pledged all of his or her equity interest in Shenzhen Fangdd to Fangdd Information to guarantee the performance by Shenzhen Fangdd and its shareholders of their obligations under the main contracts, which include technology development and application service agreement, the operation maintenance service agreement, the business operation agreement and the exclusive option agreements. Each shareholder of Shenzhen Fangdd agrees that, during the term of the equity interest pledge agreement, he or she will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests without the prior written consent of Fangdd Information. The equity interest pledge agreements remain effective until Shenzhen Fangdd and its shareholders discharge all of their obligations under the main contracts. The Company has registered the equity pledge with the local branches of the Administration for Industry and Commerce in accordance with the PRC Property Rights Law.

 

·             Exclusive Option Agreements

 

Fangdd Information, Shenzhen Fangdd and each of the Shenzhen Fangdd’s shareholders have entered into an exclusive option agreement, pursuant to which each of the Shenzhen Fangdd’s shareholders has irrevocably granted Fangdd Information an exclusive option, to the extent permitted by PRC law, to purchase, or have its designated person or persons to purchase, at its discretion all or part of the shareholder’s equity interests in Shenzhen Fangdd or all or part of Shenzhen Fangdd’s assets. The purchase price shall be a nominal price unless where PRC laws and regulations require valuation of the equity interests or the assets, or promulgates other restrictions on the purchase price, or otherwise prohibits purchasing the equity interests or the assets at a nominal price. If the PRC laws and regulations prohibit purchasing the equity interests or the assets at a nominal price, the purchase price shall be equal to the original investment of the equity interests made by such shareholders or the book value of the assets. Where PRC laws and regulations require valuation of the equity interests or the assets or promulgates other restrictions on the purchase price, the purchase price shall be the minimum price permitted under PRC laws and regulations. However, if the minimum price permitted under PRC laws and regulations exceed the original investment of the equity interests or the book value of the assets, Shenzhen Fangdd’s shareholders shall reimburse Fangdd Information the exceeded amount after deducting all taxes and fees paid under PRC laws and regulations. The shareholders of Shenzhen Fangdd undertake, among other things, that they shall not take any actions that may have material effects on Shenzhen Fangdd’s assets, businesses and liabilities, nor shall they appoint or replace any directors, supervisors and officers of Shenzhen Fangdd without Fangdd Information’s prior written consent. These agreements have terms of ten years, which may be extended upon Fangdd Information’s written confirmation prior to the expiry.

 

·             Operation Maintenance Service Agreement

 

Fangdd Information and Shenzhen Fangdd have entered into an operation maintenance service agreement, pursuant to which Fangdd Information has the exclusive right to provide Shenzhen Fangdd with operation maintenance services and marketing services. Without Fangdd Information’s written consent, Shenzhen Fangdd shall not engage any third party to provide the services covered by this agreement. Shenzhen Fangdd agrees to pay service fees on an annual basis and at an amount determined by Fangdd Information after taking into account factors such as the labor cost, facility cost and marketing expenses incurred by Fangdd Information in providing the services. Unless otherwise agreed by both parties, this agreement will remain effective until Fangdd Information ceases business operations.

 

·             Technology Development and Application Service Agreement

 

Fangdd Information and Shenzhen Fangdd have entered into a technology development and application service agreement, pursuant to which, Fangdd Information has the exclusive right to provide Shenzhen Fangdd with technology development and application services. Without Fangdd Information’s written consent, Shenzhen Fangdd shall not accept any technology development and application services covered by this agreement from any third party. Shenzhen Fangdd agrees to pay service fees on an annual basis and at an amount determined by Fangdd Information after taking into account multiple factors, such as the labor and time consumed for provision of the service, the type and complexity of the services provided, the difficulties in providing the service, the commercial value of services provided and the market price of comparable services. Unless otherwise agreed by the parties, this agreement will remain effective until Fangdd Information ceases business operations.

 

F-15


Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

Risks in relation to Shenzhen Fangdd structure

 

In the opinion of the Company’s management, the contractual arrangements have resulted in Fangdd Information having the power to direct activities that most significantly impact Shenzhen Fangdd and Shenzhen Fangdd’s subsidiaries, including appointing key management, setting up operating policies, exerting financial controls and transferring profit or assets out of Shenzhen Fangdd and Shenzhen Fangdd’s subsidiaries at its discretion. Fangdd Information considers that it has the right to receive all the benefits and assets of Shenzhen Fangdd and Shenzhen Fangdd’ subsidiaries. As Shenzhen Fangdd and Shenzhen Fangdd’s subsidiaries were established as limited liability companies under the PRC law, their creditors do not have recourse to the general credit of Fangdd Information for the liabilities of Shenzhen Fangdd and VIE’s subsidiaries, and Fangdd Information does not have the obligation to assume the liabilities of Shenzhen Fangdd and VIE’ subsidiaries.

 

The Group has determined that Shenzhen Fangdd VIE Agreements are in compliance with PRC laws and are legally enforceable. However, uncertainties in the PRC legal system could limit the Group’s ability to enforce Shenzhen Fangdd VIE Agreements.

 

If the PRC government finds that these contractual arrangements do not comply with its restrictions on foreign investment in the internet business, or if the PRC government otherwise finds that the Group, the VIE, or any of its subsidiaries is in violation of PRC laws or regulations or lack the necessary permits or licenses to operate the business, the relevant PRC regulatory authorities, including but not limited to the Ministry of Industry and Information Technology of the People’s Republic China (“MIIT”), which regulates internet information service companies, would have broad discretion in dealing with such violations, including:

 

·      revoking the business and operating licenses;

 

· discontinuing or restricting the operations;

 

· imposing fines or confiscating any of the income that they deem to have been obtained through illegal operations;

 

· imposing conditions or requirements with which the Group or the PRC subsidiaries and affiliates may not be able to comply;

 

· requiring the Company or the PRC subsidiaries and affiliates to restructure the relevant ownership structure or operations;

 

· placing restrictions on the right to collect revenues;

 

· restricting or prohibiting the use of the proceeds from this offering to finance the business and operations of the VIE; and

 

· taking other regulatory or enforcement actions that could be harmful to the business.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

The imposition of any of these penalties could have a material and adverse effect on the business, financial condition and results of operations. If any of these penalties results in the inability to direct the activities of the VIE that most significantly impact its economic performance, and/or failure to receive the economic benefits from the VIE, the Group may not be able to consolidate the financial results of the VIE and its subsidiaries in Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles.

 

There is no VIE in which the Group has a variable interest but is not the primary beneficiary. Currently there is no contractual arrangement that could require the Group to provide additional financial support to Shenzhen Fangdd.

 

The following consolidated assets and liabilities information of the Group’s VIE and VIE’s subsidiaries as of December 31, 2018 and 2019, and consolidated operating results and cash flows information for the years ended December 31, 2017, 2018 and 2019, have been included in the accompanying Consolidated Financial Statements:

 

F-17


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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

 

 

As of December 31,

 

 

 

2018

 

2019

 

 

 

RMB

 

RMB

 

 

 

 

 

 

 

Cash and cash equivalents

 

415,456

 

645,332

 

Restricted cash

 

4,727

 

957

 

Short-term investments

 

21,600

 

11,500

 

Accounts receivable, net

 

1,352,596

 

2,189,980

 

Amount due from related parties*

 

1,794

 

3,095

 

Prepayments and other current assets

 

210,764

 

194,423

 

Total current assets

 

2,006,937

 

3,045,287

 

 

 

 

 

 

 

Property, equipment and software, net

 

15,450

 

8,298

 

Equity method investments

 

341,825

 

574,930

 

Long-term equity investment

 

56,000

 

40,000

 

Deferred tax assets

 

8,467

 

7,289

 

Other non-current assets

 

23,915

 

7,255

 

Total non-current assets

 

445,657

 

637,772

 

 

 

 

 

 

 

Total assets

 

2,452,594

 

3,683,059

 

 

 

 

 

 

 

Short-term bank borrowings

 

395,000

 

490,000

 

Accounts payable

 

1,107,836

 

1,897,219

 

Customers’ refundable fees

 

41,697

 

44,916

 

Amounts due to related parties*

 

285,621

 

278,487

 

Accrued expenses and other payables

 

392,251

 

283,749

 

Income tax payables

 

297

 

7

 

Total current liabilities

 

2,222,702

 

2,994,378

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Income tax payables

 

11,916

 

11,061

 

Long-term loan from a related party**

 

300,000

 

534,000

 

Total non-current liabilities

 

311,916

 

545,061

 

 

 

 

 

 

 

Total liabilities

 

2,534,618

 

3,539,439

 

 


*                 Amounts due from and to related parties represent the amounts due from and to Shanghai Fangdd Information Technology Co., Ltd., Shanghai Fangdd Software Technology Co., Ltd. and its subsidiaries, which are eliminated upon consolidation.

**          Long-term loan from a related party represents entrusted loan with a 3-year term at annual interest rate of 0.5%, which was borrowed by Shenzhen Fangdd during the year of 2018 and 2019 from Fangdd Information via Bank of China in Shenzhen, which are eliminated upon consolidation.

 

F-18


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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

 

 

For the Year Ended December 31,

 

 

 

2017

 

2018

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

 

 

 

 

 

 

 

 

Total revenue

 

1,798,521

 

2,282,216

 

3,599,436

 

Net income (loss)

 

6,237

 

107,511

 

(520,230

)

Net cash (used in) provided by operating activities

 

(663,005

)

116,937

 

103,298

 

Net cash provided by (used in) investing activities

 

214,872

 

(303,375

)

(206,192

)

Net cash provided by financing activities

 

663,100

 

31,900

 

329,000

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

214,967

 

(154,538

)

226,106

 

Cash, cash equivalents and restricted cash at the beginning of the year

 

359,754

 

574,721

 

420,183

 

Cash, cash equivalents and restricted cash at the end of the year

 

574,721

 

420,183

 

646,289

 

 

2.         Summary of Significant Accounting Policies

 

(a)         Basis of presentation

 

The Consolidated Financial Statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America (‘‘U.S. GAAP’’).

 

The accompanying Consolidated Financial Statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Group’s ability to operate profitably, to generate cash flows from operations, and its ability to attract investors and to borrow funds on reasonable economic terms.

 

Historically, the Group has relied principally on both operational sources of cash and non-operational sources of equity and debt financing to fund its operations and business development. In addition, the Group can adjust the pace of its operation expansion and control the operating expenses of the Group. The management believes the Group will have sufficient cash resources from operations and financing support from investors to fund its continuing operation. Therefore, the Group’s Consolidated Financial Statements have been prepared on a going concern basis.

 

(b)         Principles of Consolidation

 

The accompanying Consolidated Financial Statements include the results of the Company, its subsidiaries, VIE and VIE’s subsidiaries.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

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, exercises effective control over the activities that most impact the economic performance, 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 intercompany transactions and balances among the Company, its subsidiaries, VIE and VIE’s subsidiaries have been eliminated upon consolidation.

 

(c)          Use of Estimates

 

The preparation of the Consolidated Financial Statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenues and expenses during the reported period in the Consolidated Financial Statements and accompanying notes. Significant accounting estimates include, but not limited to, allowance for accounts and loans receivable, realization of deferred income tax assets, impairment loss for long-term equity investment and share-based compensation. Actual results may differ materially from those estimates.

 

(d)         Foreign Currency

 

The Group’s reporting currency is Renminbi (‘‘RMB’’). The functional currency of the Company and the Group’s entities incorporated in the Cayman Island, British Virgin Islands (‘‘BVI’’), and Hong Kong (‘‘HK’’) is the United States dollars (‘‘US$’’). The functional currency of the Group’s PRC subsidiaries, VIE and VIE’s subsidiaries is RMB.

 

Transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in a foreign currency are remeasured into the functional currency using the applicable exchange rate at the balance sheet date. The resulting exchange differences are recorded as foreign currency exchange (gain) losses in the Consolidated Statements of Comprehensive Income (Loss). Total foreign currency exchange differences were a loss of RMB787, a gain of RMB684 and a gain of RMB237 for the years ended December 31, 2017, 2018 and 2019, respectively.

 

The financial statements of the Company and the Group’s entities incorporated at Cayman Island, BVI and Hong Kong are translated from the functional currency into RMB. Assets and liabilities are translated into RMB using the applicable exchange rates at the balance sheet date. Equity accounts other than earnings (deficit) generated in the current period are translated into RMB using the appropriate historical rates. Revenues, expenses, gains and losses are translated into RMB using the average exchange rates for the relevant period. The resulted foreign currency translation adjustments are recorded as a component of other comprehensive income or losses in the Consolidated Statements of Comprehensive Income (Loss), and the accumulated foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income or losses in the Consolidated Statements of Changes in (Deficit) Equity.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

(e)          Convenience Translation

 

Translations of certain balances in accompanying Consolidated Financial Statements from RMB into US$ as of and for the year ended December 31, 2019 are solely for the convenience of the readers and were calculated at the rate of US$1.00=RMB 6.9618, representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2019. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2019, or at any other rate. The US$ convenience translation is not required under U.S. GAAP and all US$ convenience translation amounts in the accompanying Consolidated Financial Statements are unaudited.

 

(f)                Commitments and Contingencies

 

In the normal course of business, the Group is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, and non-income tax matters. An accrual for a loss contingency is recognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.

 

(g)              Cash and Cash Equivalents

 

Cash and cash equivalents represent demand deposits 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.

 

(h)              Restricted cash

 

Restricted cash represents:

 

(i)                 cash deposited with banks of RMB345,905 and RMB229,268 as of December 31, 2018 and 2019, as collateral for borrowings from the banks (note 10). Restriction on the use of such cash and the interest earned thereon is imposed by the banks and remains effective throughout the term of the bank borrowings. Upon repayment of the bank borrowings, the bank deposits are available for general use by the Group.

 

(ii)              bank balances of RMB4,727 and RMB301 as of December 31, 2018 and 2019, respectively, held on behalf of home purchasers in respect of their down payments made for secondary property transactions of which legal title transfer from property sellers had not yet been completed. A corresponding liability with the same amount were recorded as down payments collected on behalf of secondary property sellers in accrued expenses and other payables.

 

F-21


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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

(iii)           bank balance of RMB 556 as of December 31, 2019 was frozen for a lawsuit undergoing with a supplier that a corresponding liability with the same amount were accrued.

 

Cash deposits restricted for use over one year after the balance sheet date are classified as non-current assets in the Consolidated Balance Sheets.

 

(i)                 Short-term investments

 

Short-term investments include investments in wealth management products issued by certain banks which are redeemable by the Company at any time. The wealth management products are either unsecured with variable interest rates or fixed interest rate. The Company measures the short-term investments at fair value using the quoted subscription or redemption prices published by these banks, with unrealized holding gains or losses, net of the related tax effect, excluded from earnings and recorded as a separate component of accumulated other comprehensive income (loss) until realized. Realized gains or losses from the sale of short-term investments are determined on a specific identification basis and are recorded as gain on short-term investments when earned in the Consolidated Statements of Comprehensive Income (Loss).

 

(j)                 Accounts Receivable

 

Accounts receivable mainly represent amounts due from the real estate developers for primary property business and individual customers for secondary property business upon the completion of their services. Accounts receivables are recorded net of an allowance for doubtful accounts, if any. The Group considers many factors in assessing the collectability of its accounts receivable, such as the age of the amounts due, the payment history, credit-worthiness and the financial condition of the debtor. An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable. The Group also makes a specific allowance if there is strong evidence indicating that an accounts receivable is likely to be unrecoverable. Accounts receivable are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Group does not have any off-balance-sheet credit exposure. Allowance of RMB 86,417 and RMB 142,256 was provided as of December 31, 2018 and 2019, respectively. Approximately 6% of the Group’s accounts receivable represent output VAT amounts, which are excluded from the Group’s revenues.

 

(k)              Loans receivable, net

 

Loans receivable represents loan originated or purchased by the Group (see note 6). The Group has the intent and the ability to hold such loans for the foreseeable future or until maturity or payoff. Loans receivable are recorded at unpaid principal balances, net of allowance for loan losses that reflects the Group’s best estimate of the amounts that will not be collected. The loans receivable portfolio consists of personal loans with term period ranging from 30 days to 5 years. In the Consolidated Balance Sheets, loans receivable that mature within the next twelve months from the balance sheet date are included in “Prepayment and other current assets” while loans receivable that will mature one year after the balance sheet date are included in “Other non-current assets”.

 

F-22


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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

The allowance for loan losses is determined at a level believed to be reasonable to absorb probable losses inherent in the portfolio as of each balance sheet date. The allowance is provided based on an assessment performed on a portfolio basis. All loans are assessed collectively depending on factors such as delinquency rate, size, and other risk characteristics of the portfolio.

 

The Group writes off loans receivable and the related allowance when management determines that full repayment of such loan is not probable. The primary factor in making such determination is the estimated recoverable amounts from the delinquent debtor.

 

As of December 31, 2018 and 2019, loan receivables of RMB30,728 and RMB54,194 were due from the Group’s employees respectively.

 

(l)                 Deposits with real estate developers

 

Certain property sales contracts entered with real estate developers provide the Group with exclusive selling rights for the selected properties for a specific period of time (the “Exclusive Sales Contracts”), which typically lasts for several months. Certain of these Exclusive Sales Contracts requires the Group or, in case of tri-party agreements (see note 12(3)), the Group’s equity method investees to purchase any unsold units of properties at the end of the exclusive sales period (the “Sales Commitment Arrangements”). Under the Sales Commitment Arrangements, the real estate developers either enter into project sales contracts with the Group directly (the “Self-Commitment Arrangements”) or enter into tri-party agreements with the Group and its equity method investees (the “Non-Group Commitment Arrangements”). The Group, or in case of tri-party agreements, its equity method investees is required to advance real estate developer an initial deposit prior to the commencement of the exclusive sales period. The amount of initial deposits required is generally determined at a percentage of the minimum transaction price, as pre-agreed with the real estate developer, of the properties (the “Base Transaction Price”) to be sold to home purchasers in the market during the exclusive sales period. The amount of deposits advanced by the Group, or its equity method investees are adjusted throughout the exclusive sales period based on an agreed schedule such that 100% of the Base Transaction Price for the unsold properties, if any, is advanced to the real estate developers at the end of the exclusive sales period. If all properties are sold during the exclusive sales period, any outstanding deposits are immediately returned to the Group, or its equity method investees.

 

F-23


Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

The Group believes its key management has sufficient knowledge and experience in the relevant real estate markets and has in place adequate process that guides its selection of projects, negotiation of terms and ongoing monitoring of risks.

 

Prior to entering into a Sales Commitment Arrangements, the Group would assess the marketability of the specified properties, the reasonableness of the Base Transaction Price and other relevant factors. The Group performs such assessment based on the results of its research activities and other factors such as the availability of agents’ resources and has determined that the probability of all properties under such arrangements not being sold within the exclusive sales period is low. The Group believes that the developers enter into such Sales Commitment Arrangement largely due to liquidity consideration in that it could shorten the cash payback period through the receipts of deposits under the arrangement. Also, such Sales Commitment Arrangement may provide higher return to the developer when the properties are sold at a price in excess of the Base Transaction price (see note 2(s)). Therefore, the Group determines that it is remote that the real estate developers will request the Group, or for Non-Group Commitment Arrangements, the Group’s equity method investees to purchase the unsold properties at the end of exclusive sales period. Management has concluded such assessment is supported by the historical experiences where developers agreed to an extended sales period for a few months in those limited instances where certain properties remained unsold at the end of exclusive sales period.

 

The Group began to enter into the above-mentioned Sales Commitment Arrangements in 2016. For the years ended December 31, 2017 and 2018, all properties under these arrangements were sold to the home buyers either within the exclusive sales period or during the extended sales period with all related deposits with the real estate developers being fully refunded. From 2018 onwards, the Group did not enter into any new property sales contracts with real estate developers under Self-Commitment Arrangements. Since then, all new property sales contracts with Sales Commitment Arrangement are entered with the property developers and equity method investees in tri-party agreements under the Non-Group Commitment Arrangements (see note 12(3)), pursuant to which the Group’s equity method investees, rather than the Group, are required to pay the deposits directly to the property developers and obliged to purchase any unsold units of properties at the end of exclusive sales period.

 

F-24


Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

The deposits made by the Group under the Self-Commitment Arrangement are recorded as deposits with real estate developers, net of allowance for doubtful accounts, under current assets on the Consolidated Balance Sheets. The Group assesses the recoverability of the deposits with real estate developers based on a combination of factors, including the contractual terms, the developers’ intention in entering into such arrangements as described above, the continuing assessment of the marketability of the properties during the exclusive sales period and the extended sales period, if any, historical experiences and negotiation results of developers’ action at the end of exclusive sales period, and the market price of similar properties. An allowance for doubtful accounts against the deposits is recorded when any portion of deposits is considered not recoverable.

 

(m)          Property, equipment and software , net

 

Property, equipment and software are stated at cost less accumulated depreciation, amortization and impairment. Property, equipment and software are depreciated and amortized at rates sufficient to write off their costs less impairment and residual value if any over their estimated useful lives on a straight-line basis. Leasehold improvements are depreciated on a straight-line basis over the period of the lease or their estimated useful lives, if shorter. The estimated useful lives are as follows:

 

Category

 

Estimated
useful lives

Buildings

 

20 years

Leasehold improvements

 

2-3 years

Furniture, office equipment

 

3-5 years

Motor vehicles

 

3-4 years

Software

 

2-10 years

 

Expenditures for repairs and maintenance are expensed as incurred, whereas the costs of renewals and betterment that extends the useful lives of property and equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the costs, accumulated depreciation and impairment with any resulting gain or loss recognized in the Consolidated Statements of Comprehensive Income (Loss).

 

(n)              Equity method investments

 

The Group accounts for an equity method investment over which it has significant influence but does not own a majority of the equity interest or otherwise controls and the investments are either common stock or in substance common stock using the equity method. The Group’s share of the investee’s profit and loss is recognized in the Consolidated Statements of Comprehensive Income (Loss).

 

The Group assesses its equity method investments for other-than-temporary impairment by considering factors as well as all relevant and available information including, but not limited to, current economic and market conditions, the operating performance of the companies including current earnings trends, and other Group-specific information such as financing rounds.

 

F-25


Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

(o)              Long-term equity investments

 

Long-term equity investments, except those accounted for under the equity method or those that result in the consolidation of the investee, that do not have readily determinable fair value are measured and recorded at cost, less impairment, with subsequent adjustments for observable price changes in orderly transactions for identical or similar equity investments of the issuer. Purchased options on these equity investments that are not derivatives are accounted for in a manner consistent with the accounting for the equity investments that do not have readily determinable fair value.

 

(p)              Impairment of Long-lived Assets

 

Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment for the long-lived assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Group recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. No impairment of long-lived assets was recognized for the years ended December 31, 2017, 2018 and 2019.

 

(q)              Value added taxes

 

The Company’s PRC subsidiaries are subject to value added tax (“VAT”). Revenue from sales of transaction and service is generally subject to VAT at the rate of 6% and subsequently paid to PRC tax authorities after netting input VAT on purchase of service received. The excess of output VAT over input VAT is reflected in accrued expenses and other payables, and the excess of input VAT is reflected in Prepayments and other current assets in the Consolidated Balance Sheets.

 

(r)               Fair Value

 

Fair value represents 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. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

 

F-26


Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

Accounting guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Accounting guidance establishes a three-level fair value hierarchy and 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. The three levels of inputs are:

 

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.

 

Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

 

Financial assets and liabilities of the Group primarily consist of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, loans receivable, deposits with real estate developers, short-term bank borrowings, accounts payable, customers’ refundable fees, accrued expenses and other payables. As of December 31, 2018 and 2019, the carrying values of these financial instruments approximated to their fair values due to the short-term maturity of these instruments.

 

(s)           Revenue

 

In accordance with ASC 606, Revenue from Contracts with Customers, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; (5) recognize revenue when (or as) the entity satisfies a performance obligation.

 

Revenues are recorded net of value-added taxes and surcharges.

 

F-27


Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

Commission income

 

Through its platforms and services provided by real estate agents registered as a member in the Group’s platform (the “Registered Agents”), the Group earns commission revenue from real estate developers for sales transactions of primary properties and to a lesser extent from home owners for sales or rental transactions of secondary properties. For services rendered by the Registered Agents in completing the transactions, the Group pays those the agents a commission fee. The real estate developers and home owners are collectively referred as the property owners. For each of the properties transactions, the Group enters into contracts with the Registered Agents (the “Agents’ Contracts”) and properties owners (the “Properties Sales Contracts”) separately. As Registered Agents are involved in providing the services to the properties owners, the Group considers all the relevant facts and circumstances in determining whether it acts as the principal or as an agent in these properties transactions in accordance with ASC 606-10.

 

The Group has determined that it is a principal for the following reasons: (1) the Properties Sales Contract and the Agents’ Contract are negotiated and entered into separately between the Group and the property owners and the Registered Agents, respectively, at the discretion of the Group, and there is no contractual relationship between the property owners and the Registered Agents; (2) the Group negotiates with the property owners the total commission fee to be paid by the properties owners. The Group also determines the commission rate payable to the Registered Agents at its discretion without any involvement of the properties owners; (3) pursuant to the Properties Sales Contracts, the Group is responsible for the sales or leasing of the properties. In particular, the Group is responsible to undertake the sales and marketing activities it considers necessary to induce potential home purchasers to visit the sales center of the property and complete the purchase of properties from the real estate developers. The Group is entitled to a pre-determined commission income upon the signing of the sales agreements between the real estate developers and the home purchasers pursuant to the Properties Sales Contracts. The Group’s project management team carries out a series of activities including sales data analysis, development of project sales strategy, resources allocation, assignment of agents, sales and marketing activities, and monitoring of the entire sales process; (4) the Group monitors Registered Agents’ services and provide them with instructions and guidelines in approaching and serving the home purchasers.

 

Commission income for sales transactions of primary properties and rental transactions for secondary properties are recognized by the Group upon the signing of the sales and purchase agreements or rental agreements and making the required down payment by the home purchasers or tenants. Commission income for sales transactions of secondary properties are recognized when the transfer over legal title of ownership of the properties between the home owners and home purchasers are complete.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

The Group also enters into certain arrangements with real-estate developers pursuant to which potential home purchasers may pay the Group a fixed amount in return for a discount for their purchases of specified properties from the real estate developers. The fees paid by the home purchasers to the Group are fully refundable before the execution of the sales and purchase agreements between the home purchasers and the real estate developers. For these transactions, except for the fees received from the home purchasers, the Group is not entitled to any additional commission from the real estate developers. The Group recognizes commission income in the amount of fees received from the home purchasers when the Group’s services are rendered upon the execution of the sales and purchase agreements between the home purchasers and the real estate developers. Fees received from home purchasers in advance of the revenue recognition are recorded as “Customers’ Refundable Fees” (see note 11) on the Consolidated Balance Sheets.

 

For primary properties transactions, the Group generally earns a fixed commission rate (“Base Commission”) of the pre-determined properties transaction price (the “Base Transaction Price”) as stated in the Properties Sales Contracts. For certain primary properties transactions, the Group obtains exclusive sales right from real estate developers to sell the properties for a limited period of time and is required to advance certain amount of deposits. Not all of the Exclusive Sales Contracts contains Sales Commitment Arrangement as disclosed in note 2(l). Pursuant to those Exclusive Sales Contracts with Sales Commitment Arrangement, the Group is permitted to sell the properties in the market at a price above the Base Transaction Price. In addition to the Base Commission, the Group is entitled to an additional income (the “Sales Incentive Income”), determined at a progressive rate on the excess of the actual transaction price over the Base Transaction price. Same as Base Commission income, the Sales Incentive Income is also recognized as revenue upon the signing of the sales and purchase agreements and making the down payment by the home purchasers.

 

Franchise Income

 

The Group enters into franchise agreements with certain third party real estate agency companies located in those cities where the Group does not have an established sales office. Pursuant to these franchise agreements, the Group grants the franchisees with the right to use the Group’s brands, access of listings in the Group’s platform and other resources in return for a franchise fee. For franchise agreements entered in 2017, franchise fee is determined based on a percentage of the franchisee’s gross commission income earned. Franchise income are recognized when the underlying franchisees’ revenue is earned. For franchise agreements entered from 2018 onward, franchise fee is determined at an agreed fixed amount over a period of time and are recognized by the Group on a straight-line basis over the contractual period. During the years ended December 31, 2017, 2018 and 2019, the Group recognized franchise income of RMB13,400, RMB17,748 and RMB22,560, respectively.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

Financial service income

 

The Group provides lending financial services to home purchasers, Registered Agents and the Group’s employees who meet the Group’s credit assessment requirements. Financial services income from loans receivable is recognized using the effective interest rate method.

 

Other value-added services

 

Other value-added services are recognized as revenue on a straight-line basis over which the services are rendered, They mainly represent subscription fee earned by offering Registered Agents with a suite of marketing and business technology products and services for use in a specified period of time so as to assist them growing and managing their businesses.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

Loans facilitation services

 

Loans facilitation services are recognized as revenue when the relevant loans agreement signed and the related loans were drew down by the home purchasers. Loans facilitation services primarily consists of the services to facilitate the home purchasers, Registered Agents and other market participants borrowing from the financial institutions in the property transactions.

 

Parking space transaction facilitating services

 

Parking space transaction facilitating services are recognized as revenue when services are rendered to facilitate the appointment of real estate agents by Shenzhen Jinyiyun Supply Chain Technology Co., Ltd. (“Shenzhen Jinyiyun”), a related party, as agents for Shenzhen Jinyiyun’s parking space transactions. Certain directors and management of the Company are the principal shareholders of Shenzhen Jinyiyun. The Company’s services primarily consist of providing support and information to Shenzhen Jinyiyun to identify real estate agents in the Company’s platform and introduction of agents for Shenzhen Jinyiyun’s parking space transactions. The service fee is chargeable to the real estate agent and revenue is recognized upon signing of the relevant agency agreement. During the year ended December 31, 2019, the Group recognized parking space transaction facilitating services income of RMB28,877.

 

(t)                 Cost of Revenue

 

Cost of revenue primarily consists of agents’ commission, sharing of sales incentive income with fund providers, promotion and operational expenses, and salaries and benefits expenses that incurred for properties transactions.

 

(u)              Sales and marketing expenses

 

Sales and marketing expenses mainly consist of advertising costs, which consist primarily of online and offline advertisements, are expensed when the services are received. The advertising expenses were RMB38,151, RMB57,767 and RMB47,883 for the years ended December 31, 2017, 2018 and 2019, respectively.

 

(v)              Product development expenses

 

Product development expenses primarily consist of salaries and benefits expenses, depreciation of equipment relating to the development of new products or upgrading of existing products and other expense for the product activity of the Group. The Group expenses product development expenses as incurred.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

(w)            General and administrative expenses

 

General and administrative expenses mainly consist of payroll and related staff costs for corporate functions, as well as other general corporate expenses such as rental expenses and depreciation expenses for offices and equipment for use by these corporate functions of the Group.

 

(x)              Government grants

 

Government grants represent amounts granted by local government authorities as an incentive for companies to promote economic development of the local technology industry. Government grants received by the Group were non-refundable and were for the purpose of giving immediate incentive with no future costs or obligations are recognized in earnings in the Company’s Consolidated Statements of Comprehensive Income (Loss).

 

(y)              Share-based Compensation

 

Share-based awards granted to the employees and directors in the form of share options are subject to service and performance conditions. They are measured at the grant date fair value of the awards, and are recognized as compensation expense using the graded vesting method, net of estimated forfeitures, if and when the Company considers that it is probable that the performance condition will be achieved.

 

For vested awards, the Group recognizes incremental compensation cost in the period the modification occurs. For awards not being fully vested, the Group recognizes the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original awards over the remaining requisite service period after modification.

 

Estimation of the fair market value of the Company’s ordinary shares involves significant assumptions that might not be observable in the market, and a number of complex and subjective variables, including the expected share price volatility (approximated by the volatility of comparable companies), discount rate, risk-free interest rate and subjective judgments regarding the Company’s projected financial and operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grants are made. Share-based compensation in relation to the share options is estimated using the Binominal Option Pricing Model. The determination of the fair value of share options is affected by the share price of the Company’s ordinary shares as well as the assumptions regarding a number of complex and subjective variables, including the expected share price volatility, risk-free interest rate, exercise multiple and expected dividend yield. The fair value of these awards was determined with the assistance from a valuation report prepared by an independent valuation firm using management’s estimates and assumptions.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

(z)               Employee Benefits

 

The Company’s subsidiaries, the VIE and VIE’s subsidiaries in China participate in a government mandated, multi-employer, defined contribution plan, pursuant to which certain retirement, medical, housing and other welfare benefits are provided to employees. PRC labor laws require the entities incorporated in China to pay to the local labor bureau a monthly contribution calculated at a stated contribution rate on the monthly basic compensation of qualified employees. The Group has no further commitments beyond its monthly contribution. The fair value of the employee benefits liabilities approximates their carrying value due to the short-term nature of these liabilities. Employee social insurance benefits included as expenses in the accompanying Consolidated Statements of Comprehensive Income (Loss) amounted to RMB60,679, RMB45,010 and RMB54,958 for the years ended December 31, 2017, 2018 and 2019, respectively.

 

(aa)       Income Tax

 

Income tax are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

The Company reduces the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is “more-likely-than-not” that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a “more-likely-than-not” realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of futures profitability, the duration of statutory carryforward periods, the Company’s experience with operating loss and tax credit carryforwards, if any, not expiring.

 

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in income tax expense and penalties in general and administrative expenses.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

(bb)       Leases

 

A lease is classified at the inception date as either a capital lease or an operating lease. A lease is a capital lease if any of the following conditions exist: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of the property’s estimated remaining economic life or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property at the inception date. A capital lease is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases. Payments made under operating leases are charged to the Consolidated Statements of Comprehensive Income (Loss) on a straight-line basis over the lease term. The Group had no capital leases as of December 31, 2018 and 2019.

 

(cc)         Earnings/(Loss) per Share

 

Basic earnings/(loss) per share is computed by dividing net income/(loss) attributable to ordinary shareholders, considering the accretions to redemption value of the preferred shares, by the weighted average number of ordinary shares outstanding during the year using the two-class method. Under the two-class method, any net income is allocated between ordinary shares and other participating securities based on their participating rights. A net loss is not allocated to participating securities when the participating securities does not have contractual obligation to share losses.

 

The Company’s preferred shares are participating securities as they participate in undistributed earnings on an as-if-converted basis. The preferred shares has no contractual obligation to fund or otherwise absorb the Group’s losses. Accordingly, any undistributed net income is allocated on a pro rata basis to the ordinary shares and preferred shares; whereas any undistributed net loss is allocated to ordinary shares only.

 

Diluted earnings/(loss) per share is calculated by dividing net income/(loss) attributable to ordinary shareholders, as adjusted for the accretion and allocation of net income related to the preferred shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of shares issuable upon the conversion of the preferred shares and convertible loan using the if-converted method, and ordinary shares issuable upon the vest of restricted ordinary shares or exercise of outstanding share option (using the treasury stock method). Ordinary equivalent shares are calculated based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. Ordinary equivalent shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

(dd)       Segment Reporting

 

The Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group. For the purpose of internal reporting and management’s operation review, the Group’s Chief Executive Officer and management personnel do not segregate the Group’s business by service lines. All service categories are viewed as in one and the only operating segment.

 

(ee)         Statutory Reserves

 

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

 

In accordance with the laws applicable to the Foreign Investment Enterprises established in the PRC, the Group’s subsidiaries registered as wholly foreign owned enterprise have to make appropriations from their after-tax profits (as determined under generally accepted accounting principles in the PRC (‘‘PRC GAAP’’)) to non-distributable reserve funds including general reserve fund, enterprise expansion fund and 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 general reserve fund has reached 50% of the registered capital of the Group.

 

In addition, in accordance with the PRC Company Laws, the Group’s VIE and VIE’s subsidiaries, registered as Chinese domestic companies, must make appropriations from their after-tax profits as determined under the PRC GAAP to non-distributable reserve funds including statutory surplus fund and discretionary surplus fund. The appropriation to the statutory surplus fund must be 10% of the after-tax profits as determined under PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the Group. Appropriation to the discretionary surplus fund is made at the discretion of the Group.

 

The general reserve fund, enterprise expansion fund, statutory surplus fund and discretionary surplus fund are restricted for use. They may only be applied to offset losses or increase the registered capital of the respective entity. The staff bonus and welfare fund is liability in nature and is restricted to make payment of special bonuses to employees and for the collective welfare of employees. None of these reserves is allowed to be transferred to the Group by way of cash dividends, loans or advances, nor can they be distributed except under liquidation.

 

For the years ended December 31, 2017, 2018 and 2019, no appropriation was made to the general reserve fund by the Group’s wholly foreign owned PRC subsidiaries, and no appropriation was made to the statutory surplus fund by the Group’s VIE and VIE’s subsidiaries which did not earn after-tax profits as determined under PRC GAAP. No appropriation has been made by these companies to discretionary funds.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

(ff)           Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 specifies the accounting for leases. 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. ASU 2016-02 is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2018. For all other entities, it is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Group normally entered into operating leases for its office use. As disclosed in Note 19, the Group had future minimum lease commitments under non-cancellable operating lease agreements of RMB 26,965 as of December 31, 2019. As the Company is an “emerging growth company” and elects to apply for the new and revised accounting standards at the effective date for a private company, ASU 2016-02 will be applied for the fiscal year ending December 31, 2020. The Group is currently evaluating the impact of adopting this standard on its consolidated financial statements. So far, management believes that the adoption of ASU2016-02 would not have a material impact on the Consolidated Financial Statements.

 

On November 5, 2018, the FASB issued ASU 2018-18, which amended ASC 808 and ASC 606 to clarify that transactions in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer for a distinct good or service (i.e., unit of account). The guidance precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The guidance is effective for public business entities in fiscal years beginning after 15 December 2019, and interim periods therein, and for all other entities, in fiscal years beginning after 15 December 2020, and interim periods beginning the following fiscal year. Early adoption is permitted for entities that have adopted ASC 606. For the transactions under collaborative arrangement entered by the Group, the Group should share income with the counterparty, who is not the Group’s customer. The management believe that ASU 2018-8 would not have a material impact on the Consolidated Financial Statements.

 

On November 2019, the FASB issued ASU 2019-10, which deferred the effective dates of ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Credit Losses) for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and ASU 2016-02 Leases (Topic 842) (Leases), for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early application continues to be allowed. As the Company is an “emerging growth company” and elects to apply for the new and revised accounting standards at the effective date for a private company, the deferred effective dates are applicable to the Company. Management is currently evaluating the impact of adopting ASU 2016-13 on the Consolidated Financial statements.

 

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Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

3.         Concentration and Risk

 

Concentration of customers

 

There are no customers from whom revenue individually represent greater than 10% of the total revenue of the Group for the years ended December 31, 2017, 2018 and 2019.

 

Concentration of credit risk

 

Assets that potentially subject the Group to significant concentrations of credit risk primarily consist of cash and cash equivalents, restricted cash, short-term investments, accounts receivable and loans receivable included under prepayments and other current assets. As of December 31, 2017, 2018 and 2019, substantially all of the Group’s cash and cash equivalents, restricted cash and short-term investments were held by reputable financial institutions located in the PRC and Hong Kong which management believes are of high credit quality and financially sound based on public available information.

 

Accounts receivable are typically unsecured and are primarily derived from revenue earned from real estate developers. The risk with respect to accounts receivable is managed by credit evaluations the Group performs on its customers and its ongoing monitoring of outstanding balances.

 

The Group is exposed to default risk on its loans receivable. The Group assesses the allowance for credit loss related to loans receivable on a quarterly basis, either on an individual or collective basis. As of December 31, 2017, 2018 and 2019, no individual loans receivable balance accounted for over 10% of the total loans receivable.

 

Cash concentration

 

Cash and cash equivalents and restricted cash mentioned below maintained at banks consist of the following:

 

 

 

As of December 31,

 

 

 

2018

 

2019

 

 

 

RMB

 

RMB

 

RMB denominated bank deposits with:

 

 

 

 

 

Financial Institutions in the PRC

 

429,266

 

654,946

 

U.S. dollar denominated bank deposits with:

 

 

 

 

 

Financial Institutions in the Hong Kong

 

346,019

 

664,478

 

Financial Institutions in the PRC

 

18,933

 

14,448

 

 

F-37


Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

The bank deposits with financial institutions in the PRC are insured by the government authority for up to RMB500,000. The bank deposits with financial institutions in the Hong Kong are insured by the government authority for up to HK$500,000. The Company has not experienced any losses in uninsured bank deposits and does not believe that it is exposed to any significant risks on cash held in bank accounts. To limit exposure to credit risk, the Company primarily places bank deposits with large financial institutions in the PRC and Hong Kong.

 

Currency risk

 

The Group’s operational transactions and its assets and liabilities are primarily denominated in RMB, which is not freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies and international economic and political developments that affect the supply and demand of RMB in the foreign exchange market. 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 from China in currencies other than RMB by the Group must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.

 

Interest rate risk

 

The Group’s short-term bank borrowings bear interests at fixed rates. If the Group were to renew these loans upon maturity and the related banks only agree to offer variable rate for such renewal, the Group might then be subject to interest rate risk.

 

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Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

4.         Fair Value Measurement

 

The following table sets forth the Group’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:

 

December 31, 2018

 

 

 

Level 1
Inputs

 

Level 2
Inputs

 

Level 3
Inputs

 

Balance at
Fair Value

 

 

 

RMB

 

RMB

 

RMB

 

RMB

 

Assets

 

 

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

 

 

-Wealth management products

 

 

71,483

 

 

71,483

 

Long-term equity investment

 

 

 

56,000

 

56,000

 

Total Assets

 

 

71,483

 

56,000

 

127,483

 

 

December 31, 2019

 

 

 

Level 1 
Inputs

 

Level 2 
Inputs

 

Level 3 
Inputs

 

Balance at
Fair Value

 

 

 

RMB

 

RMB

 

RMB

 

RMB

 

Assets

 

 

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

 

 

-Wealth management products

 

 

11,500

 

 

11,500

 

Long-term equity investment

 

 

 

40,000

 

40,000

 

Total Assets

 

 

11,500

 

40,000

 

51,500

 

 

The Group values its investments in wealth management products issued by certain banks using quoted subscription/redemption prices published by these banks, and accordingly, the Group classifies the valuation techniques that use these inputs as level 2.

 

The Group’s short-term investments as of December 31, 2018 and 2019 were acquired close to the year-end dates with maturity from seven days to one month, except for a short-term wealth management product issued by Bank of China in Shenzhen of RMB49,883 on April 28, 2018 with a 363-day term and a fixed annual interest rate and principle secured. This wealth management product has served as the collateral of a short-term loan of RMB49,000 from Bank of China in Shenzhen (see note 10) since July 2018. This wealth management product was due and redeemed by the Group on April 26, 2019 with the collateral released upon the short term bank loan of RMB49,000 repaid on the same day.

 

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Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

Long-term equity investment was measured at costs, less impairment, with subsequent adjustments for observable price changes (see note 9), and are categorized within Level 3 under the fair value hierarchy. 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 Company holds.

 

There have no transfers between level 1, level 2 and level 3 categories.

 

5.         Accounts receivable, net

 

Accounts receivable consist of the following:

 

 

 

As of December 31,

 

 

 

2018

 

2019

 

 

 

RMB

 

RMB

 

Accounts receivable from real estate developers

 

1,436,367

 

2,329,431

 

Accounts receivable from individual customers

 

2,646

 

2,805

 

 

 

1,439,013

 

2,332,236

 

Less: allowance for doubtful accounts

 

(86,417

)

(142,256

)

Accounts receivable, net

 

1,352,596

 

2,189,980

 

 

As of December 31, 2018 and 2019, the Group pledged accounts receivable from real estate developers of RMB65,697 and RMB263,550 as security for the bank loans of RMB50,000 and RMB185,000, respectively (see note 10).

 

The following table presents the movement of allowance for doubtful accounts for the years ended December 31, 2017, 2018 and 2019.

 

 

 

As of December 31,

 

 

 

2017

 

2018

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

Balance at the beginning of the year:

 

43,084

 

46,900

 

86,417

 

Provision for the year

 

8,014

 

39,517

 

55,839

 

Write-off

 

(4,198

)

 

 

Balance at the end of the year

 

46,900

 

86,417

 

142,256

 

 

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Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

6.         Prepayments and other assets

 

 

 

As of December 31,

 

 

 

2018

 

2019

 

 

 

RMB

 

RMB

 

Loans receivable, net 

(1)

74,068

 

70,531

 

Rental and other deposits 

 

10,258

 

6,993

 

Security deposits with real estate developers

(2)

106,528

 

72,573

 

Deposits for investments

(3)

20,246

 

3,155

 

Others

 

23,811

 

48,671

 

Prepayments and other assets

 

234,911

 

201,923

 

Current Portion

 

210,996

 

194,668

 

Non-Current Portion

 

23,915

 

7,255

 

Total prepayments and other assets

 

234,911

 

201,923

 

 

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Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

(1)         Loans receivable, net

 

 

 

As of December 31,

 

 

 

2018

 

2019

 

 

 

RMB

 

RMB

 

Secured personal loans

 

31,467

 

16,741

 

Unsecured personal loans

 

43,714

 

58,045

 

 

 

75,181

 

74,786

 

Less: allowance for doubtful loans

 

(1,113

)

(4,255

)

Loans receivables, net

 

74,068

 

70,531

 

 

 

 

 

 

 

Current Portion

 

70,399

 

66,431

 

Non-Current Portion

 

3,669

 

4,100

 

Total loans

 

74,068

 

70,531

 

 

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Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

As of December 31, 2018 and 2019, loans receivables are primarily personal loans made to home purchasers, home owners and Registered Agents and the Group’s employees. These loans have an original term from 30 days to 5 years and carry interest rates between 3.6%~24% per annum.

 

On December 25, 2017, the Group entered into a one-year arrangement with an independent third party trust, under which the Group would refer home owners on their platform to obtain personal loans from the trust. The Group is entitled to a loan facilitation fee ranging from 0.8% to 4% of the amounts of completed loan transactions. The personal loans are secured by the home owners’ properties. The Group provided guarantee on the principal and interest repayment of the loans to the trust and committed to purchase all the unpaid loans principal and accrued interests due from the home owners upon the end of the arrangement on December 25, 2018. Such guarantee was accounted for a derivative during the one-year agreement period under ASC 815 and the Group has determined that its fair value to be immaterial. On December 25, 2018, the Group purchased from the trust, pursuant to the arrangement, unpaid secured loans at a consideration of RMB21,424, determined based on the outstanding principal and interest payable by the home owners. These loans have been recorded in secured loans receivables of RMB21,424 and RMB14,760 on the consolidated balance sheet as at December 31, 2018 and 2019, with an allowance of doubtful loans of RMB3.1 million was made as of December 31, 2019.

 

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Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

The following table sets forth the activity in the allowance for doubtful loans for the years ended December 31, 2018 and 2019:

 

 

 

As of December 31,

 

 

 

2017

 

2018

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

Balance at the beginning of the year:

 

1,324

 

1,411

 

1,113

 

Provision (Reversal) for the year

 

2,701

 

(493

)

3,142

 

Write-off

 

(2,614

)

 

 

Collection of previously written-off debtors

 

 

195

 

 

Balance at the end of the year

 

1,411

 

1,113

 

4,255

 

 

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Table of Contents

 

Fangdd Network Group Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(All amounts in thousands, except for share and per share data)

 

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs periodic evaluation of the adequacy of the allowance. The allowance is based on the Group’s past loan loss history, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, composition of the loan portfolio, current economic conditions and other relevant factors. The allowance is calculated at portfolio-level since the loans portfolio is typically of smaller balance homogenous loans and is collectively evaluated for impairment. In estimating the probable loss of the loan portfolio, the Group also considers qualitative factors such as current economic conditions and/or events in specific industries and geographical areas, including unemployment levels, trends in real es