**Exhibit 99.2**

 

**DADA NEXUS LIMITED**

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 
| ** **                                                                                                                     | **Page** |
|--------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                           |     |
| Independent Auditors’   Report                                                                                            | 3        |
| Consolidated Balance   Sheets as of December 31, 2017 and 2018                                                            | 4-5      |
| Consolidated Statements   of Operations and Comprehensive Loss for the Years Ended December 31,   2016, 2017, and 2018    | 6        |
| Consolidated Statements   of Changes in Shareholders’ Deficit for the Years Ended December 31,   2016, 2017 and 2018 | 7        |
| Consolidated Statements   of Cash Flows for the Years Ended December 31, 2016, 2017, and 2018                             | 8-9      |
| Notes to the   Consolidated Financial Statements                                                                               | 10-45    |

 

----

 

INDEPENDENT AUDITORS’ REPORT

 

**To the Board of Directors of Dada Nexus Limited:**

 

We have audited the accompanying consolidated financial statements of Dada Nexus Limited (the “Company”), its subsidiaries, its variable interest entity (“VIE”) and VIE’s subsidiaries, which comprise the consolidated balance sheets as of December 31, 2017 and 2018, and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes to the consolidated financial statements.

 

**Management’s Responsibility for the Consolidated Financial Statements**

 

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

 

**Auditors’ Responsibility**

 

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

 

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

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

**Opinion**

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dada Nexus Limited, its subsidiaries, its VIE and VIE’s subsidiaries as of December 31, 2017 and 2018, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2018 in accordance with accounting principles generally accepted in the United States of America.

 

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Shanghai, the People’s Republic of China

 

June 28, 2019

 

3

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**DADA NEXUS LIMITED**

 

**CONSOLIDATED BALANCE SHEETS**

**AS OF DECEMBER 31, 2017 and 2018**

**(Renminbi in thousands, except share data and otherwise noted)**

 
| ** **                                                                                                                             | ** ** | ** ** | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                                                                                                                             | ** ** | **Note**   | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                                                                                                                                   |       |       |       |                                  |       |   |   |
| **ASSETS**                                                                                                                             |       |       |       |                                  |       |   |   |
| Current assets:                                                                                                                        |       |       |       |                                  |       |   |   |
| Cash and cash   equivalents                                                                                                            |       |       |       | 1,559,537                             |       | 2,744,006 |   |
| Restricted cash                                                                                                                        |       |       |       | 359,731                               |       | — |   |
| Short-term   investments                                                                                                               |       | 5          |       | 324,746                               |       | 721,380 |   |
| Accounts   receivable, net of allowance for doubtful accounts of RMB nil and 316 as of   December 31, 2017 and 2018, respectively |       | 6          |       | 6,946                                 |       | 30,344 |   |
| Inventories, net                                                                                                                       |       |       |       | 5,886                                 |       | 7,887 |   |
| Amount due from   related parties                                                                                                      |       | 18         |       | 48,760                                |       | 159,363 |   |
| Prepayments and   other current assets                                                                                                 |       | 7          |       | 54,704                                |       | 96,978 |   |
| **Total   current assets**                                                                                                             |       |       |       | **2,360,310**                         |       | **3,759,958** |   |
| Property and   equipment, net                                                                                                          |       | 8          |       | 12,863                                |       | 22,545 |   |
| Goodwill                                                                                                                               |       | 3          |       | 957,605                               |       | 957,605 |   |
| Intangible   assets, net                                                                                                               |       | 9          |       | 1,069,702                             |       | 900,632 |   |
| Other   non-current assets                                                                                                             |       |       |       | 11,584                                |       | 6,117 |   |
| **Total   non-current assets**                                                                                                         |       |       |       | **2,051,754**                         |       | **1,886,899** |   |
| **Total   assets**                                                                                                                     |       |       |       | **4,412,064**                         |       | **5,646,857** |   |
|                                                                                                                                   |       |       |       |                                  |       |   |   |
| **LIABILITIES   AND SHAREHOLDERS’ DEFICIT**                                                                                       |       |       |       |                                  |       |   |   |
| Current   liabilities (including amounts of the consolidated VIE without recourse to   the Company. See Note 2.2):                     |       |       |       |                                  |       |   |   |
| Short-term loan                                                                                                                        |       | 10         |       | 354,499                               |       | — |   |
| Accounts payable                                                                                                                       |       |       |       | 7,145                                 |       | 8,662 |   |
| Payable to   Drivers                                                                                                                   |       |       |       | 265,015                               |       | 280,097 |   |
| Amount due to   related parties                                                                                                        |       | 18         |       | 38,290                                |       | 54,302 |   |
| Accrued expenses   and other current liabilities                                                                                       |       | 11         |       | 258,115                               |       | 229,940 |   |
| **Total   current liabilities**                                                                                                        |       |       |       | **923,064**                           |       | **573,001** |   |
| Deferred tax   liabilities                                                                                                             |       | 16         |       | 80,272                                |       | 52,733 |   |
| **Total   non-current liabilities**                                                                                                    |       |       |       | **80,272**                            |       | **52,733** |   |
| **Total   liabilities**                                                                                                                |       |       |       | **1,003,336**                         |       | **625,734** |   |
|                                                                                                                                   |       |       |       |                                  |       |   |   |
| **Commitments   and contingencies**                                                                                                    |       | 20         |       |                                  |       |   |   |

 

4

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**DADA NEXUS LIMITED**

 

**CONSOLIDATED BALANCE SHEETS (CONTINUED)**

**AS OF DECEMBER 31, 2017 and 2018**

**(Renminbi in thousands, except share data and otherwise noted)**

 
| ** **                                                                                                                                                                                                                          | ** ** | ** ** | ** ** | **As of December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                                                                                                                                                                                                                          | ** ** | **Note**   | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                                                                                                                                                                                                                                |       |       |       |                                  |       |   |   |
| **MEZZANINE   EQUITY**                                                                                                                                                                                                              |       | 14         |       |                                  |       |   |   |
| Series A   Convertible Redeemable Preferred Shares (US$ 0.0001 par value, 77,000,000   shares authorised, issued and outstanding as of December 31, 2017 and 2018,   respectively)                                   |       |       |       | 14,064                                |       | 15,260 |   |
| Series B   Convertible Redeemable Preferred Shares (US$ 0.0001 par value, 37,748,300   shares authorised, issued and outstanding as of December 31, 2017 and   2018, respectively)                                   |       |       |       | 172,655                               |       | 187,316 |   |
| Series C   Convertible Redeemable Preferred Shares (US$ 0.0001 par value, 44,286,448   shares authorised, issued and outstanding as of December 31, 2017 and   2018, respectively)                                   |       |       |       | 720,028                               |       | 781,399 |   |
| Series D   Convertible Redeemable Preferred Shares (US$ 0.0001 par value, 95,524,122   shares authorised, 64,001,162 shares issued and outstanding as of   December 31, 2017 and 2018, respectively)                 |       |       |       | 2,041,281                             |       | 2,209,604 |   |
| Series E   Convertible Redeemable Preferred Shares (US$ 0.0001 par value, 128,637,939   shares authorised; 93,580,586 and 93,580,586 shares issued and outstanding as   of December 31, 2017 and 2018, respectively) |       |       |       | 2,935,726                             |       | 3,085,171 |   |
| Series F   Convertible Redeemable Preferred Shares (US$ 0.0001 par value, 116,857,842   shares authorised, issued and outstanding as of December 31, 2018)                                                           |       |       |       | —                                |       | 3,519,261 |   |
| **Total   Mezzanine equity**                                                                                                                                                                                                        |       |       |       | 5,883,754                             |       | 9,798,011 |   |
|                                                                                                                                                                                                                                |       |       |       |                                  |       |   |   |
| **SHAREHOLDERS’   DEFICIT**                                                                                                                                                                                                    |       |       |       |                                  |       |   |   |
| Ordinary shares   ($0.0001 par value, 1,616,803,191 shares authorized, 355,105,296 and   362,197,963 shares issued and outstanding as of December 31, 2017 and   2018, respectively)                                           |       | 15         |       | 227                                   |       | 232 |   |
| Additional   paid-in capital                                                                                                                                                                                                        |       |       |       | 1,513,420                             |       | 1,052,954 |   |
| Subscription   receivable                                                                                                                                                                                                           |       |       |       | (35                                   | )          | (35 | ) |
| Accumulated   deficit                                                                                                                                                                                                               |       |       |       | (4,091,770                            | )          | (5,970,145 | ) |
| Accumulated   other comprehensive income                                                                                                                                                                                            |       |       |       | 103,132                               |       | 140,106 |   |
| **Total   shareholders’ deficit**                                                                                                                                                                                              |       |       |       | (2,475,026                            | )          | (4,776,888 | ) |
|                                                                                                                                                                                                                                |       |       |       |                                  |       |   |   |
| **Total   liabilities, mezzanine equity and shareholders’ deficit**                                                                                                                                                            |       |       |       | **4,412,064**                         |       | **5,646,857** |   |

 

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

 

5

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**DADA NEXUS LIMITED**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**

**FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018**

**(Renminbi in thousands, except share data and otherwise noted)**

 
| ** **                                               | ** ** | ** ** | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| ** **                                               | ** ** | **Note**   | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
|                                                     |       |       |       |                                        |       |   |   |   |   |
| **Net   Revenues**                                       |       |       |       | 122,641                                     |       | 1,217,965 |   | 1,922,015 |   |
| **Operating   expenses**                                 |       |       |       |                                        |       |   |   |   |   |
| Cost of goods   sold                                     |       |       |       | (20,675                                     | )          | (47,687 | ) | (89,163 | ) |
| Fulfilment   expenses                                    |       |       |       | (853,533                                    | )          | (1,592,664 | ) | (2,044,139 | ) |
| Selling and   marketing expenses                         |       |       |       | (480,973                                    | )          | (723,463 | ) | (1,223,345 | ) |
| General and   administrative expenses                    |       |       |       | (233,187                                    | )          | (249,172 | ) | (282,539 | ) |
| Research and   development expenses                      |       |       |       | (129,294                                    | )          | (191,977 | ) | (270,163 | ) |
| Other operating   expenses                               |       |       |       | (602                                        | )          | (1,173 | ) | (8,016 | ) |
| **Total   operating expenses**                           |       |       |       | **(1,718,264**                              | **)**      | **(2,806,136** | **)** | **(3,917,365** | **)** |
| Other operating   income                                 |       |       |       | 60                                          |       | 1,408 |   | 18,875 |   |
| **Loss   from operations**                               |       |       |       | **(1,595,563**                              | **)**      | **(1,586,763** | **)** | **(1,976,475** | **)** |
| **Other   income/(expenses)**                            |       |       |       |                                        |       |   |   |   |   |
| Interest income                                          |       |       |       | 20,008                                      |       | 31,408 |   | 53,111 |   |
| Interest   expenses                                      |       |       |       | —                                      |       | (8,908 | ) | (3,122 | ) |
| Foreign exchange   gain/(loss)                           |       |       |       | 5,518                                       |       | (4,253 | ) | 7,151 |   |
| Fair value   change in foreign currency forward contract |       |       |       | —                                      |       | 22,846 |   | 13,463 |   |
| Fair value   change in warrant liabilities               |       |       |       | 29,221                                      |       | 82,467 |   | — |   |
| **Total   other income**                                 |       |       |       | **54,747**                                  |       | **123,560** |   | **70,603** |   |
| **Loss   before income tax benefits**                    |       |       |       | **(1,540,816**                              | **)**      | **(1,463,203** | **)** | **(1,905,872** | **)** |
| Income tax   benefits                                    |       | 16         |       | 9,891                                       |       | 14,113 |   | 27,497 |   |
| **Net   loss and net loss attributable to the Company**  |       |       |       | **(1,530,925**                              | **)**      | **(1,449,090** | **)** | **(1,878,375** | **)** |
|                                                     |       |       |       |                                        |       |   |   |   |   |
| Accretion of   convertible redeemable preferred shares   |       | 14         |       | (295,809                                    | )          | (374,246 | ) | (511,646 | ) |
| **Net   loss attributable to ordinary shareholders**     |       |       |       | **(1,826,734**                              | **)**      | **(1,823,336** | **)** | **(2,390,021** | **)** |
|                                                     |       |       |       |                                        |       |   |   |   |   |
| **Net   Loss**                                           |       |       |       | **(1,530,925**                              | **)**      | **(1,449,090** | **)** | **(1,878,375** | **)** |
| **Other   comprehensive income/(loss)**                  |       |       |       |                                        |       |   |   |   |   |
| Foreign currency   translation adjustments               |       |       |       | 172,418                                     |       | (108,449 | ) | 36,974 |   |
| **Total   comprehensive loss**                           |       |       |       | **(1,358,507**                              | **)**      | **(1,557,539** | **)** | **(1,841,401** | **)** |

 

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

 

6

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**DADA NEXUS LIMITED**

 

**CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT**

**FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018**

**(Renminbi in thousands, except share data and otherwise noted)**

 
| ** **                                                              | ** ** | ** ** | ** ** | **Ordinary shares   (par value US $0.0001)** | ** ** | ** ** | ** ** | ** **                            | ** ** | ** **                     | ** ** | **Accumulated   other**   | ** ** | **Total**                  | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------------|------------|------------|------------|---------------------------------------|------------|--------------------------------|------------|---------------------------|------------|----------------------------|------------|
| ** **                                                              | ** ** | **Note**   | ** ** | **Numbers   of Shares**                                     | ** ** | **Amount** | ** ** | **Additional   paid-in capital** | ** ** | **Subscription   receivables** | ** ** | **Accumulated   deficit** | ** ** | **comprehensive   income** | ** ** | **shareholders’   deficit** | ** ** |
|                                                                    |       |       |       |                                                             |       |       |       |                                  |       |                           |       |                      |       |                       |       |   |   |
| **Balance   as of January 1, 2016**                                     |       |       |       | **68,713,999**                                                   |       | **42**     |       | **—**                            |       | **(35**                        | **)**      | **(1,073,704**            | **)**      | **39,163**                 |       | **(1,034,534** | **)** |
| Issuance of   ordinary shares                                           |       | 3          |       | 286,832,885                                                      |       | 185        |       | 2,034,434                             |       | —                         |       | —                    |       | —                     |       | 2,034,619 |   |
| Early exercise   of stock options granted to non-employees              |       | 13         |       | 716,431                                                          |       |       |       | 55                                    |       | —                         |       | —                    |       | —                     |       | 55 |   |
| Repurchase of   early exercised share options                           |       | 13         |       | (716,431                                                         | )          |       |       | (55                                   | )          | —                         |       | —                    |       | —                     |       | (55 | ) |
| Repurchase of   ordinary shares from Co-founder                         |       | 13         |       | (441,588                                                         | )          |       |       | (3,730                                | )          | —                         |       | —                    |       | —                     |       | (3,730 | ) |
| Share-based   compensation                                              |       | 13         |       | —                                                           |       | —     |       | 53,879                                |       | —                         |       | —                    |       | —                     |       | 53,879 |   |
| Net loss                                                                |       |       |       | —                                                           |       | —     |       | —                                |       | —                         |       | (1,530,925                | )          | —                     |       | (1,530,925 | ) |
| Accretion of   convertible redeemable preferred shares                  |       | 14         |       | —                                                           |       | —     |       | (257,758                              | )          | —                         |       | (38,051                   | )          | —                     |       | (295,809 | ) |
| Foreign currency   translation adjustments                              |       |       |       | —                                                           |       | —     |       | —                                |       | —                         |       | —                    |       | 172,418                    |       | 172,418 |   |
| **Balance   as of December 31, 2016**                              |       |       |       | **355,105,296**                                                  |       | **227**    |       | **1,826,825**                         |       | **(35**                        | **)**      | **(2,642,680**            | **)**      | **211,581**                |       | **(604,082** | **)** |
| Share-based   compensation                                              |       | 13         |       | —                                                           |       | —     |       | 60,841                                |       | —                         |       | —                    |       | —                     |       | 60,841 |   |
| Net loss                                                                |       |       |       | —                                                           |       | —     |       | —                                |       | —                         |       | (1,449,090                | )          | —                     |       | (1,449,090 | ) |
| Accretion of   convertible redeemable preferred shares                  |       | 14         |       | —                                                           |       | —     |       | (374,246                              | )          | —                         |       | —                    |       | —                     |       | (374,246 | ) |
| Foreign currency   translation adjustments                              |       |       |       | —                                                           |       | —     |       | —                                |       | —                         |       | —                    |       | (108,449                   | )          | (108,449 | ) |
| **Balance   as of December 31, 2017**                              |       |       |       | **355,105,296**                                                  |       | **227**    |       | **1,513,420**                         |       | **(35**                        | **)**      | **(4,091,770**            | **)**      | **103,132**                |       | **(2,475,026** | **)** |
| Issuance of   ordinary shares for vested restricted share units         |       | 15         |       | 7,092,667                                                        |       | 5          |       | (5                                    | )          | —                         |       | —                    |       | —                     |       | — |   |
| Share-based   compensation                                              |       | 13         |       | —                                                           |       | —     |       | 51,185                                |       | —                         |       | —                    |       | —                     |       | 51,185 |   |
| Net loss                                                                |       |       |       | —                                                           |       | —     |       | —                                |       | —                         |       | (1,878,375                | )          | —                     |       | (1,878,375 | ) |
| Accretion and   modification of convertible redeemable preferred shares |       | 14         |       | —                                                           |       | —     |       | (511,646                              | )          | —                         |       | —                    |       | —                     |       | (511,646 | ) |
| Foreign currency   translation adjustments                              |       |       |       | —                                                           |       | —     |       | —                                |       | —                         |       | —                    |       | 36,974                     |       | 36,974 |   |
| **Balance   as of December 31, 2018**                              |       |       |       | **362,197,963**                                                  |       | **232**    |       | **1,052,954**                         |       | **(35**                        | **)**      | **(5,970,145**            | **)**      | **140,106**                |       | **(4,776,888** | **)** |

 

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

 

7

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**DADA NEXUS LIMITED**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018**

**(Renminbi in thousands and otherwise noted)**

 
| ** **                                                                     | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                     | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
|                                                                           |       |                                        |       |   |   |   |   |
| **Cash   flows from operating activities:**                                    |       |                                        |       |   |   |   |   |
| Net loss                                                                       |       | (1,530,925                                  | )          | (1,449,090 | ) | (1,878,375 | ) |
| *Adjustments   to reconcile net loss to net cash used in operating activities* |       |                                        |       |   |   |   |   |
| Depreciation and   amortization                                                |       | 138,136                                     |       | 209,061 |   | 212,241 |   |
| Share-based   compensation                                                     |       | 93,128                                      |       | 60,841 |   | 51,185 |   |
| Foreign exchange   (gain)/loss                                                 |       | (5,518                                      | )          | 4,253 |   | (7,151 | ) |
| Loss from   disposal of property and equipment                                 |       | 128                                         |       | — |   | 3,639 |   |
| Allowance for   doubtful accounts                                              |       | —                                      |       | — |   | 316 |   |
| Valuation allowance   for inventories                                          |       | —                                      |       | — |   | 1,632 |   |
| Impairment   provision for other non-current assets                            |       | —                                      |       | — |   | 5,432 |   |
| Impairment   provision for property and equipment                              |       | —                                      |       | — |   | 8,481 |   |
| Fair value   change in foreign currency forward contract                       |       | —                                      |       | (22,846 | ) | (13,463 | ) |
| Fair value   change in warrant liabilities                                     |       | (29,221                                     | )          | (82,467 | ) | — |   |
| *Changes   in operating assets and liabilities:*                               |       |                                        |       |   |   |   |   |
| Accounts   receivable                                                          |       | 438                                         |       | (6,943 | ) | (23,714 | ) |
| Inventories                                                                    |       | (1,918                                      | )          | (3,549 | ) | (3,634 | ) |
| Amount due from   related parties                                              |       | (31,081                                     | )          | (15,902 | ) | (110,603 | ) |
| Prepayments and   other current assets                                         |       | (30,080                                     | )          | (14,167 | ) | (42,273 | ) |
| Other   non-current assets                                                     |       | (1,987                                      | )          | (5,639 | ) | 35 |   |
| Accounts payable                                                               |       | 3,448                                       |       | 987 |   | 1,516 |   |
| Amount due to   related parties                                                |       | 92,787                                      |       | (82,943 | ) | 16,012 |   |
| Payable to   Drivers                                                           |       | 74,566                                      |       | 104,548 |   | 15,082 |   |
| Accrued expenses   and other current liabilities                               |       | (68,698                                     | )          | 107,069 |   | (28,174 | ) |
| Deferred tax   liabilities                                                     |       | (9,891                                      | )          | (14,837 | ) | (27,539 | ) |
| **Net   cash used in operating activities**                                    |       | **(1,306,688**                              | **)**      | **(1,211,624** | **)** | **(1,819,355** | **)** |
|                                                                           |       |                                        |       |   |   |   |   |
| **Cash   flows from investing activities:**                                    |       |                                        |       |   |   |   |   |
| Disposal of   wealth management product                                        |       | 3,572,546                                   |       | 2,348,604 |   | 7,489,577 |   |
| Purchase of   wealth management product                                        |       | (3,161,966                                  | )          | (2,445,084 | ) | (7,909,057 | ) |
| Proceeds from   disposal of foreign currency forward contract                  |       | —                                      |       | — |   | 36,310 |   |
| Purchase of   property and equipment and intangible assets                     |       | (4,917                                      | )          | (12,128 | ) | (32,861 | ) |
| Cash paid for   purchase of other non-current assets                           |       | —                                      |       | (2,000 | ) | — |   |
| Proceeds from   disposal of property and equipment                             |       | 74                                          |       | — |   | 649 |   |
| Cash acquired from   business combination, net of cash paid (Note 3)           |       | 83,204                                      |       | — |   | — |   |
| **Net   cash provided by/(used in) investing activities**                      |       | **488,941**                                 |       | **(110,608** | **)** | **(415,382** | **)** |
|                                                                           |       |                                        |       |   |   |   |   |
| **Cash   flows from financing activities:**                                    |       |                                        |       |   |   |   |   |
| Proceeds from   (Cash paid for) short-term loan                                |       | —                                      |       | 354,499 |   | (354,499 | ) |
| Proceeds from   issuance of convertible redeemable preferred shares            |       | 1,778,540                                   |       | 983,820 |   | 3,412,300 |   |
| Proceeds from   early exercise of share options                                |       | 55                                          |       | — |   | — |   |
| Cash paid for   repurchase of early exercised share options                    |       | (13,253                                     | )          | — |   | — |   |
| Cash paid for   repurchase of ordinary shares                                  |       | (6,392                                      | )          | — |   | — |   |
| Cash paid for   repurchase of share options                                    |       | (17,215                                     | )          | — |   | — |   |
| Cash paid for   share issuance costs                                           |       | (10,475                                     | )          | — |   | (9,689 | ) |
| **Net   cash provided by financing activities**                                |       | **1,731,260**                               |       | **1,338,319** |   | **3,048,112** |   |
|                                                                           |       |                                        |       |   |   |   |   |
| **Effect   of foreign exchange rate changes on cash and cash equivalents**     |       | **126,901**                                 |       | **(74,393** | **)** | **11,363** |   |
|                                                                           |       |                                        |       |   |   |   |   |
| **Net   increase (decrease) in cash and cash equivalents**                     |       | **1,040,414**                               |       | **(58,306** | **)** | **824,738** |   |
| Cash and cash   equivalents and restricted cash, beginning of the year         |       | 937,160                                     |       | 1,977,574 |   | 1,919,268 |   |
| Cash and cash   equivalents and restricted cash, end of the year               |       | 1,977,574                                   |       | 1,919,268 |   | 2,744,006 |   |

 

8

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**DADA NEXUS LIMITED**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)**

**FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018**

**(Renminbi in thousands and otherwise noted)**

 

The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows.

 
| ** **                                              | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **2016**                              | ** ** | **2017** | ** ** | **2018** | ** ** |
|                                                    |       |                                  |       |   |   |   |   |
| Cash and cash equivalents                               |       | 1,977,574                             |       | 1,559,537 |   | 2,744,006 |   |
| Restricted cash                                         |       | —                                |       | 359,731 |   | — |   |
| **Total   cash, cash equivalents, and restricted cash** |       | **1,977,574**                         |       | **1,919,268** |   | **2,744,006** |   |

 
| ** **                                                                                      | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                      | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
|                                                                                            |       |                                        |       |   |   |   |   |
| **Supplemental   disclosure for cash flow information**                                         |       |                                        |       |   |   |   |   |
| Cash paid for   interest                                                                        |       | —                                      |       | 5,514 |   | 6,516 |   |
| Cash paid for   income taxes                                                                    |       | —                                      |       | 724 |   | 42 |   |
| **Supplemental   disclosure of non-cash investing and financing activities:**                   |       |                                        |       |   |   |   |   |
| Accretion of   convertible redeemable preferred shares                                          |       | 295,809                                     |       | 374,246 |   | 511,646 |   |
| Payable in   connection with the repurchase of early exercised share options of   non-employees |       | 6,174                                       |       | — |   | — |   |

 

See Note 3 for the non-cash investing activities related to the JDDJ business acquisition occurred on April 26, 2016.

 

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

 

9

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**DADA NEXUS LIMITED**

 

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

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

 

**1.**              **ORGANIZATION AND NATURE OF OPERATIONS**

 

**Description of Business**

 

Dada Nexus Limited (the “Company”) was incorporated under the laws of the Cayman Islands on July 8, 2014. The Company through its wholly-owned subsidiaries, variable interest entity (“VIE”) and VIE’s subsidiaries (collectively, the “Group”) primarily provides comprehensive logistic solution service, on-demand logistic platform service and online marketplace platform service to its customers through its mobile platforms, websites and mini programs. The Group’s principal operations and geographic markets are in the People’s Republic of China (“PRC”).

 

As of December 31, 2018, the Company’s major subsidiaries and consolidated VIE are as follows:

 
| **Name of Company**                                                            | ** ** | **Place of   incorporation** | ** ** | **Date of   incorporation/acquisition** | ** ** | **Percentage of direct   or indirect economic   ownership** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
|                                                                                     |       |                              |       |                                         |       |                                                                            |       |
| *Subsidiaries*                                                                           |       |                              |       |                                         |       |                                                                            |       |
| Dada Wisdom (HK)   Limited (“Dada Wisdom”)                                     |       | Hong Kong                         |       | July 24, 2014                           |       | 100                                                                             | %          |
| Dada Glory   Network Technology Ltd. (“Dada Glory”)                            |       | PRC                               |       | November 7, 2014                        |       | 100                                                                             | %          |
| Shanghai JD   Daojia Yuanxin Information Technology Co., Ltd. (“Yuanxin”) |       | PRC                               |       | April 26, 2016                          |       | 100                                                                             | %          |
|                                                                                     |       |                              |       |                                         |       |                                                                            |       |
| *VIE*                                                                                    |       |                              |       |                                         |       |                                                                            |       |
| Shanghai Qusheng   Internet Co. Ltd. (“Qusheng”)                               |       | PRC                               |       | July 2, 2014                            |       | 100                                                                             | %          |

 

10

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**2.**              **PRINCIPAL ACCOUNTING POLICIES**

 

**2.1**       ***Basis of presentation***

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the years presented.

 

**2.2**       ***Basis of consolidation***

 

The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIE and VIE’s subsidiaries in which it has a controlling financial interest. The results of the subsidiaries, VIE and VIE’s subsidiaries are consolidated from the date on which the Company obtained control and continue to be consolidated until the date that such control ceases. A controlling financial interest is typically determined when a company holds a majority of the voting equity interest in an entity.

 

The Group has adopted the guidance codified in ASC 810, Consolidations (“ASC 810”) on accounting for VIE, which requires certain variable interest entity to be consolidated by the primary beneficiary in which it has a controlling financial interest. A VIE is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support; (b) as a group, the holders of the equity investment at risk lack the ability to make certain decisions, the obligation to absorb expected losses or the right to receive expected residual returns, or (c) an equity investor has voting rights that are disproportionate to its economic interest and substantially all of the entity’s activities are on behalf of the investor.

 

All intercompany balances and transactions between the Group, its subsidiaries, VIE and VIE’s subsidiaries have been eliminated in consolidation.

 

**VIE Arrangements**

 

In order to comply with the PRC laws and regulations which prohibit or restrict foreign control of companies involved in provision of internet content and other restricted businesses, the Group operates its websites and other restricted businesses in the PRC through certain PRC domestic companies, whose equity interests are held by certain management members and shareholders of the Group (“Nominee Shareholders”). On November 14, 2014, Dada Glory entered into a series of contractual agreements with Qusheng and its shareholders. The following is a summary of the agreements which allow the Dada Glory to exercise effective control over Qusheng:

 

*Share Pledge Agreement*

 

Under the equity interest pledge agreement entered between Dada Glory and the shareholders of Qusheng, the shareholders pledged all of their equity interests in Qusheng to guarantee their performance of their obligations under the Exclusive Business Cooperation Agreement. If the shareholders of Qusheng breach their contractual obligations under the Exclusive Business Cooperation Agreement, Dada Glory, as the pledgee, will have the right to dispose the pledged equity pursuant to the PRC law. The shareholders of Qusheng have not placed any security equity interests or allowed any encumbrance on the pledged equity interests. The equity interest pledge agreement remains effective until the shareholders of Qusheng have fully performed their obligations and repaid their consulting and service fees by the shareholders of Qusheng under the Exclusive Business Cooperation Agreement. During the equity pledge period, Dada Glory is entitled to all dividends and other distributions generated by Qusheng.

 

*Exclusive Option Agreement*

 

Pursuant to the exclusive option agreement entered into among Dada Glory, Qusheng and Qusheng’s shareholders, Qusheng’s shareholders irrevocably grant Dada Glory or its designated representatives an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interest of Qusheng. The exercise price shall be the lowest price as permitted by the applicable PRC law at the time of the transfer of the optioned interest. The option term remains effective for a term of 10 years and can be extended at Dada Glory’s election. Without Dada Glory’s written consent, Qusheng and its shareholders may not sell, transfer, mortgage, or otherwise dispose of in any manner any assets, or legal or beneficial interest in the business or revenues, or allow the encumbrance thereon of any security interest.

 

11

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.2**       ***Basis of consolidation (continued)***

 

**VIE Arrangements (continued)**

 

*Exclusive Business Cooperation Agreement*

 

Under the Exclusive Business Cooperation Agreement entered between Dada Glory and Qusheng, Qusheng appoints Dada Glory as its exclusive services provider with complete business support and technical and consulting services. Qusheng shall not accept any consultations or services provided by any third party, and shall not cooperate with any third party. Qusheng agrees to pay Dada Glory a monthly service fee for services performed, and the monthly service fee shall be 100% of the net income of Qusheng on a monthly basis. Unless earlier termination of this agreement by Dada Glory or relevant agreements separately executed between the parties, the term of this agreement shall be 10 years and extended term shall be determined by Dada Glory’s election prior to the expiration thereof.

 

*Power of Attorney*

 

Pursuant to the irrevocable power of attorney, each of the Nominee Shareholders to exercise all shareholder rights under PRC law and the relevant articles of association, including but not limited to, proposing, convening and attending shareholders’ meetings of Qusheng, voting on their behalf on all matters requiring shareholder approval, sale or transfer or pledging or disposing of all or part of the Nominee Shareholders’ equity interests, and designating and appointing the senior management of Qusheng. Each power of attorney shall be irrevocably and continuously valid and effective from the date of its execution, unless Dada Glory issues adverse instructions in writing. Each Nominee Shareholders waive all the rights which have been authorized to Dada Glory under each power of attorney, and should not exercise such rights by themselves.

 

The irrevocable power of attorney has conveyed all shareholder rights held by the VIE’ shareholders to Dada Glory, including the right to appoint board members who nominate the general managers of the VIE to conduct day-to-day management of the VIE’s businesses, and to approve significant transactions of the VIE. In addition, the exclusive option agreements provide Dada Glory with a substantive kick-out right of the VIE’s shareholders through an exclusive option to purchase all or any part of the shareholders’ equity interest in the VIE at the lowest price permitted under PRC laws then in effect. In addition, through the exclusive support services agreements, the Company established the right to receive benefits from the VIE that could potentially be significant to the VIE, and through the equity pledge agreement, the Company has, in substance, an obligation to absorb losses of the VIE that could potentially be significant to the VIE.

 

*Risks in relation to the VIE structure*

 

The Company believes that the contractual arrangements amongst Dada Glory, Qusheng and their respective shareholders are in compliance with PRC law and are legally enforceable. The shareholders of Qusheng are also shareholders of the Company and therefore have no current interest in seeking to act contrary to the contractual arrangements. However, Qusheng and their shareholders may fail to take certain actions required for the Company’s business or to follow the Company’s instructions despite their contractual obligations to do so. Furthermore, if Qusheng or their shareholders do not act in the best interests of the Company under the contractual arrangements and any dispute relating to these contractual arrangements remains unresolved, the Company will have to enforce its rights under these contractual arrangements through the operations of PRC law and courts and therefore will be subject to uncertainties in the PRC legal system. All of these contractual arrangements are governed by PRC law and provided for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements, which may make it difficult to exert effective control over Qusheng, and its ability to conduct the Company’s business may be adversely affected.

 

12

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.2**       ***Basis of consolidation (continued)***

 

**VIE Arrangements (continued)**

 

The following amounts and balances of the consolidated VIE were included in the Group’s consolidated financial statements after the elimination of intercompany balances and transactions:

 
| ** **                                       | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                       | ** ** | **2017**                              | ** ** | **2018** | ** ** |
| ** **                                       | ** ** | **RMB**                               | ** ** | **RMB** | ** ** |
|                                             |       |                                  |       |   |   |
| Cash and cash   equivalents                      |       | 953                                   |       | 28 |   |
| Short-term   investments                         |       | 1,000                                 |       | 590 |   |
| Accounts   receivable, net                       |       | 1,574                                 |       | 4,808 |   |
| Prepayments and   other current assets           |       | 1,342                                 |       | 2,394 |   |
| Property and   equipment, net                    |       | 60                                    |       | 7 |   |
| Intangible   assets, net                         |       | 105                                   |       | 107 |   |
| Other   non-current assets                       |       | 1                                     |       | — |   |
| **Total   assets**                               |       | 5,035                                 |       | 7,934 |   |
|                                             |       |                                  |       |   |   |
| Amount due to   related parties                  |       | 32                                    |       | 32 |   |
| Accrued expenses   and other current liabilities |       | 2,512                                 |       | 2,580 |   |
| **Total   liabilities**                          |       | 2,544                                 |       | 2,612 |   |

 
| ** **                                  | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                  | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
| ** **                                  | ** ** | **RMB**                                     | ** ** | **RMB** | ** ** | **RMB** | ** ** |
|                                        |       |                                        |       |   |   |   |   |
| Net Revenues                                |       | —                                      |       | 9,843 |   | 6,621 |   |
| Net loss                                    |       | (21,362                                     | )          | (24,915 | ) | (15,263 | ) |
|                                        |       |                                        |       |   |   |   |   |
| Net cash used in   operating activities     |       | (4,713                                      | )          | (974 | ) | (925 | ) |
| Net cash used in   investing activities     |       | (197                                        | )          | — |   | — |   |
| Net cash provided   by financing activities |       | —                                      |       | 1,763 |   | — |   |

 

The VIE contributed approximately nil, 0.8% and 0.3% of the Group’s consolidated net revenues for the years ended December 31, 2016, 2017 and 2018, respectively. As of December 31, 2017 and 2018, the VIE accounted for an aggregate of approximately 0.1% and 0.1%, respectively, of the consolidated total assets, and approximately 0.3% and 0.4%, respectively, of the consolidated total liabilities.

 

There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Group or its subsidiaries to provide financial support to the VIE. However, if the VIE was ever to need financial support, the Group or its subsidiaries may, at its option and subject to statutory limits and restrictions, provide financial support to its VIE through loans to the shareholders of the VIE or entrustment loans to the VIE.

 

The Group believes that there are no assets held in the consolidated VIE that can be used only to settle obligations of the VIE, except for registered capital and the PRC statutory reserves. As the consolidated VIE is incorporated as a limited liability company under the PRC Company Law, creditors of the VIE do not have recourse to the general credit of the Group for any of the liabilities of the consolidated VIE.

 

Relevant PRC laws and regulations restrict the VIE from transferring a portion of their net assets, equivalent to the balance of their statutory reserve and their share capital, to the Group in the form of loans and advances or cash dividends.

 

13

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.3**       ***Use of estimates***

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets, long lived assets and liabilities at the dates of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Group’s management reviews these estimates based on information that is currently available. Changes in facts and circumstances may cause the Group to revise its estimates. Significant accounting estimates reflected in the Group’s financial statements mainly include the useful lives of property and equipment and intangible assets, assumptions used to measure the impairment of goodwill, property and equipment and intangible assets, assumptions impacting the valuation of ordinary shares, share options and warrant liabilities, the purchase price allocation in relation to business combination, and realization of deferred tax assets.

 

**2.4**       ***Functional currency and foreign currency translation***

 

The Group uses Renminbi (“RMB”) as its reporting currency. The functional currency of the Company is the United States dollar (“$”, “US$” or “USD”). The functional currency of the Company’s subsidiaries, VIE and VIE’s subsidiaries is RMB or USD as determined based on the economic facts and circumstances.

 

Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Foreign currency denominated financial assets and liabilities are re-measured at the balance sheet date exchange rate. The resulting exchange differences are included in the comprehensive loss.

 

Assets and liabilities of the Company and its subsidiaries with functional currency other than RMB are translated into RMB at fiscal year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal year. Translation adjustments arising from these are reported as foreign currency translation adjustments and are shown as a component of other comprehensive loss.

 

**2.5**       ***Cash and cash equivalents***

 

Cash and cash equivalents primarily consist of cash on hand and cash in bank which is highly liquid and unrestricted as to withdrawal and use.

 

**2.6**       ***Restricted cash***

 

The Group’s restricted cash mainly represents the deposits pledged for short-term bank loans.

 

**2.7**       ***Short-term investments***

 

Short-term investments include (i) wealth management products issued by commercial banks or other financial institutions with variable interest rates indexed to the performance of underlying assets within one year; and (ii) a foreign currency forward contract sold by a commercial bank. These investments are stated at fair value. Changes in fair value of wealth management products is included in interest income and fair value changes of the foreign currency forward contracts are presented in “Fair value change in foreign currency forward contract”.

 

**2.8**       ***Accounts receivable, net***

 

Accounts receivable mainly consists of amount due from the Group’s customers, which are recorded net of allowance for doubtful accounts. The Group performs ongoing credit evaluation of its customers, and assesses allowance for doubtful accounts based upon expected collectability based on the age of the receivables and factors surrounding the credit risk of specific customers.

 

14

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.9**       ***Inventories******, net***

 

Inventories, consisting of products available for sale, are stated at the lower of cost or market value. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated market value due to slow-moving merchandise and damaged goods, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. Provisions of RMB1,632 were recorded in the cost of goods sold in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2018.

 

**2.10*****Property and equipment, net***

 

Property and equipment is stated at cost less accumulated depreciation and impairment. Property and equipment is depreciated at rates sufficient to write off its costs less impairment and residual value, if any, over the estimated useful lives on a straight-line basis. The estimated useful lives are as follows:

 
| **Category**          | ** ** | **Estimated useful lives**                             |
|-----------------------|------------|------------------------------------------------------------------|
| Computer equipment    |       | 3 years                                                          |
| Office facilities     |       | 3-5 years                                                        |
| Vehicles              |       | 8 years                                                          |
| Software              |       | 3-5 years                                                        |
| Leasehold improvement |       | Over the shorter of the   expected useful life or the lease term |

 

Repairs and maintenance costs are charged to operating expenses 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 other operation income or expenses of Consolidated Statements of Operations and Comprehensive Loss.

 

**2.11*****Business combination***

 

U.S. GAAP requires that all business combinations to be accounted for under the purchase method. Since its incorporation, the Group adopted ASC 805, “Business Combinations”. Following this adoption, the cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of the (i) the total of cost of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the Consolidated Statements of Operations and Comprehensive Loss.

 

The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgments. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets and forecasted life cycle and forecasted cash flows over that period. Although the Group believes that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference could be material.

 

***2.12***   ***Intangible assets, net***

 

Intangible assets purchased are recognized and measured at cost upon acquisition and intangible assets arising from business combination are recognized and measured at fair value upon acquisition. The Group performs valuation of the intangible assets arising from business combination to determine the fair value to be assigned to each asset acquired. The acquired intangible assets are recognized and measured at fair value and are amortized using the straight-line approach over the estimated economic useful lives of the assets.

 

15

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

***2.13***   ***Goodwill***

 

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Group’s acquisitions of JDDJ business. Goodwill is not amortized but is reviewed at least annually for impairment or earlier, if any indication of impairment exists.

 

The Group adopted FASB revised guidance on “Testing of Goodwill for Impairment”. Under this guidance, the Group has the option to choose whether it will apply the qualitative assessment first and then the quantitative assessment, if necessary, or to apply the quantitative assessment directly. For reporting units applying a qualitative assessment first, the Group starts the goodwill impairment test by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Group determines that it is more likely not the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of goodwill with its carrying value. For reporting units directly applying a quantitative assessment, the Group performs the goodwill impairment test by quantitatively comparing the fair values of those reporting units to their carrying amounts.

 

Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. The Group performs the annual goodwill impairment assessment on December 31 and no goodwill impairment was identified as of December 31, 2016, 2017 and 2018 (Note 3).

 

***2.14***   ***Other non-current assets***

 

Other non-current assets mainly consist of long-term lease deposits, a convertible loan to a private company, and equity investment without a readily determinable fair value. Beginning on January 1, 2018, the Group’s equity investments without readily determinable fair values, which do not qualify for NAV practical expedient and over which the Group does not have the ability to exercise significant influence through the investments in common stock or in substance common stock, are accounted for under the measurement alternative upon the adoption of Accounting Standards Update (‘ASU”) 2016-01 (the “Measurement Alternative”). Under the Measurement Alternative, the carrying value is measured at cost, less any impairment, plus and minus changes resulting from observable price changes in orderly transactions for identical or similar investments. The Group recognized RMB3,432 and RMB2,000 of impairment losses to write off the loan receivable and equity investment without a readily determinable fair value, respectively, for the year ended December 31, 2018.

 

**2.15**   ***Warrant liabilities***

 

Warrants classified as liabilities are initially recorded at fair value with gains and losses arising from changes in fair value recognized in the Consolidated Statements of Operations and Comprehensive Loss during the period in which such instruments are outstanding.

 

16

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.16**   ***Fair value measurement***

 

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

 

The Group applies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is as follows:

 

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2: Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities.

 

Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

The fair value guidance describes three main approaches to measure 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.

 

When available, the Group uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Group will measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.

 

17

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.17**   ***Revenue recognition***

 

The Group derives its revenues principally from merchants’ use of the Group’s core platforms in connection with online marketplace platform services, on-demand logistic platform services, and comprehensive logistic solution services. Revenue is stated net of value added tax (“VAT”), discounts and return allowances.

 

On January 1, 2018, using the modified retrospective method, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” including related amendments and implementation guidance within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 (collectively, including ASU 2014-09, “ASC 606”), issued by the Financial Accounting Standards Board (“FASB”).

 

The impact of adopting the new revenue standard was not material to the consolidated financial statements and there was no adjustment to the beginning accumulated deficit on January 1, 2018. Results for reporting period beginning on January 1, 2018 are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with ASC 605.

 

*Platform Service*

 

*On-demand Logistic Platform Service*

 

The Group provides on-demand logistic platform services through its self-developed on-demand logistics platform (“Dada Platform”) where the Group assists the customer, a registered merchant, in finding a deliveryman (“Driver”) to complete a delivery requested by the customer. The Group acts as an agent as it is not responsible for fulfilling the promise to provide the delivery service, and does not have the ability to control the related services. The service fee is the difference between the amount paid by a customer based on an upfront quoted fare and the amount earned by a Driver based on expected time, distance and other factors. The Group earns a variable amount from the customers and may record a loss from a transaction when an up-front quoted fare offered to a customer is less than the amount the Group is committed to pay the Driver. The service fee is recognized on a net basis at the point of delivery of merchandise. The loss of a transaction is recorded in fulfilment expenses in the Consolidated Statements of Operations and Comprehensive Loss.

 

*JDDJ Marketplace Platform Service*

 

The Group provides JDDJ marketplace platform services on its Online-to-Offline (“O2O”) ecommerce grocery platform (“JDDJ Platform”). The service revenues primarily consist of commission fees charged to third-party merchants for participating in the Group’s online marketplace, where the Group acts as an agent and its performance obligation is to facilitate the merchants’ online sales of their goods through JDDJ Platform. It is not primarily obligated to the consumers, does not take inventory risk, and does not have latitude over pricing of the merchandise. Upon successful sales, the Group charges the merchant a fixed rate commission fee based on the sales amount. Commission fee revenues are recognized on a net basis at the point of delivery of products.

 

18

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.17**   ***Revenue recognition (Continued)***

 

*Comprehensive Logistic Solution Services*

 

The Group provides comprehensive logistic solution services to merchants on its online marketplace and business customers that do not sell products on its online marketplace by utilizing the Group’s network of registered Drivers to fulfil the delivery service. The Group has determined that it acts as a principal in this type of services as the Group is responsible for identifying and directing the Driver to deliver the merchandise.  The Group therefore controls the service before the merchandise are transferred to the recipient, is primarily responsible for fulfilling the obligation to the customer and also has pricing discretion. Revenues resulting from these services are recognized on a gross basis at a fixed rate or a pre-determined amount for each completed delivery, when merchandise are arrived at designated place or packages are delivered to the recipients, with the amounts paid to the Drivers recorded in fulfillment expenses.

 

*Goods Sales*

 

The Group operates its own e-commerce business and sells delivery equipment and other merchandise. The Group also sells merchandise through unmanned smart mini-stores. Revenue is recognized on a gross basis as the Group is acting as a principal in these transactions, is responsible for fulfilling the promise to provide the specified merchandise and also has pricing discretion . The Group recognizes revenues net of discounts and return allowances when the goods are delivered to the customers.

 

*Others*

 

Other services primarily comprise (i) warehouse fulfilment service to business customers, (ii) online marketing services to merchants or brand customers for promotion of their  products or brands on JDDJ marketplace platform and (iii) service fees received from insurance companies for arranging life insurance for Drivers. Revenue is recognised when service is rendered.

 

*Incentive programs*

 

*Customer incentives*

 

The Group offers various incentive programs to merchants and business customers in the form of coupons or volume-based discounts in the provision of on-demand logistics platform service and comprehensive logistics solution service that are recorded as reduction of revenue as the Group does not receive a distinct good or service in consideration or cannot reasonably estimate the fair value of goods or services received.

 

19

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.17**   ***Revenue recognition (Continued)***

 

*Driver incentives*

 

The Group offers various incentive programs to Drivers such as volume-based incentives. Since Drivers are not the Group’s customers, incentives are accounted for as fulfillment expenses. For the years ended December 31, 2016, 2017 and 2018, incentives to Drivers recorded as fulfilment expenses were RMB74,745, RMB127,392 and RMB223,664, respectively.

 

*Consumer incentives*

 

The consumer incentives are offered to promote the Group’s platform in the form of promotion coupon on the JDDJ Platform, which are valid only during a limited period of time. These incentives are provided at the Group’s discretion and are not contractually required by the merchants. These incentives also do not reduce the overall pricing of the services provided by the Group. As the Group has no performance obligation to consumers who are not the Group’s customers, incentives to consumers are recognized as selling and marketing expenses. For the years ended December 31, 2016, 2017 and 2018, consumer incentives that were recorded as selling and marketing expenses were RMB117,961 RMB362,137 and RMB782,479, respectively.

 

All the incentives granted can be categorized into 1) incentives granted concurrent with a purchase transaction and 2) incentives granted not concurrent with a purchase transaction. When the incentive is granted concurrent with a purchase transaction, expenses or reduction of revenue are accrued as the related transactions are recorded. When the incentive is not granted concurrent with a purchase transaction, expenses or reduction of revenue are recognized at the time of coupon redemption.

 

*Disaggregation of revenues*

 

For the years ended December 31, 2016, 2017 and 2018, all of the Group’s revenues were generated in the PRC. The disaggregated revenues by types were as follows:

 
| ** **                                 | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                 | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
| ** **                                 | ** ** | **RMB**                                     | ** ** | **RMB** | ** ** | **RMB** | ** ** |
|                                       |       |                                        |       |   |   |   |   |
| Comprehensive   logistic solution services |       | 30,640                                      |       | 933,606 |   | 1,351,805 |   |
| Platform   services                        |       | 54,049                                      |       | 133,582 |   | 278,378 |   |
| Sales of goods                             |       | 20,506                                      |       | 41,924 |   | 81,899 |   |
| Others                                     |       | 17,446                                      |       | 108,853 |   | 209,933 |   |
| **Total   revenues**                       |       | **122,641**                                 |       | **1,217,965** |   | **1,922,015** |   |

 

20

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.17**   ***Revenue recognition (Continued)***

 

*Contract balances*

 

The remaining unsatisfied performance obligation as of December 31, 2017 and 2018 was immaterial.

 

Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represents amounts invoiced and revenues recognized prior to invoicing when the Group has satisfied its performance obligation and has the unconditional right to payment.

 

The Group sometimes receives advance payments from consumers before the service is rendered, which is recorded as advance from merchants included in the accrued expenses and other current liabilities on the Consolidated Balance Sheets. The balance as of December 31, 2017 and 2018 was immaterial.

 

*Practical expedients and exemptions*

 

The Group elects not to disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less (ii) contracts for which the Group recognizes revenues at the amount to which it has the right to invoice for services performed and (iii) contracts with variable consideration related to wholly unsatisfied performance obligations.

 

**2.18**   ***Cost of goods sold***

 

Cost of goods sold primarily consist of purchase price of merchandise, inventory provision and surcharge and sales taxes.

 

**2.19**   ***Fulfilment expenses***

 

Fulfilment expenses primarily consist of (i) Drivers’ remuneration to fulfil the Group’s logistics orders from merchants, (ii) expenses incurred in operating the Group’s customer service centers, (iii) expenses charged by third-party couriers for logistics service and third-party customer service, (iv) transaction fees charged by third-party payment platform and (v) packaging cost as well as other fulfilment expenses directly attributed to the Group’s principal operations.

 

**2.20**   ***Selling and marketing expenses***

 

Selling and marketing expenses primarily consist of incentive payments to consumers, advertising and promotion expenses, payroll and related expenses for employees involved in selling and marketing functions in the city stations, as well as the associated expenses of facilities and equipment, such as depreciation expenses, rental and others. The advertising and market promotion expenses amounted to RMB47,217, RMB156,317 and RMB118,829 for the years ended December 31, 2016, 2017 and 2018, respectively.

 

21

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**2.**     **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.21**   ***Research and development expenses***

 

Research and development expenses primarily consist of technology infrastructure expenses, payroll and related expenses for employees involved in platform development and internal system support, charges for the usage of the server and computer equipment, and editorial content.

 

**2.22**   ***Operating leases***

 

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing group are accounted for as operating leases. Payments made under operating leases net of any incentives received by the Group from the leasing group are charged to the Consolidated Statements of Operations and Comprehensive Loss on a straight-line basis over the leasing periods.

 

**2.23**   ***Share-based compensation***

 

The Group accounts for share options granted to employees in accordance with ASC 718, “Stock Compensation”. The Group grants options and restricted share units to the Group’s employees, directors, and consultants. In accordance with the guidance, the Group determines whether a share option should be classified and accounted for as a liability award or an equity award.

 

Options and restricted share units granted to the employees, including the directors, vest upon satisfaction of a service condition, which is generally satisfied over four years and are measured at the grant date. Options granted to non-employees with a service condition are accounted for based on the fair value of the equity instrument issued, as this has been determined to be more reliably measurable. The Group has accounted for equity instruments issued to non-employees in accordance with the provisions of ASC 718 and ASC subtopic 505-50, “Equity: Equity based Payments to Non-Employees”. The fair value of each option granted to non-employees will be estimated on the date of grant using the same option valuation model used for options granted to employees. Options granted to non-employees of the Group are re-measured each period end in accordance with ASC 505. The final measurement date of the fair value of the equity instrument issued is the date on which the non-employee’s performance is completed.

 

Additionally, the Group’s incentive plan provides an exercisability clause where employees or non-employees can only exercise vested options upon the occurrence of the event that the Group’s ordinary shares are publicly traded. Options for which the service condition has been satisfied are forfeited should employment terminate prior to the occurrence of an exercisable event, which substantially creates a performance condition. The satisfaction of the performance condition becomes probable upon completion of the Group’s initial public offering and therefore, the Group has not recorded any compensation expenses and will record the cumulative share-based compensation expenses for these options when it completes the initial public offering.

 

According to ASC 718, a change in any of the terms or conditions of equity-based awards shall be accounted for as a modification of the award. Therefore, the Group calculates incremental compensation cost of a modification as the excess of the fair value of the modified option over the fair value of the original option immediately before its terms are modified. For vested options, the Group would recognize incremental compensation cost on the date of modification and for unvested options, the Group would recognize, prospectively and over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award.

 

**2.24**   ***Government grants***

 

Government grants include cash subsidies received by the Group’s entities in the PRC from local governments as incentives for operating business in certain local districts. Such subsidies allow the Group full discretion in utilizing the funds and are used by the Group for general corporate purpose. Cash subsidies are included in other operating income and recognized when received.

 

22

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.25**   ***Taxation***

 

Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be received or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the Consolidated Statements of Operations and Comprehensive Loss in the period of the enactment of the change.

 

**2.26**   ***Comprehensive loss***

 

Comprehensive loss is defined as the change in equity of the Group during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive loss is reported in the Consolidated Statements of Operations and Comprehensive Loss. Accumulated other comprehensive loss, as presented on the accompanying Consolidated Balance Sheets, consists of accumulated foreign currency translation adjustments.

 

**2.27**   ***Recent accounting pronouncements***

 

*New accounting pronouncements recently adopted*

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in ASC 605, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Group adopted the new revenue standard beginning January 1, 2018 using the modified retrospective transition method. The impact of adopting this ASU was not material to the consolidated financial statements and there was no adjustment to the beginning accumulated deficit on January 1, 2018 (Note 2).

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Under the new ASC, entities no longer use the cost method of accounting as it was applied before and the new ASC requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, a company can elect to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (the “measurement alternative”). The Group adopted this ASU beginning January 1, 2018, which has no material impact on its consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Group adopted this ASU beginning January 1, 2018, which has no material impact on its consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash, which clarifies guidance on the classification and presentation of restricted cash in the statement of cash flows. The adoption of this accounting pronouncement impacts the presentation of restricted cash in the Group’s Consolidated Statements of Cash Flows. The Group adopted this ASU beginning January 1, 2018 in accordance with the retrospective transition method, including restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Consolidated Statements of Cash Flows.

 

23

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**2.**              **PRINCIPAL ACCOUNTING POLICIES (CONTINUED)**

 

**2.27**   ***Recent accounting pronouncements (Continued)***

 

*New accounting pronouncements not yet adopted*

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on balance sheet and disclose key information about lease arrangements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with terms of longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The standard is effective on January 1, 2019, with early adoption permitted. In July 2018, the FASB issued an update that provided an additional transition option that allows companies to continue applying the guidance under the lease standard in effect at that time in the comparative periods presented in the consolidated financial statements. Companies that elect this option would record a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. The Group will elect this optional transition method. As of December 31, 2018, the Group has RMB122,260 of undiscounted future minimum operating lease commitments that are not recognized on its consolidated balance sheets (Note 20). Therefore, the Group would expect changes to its Consolidated Balance Sheets for the recognition of these and any additional leases entered into in the future upon adoption.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for an entity’s annual or any interim goodwill impairments tests in fiscal years beginning after December 15, 2019 and will require adoption on a prospective basis. The Group is currently in the process of evaluating the impact of the adoption of this ASU on its consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718), which simplifies the accounting for non-employee share-based payment transactions by expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Under the new standard, most of the guidance on stock compensation payments to non-employees would be aligned with the requirements for share-based payments granted to employees. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, with early adoption permitted. The Group is currently in the process of evaluating the impact of the adoption of this ASU on its consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Group does not expect the adoption of this ASU has a significant impact on its consolidated financial statements.

 

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810), which amends two aspects of the related-party guidance in ASC 810. Specifically, the ASU (1) adds an elective private-company scope exception to the variable interest entity guidance for entities under common control, and (2) amends the guidance for determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP). Therefore, these amendments likely will result in more decision makers not consolidating VIEs. For entities other than private companies, ASU 2018-17 is effective for fiscal years beginning after December 15, 2019, including interim periods therein. For private companies, the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted for all entities. This guidance will be adopted using a retrospective approach. The Group does not expect the adoption of this ASU has a significant impact on its consolidated financial statements.

 

24

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**3.**              **BUSINESS COMBINATION**

 

On April 26, 2016, the Group and JD.com, Inc. (“JD”) entered into an agreement to acquire JDDJ Business, an online marketplace where registered merchants offers local retailers’ products to its end consumers. In connection with the acquisition, the Company also entered into a Business Cooperation Agreement (“BCA”) and a Non-Compete Agreement (“NCA”) with JD.

 

The consideration for the acquisition of JDDJ business, BCA and NCA includes 286,832,885 ordinary shares of the Company, 46,743,137 Series E Preferred Shares and a warrant to subscribe 35,151,665 Series E Preferred Shares within two years with a pre-determined purchase price. The acquisition-related costs amounted to RMB 10,474 was recorded in general and administrative expenses. The transactions were consummated on April 26, 2016.

 

The acquisition of JDDJ business was accounted for as a business combination and the results of operations of the JDDJ from the acquisition date have been included in the Group’s consolidated financial statements from April 26, 2016.  BCA and NCA were acquired in connection with the acquisition of JDDJ Business. The identifiable intangible assets acquired are amortized on a straight-line basis over the respective useful lives. The Group made estimates and judgments in determining the fair value of JDDJ business, NCA and BCA with assistance from an independent valuation firm.

 

The purchase price allocation is as follows:

 
| ** **                        | ** ** | **Amount**    | ** ** |
|-----------------------------------|------------|---------------|------------|
| ** **                        | ** ** | **RMB**       | ** ** |
|                              |       |          |       |
| Fair value of   the consideration |       |          |       |
| Ordinary shares issued            |       | 2,034,619     |       |
| Preferred shares   issued         |       | 1,291,780     |       |
| Warrant   liabilities (Note 12)   |       | 214,286       |       |
| **Total   consideration**         |       | **3,540,685** |       |

 
| ** **                                                    | ** ** | **As of April 26, 2016** | ** ** | **Amortization   Years** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------|------------|
| ** **                                                    | ** ** | **RMB**                                      | ** ** | ** **               | ** ** |
|                                                          |       |                                         |       |                     |       |
| Fair value of   NCA                                           |       | 541,400                                      |       | 7                        |       |
| Fair value of   BCA                                           |       | 434,900                                      |       | 7                        |       |
| JDDJ Business                                                 |       |                                         |       |                     |       |
| Cash and cash   equivalents                                   |       | 1,374,984                                    |       |                     |       |
| Other assets   acquired                                       |       | 1,124                                        |       |                     |       |
| Payables to   marketplace merchants                           |       | (19,946                                      | )          |                     |       |
| Amount due to   related parties                               |       | (28,446                                      | )          |                     |       |
| Accrued expenses   and other current liabilities              |       | (35,936                                      | )          |                     |       |
| Identifiable   intangible assets - Technology                 |       | 96,000                                       |       | 3.7                      |       |
| Identifiable   intangible assets - Trademark and Domain Name  |       | 324,000                                      |       | 9.7                      |       |
| Deferred tax   liabilities for identifiable intangible assets |       | (105,000                                     | )          |                     |       |
| Goodwill                                                      |       | 957,605                                      |       |                     |       |
| **Total   assets received and liabilities assumed**           |       | **3,540,685**                                |       |                     |       |

 

25

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**3.**              **BUSINESS COMBINATION (CONTINUED)**

 

Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired and is not deductible for tax purpose. Goodwill arising from this acquisition was attributable to the synergies expected from the combined business.

 

The following table summarizes unaudited pro forma results of operations for the years ended December 31, 2016 assuming that the acquisition occurred as of January 1, 2016. The pro forma results have been prepared for comparative purpose only based on management’s best estimate and do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred as of the beginning of period:

 
| ** **                       | ** ** | **Year ended December 31, 2016** | ** ** |
|----------------------------------|------------|------------------------------------------------------|------------|
| ** **                       | ** ** | **Unaudited**                                        | ** ** |
| ** **                       | ** ** | **RMB**                                              | ** ** |
|                             |       |                                                 |       |
| Pro forma   revenue              |       | 148,363                                              |       |
| Pro forma loss   from operations |       | (1,802,522                                           | )          |
| Pro forma net   loss             |       | (1,760,939                                           | )          |

 

**4.**              **FAIR VALUE MEASUREMENTS**

 

The Group’s financial instruments include cash and cash equivalent, restricted cash, receivables, payables, prepayments and other current assets, short-term loan, amount due from and due to related parties and accrued expenses and other current liabilities. The carrying amounts of these short-term financial instruments approximate their fair value due to their short-term nature. The Group wrote off the convertible loan to a private company of RMB3,432 included in other noncurrent assets during 2018 due to the bankruptcy of the private company.

 

As of December 31, 2017 and 2018, information about inputs into the fair value measurement of the Group’s assets and liabilities that are measured at fair value on a recurring basis in periods subsequent to their initial recognition is as follows:

 
| ** **                         | ** ** | ** **                        | ** ** | ** **       | ** ** | **Fair Value Measurements at Reporting Date Using**                      | ** ** |
|------------------------------------|------------|-----------------------------------|------------|------------------|------------|--------------------------------------------------------------------------------------------------------|------------|
| **Years   Ended   December   31,** | ** ** | **Description**                   | ** ** | **Fair   Value** | ** ** | **Quoted Prices in   Active Markets   for Identical   Assets (Level 1)** | ** ** | **Significant   Other   Observable   Inputs   (Level 2)** | ** ** | **Significant   Unobservable   Inputs   (Level 3)** | ** ** |
| 2017                               |       | Wealth management products        |       | 301,900          |       | —                                                                                                 |       | 301,900 |   | — |   |
| 2017                               |       | Foreign currency forward contract |       | 22,846           |       | —                                                                                                 |       | 22,846 |   | — |   |
| 2018                               |       | Wealth management products        |       | 721,380          |       | —                                                                                                 |       | 721,380 |   | — |   |

 

The Group measures certain assets, including the equity investment without readily determinable fair value, at fair value on a nonrecurring basis when it is deemed to be impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include management judgments, future performance projections, etc. During the years ended December 31, 2017 and 2018, the Group recognized an impairment of equity investment without readily determinable fair value in the amount of nil and RMB2,000, respectively.

 

Certain non-financial assets are measured at fair value on a nonrecurring basis, including property, plant, and equipment, goodwill and intangible assets and they are recorded at fair value only when impairment is recognized by applying unobservable inputs such as forecasted financial performance, discount rate, etc. to the discounted cash flow valuation methodology that are significant to the measurement of the fair value of these assets. During the years ended December 31, 2016, 2017 and 2018, the Group recognized impairment of property and equipment in the amount of nil, nil and RMB8,481, respectively (Note 8).

 

See Note 12 for the fair value measurement of warrant liabilities.

 

26

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**5.**              **SHORT-TERM INVESTMENT**

 
| ** **                   | ** ** | **As of December 31,** | ** ** |
|------------------------------|------------|---------------------------------------|------------|
| ** **                   | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                         |       |                                  |       |   |   |
| Wealth   management products |       | 301,900                               |       | 721,380 |   |
| Foreign currency   forward   |       | 22,846                                |       | — |   |
| **Total**                    |       | **324,746**                           |       | **721,380** |   |

 

The Group entered into a foreign currency forward contract on March 27, 2017 with a commercial bank to sell its time deposits denominated in USD for RMB at a fixed exchange rate of 7.03 on March 23, 2018 with the notional amount of USD52,380. The Group incurred fair value changes of RMB22,846 and RMB13,463 for the years ended December 31, 2017 and 2018, respectively and settled it on March 23, 2018 with the carrying amount.

 

**6.**              **ACCOUNTS RECEIVABLE, NET**

 

Accounts receivable and the related bad debt provision as of December 31, 2017 and 2018 are as follows:

 
| ** **                           | ** ** | **As of December 31,** | ** ** |
|--------------------------------------|------------|---------------------------------------|------------|
| ** **                           | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                                 |       |                                  |       |   |   |
| Accounts   receivable                |       | 6,946                                 |       | 30,660 |   |
| Less: Bad debt   provision           |       | —                                |       | (316 | ) |
| **Total   Accounts receivable, net** |       | **6,946**                             |       | **30,344** |   |

 

Movement of Bad debt provision for accounts receivable is as follows:

 
| ** **                           | ** ** | **As of December 31,** | ** ** |
|--------------------------------------|------------|---------------------------------------|------------|
| ** **                           | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                                 |       |                                  |       |   |   |
| Balance as of   January 1       |       | **—**                            |       | **—** |   |
| Provisions for   doubtful accounts   |       | —                                |       | (316 | ) |
| **Balance   as of December 31** |       | **—**                            |       | **(316** | **)** |

 

**7.**              **PREPAYMENT AND OTHER CURRENT ASSETS**

 
| ** **                                                              | ** ** | **As of December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                              | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                                                                    |       |                                  |       |   |   |
| Funds receivable   from third party mobile and online payment platforms |       | 24,275                                |       | 49,488 |   |
| Advance to   suppliers mainly for cloud computing service               |       | 16,911                                |       | 17,198 |   |
| VAT receivable                                                          |       | 2,299                                 |       | 12,747 |   |
| Interest receivable   from bank deposit and wealth management products  |       | 4,662                                 |       | 8,897 |   |
| Deposits mainly   for lease of premises                                 |       | 3,925                                 |       | 6,602 |   |
| Other   receivables                                                     |       | 2,632                                 |       | 2,046 |   |
| **Total**                                                               |       | **54,704**                            |       | **96,978** |   |

 

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**8.**              **PROPERTY AND EQUIPMENT, NET**

 

Property and equipment and its related accumulated depreciation are as follows:

 
| ** **                        | ** ** | **As of December 31,** | ** ** |
|-----------------------------------|------------|---------------------------------------|------------|
| ** **                        | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                              |       |                                  |       |   |   |
| Office   facilities               |       | 6,708                                 |       | 7,408 |   |
| Software                          |       | 1,908                                 |       | 4,035 |   |
| Computer   equipment              |       | 1,636                                 |       | 6,787 |   |
| Vehicles                          |       |  60                              |       | 21 |   |
| Leasehold   improvement           |       | 10,515                                |       | 28,853 |   |
| Total cost                        |       | 20,827                                |       | 47,104 |   |
| Less:   Accumulated depreciation  |       | (7,964                                | )          | (16,078 | ) |
| Less: Impairment                  |       | —                                |       | (8,481 | ) |
| **Property   and equipment, net** |       | **12,863**                            |       | **22,545** |   |

 

Depreciation expenses related to property and equipment were RMB2,298, RMB4,886 and RMB 10,380 for the years ended December 31, 2016, 2017 and 2018, respectively.

 

For the year ended December 31, 2018, the Group recognized an impairment of RMB8,481 to write off certain assets which will not be used due to the cease of unmanned smart mini-stores business. The revenue and cost associated with this business was not material.

 

**9.**              **INTANGIBLE ASSETS, NET**

 

Gross carrying amount, accumulated amortization and net book value of the intangible assets are as follows:

 
| ** **                       | ** ** | **As of December 31,** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|
| ** **                       | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                             |       |                                  |       |   |   |
| BCA                              |       | 437,626                               |       | 459,661 |   |
| NCA                              |       | 544,793                               |       | 572,224 |   |
| Trademark and   domain name      |       | 324,130                               |       | 324,161 |   |
| Technology                       |       | 96,000                                |       | 96,000 |   |
| Less:   Accumulated amortization |       | (332,847                              | )          | (551,414 | ) |
| **Intangible   assets, net**     |       | **1,069,702**                         |       | **900,632** |   |

 

Amortization expenses related to intangible assets were RMB135,838, RMB204,175 and RMB201,861 for the years ended December 31, 2016, 2017 and 2018, respectively.

 

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

 
| ** **                               | ** ** | **Future amortization expenses** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **RMB**                                    | ** ** |
| For the years   ending December 31, |       |                                       |       |
| 2019                                     |       | 207,775                                    |       |
| 2020                                     |       | 181,902                                    |       |
| 2021                                     |       | 181,433                                    |       |
| 2022                                     |       | 181,433                                    |       |
| 2023                                     |       | 80,508                                     |       |
| Thereafter                               |       | 67,581                                     |       |
| Total                                    |       | 900,632                                    |       |

 

28

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**10.**      **SHORT-TERM LOAN**

 
| ** **                   | ** ** | **As of December 31,** | ** ** |
|------------------------------|------------|---------------------------------------|------------|
| ** **                   | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                         |       |                                  |       |   |   |
| Short-term bank   borrowings |       | 354,499                               |       | — |   |

 

In March 2017, the Group entered into a credit agreement with a domestic commercial bank, for which the total facility was amounted to RMB 950,000 (the “Facility”) with a term of one year. In 2017, the Group drew five borrowings from the Facility for an aggregated principal amount of RMB 354,499 which was collateralized by the bank deposit of US$ 52,380 (RMB 342,261) classified as restricted cash. The loan was repaid and the restriction on the bank deposit was released in 2018. The annual interest rate of the borrowings was approximately 3.92%, resulting in interest expenses of RMB8,908 and RMB3,122 for the years ended December 31, 2017 and 2018, respectively.

 

**11.**       **ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES**

 
| ** **                                        | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                                              |       |                                  |       |   |   |
| Salaries and   welfare payables                   |       | 52,225                                |       | 51,287 |   |
| Payables to   marketplace merchants (1)           |       | 36,678                                |       | 48,192 |   |
| Advance from   merchants for delivery service (2) |       | 39,470                                |       | 33,406 |   |
| Accrued   marketing expenses for JDDJ Platform    |       | 27,696                                |       | 26,510 |   |
| Deposits from merchants   and Drivers             |       | 7,362                                 |       | 21,065 |   |
| Professional fee   payables                       |       | 3,890                                 |       | 14,497 |   |
| Tax payables                                      |       | 77,394                                |       | 7,753 |   |
| Rental payables                                   |       | 31                                    |       | 7,333 |   |
| Interest payable                                  |       | 3,395                                 |       | — |   |
| Others                                            |       | 9,974                                 |       | 19,897 |   |
| **Total**                                         |       | **258,115**                           |       | **229,940** |   |

 

----

(1) Payables to marketplace platform merchants represent cash collected on behalf of marketplace sellers for products sold through the Group’s online marketplace platform.

 

(2) Advance from merchants for logistic service represents the prepayments from merchants for on-demand logistic platform services. The amount is refundable if no service is provided.

 

**12.**       **WARRANT LIABILITIES**

 

In connection with the acquisition of JDDJ business on April 26, 2016, a warrant was issued to JD (Note 3), which provided JD the right to purchase additional 35,151,665 Series E Preferred Shares with the pre-determined purchase price of US$ 4.28 per share and exercisable at any time and expire on the earlier of (i) 24 months after issuance or (ii) immediately prior to a public offering (“Qualified IPO”). The warrant shall automatically terminate upon the completion of a Qualified Financing. A Qualified Financing means a bona fide private placement financing by the Company, which (i) values the Company at a pre-money valuation (excluding any amount of exercise price paid under this warrant) of at least US$4,090,950 and (ii) upon completion, will result in gross proceeds to the Company of at least US$100,000 in the aggregate (taking into account all closings of such financing if there is more than one closing).

 

The Group followed the authoritative guidance which requires liability classification for warrant issued that are exercisable into convertible redeemable preferred shares. Liability classification requires the warrant to be re-measured to their fair value at the end of each reporting period. The Group utilized the service of an independent third party specialist to determine the fair value of the warrant, which took into consideration the fair value of underlying preferred shares, a risk-free interest rate, and expected volatility. Certain inputs used in the model are unobservable. As a result, the valuation of the warrant was categorized as Level 3 in accordance with ASC 820, “Fair Value Measurement”.

 

On December 28, 2017, the warrants were exercised by JD, upon which JD paid the subscription amounting to US$ 150,404 (RMB 983,820) for 35,151,665 Series E Preferred Shares.

 

29

----

 

**12.**       **WARRANT LIABILITIES (CONTINUED)**

 

The Group estimates its fair value using binomial model as of  December 28, 2017 (immediate prior to the exercise of the warrants) using the following assumptions:

 
| ** **                                         | ** ** | **As of December  31, 2016** | ** ** | **As of December 28, 2017** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------|------------|
|                                               |       |                                        |       |                                            |       |
| Fair market   value per share as of valuation date |       | US$                                         | 4.35       |                                            | US$        | 4.47 |   |
| Exercise price                                     |       | US$                                         | 4.28       |                                            | US$        | 4.28 |   |
| Risk free rate   of interest                       |       | 1.63                                        | %          | 2.10                                            | %          |
| Dividend yield                                     |       | 0.00                                        | %          | 0.00                                            | %          |
| Expected   volatility                              |       | 38                                          | %          | 30                                              | %          |

 

The carrying fair value of the warrant liabilities on exercise date was US$15,800 (RMB103,240), and the fair value changes in warrant liabilities for the years ended December 31, 2016, and 2017 were US$4,500 (RMB29,221) and US$12,700 (RMB 82,467), respectively.

 

The Group estimated expected volatility by reference to the historical share price volatility of comparable companies over a period close to the remaining life of the warrant. The Group estimated the risk free interest rate based on the yield to maturity of  U.S. Treasure Bill on the valuation date, with the maturity period close to the remaining life of the warrant and adjusted by country risk differential between US and China. The estimated fair value of the preferred shares was determined with assistance from an independent third party valuation firm. The dividend yield was estimated as zero based on the plan to retain profit for corporate expansion and no dividend distribute in the near future. The assumptions used in warrant fair value assessment represent the Group’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. If factors change or different assumptions are used, the fair value change of warrants could be materially different for any period.

 

**13.**       **SHARE-BASED COMPENSATION**

 

In February 2015, the Group adopted the 2015 Incentive Compensation Plan (“2015 Plan”), which permits the granting of share options, restricted share units and other equity incentives to employees, directors and consultants of the Group. The 2015 plan administrator is the Group’s board of directors. The board may also authorize one or more of the Group’s officers to grant awards under the plan. The Group has authorized 68,698,662 ordinary shares for issuance under the 2015 Plan.

 

***Employee options:***

 

Under the 2015 Plan, options granted to employees vest upon satisfaction of a service condition, which is generally satisfied over four years. Additionally, the 2015 Plan includes a condition where employees can only exercise vested options upon the occurrence of that the Company’s ordinary shares become listed securities, which substantially creates a performance condition (“IPO Condition”). Therefore, since the adoption of the 2015 Plan, the Group  has not recognized any stock-based compensation expenses for options granted, because the exercisable event as described above has not occurred. The Group granted 7,632,897, 3,057,177 and 5,264,956 share options to certain of its employees in 2016, 2017 and 2018, respectively. The options expire ten years from the date of grant.

 

In October 2016, in connection with the issuance of Series E Preferred Shares, the board of directors of the Company resolved to repurchase 1,199,608 share options from employees with a cash consideration of US$2,553 (RMB17,215). The Group believes that the repurchase was one-off in nature and the classification of the awards should not be changed as these awards were not deemed to have a substantive cash settlement feature. The repurchase of share options was an improbable-to-probable modification of the unvested awards and therefore accounted for as the issuance of a new award. The consideration paid for the repurchase was recognized as compensation cost in general and administrative expenses on settlement date.

 

30

----

 

**13.**       **SHARE-BASED COMPENSATION (CONTINUED)**

 

***Non-employee options:***

 

Under the 2015 Plan, the Group granted 2,000,000 share options to certain non-employees vest upon satisfaction of a 4-year service condition in 2015, including a condition where optionee can only exercise vested options when the Company’s ordinary shares become listed securities. The options expire ten years from the date of grant. The Group granted 862,390, nil and nil share options to certain of its non-employees in 2016, 2017 and 2018, respectively.

 

In April 2016, the board of directors agreed for early vesting and repurchase of 716,431 share options at the price of US$4.19 (RMB27.12) per share. The Group believes that the repurchase was one-off in nature and the classification of the awards should not be changed as these awards were not deemed to have a substantive cash settlement feature. The repurchase of early exercised share options was an improbable-to-probable modification of the unvested awards and accounted for as the issuance of a new award. The consideration paid for the repurchase was recognized as compensation cost in general and administrative expenses with an amount of US$2,991 (RMB19,372) on settlement date.

 

In determining the fair value of the stock options, the binomial option pricing model was applied. The key assumptions used to determine the fair value of the options at the relevant grant dates in 2016, 2017 and 2018 were as follows:

 
| ** **                          | ** ** | **For the years ended December 31,** |
|-------------------------------------|------------|---------------------------------------------------------------|
| ** **                          | ** ** | **2016**                                                      | ** ** | **2017** | ** ** | **2018** |
|                                |       |                                                          |   |   |   |   |
| Expected volatility                 |       | 40%~42%                                                       |   | 36%~40% |   | 36%~38% |
| Risk-free interest rate (per annum) |       | 2.4%~3.3%                                                     |   | 3%~3.2% |   | 3.5%~3.7% |
| Exercise multiples                  |       | 2.2                                                           |   | 2.2 and 2.8 |   | 2.2 |
| Expected dividend yield             |       | 0.00%                                                         |   | 0.00% |   | 0.00% |

 

The Group estimated expected volatility by reference to the historical price volatilities of ordinary shares of comparable companies over a period close to the contract term of the options. The Group estimated the risk free interest rate based on the yield to maturity of U.S. government bonds at grant dates with a maturity period close to the contract term of options, adjusted by country risk differential between U.S. and China. As the Group has had no option exercise history, it estimated exercise multiples based on empirical research on typical employee stock option exercising behavior. The dividend yield was estimated as zero based on the plan to retain profit for corporate expansion and no dividend distribute in near future. The assumptions used in share-based compensation expenses recognition represent the Group’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. If factors change or different assumptions are used, the share-based compensation expenses could be materially different for any period.

 

31

----

 

**13.**       **SHARE-BASED COMPENSATION (CONTINUED)**

 

The following table summarized the Group’s share option activities under the Option Plans:

 
| ** **                                            | ** ** | **Number   of options** | ** ** | **Weighted   average   exercise   price** | ** ** | **Weighted   average   remaining   contract life** | ** ** | **Weighted   average   grant date   fair value** | ** ** | **Aggregate   intrinsic   value** | ** ** |
|-------------------------------------------------------|------------|------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                            | ** ** | ** **                   | ** ** | **US$**                                   | ** ** | ** **                                              | ** ** | **US$**                                                    | ** ** | **US$**                           | ** ** |
|                                                  |       |                         |       |                                      |       |                                                    |       |                                                       |       |                              |       |
| Outstanding at January   1, 2016                      |       | 27,446,620                   |       | 0.02                                      |       | 9.12                                                    |       | 0.12                                                       |       | 29,045                            |       |
| Granted                                               |       | 8,495,287                    |       | 0.80                                      |       |                                                    |       | 0.64                                                       |       |                              |       |
| Exercised                                             |       | (716,431                     | )          | 0.01                                      |       |                                                    |       | 0.11                                                       |       |                              |       |
| Repurchased                                           |       | (1,199,608                   | )          | 0.01                                      |       |                                                    |       | 0.12                                                       |       |                              |       |
| Forfeited/Cancelled                                   |       | (791,125                     | )          | 0.32                                      |       |                                                    |       | 0.30                                                       |       |                              |       |
| Outstanding at   December 31, 2016               |       | 33,234,743                   |       | 0.21                                      |       | 9.06                                                    |       | 0.25                                                       |       | 33,431                            |       |
| Granted                                               |       | 3,057,177                    |       | 0.80                                      |       |                                                    |       | 0.98                                                       |       |                              |       |
| Forfeited/Cancelled                                   |       | (3,830,251                   | )          | 0.54                                      |       |                                                    |       | 0.46                                                       |       |                              |       |
| **Outstanding   at December 31, 2017**           |       | **32,461,669**               |       | **0.23**                                  |       | **8.48**                                                |       | **0.30**                                                   |       | **52,253**                        |       |
| Granted                                               |       | 5,264,956                    |       | 0.80                                      |       |                                                    |       | 1.37                                                       |       |                              |       |
| Forfeited/Cancelled                                   |       | (1,567,512                   | )          | 0.71                                      |       |                                                    |       | 0.77                                                       |       |                              |       |
| **Outstanding   at December 31, 2018**           |       | **36,159,113**               |       | **0.29**                                  |       | **7.89**                                                |       | **0.43**                                                   |       | **65,356**                        |       |
| Vested and   expect to vest at December 31, 2018 |       | 36,159,113                   |       | 0.29                                      |       | 7.89                                                    |       | 0.43                                                       |       | 65,356                            |       |
| **Exercisable   at December 31, 2018**           |       | **—**                   |       | **—**                                |       | **—**                                              |       | **—**                                                 |       | **—**                        |       |

 

As of December 31, 2018, share-based compensation of US$6,756 (RMB45,881) would be recognised immediately if the IPO Condition had been met.

 

***Escrowed shares***

 

On November 11, 2014 and April 20, 2015, in conjunction with the issuance of preferred shares, the Group entered into a share restriction agreement with the founder and the Co-founder to secure their services, pursuant to which all of their 72,887,414 ordinary shares of the Company became subject to transfer restrictions. In addition, the restricted shares shall initially be unvested and subject to repurchase by the Group at par value upon voluntary or involuntary termination of employment (the “Repurchase Right”). The Repurchase Right terminates over 4 and 3.6 years, respectively, in 48 and 43 equal monthly instalments thereafter. The founder and the Co-founder retain the voting rights of such restricted shares and any additional securities or cash received as the result of ownership of such shares, such as a share dividend, become subject to restriction in the same manner. The Group measured the fair values of the restricted shares as of November 11, 2014 and April 20, 2015 and recognized the amount as compensation expenses over the 48 and 43 months deemed service period on a straight-line basis.

 
| ** **                           | ** ** | **Number of   restricted shares** | ** ** | **Weighted average   grant date fair value** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                           | ** ** | ** **                                  | ** ** | **US$**                                                          | ** ** |
|                                 |       |                                        |       |                                                             |       |
| Unvested at January   1, 2016        |       | 52,607,687                                  |       | 0.10                                                             |       |
| Vested                               |       | (18,567,416                                 | )          | 0.10                                                             |       |
| Unvested at   December 31, 2016 |       | 30,040,271                                  |       | 0.10                                                             |       |
| Vested                               |       | (18,567,416                                 | )          | 0.10                                                             |       |
| Unvested at   December 31, 2017 |       | 15,472,855                                  |       | 0.10                                                             |       |
| Vested                               |       | (15,472,855                                 | )          | 0.10                                                             |       |
| Unvested at   December 31, 2018 |       | —                                      |       | 0.10                                                             |       |

 

32

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**13.**       **SHARE-BASED COMPENSATION (CONTINUED)**

 

On December 17, 2016, the Group paid US$945 (RMB6,392) to repurchase the Co-founder’s 441,588 ordinary shares that were released from the restriction (note 15). The fair value of the ordinary shares was US$1.25 (RMB8.47) per share on the repurchase date. The amount of cash to repurchase the vested shares was charged to additional paid-in capital (“APIC”), to the extent that the amount paid does not exceed the fair value of the vested shares, which is US$552 (RMB3,730) and the excess of the fair value amounted US$393 (RMB2,662) is recorded in general and administrative expenses as compensation cost.

 

Total share-based compensation expenses recognized for these restricted shares in 2016, 2017 and 2018 were US$2,311 (RMB14,413), US$1,918 (RMB11,752) and US$1,598 (RMB9,793), respectively. As of December 31, 2018, no unrecognized compensation expenses related to the restricted shares.

 

***Restricted share units***

 

On December 8, 2015, May 27, 2016 and December 4, 2018, the Group granted restricted share units of 14,185,333, 9,348,000 and 3,000,000, respectively, to employees including directors, subject to service vesting schedule of four years under the 2015 Plan. The estimated fair values on the grant date of each restricted share unit were US$1.16 (RMB7.60), US$1.08 (RMB6.92) and US$2.10 (RMB14.55), respectively. In 2016, 2017 and 2018, 7,011,000, 1,898,813 and nil restricted share units were forfeited, respectively, due to resignation of employees.

 

The following table summarized the Group’s restricted share unit activities under the 2015 Plan:

 
| ** **                                   | ** ** | **Number of   restricted share   units** | ** ** | **Weighted average   grant date fair value** | ** ** |
|----------------------------------------------|------------|----------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                   | ** ** | ** **                                         | ** ** | **US$**                                                          | ** ** |
|                                         |       |                                               |       |                                                             |       |
| Unvested at January   1, 2016                |       | 14,185,333                                         |       | 1.08                                                             |       |
| Granted                                      |       | 9,348,000                                          |       | 1.16                                                             |       |
| Vested                                       |       | (3,887,146                                         | )          | 1.11                                                             |       |
| Cancelled                                    |       | (7,011,000                                         | )          | 1.16                                                             |       |
| Unvested at   December 31, 2016         |       | 12,635,187                                         |       | 1.08                                                             |       |
| Vested                                       |       | (3,643,708                                         | )          | 1.13                                                             |       |
| Forfeited                                    |       | (1,898,813                                         | )          | 1.16                                                             |       |
| Unvested at   December 31, 2017         |       | 7,092,666                                          |       | 1.03                                                             |       |
| Granted                                      |       | 3,000,000                                          |       | 2.26                                                             |       |
| Vested                                       |       | (3,608,833                                         | )          | 1.09                                                             |       |
| Unvested at   December 31, 2018         |       | 6,483,833                                          |       | 1.57                                                             |       |
|                                         |       |                                               |       |                                                             |       |
| Expected to vest   at December 31, 2018 |       | 6,483,833                                          |       |                                                             |       |

 

Restricted share units granted to employees are measured based on their grant-date fair values and recognized as compensation cost on a straight-line basis over the requisite service period. Total share-based compensation expenses recognized for these restricted share units in 2016, 2017 and 2018 were US$4,301 (RMB28,649), US$4,124 (RMB28,586) and US$3,945 (RMB26,197), respectively. As of December 31, 2018, there were US$9,999 (RMB67,245) of unrecognized compensation expenses related to unvested restricted share units which is expected to be recognized over a weighted-average period of 2.32 years.

 

33

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**13.**       **SHARE-BASED COMPENSATION (CONTINUED)**

 

***JD’s Share Incentive Plan (the “JD Employee Awards”)***

 

On April 26, 2016, the Group consummated the acquisition of JDDJ business from JD. The acquisition involved the transfer of certain employees from JD to the Group. These employees were granted with unvested restricted share units by JD (the “JD Employee Awards”) when they were employed by JD. The JD Employee Awards which are generally vested annually over six years continued in effect after the acquisition for the employees transferred to the Group, provided that these employees continue their employment with the Group or any subsidiaries of JD.

 

The Group recognizes the entire cost of JD Employee Awards incurred by JD, the Group’s investor, as compensation cost with a corresponding amount as a capital contribution according to ASC 505-10-25-3. The Group remeasured the awards at a fair-value-based amount as of the end of each reporting period until performance is completed. Total share compensation amounts recorded were US$1,861 (RMB13,479), US$3,028 (RMB20,503) and US$2,313 (RMB15,195) for the years ended December 31, 2016, 2017 and 2018, respectively. As of December 31, 2018, there were US$ 2,689 (RMB 18,458) of unrecognized compensation expenses related to unvested restricted share unit which is expected to be recognized over a weighted-average period of 3.52 years.

 
| ** **                                   | ** ** | **Number of   restricted share   units** | ** ** | **Weighted average   fair value** | ** ** |
|----------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                   | ** ** | ** **                                         | ** ** | **US$**                                     | ** ** |
|                                         |       |                                               |       |                                        |       |
| Unvested at   April 26, 2016                 |       | 307,799                                            |       | 25.56                                       |       |
| Granted                                      |       | 300,000                                            |       | 21.31                                       |       |
| Vested                                       |       | (77,172                                            | )          | 24.11                                       |       |
| Forfeited                                    |       | (14,718                                            | )          | 23.94                                       |       |
| Unvested at   December 31, 2016         |       | 515,909                                            |       | 25.44                                       |       |
| Vested                                       |       | (80,653                                            | )          | 37.54                                       |       |
| Forfeited                                    |       | (148,809                                           | )          | 30.29                                       |       |
| Unvested at   December 31, 2017         |       | 286,447                                            |       | 41.42                                       |       |
| Granted                                      |       | 5,000                                              |       | 40.49                                       |       |
| Vested                                       |       | (68,644                                            | )          | 27.01                                       |       |
| Forfeited                                    |       | (3,978                                             | )          | 42.86                                       |       |
| Unvested at   December 31, 2018         |       | 218,825                                            |       | 20.93                                       |       |
|                                         |       |                                               |       |                                        |       |
| Expected to vest   at December 31, 2018 |       | 218,825                                            |       |                                        |       |

 

**14.**       **CONVERTIBLE REDEEMABLE PREFERRED SHARES**

 

In November, 2014, the Group issued 7,700,000 (with par value of US$ 0.001, later each share was split into 10 shares with par value of US$ 0.0001 for each) Series A Preferred Shares with a total cash proceed of US$ 1,777 (RMB 10,900).

 

In November 2014, the Group entered into a bridge loan agreement in a total amount of US$ 2,000 (RMB 12,295) with its Series A shareholders (collectively, the “Bridge Loan Holders”). On January 12 and January 19, 2015, the Group entered into promissory notes agreement with one of the above mentioned Series A shareholders and a third party investor (collectively, the “2015 Notes Holders”) respectively. The principal under the respective promissory notes agreement were US$ 1,000 and US$ 2,000, respectively.

 

In February 2015, the Group issued totalling 28,666,661 Series B Preferred Shares to new investors with a total proceed of US$ 17,200 (RMB 105,737). At the same time, all the Bridge Loan Holders converted the outstanding principal of US$ 2,000 into 4,081,638 Series B Preferred Shares at a conversion price of US$ 0.49 per share. All the 2015 Notes Holders converted the outstanding principal of US$ 3,000 on their 2015 Notes into 5,000,001 Series B Preferred Shares at a conversion price of US$ 0.6 per share.

 

34

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**14.**       **CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED)**

 

In May 2015, the Group issued totalling 44,286,448 Series C Preferred Shares at US$ 2.1451 per share for an aggregate purchase price of US$ 95,000 (RMB581,362). In connection with the issuance of Series C Preferred Shares, the Group repurchased 2,330,866 ordinary shares from its founder with the consideration of US$5,000 (RMB30,598). The excess of the purchase price over the par value of the ordinary share with an amount of US$1,538 (RMB 9,413) was charged in accumulated deficit due to absence of APIC and the excess of the purchase price over the fair value of the ordinary share with an amount of US$3,462 (RMB 21,185) was recognized as compensation to its executive.

 

In September 2015, the Group issued totalling 58,508,205 Series D Preferred Shares at US$ 4.19 per share for an aggregate purchase price of US$ 245,000 (RMB 1,558,519). In April 2016, the Group issued additional totalling 5,492,637 Series D Preferred Shares at US$ 4.19 per share for an aggregate purchase price of US$ 23,000 (RMB 148,555).

 

In April 2016, in connection with the acquisition of JDDJ business, the Group issued 46,743,137 Series E Preferred Shares at US$ 4.28 per share with an aggregate purchase price of US$200,000 (RMB1,291,780), or US$198,378 (RMB1,281,306), net of issuance cost amounted RMB10,474 and a warrant, which provided JD the right to subscribe 35,151,665 Series E Preferred Shares with the pre-determined purchase price of US$ 4.28 per share and exercisable at any time and expire on the earlier of (i) 24 months after issuance or (ii) immediately prior to a public offering (Note 3).

 

In October 2016, the Group issued another totalling 11,685,784 shares (with par value of US$ 0.0001) of Series E Preferred Shares to a new investor at US$ 4.28 per share with an aggregate purchase price of US$50,000 (RMB 338,205).

 

The issuance cost related to Series E Preferred Shares was RMB 10,474.

 

In December 2017, JD exercised the warrant and subscribed 35,151,665 Series E Preferred Shares at US$ 4.28 per share with an consideration of US$ 150,403 (RMB983,820).

 

In January 2018, The Series E and D Preferred Shares’ conversion prices, originally US$4.28 and US$4.19 per share were reduced to US$4.06 and US$4.17 per share, respectively, pursuant to the conversion price adjustment stipulated in conversion terms as described below.

 

In August, 2018, the Group issued totalling 116,857,842 Series F Preferred Shares at US$ 4.28 per share with an aggregate purchase price of US$500,000 (RMB3,412,300) or US$498,582 (RMB 3,402,611), net of issuance cost amounted RMB9,689.

 

The key terms of the Series A, B, C, D, E and F convertible redeemable preferred shares are as follows:

 

***Conversion***

 

Each holder of preferred shares shall have the right, at such holder’s sole discretion, to convert all or any portion of the preferred shares into ordinary shares on a one-for-one basis at any time. The initial conversion price is the issuance price of preferred shares, subject to adjustment in the event of (1) stock splits, share combinations, share dividends and distribution, recapitalizations and similar events, and (2) issuance of new securities at a price per share less than the conversion price in effect on the date of or immediately prior to such issuance. In that case, the conversion price shall be reduced concurrently to the subscription price of such issuance. Additionally, the Series E conversion price shall be reduced, upon the earlier to occur of: (i) January 1, 2018 or (ii) the Company raising gross proceeds of at least US$100,000 in the aggregate through Next Equity Financing (taking into account all closings of such financing if there is more than one closing).

 

Each preferred share shall automatically be converted by way of repurchase of such preferred share and the issuance of the corresponding number of ordinary shares, based on the then applicable effective Series A conversion price, Series B conversion price, Series C conversion price, Series D conversion price, Series E conversion price or Series F conversion price, without the payment of any additional consideration, into fully-paid and non-assessable ordinary shares upon the earlier of (i) the closing of a qualified IPO and (ii) the date specified by written consent or agreement of, collectively and each voting as a separate class, (i) the holders holding a majority of the then outstanding Series A Preferred Shares, (ii) the holders holding at least sixty percent (60%) of the then outstanding Series B preferred Shares, (iii) the holders holding at least fifty percent (50%) of the then outstanding Series C Preferred Shares, (iv) the holders holding at least fifty percent (50%) of the then outstanding Series D Preferred Shares, (v) the holders holding at least fifty percent (50%) of the then outstanding Series E Preferred Shares, and (vi) the holders holding at least fifty percent (50%) of the then outstanding Series F Preferred Shares.

 

35

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**14.**       **CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED)**

 

***Redemption***

 

At any time after the earliest of (i) the fifth (5th) anniversary of August 08, 2018, if a qualified IPO has not been consummated by then, (ii) the date that the Group and the Founder are engaged in any material fraudulent activities aiming at the holders of preferred shares, (iii) any important license, permit or government approvals necessary for the business of any group being suspended, rejected to be issued or renewed or revoked, to the extent that the Group’s main business is materially and adversely affected as a result of such suspension, rejection or revocation, (iv) the validity, legality or enforceability of the VIE documents being outlawed by the PRC law, and (v) the date that any governmental authority prohibits any group from distributing all or any part of its distributable earnings or cash or other assets thereof to an offshore shareholder of any Group’s subsidiaries, the Group shall, at the written request of any holder of the preferred shares.

 

Equal to one hundred percent (100%) of the Series A issue price (in the case of Series A Preferred Shares), one hundred percent (100%) of the applicable Series B issue price (in the case of Series B Preferred Shares), one hundred percent (100%) of the applicable Series C issue price (in the case of Series C Preferred Shares), one hundred percent (100%) of the applicable Series D issue price (in the case of Series D Preferred Shares), one hundred percent (100%) of the applicable Series E issue price (in the case of Series E Preferred Shares) or one hundred percent (100%) of the applicable Series F Issue Price with an eight percent (8%) compound per annum return (if the period is less than one year, such return shall be calculated pro rata) calculating from the applicable Series A issue date, Series B issue date, Series C issue date, Series D issue date, Series E issue date or Series F issue date (as the case may be) to the redemption price payment date, plus any accrued but unpaid dividends on such share and shall be exclusive of any liquidity or minority ownership discount, with payment on the twentieth (20th) business day after the date of written request by the holders of preferred shares.

 

In the case of the Series E Preferred Shares and the Series F Preferred Shares owned by Azure Holdings S.a.r.l (“Walmart”), without limitation of any other rights of redemption of the Series E Preferred Shares or Series F Preferred Shares hereunder, in the event of an uncured key breach by any Group’s subsidiaries of the Revised Business Cooperation Agreement as determined in the Redemption Condition, so long as the redemption conditions are satisfied, the Group shall, at the written request of Walmart, redeem all or part of the outstanding Preferred Shares held by Walmart and/or its Affiliates, at a price per Preferred Share equal to one hundred percent (100%) of the applicable Series E issue price or one hundred percent (100%) of the applicable Series F issue price, plus any accrued but unpaid dividends on such share and shall be exclusive of any liquidity or minority ownership discount, with payment on the twentieth (20th) business day after the date of written request by Walmart.

 

***Liquidation Preference***

 

In the event of any liquidation, dissolution or winding up of the Group, whether voluntary or involuntary, all assets and funds of the Group legally available for distribution to the members (after satisfaction of all creditors’ claims and claims that may be preferred by law) shall be distributed to the members of the Group as follows:

 

(1)             Amount to one hundred percent (100%) of Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares, Series E Preferred Shares or Series F Preferred Shares holder (collectively, the “Senior Preferred Shares”), plus all declared but unpaid dividends on such Senior Preferred Shares. If the assets and funds thus distributed among the holders of the Senior Preferred Shares shall be insufficient to permit the payment to such holders of the full Series B, Series C, Series D, Series E and Series F Preference Amount (collectively, the “Senior Preference Amount”), then the entire assets and funds of the Group legally available for distribution shall be distributed ratably among the holders of the Senior Preferred Shares in proportion to the aggregate Senior Preference Amount each such holder is otherwise entitled to receive pursuant to this term;

 

36

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**14.**       **CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED)**

 

(2)             If there are any assets or funds remaining after distribution according to above term (1), the holders of the Series A Preferred Shares shall be entitled to receive for each Series A Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Group to the holders of the ordinary shares by reason of their ownership of such shares, the amount equal to one hundred percent (100%) of the Series A issue price (“Series A Preference Amount”). If the assets and funds thus distributed among the holders of the Series A Preferred Shares shall be insufficient to permit the payment to such holders of the full Series A Preference Amount, then the entire assets and funds of the Group legally available for distribution to the Series A Preferred Shares shall be distributed ratably among the holders of the Series A Preferred Shares in proportion to the aggregate Series A Preference Amount each such holder is otherwise entitled to receive pursuant to this term;

 

(3)             If there are any assets or funds remaining after the aggregate Senior Preference Amount and the aggregate Series A Preference Amount has been distributed or paid in full to the applicable holders of Preferred Shares pursuant to term (1) and (2), the remaining assets and funds of the Group available for distribution to the members shall be ratably distributed among all members according to the relative number of ordinary shares held by such member (including the holders of the Series A Preferred Shares, the Series B Preferred Shares, the Series C Preferred Shares, the Series D Preferred Shares, the Series E Preferred Shares and the Series F Preferred Shares).

 

***Dividends***

 

(1)         Each holder of a Preferred Share shall be entitled to receive noncumulative dividend at the rate of eight percent (8%) of the applicable Series A issue price, Series B issue price, Series C issue price, Series D issue price, Series E issue price or Series F issue price as the case may be, per annum for each such share held by such holder, payable out of funds or assets when and as such funds or assets become legally available therefore on parity with each other, prior and in preference to, and satisfied before, any dividend on any other class or series of shares. Such dividends shall be payable only when, as, and if declared by the Board of Directors.

 

(2)         No dividend or distribution, whether in cash, in property, or in any other shares of the Group, shall be declared, paid, set aside or made with respect to the ordinary shares at any time unless all accrued but unpaid dividends on the Preferred Shares set forth in term (1), if any, have been paid in full, and a distribution is likewise declared, paid, set aside or made, respectively, at the same time with respect to each outstanding Preferred Share such that the dividend or distribution declared, paid, set aside or made to the holder thereof shall be equal to the dividend or distribution that such holder would have received pursuant to this term if such Preferred Share had been converted into ordinary shares immediately prior to the record date for such dividend or distribution, or if no such record date is established, the date such dividend or distribution is made, and if such share then participated in and the holder thereof received such dividend or distribution.

 

***Voting Rights***

 

Subject to the provisions of Seventh Amended and Restated Memorandum and Articles (including any Article providing for special voting rights), at all general meetings of the Group: (a) the holder of each ordinary share issued and outstanding shall have one vote in respect of each ordinary share held, and (b) the holder of a preferred share shall be entitled to such number of votes as equals the whole number of ordinary share into which such holder’s collective preferred shares are convertible immediately after the close of business on the record date of the determination of the Group’s members entitled to vote or, if no such record date is established, at the date such vote is taken or any written consent of the Group’s members is first solicited. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as converted basis (after aggregating all shares into which the preferred shares held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). To the extent that the statute or the articles allow the preferred shares to vote separately as a class or series with respect to any matters, the preferred shares, shall have the right to vote separately as a class or series with respect to such matters.

 

37

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**14.**       **CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED)**

 

***Accounting for the Preferred Shares***

 

The Group has classified the preferred shares as mezzanine equity as these preferred shares are redeemable upon the occurrence of an event not solely within the control of the Group. The holders of the preferred shares have a redemption right and liquidation preference and will not receive the same form of consideration upon the occurrence of the conditional event as the ordinary shareholders would.

 

The Group recorded the initial carrying amount of the preferred shares with its issuance price, which approximated the issuance date fair value, after the reduction of the issuance cost. The Group uses interest method to accrete the carry value of the preferred shares to their maximum redemption price at the end of each reporting period. The change in redemption value is recorded against retained earnings, or in the absence of retained earnings, against APIC. Once APIC has been exhausted, additional charges are recorded by increasing the accumulated deficit.

 

The Group did not identify any derivatives embedded in the preferred shares that were qualified for bifurcation and subject to fair value accounting. The Group also determined that there was no beneficial conversion feature attributable to the preferred shares, as the effective conversion price was not less than the fair value of the ordinary shares on the respective commitment date.

 

***Accounting for the Preferred Shares (continued)***

 

The following table summarised the rollforward of the carrying amount of the preferred equity for the years of 2017 and 2018:

 
| ** **                   | ** ** | **Series A** | ** ** | **Series B** | ** ** | **Series C** | ** ** | **Series D** | ** ** | **Series E** | ** ** | **Series F** | ** ** | **Total**     | ** ** |
|------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|---------------|------------|
| ** **                   | ** ** | **RMB**           | ** ** | **RMB**           | ** ** | **RMB**           | ** ** | **RMB**           | ** ** | **RMB**           | ** ** | **RMB**           | ** ** | **RMB**       | ** ** |
|                         |       |              |       |              |       |              |       |              |       |              |       |              |       |          |       |
| **December 31,   2016** |       | 12,930            |       | 158,762           |       | 661,884           |       | 1,881,800         |       | 1,707,072         |       | —            |       | **4,422,448** |       |
| **Issuance**                 |       | —            |       | —            |       | —            |       | —            |       | 1,087,060         |       | —            |       | **1,087,060** |       |
| **Accretion**                |       | 1,134             |       | 13,893            |       | 58,144            |       | 159,481           |       | 141,594           |       | —            |       | **374,246**   |       |
| **December 31,   2017** |       | 14,064            |       | 172,655           |       | 720,028           |       | 2,041,281         |       | 2,935,726         |       | —            |       | **5,883,754** |       |
| **Issuance**                 |       | —            |       | —            |       | —            |       | —            |       | —            |       | 3,402,611         |       | **3,402,611** |       |
| **Accretion**                |       | 1,196             |       | 14,661            |       | 61,371            |       | 168,323           |       | 149,445           |       | 116,650           |       | **511,646**   |       |
| **December 31,   2018** |       | **15,260**        |       | **187,316**       |       | **781,399**       |       | **2,209,604**     |       | **3,085,171**     |       | **3,519,261**     |       | **9,798,011** |       |

 

38

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**14.**       **CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED)**

 

As of December 31, 2018, a summary of convertible redeemable preferred shares are as follows:

 
| **Series** | ** ** | **Average Issue   Price per   Share** | ** ** | **Issuance   Date** | ** ** | **Shares   Issued** | ** ** | **Shares   Outstanding** | ** ** | **Proceeds from   Issuance, net of   Issuance Costs** | ** ** | **Carrying/   Redemption   Amount** | ** ** |
|------------|------------|-------------------------------------------------|------------|---------------------|------------|---------------------|------------|--------------------------|------------|---------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** ** | ** ** | **US$**                                         | ** ** | ** **          | ** ** | ** **          | ** ** | ** **               | ** ** | **US$**                                                                   | ** ** | **RMB**                             | ** ** |
|       |       |                                            |       |                |       |                |       |                     |       |                                                                      |       |                                |       |
| A          |       | 0.2307                                          |       | 11/11/2014          |       | 77,000,000          |       | 77,000,000               |       | 1,777                                                                     |       | 15,260                              |       |
| B          |       | 0.5881                                          |       | 13/02/2015          |       | 37,748,300          |       | 37,748,300               |       | 22,200                                                                    |       | 187,316                             |       |
| C          |       | 2.1451                                          |       | 22/05/2015          |       | 44,286,448          |       | 44,286,448               |       | 95,000                                                                    |       | 781,399                             |       |
| D          |       | 4.1874                                          |       | 23/09/2015          |       | 58,508,525          |       | 58,508,525               |       | 245,000                                                                   |       | 2,024,995                           |       |
| D          |       | 4.1874                                          |       | 05/04/2016          |       | 5,492,637           |       | 5,492,637                |       | 23,000                                                                    |       | 184,609                             |       |
| E          |       | 4.2787                                          |       | 26/04/2016          |       | 46,743,137          |       | 46,743,137               |       | 198,378                                                                   |       | 1,598,206                           |       |
| E          |       | 4.2787                                          |       | 20/10/2016          |       | 11,685,784          |       | 11,685,784               |       | 50,000                                                                    |       | 399,904                             |       |
| E          |       | 4.2787                                          |       | 28/12/2017          |       | 35,151,665          |       | 35,151,665               |       | 150,403                                                                   |       | 1,087,061                           |       |
| F          |       | 4.2787                                          |       | 08/08/2018          |       | 116,857,842         |       | 116,857,842              |       | 498,582                                                                   |       | 3,519,261                           |       |
|       |       |                                            |       |                |       | **433,474,338**     |       | **433,474,338**          |       | **1,284,340**                                                             |       | **9,798,011**                       |       |

 

**15.**       **ORDINARY SHARES**

 

On July 10, 2014, the Company was incorporated with an issuance of 6,100,000 ordinary shares to the founder at a par value of US$ 0.001 each. On February 7, 2015, the Company effected a 1-for-10 share split of the Company’s shares. The number of outstanding ordinary shares of 6,100,000 split into 61,000,000 shares while the par value of US$ 0.001 was converted into US$0.0001. Subscription receivable of RMB 35 from the founder was recorded as of December 31, 2016, 2017 and 2018.

 

On April 20, 2015, the Group issued 10,044,865 ordinary shares subject to share restriction agreement to the co-founder with proceeds of zero (Note 13).

 

On May 29, 2015, the Group paid US$ 5,000 (RMB 30,598) to repurchase 2,330,866 outstanding ordinary shares at US$ 2.1451 per share from its founder and all the repurchased ordinary shares were retired in 2015. (Note 14).

 

On April 14, 2016, the Group paid US$ 3,000 (RMB 19,429) to repurchase 716,431 early exercised share options from non-employees at US$ 4.1874 per share and all the repurchased shares were retired in 2016. The total consideration was charged against general and administrative expenses (Note 13).

 

On April 26, 2016, the Group entered into a share purchase agreement with JD, pursuant to which the Group issued 286,832,885 ordinary shares to JD in connection with the acquisition of JDDJ business (Note 3).

 

On December 17, 2016, the Group paid US$ 945 (RMB 6,392) to repurchase 441,588 ordinary shares from the co-founder at US$ 2.14 per share to compensate his service (Note 13).

 

On April 23, 2018, the Company issued 7,092,667 ordinary shares for vested restricted share units of the founder and the co-founder.

 

39

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**16.**       **TAXATION**

 

***Income Taxes***

 

*Cayman Islands*

 

Under the current laws of the Cayman Islands, the Company incorporated in the Cayman Islands are not subject to tax on income or capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.

 

*Hong Kong*

 

Entities incorporated in Hong Kong are subject to Hong Kong profits tax at a rate of 16.5% since January 1, 2010. Operations in Hong Kong have incurred net accumulated operating losses for income tax purpose and no income tax provisions are recorded for the period presented. Under the current Hong Kong Inland Revenue Ordinance, the Group’s subsidiary domiciled in Hong Kong has introduced a two-tiered profits tax rate regime which is applicable to any year of assessment commencing on or after April 1, 2018. The profits tax rate for the first HK$2,000 of profits of corporations will be lowered to 8.25%, while profits above that amount will continue to be subject to the tax rate of 16.5%.

 

*China*

 

On March 16, 2007, the National People’s Congress of the PRC introduced a new Corporate Income Tax Law (“new CIT Law”), under which Foreign Investment Enterprises (“FlEs”) and domestic companies would be subject to corporate income tax at a uniform rate of 25%. Certain enterprises will benefit from a preferential tax rate of 15% under the CIT Law if they qualify as high and new technology enterprises (“HNTE”). Under such regulation, Dada Glory and Yuanxin are qualified for HNTE status and are eligible to a reduced income tax rate of 15% for the years ended 2018, 2019 and 2020.

 

*Withholding tax on undistributed dividends*

 

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

 

The new CIT law also imposes a withholding income tax of 10% on dividends distributed by an FIE to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company is incorporated, does not have such tax treaty with China. According to the arrangement between the Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by an FIE in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the FIE).The Company did not record any dividend withholding tax, as it has no retained earnings for any of the periods presented.

 

40

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**16.**       **TAXATION (CONTINUED)**

 

Loss by tax jurisdictions:

 
| ** **                     | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------|------------|---------------------------------------------|------------|
| ** **                     | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
|                           |       |                                        |       |   |   |   |   |
| Loss from PRC   operations     |       | 1,447,549                                   |       | 1,380,349 |   | 1,771,273 |   |
| Loss from   non-PRC operations |       | 93,267                                      |       | 82,854 |   | 134,599 |   |
| Total losses   before tax      |       | 1,540,816                                   |       | 1,463,203 |   | 1,905,872 |   |

 

The current and deferred portion of income tax expenses included in the Consolidated Statements of Operations and Comprehensive Loss are as follows:

 
| ** **                | ** ** | **Years ended December 31,** | ** ** |
|---------------------------|------------|---------------------------------------------|------------|
| ** **                | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
|                      |       |                                        |       |   |   |   |   |
| Current tax   expenses    |       | —                                      |       | 724 |   | 42 |   |
| Deferred tax   benefits   |       | (9,891                                      | )          | (14,837 | ) | (27,539 | ) |
| **Income   tax benefits** |       | **(9,891**                                  | **)**      | **(14,113** | **)** | **(27,497** | **)** |

 

Reconciliation of difference between PRC statutory income tax rate and the Group’s effective income tax rate for the years ended December 31, 2016, 2017 and 2018 are as follows:

 
| ** **                                                                       | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                       | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
|                                                                             |       |                                        |       |   |   |   |   |
| Statutory tax   rate                                                             |       | 25.0                                        | %          | 25.0 | % | 25.0 | % |
| Effect of   different tax rate of subsidiary operation in other jurisdiction     |       | (1.5                                        | )%         | (1.5 | )% | (1.8 | )% |
| Effect of tax   holiday                                                          |       | —                                      |       | — |   | (8.5 | )% |
| Effect of change   in tax rate                                                   |       | —                                      |       | — |   | 8.5 | % |
| Changes in   valuation allowance                                                 |       | (23.3                                       | )%         | (22.9 | )% | (24.7 | )% |
| Amortization of   deferred tax liabilities from the identified intangible assets |       | 0.6                                         | %          | 1.0 | % | 1.4 | % |
| Other expenses   not deductible for tax purposes                                 |       | (0.6                                        | )%         | (1.4 | )% | (0.9 | )% |
| Super deduction   of research and development expenses                           |       | 0.4                                         | %          | 0.8 | % | 2.4 | % |
| **Effective   tax rate**                                                         |       | **0.6**                                     | **%**      | **1.0** | **%** | **1.4** | **%** |

 

***Deferred tax assets and deferred tax liabilities***

 
| ** **                                                   | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                   | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                                                         |       |                                  |       |   |   |
| **Deferred   tax assets**                                    |       |                                  |       |   |   |
| - Net operating   loss carry forwards                        |       | 915,212                               |       | 1,384,440 |   |
| - Allowance for   doubtful accounts                          |       | —                                |       | 79 |   |
| - Inventories   valuation allowance                          |       | —                                |       | 408 |   |
| - Impairment   provision for property and equipment          |       | —                                |       | 2,120 |   |
| - Impairment   provision for other non-current assets        |       | —                                |       | 1,039 |   |
| - Accrued   expenses                                         |       | 19,115                                |       | 16,168 |   |
| Less: Valuation   allowance                                  |       | (934,327                              | )          | (1,404,254 | ) |
| **Net   deferred tax assets**                                |       | **—**                            |       | **—** |   |
|                                                         |       |                                  |       |   |   |
| **Deferred   tax liabilities**                               |       |                                  |       |   |   |
| - Identifiable   intangible assets from business combination |       | 80,272                                |       | 52,733 |   |
| **Total   deferred tax liabilities**                         |       | **80,272**                            |       | **52,733** |   |

 

41

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**16.**       **TAXATION (CONTINUED)**

 

As of December 31, 2017 and 2018, the Group had net operating loss carry forwards of approximately RMB 3,660,846 and RMB 5,537,754, respectively, which arose from the subsidiaries, VIE and VIE’s subsidiaries established in the PRC. The loss carry forwards will expire during the period from 2019 to 2028.

 

The Group believes that it is more likely than not that the net accumulated operating losses and other deferred tax assets will not be utilized in the future based on an evaluation of a variety of factors including the Group’s operating history, accumulated deficit, existence of taxable temporary differences and reversal periods. Therefore, the Group provided full valuation allowances for the deferred tax assets as of December 31, 2017 and 2018, respectively.

 

***Movement of valuation allowance***

 
| ** **                         | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|
| ** **                         | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
|                               |       |                                        |       |   |   |   |   |
| Balance at   beginning of the year |       | 241,837                                     |       | 599,870 |   | 934,327 |   |
| Addition                           |       | 358,033                                     |       | 334,457 |   | 469,927 |   |
| **Balance   at end of the year**   |       | 599,870                                     |       | **934,327** |   | **1,404,254** |   |

 

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of income taxes is due to computational errors made by the taxpayer. The statute of limitations will be extended to five years under special circumstances, which are not clearly defined, but an underpayment of income tax liability exceeding RMB100 is specifically listed as a special circumstance. In the case of a transfer pricing related adjustment, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. The Group’s PRC subsidiaries are therefore subject to examination by the PRC tax authorities from 2014 through 2018 on non-transfer pricing matters, and from 2014 through 2018 on transfer pricing matters.

 

**17.**       **CONCENTRATION OF CREDIT RISK**

 

Financial instruments that potentially expose the Group to concentration of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivable, amount due from related parties and prepayments. The Group places its cash and cash equivalents and short-term investments with financial institutions with high-credit ratings and quality. Accounts receivable mainly consist of amounts receivable from merchants, which are all with good collection history. There are no significant concentrations of credit risk. With respect to prepayments, the Group performs on-going credit evaluations of the financial condition of these suppliers.

 

*Concentration of customers*

 

The following customer accounted for 10% or more of revenues for the years ended December 31, 2016, 2017 and 2018, respectively.

 
| ** ** | ** ** | **Years ended December 31,** | ** ** |
|------------|------------|---------------------------------------------|------------|
| ** ** | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
| ** ** | ** ** | **RMB**                                     | ** ** | **RMB** | ** ** | **RMB** | ** ** |
| Customer A |       | 28,462                                      |       | 691,002 |   | 943,084 |   |

 

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**17.**       **CONCENTRATION OF CREDIT RISK (CONTINUED)**

 

The following customer accounted for 10% or more of accounts receivable as of December 31, 2017 and 2018, respectively.

 
| ** ** | ** ** | **As of December 31,** | ** ** |
|------------|------------|---------------------------------------|------------|
| ** ** | ** ** | **2017**                              | ** ** | **2018** | ** ** |
| ** ** | ** ** | **RMB**                               | ** ** | **RMB** | ** ** |
| Customer B |       | 4,536                                 |       | 4,223 |   |
| Customer C |       | 1,290                                 |       | 4,215 |   |
| Customer D |       | *                                     |       | 6,533 |   |

 

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* Less than 10%.

 

*Concentration of suppliers*

 

The following suppliers accounted for 10% or more of accounts payable as of December 31, 2017 and 2018, respectively.

 
| ** ** | ** ** | **As of December 31,** | ** ** |
|------------|------------|---------------------------------------|------------|
| ** ** | ** ** | **2017**                              | ** ** | **2018** | ** ** |
| ** ** | ** ** | **RMB**                               | ** ** | **RMB** | ** ** |
| Supplier A |       | 773                                   |       | 1,193 |   |
| Supplier B |       | 1,470                                 |       | * |   |
| Supplier C |       | 1,338                                 |       | * |   |
| Supplier D |       | 875                                   |       | * |   |

 

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* Less than 10%.

 

*Foreign currency risk*

 

RMB is not a freely convertible currency. The State Administration of Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into foreign currencies. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The cash and cash equivalents of the Group included aggregated amounts of RMB138,489 and RMB77,975 denominated in RMB, as of December 31, 2017 and 2018, respectively.

 

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**18.**       **RELATED PARTY TRANSACTIONS**

 

The table below sets forth the major related parties and their relationships with the Group as of December 31, 2018:

 
| **Name of related parties**               | ** ** | **Relationship with the Group** |
|----------------------------------------------------------|------------|------------------------------------------------|
| JD and its subsidiaries (“JD Group”)           |       | Shareholder of the Company                     |
| Walmart and its subsidiaries (“Walmart Group”) |       | Shareholder of the Company                     |
| Co-founder                                               |       | Executive of the Group                         |

 

(a)The Group entered into the following transactions with the major related parties:

 
| ** **                                                  | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                  | ** ** | **2016**                                    | ** ** | **2017** | ** ** | **2018** | ** ** |
|                                                        |       |                                        |       |   |   |   |   |
| Revenues                                                    |       |                                        |       |   |   |   |   |
| Comprehensive   logistic solution services to JD Group      |       | —                                      |       | 691,002 |   | 943,084 |   |
| On-demand   logistic platform services to JD Group          |       | 28,462                                      |       | — |   | — |   |
| Comprehensive   logistic solution services to Walmart Group |       | —                                      |       | — |   | 2,985 |   |
| JDDJ marketplace   platform services to Walmart Group       |       | —                                      |       | — |   | 28,618 |   |
| Other services   to Walmart Group                           |       | —                                      |       | — |   | 4,256 |   |
|                                                        |       |                                        |       |   |   |   |   |
| Operating   expenses:                                       |       |                                        |       |   |   |   |   |
| Operational   support services from JD Group                |       | 122,621                                     |       | 29,986 |   | 32,862 |   |
| Purchases from   JD Group                                   |       | 1,033                                       |       | 7,191 |   | 26,908 |   |

 

JD Group provides certain operational support services to the Group and the service fee is charged based on the actual usage incurred.

 

(b)The Group had the following balances with the major related parties:

 
| ** **                      | ** ** | **As of December 31,** | ** ** |
|---------------------------------|------------|---------------------------------------|------------|
| ** **                      | ** ** | **2017**                              | ** ** | **2018** | ** ** |
|                            |       |                                  |       |   |   |
| Current assets:                 |       |                                  |       |   |   |
| Amount due from   JD Group      |       | 48,232                                |       | 151,481 |   |
| Amount due from   Walmart Group |       | —                                |       | 7,354 |   |
| Amount due from co-founder      |       | 528                                   |       | 528 |   |
| **Total**                       |       | **48,760**                            |       | **159,363** |   |
|                            |       |                                  |       |   |   |
| Current   liabilities:          |       |                                  |       |   |   |
| Amount due to JD   Group        |       | 38,290                                |       | 32,672 |   |
| Amount due to   Walmart Group   |       | —                                |       | 21,630 |   |
| **Total**                       |       | **38,290**                            |       | **54,302** |   |

 

The Group provides collection of Cash on Delivery service when performing comprehensive logistics solution services to JD Group. Amount due to JD Group includes cash collected from consumers on behalf of JD.COM when merchandises are delivered to them.

 

Amount due to Walmart includes cash collected from consumers on behalf of Walmart when the Group performs JDDJ marketplace platform services to the Walmart Group.

 

**19.**       **EMPLOYEE BENEFIT**

 

As stipulated by the regulations of the PRC, full-time employees of the Group are entitled to various government statutory employee benefit plans, including medical insurance, maternity insurance, workplace injury insurance, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan. The Group is required to make contributions to the plan based on certain percentages of employees’ salaries. The total expenses the Group incurred for the plan were RMB27,767, RMB53,404 and RMB85,328 for the years ended December 31, 2016, 2017 and 2018, respectively, which are recorded in expenses based on the function of employees.

 

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**20.**       **COMMITMENTS AND CONTINGENCIES**

 

*Operating lease commitments*

 

The Group has leased office premises under operating lease agreements for the periods from 2019 to 2024. Future minimum lease payments for non-cancellable operating leases are as follows:

 
| ** **     | ** ** | **As of December 31, 2018** | ** ** |
|----------------|------------|-------------------------------------------------|------------|
| ** **     | ** ** | **RMB**                                         | ** ** |
|           |       |                                            |       |
| 2019           |       | 32,227                                          |       |
| 2020           |       | 21,181                                          |       |
| 2021           |       | 17,958                                          |       |
| 2022           |       | 18,059                                          |       |
| 2023 and after |       | 32,835                                          |       |
|           |       | **122,260**                                     |       |

 

Rental expenses amounted to RMB9,705, RMB17,578 and RMB40,519 for the years ended December 31, 2016, 2017 and 2018, respectively. Rental expenses are charged to the Consolidated Statements of Operations and Comprehensive Loss when incurred.

 

*Contingencies*

 

The Group is subject to periodic legal or administrative proceedings in the ordinary course of its business. The Group does not believe that any currently pending legal or administrative proceeding to which the Group is a party will have a material adverse effect on the financial statements.

 

**21.**       **SUBSEQUENT EVENT**

 

The subsequent events were evaluated through June 28, 2019, which is the issuance date of the audited consolidated financial statements and no significant subsequent event was identified.

 

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