| PRINCIPAL ACTIVITIES AND ORGANIZATION | 1.
PRINCIPAL ACTIVITIES AND ORGANIZATION (a)
Principal activities Yunji
Inc. (“Yunji”, or “the Company”) was incorporated under the laws of the Cayman Islands in November 2017, as an
exempted company with limited liability. The
Company, through its subsidiaries, consolidated variable interest entities (“VIEs”) and VIE’s subsidiaries (collectively,
the “Group”), offers a selection of high-quality products covering a broad range of categories at attractive prices through
its e-commerce platform, Yunji App. Starting from first quarter of 2019, the Group started to operate Yunji App as a marketplace platform
for third party merchants to sell their merchandise to Yunji App users. Starting from third quarter of 2020, the Group expanded to operate
its business, including marketplace, on a diverse range of sales channels and on other platforms. The Group’s principal operation
and geographic market is in the People’s Republic of China (“PRC”). (b)
History of the Group and Basis of Presentation Prior
to the incorporation of the Company and starting in May 2015, the Group’s business was carried out under subsidiaries (“Operating
Entities”) of Yunji Sharing Technology Co., Ltd. (“Yunji Sharing”), previously known as Hangzhou Bolue Biology Technology
Co., Ltd. (“Bolue”). Mr. Xiao Shanglue is the co-founder of Bolue (the “Co-Founder”). The Co-Founder, Mr. Wang
Peng, and the other two institutional investors were initial ordinary shareholders of Yunji Sharing (the four parties were collectively
named as the “Initial Ordinary Shareholders”). After Yunji Inc. was established in Cayman Island in November 2017, Yunji
Holdings Limited (“Yunji Holding”) was incorporated in Hong Kong as a wholly owned subsidiary of the Company, and Hangzhou
Yunchuang Sharing Network Technology Co., Ltd. (“Yunchuang Sharing” or “WFOE”) was established as a wholly owned
subsidiary of Yunji Holding in the PRC. Thereafter, the new PRC subsidiaries and Zhejiang Yunji Preferred E-commerce Co., Ltd., (“Yunji
Preferred”), which is a VIE to hold Internet Content Provider (“ICP”) license, were established. Consequently, a series
of contractual agreements were entered into among Yunchuang Sharing, Yunji Sharing, Yunji Preferred and its existing shareholders, including
loan agreement, exclusive service agreement, equity interest pledge agreement, exclusive option agreement, proxy agreement and power
of attorney, spousal consent letters that irrevocably authorized the existing shareholders designated by Yunchuang to exercise the equity
owner’s rights over Yunji Sharing and Yunji Preferred. In
preparation of its initial public offering, the Group underwent a reorganization (the “Reorganization”) starting from December
2017. After the Reorganization, the prior shareholding interests at Yunji Sharing were mirrored to the shareholding interests of the
Group. YUNJI
INC. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (All
amounts in thousands, except for share and per share data, unless otherwise noted) 1.
PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED) (b)
History of the Group and Basis of Presentation (continued) The
Group’s consolidated financial statements include the financial statements of the Company, its subsidiaries, consolidated VIEs
and VIE’s subsidiaries. As
of December 31, 2023, the Company’s principal subsidiaries are as follows: SCHEDULE
OF PRINCIPAL SUBSIDIARIES
Subsidiaries Place
of incorporation Date
of incorporation or acquisition Percentage
of direct or indirect Principal
activities
Yunji
Holding Limited Hong
Kong December
20, 2017 100 Investment
holding
Zhejiang
Youji Supply Chain Management Co., Ltd. Hangzhou November
30, 2016 100 Procurement
Zhejiang
Jiyuan Network Technology Co., Ltd. Hangzhou August
14, 2018 100 Sales
of merchandise
Hangzhou
Jichuang Network Technology Co., Ltd. Hangzhou May
23, 2016 100 Investment
holding
Yunji
Hongkong Limited Hong
Kong August
25, 2015 100 Sales
of merchandise
Hangzhou
Yunchuang Sharing Network Technology Co., Ltd. Hangzhou June
13, 2018 100 Investment
holding
Desking
technology (HK) Co., Limited Hong
Kong July
26, 2016 100 Investment
holding and Financing solution
Jironghuishang
Commercial Factoring (Tianjin) Co., Ltd. Tianjin October
16, 2018 100 Financing
solution
Zhejiang
Yunxuan Supply Chain Management Co., Ltd. Hangzhou August
9, 2018 100 Procurement
Yunji
Sharing Technology Co., Ltd. (“Yunji Sharing”) Hangzhou March
5, 2018 100 Investment
holding Starting from the fourth quarter of 2023, Yunji Sharing, which was originally
a VIE, was acquired by the Company and became a subsidiary of the Company. YUNJI
INC. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (All
amounts in thousands, except for share and per share data, unless otherwise noted) 1.
PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED) (b)
History of the Group and Basis of Presentation (continued) As
of December 31, 2023, the Company’s principal consolidated VIEs and VIE’s subsidiaries are as follows: SCHEDULE
OF VARIABLE INTEREST ENTITIES
Place
of incorporation Date
of incorporation or acquisition Percentage
of direct or indirect Principal
activities
VIEs
and VIE subsidiaries
Zhejiang
Yunji Preferred E-Commerce Co., Ltd. Hangzhou June
13, 2018 100 Investment
holding
Zhejiang
Jishang Preferred E-Commerce Co., Ltd. Hangzhou April
22, 2016 100 Procurement
Zhejiang
Jixiang E-commerce Co., Ltd. (“Jixiang”) Hangzhou August
14, 2018 100 E-Commerce
Ningbo
Meishan Bonded Port Area Jichuang Taihong Venture Capital Partnership (LP) (“Jichuang Taihong”) Ningbo January
15, 2019 99.75 Investment
holding
Hangzhou
Jiweixiang Food Co., Ltd. Hangzhou May
8, 2020 100 Distribution
sales Starting
from the third quarter of 2020, Jichuang Taihong, which was originally a subsidiary of the Company, became a subsidiary of the
Company’s consolidated VIEs as a result of equity transactions within the Group. YUNJI
INC. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (All
amounts in thousands, except for share and per share data, unless otherwise noted) 1.
PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED) (c)
Consolidated variable interest entities In
order to comply with the PRC laws and regulations which prohibit or restrict foreign investments into companies involved in
restricted businesses, the Group operates its Apps and other restricted businesses in the PRC through certain PRC domestic
companies, whose equity interests are held by certain management members of the Company or onshore nominees of the Company
(“Nominee Shareholders”). The Company obtained operational control over these PRC domestic companies by entering into a
series of contractual arrangements with these PRC domestic companies and their respective Nominee Shareholders. These contractual
agreements cannot be unilaterally terminated by the Nominee Shareholders or the PRC domestic companies. Management concluded that
these PRC domestic companies are VIEs. As a result of these contractual arrangements, the Company’s wholly-owned subsidiaries
have the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performances and are
entitled to substantially all of the economic benefits from the VIEs and are obligated to absorb all of the VIEs’ expected
losses. Therefore, the Company has determined that it is the ultimate primary beneficiary of the VIEs for accounting purposes in
accordance with ASC 810, Consolidations under U.S. GAAP, and has consolidated the VIEs’ results of operations, assets and
liabilities in the Group’s consolidated financial statements for all the periods presented. The principal terms of the
agreements entered into amongst the VIEs, their respective shareholders and the WFOE are further described below. Loan
Agreements Pursuant
to the relevant loan agreements, the WFOE has granted interest-free loans to the relevant Nominee Shareholders of the relevant VIEs with
the sole purpose of providing funds necessary for the capital injection to the relevant VIEs. Only the WFOE can require the Nominee Shareholders
to settle the loan amount with the equity interests of relevant VIEs, subject to any applicable PRC laws, rules and regulations. The
relevant Nominee Shareholder has agreed that any proceeds from sale of the Nominee Shareholder’s equity interest in the relevant
VIE should be used to repay the loan amount to the WFOE. The term of the loan agreements is ten years and can be extended with the written
consent of both parties before expiration. Exclusive
Option Agreements Pursuant
to the exclusive option agreement, the Nominee Shareholders of the VIEs have granted the WFOE the exclusive and irrevocable right to
purchase or to designate one or more person(s) at its discretion to purchase part or all of the equity interests in the VIEs (the “Target
Equity”) from the Nominee Shareholders at any time, and the VIEs have granted the WFOE the exclusive and irrevocable right to purchase
or to designate one or more person(s) at its discretion to purchase part or all of the assets of the VIEs (the “Target Assets”)
at any time. The total transfer price for the Target Equity and/or the Target Assets shall be equal to the loan provided by the WFOE
to the Nominee Shareholders under the Loan Agreements. The VIEs and their Nominee Shareholders have agreed that without prior written
consent of the WFOE, the Nominee Shareholders shall not sell, transfer, pledge or dispose of their equity interests, and the VIEs shall
not sell, transfer, pledge or dispose of their assets, including but not limit to significant assets, significant revenue and significant
business. In addition, the VIEs covenant that they shall not declare any dividend or change capitalization structure of the VIEs or enter
into any loan or investment agreements. Proxy
Agreement and Power of Attorney Pursuant
to the Proxy Agreement and Power of Attorney, each of the Nominee Shareholders appointed the WFOE as their attorney-in-fact to exercise
all shareholder rights under PRC law and the relevant articles of association, including but not limited to, calling and attending shareholders
meetings, voting on their behalf on all matters requiring shareholder approval, including but not limited to the appointment and removal
of directors, as well as the sale, transfer and disposal of all or part of the equity interests owned by such shareholders. The powers
of attorney will remain effective for a given Nominee Shareholders until such shareholder ceases to be a shareholder of the relevant
VIE or otherwise instructed by the WFOE. YUNJI
INC. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (All
amounts in thousands, except for share and per share data, unless otherwise noted) 1.
PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED) (c)
Consolidated variable interest entities (continued) Exclusive
Service Agreement Pursuant
to the exclusive service agreement, the WFOE has agreed to provide to the VIEs services, including, but not limited to, development,
maintenance and update of technology, design, installation, daily management, maintenance and updating of the network system, hardware
design, and marketing. The VIEs shall pay to the WFOE service fees determined by the WFOE in its sole discretion. The agreement has a
term of 10 Equity
Interest Pledge Agreements Pursuant
to the relevant equity interest pledge agreements, the Nominee Shareholders of the VIEs have pledged 100 Spousal
Consent Letters Pursuant
to the Spousal Consent Letters, each Nominee Shareholder (except for Mr. Wenwei Shu, the shareholder of Hangzhou Chuanchou, who has no
spouse yet), who is a natural person, and his or her spouse unconditionally and irrevocably agreed that the equity interests in the VIEs
held by such Nominee Shareholder will be disposed of pursuant to the equity interest pledge agreements, the exclusive option agreements,
the loan agreement and the proxy agreement and power of attorney. Each of their spouses agreed not to assert any rights over the equity
interests in the VIEs held by their respective spouses. In addition, in the event that any spouse obtains any equity interests in any
VIE held by his or her spouse for any reason, he or she agreed to be bound by the contractual arrangements. (d)
Risks in relations to the VIE structure The
following table set forth the assets, liabilities, results of operations and changes in cash, cash equivalents and restricted cash of
the consolidated VIEs and their subsidiaries taken as a whole, which were included in the Group’s consolidated financial statements
with intercompany transactions eliminated (It should be noted that the VIEs were not established until 2018 as the Reorganization occurred.
The following disclosures present the operations and financial positions of the businesses that currently constitute the VIE entities
as of and for the respective periods.): YUNJI
INC. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (All
amounts in thousands, except for share and per share data, unless otherwise noted) 1.
PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED) (d)
Risks in relations to the VIE structure (continued) SCHEDULE
OF RISKS IN RELATION IN BALANCE SHEET
As
of December 31,
2022 2023
RMB RMB
Cash
and cash equivalents 114,265 20,176
Restricted
cash 42,109 27,169
Accounts
receivable, net 23,683 60,608
Advance
to suppliers 5,434 1,774
Inventories,
net 2,635 2,491
Amounts
due from the Group companies (1) 719,655 530,998
Amounts
due from related parties 46 407
Prepaid
expense and other current assets 81,307 58,441
Property,
equipment and software, net 4,546 2,430
Long-term
investments 214,450 206,152
Other
non-current assets 6,417 5,485
Total
assets 1,214,547 916,131
Accounts
payable 71,007 48,198
Deferred
revenue 16,398 6,836
Incentive
payables to members 207,331 124,889
Members
management fee payable 4,997 3,066
Other
payable and accrued liabilities 91,469 65,587
Amounts
due to the Group companies (2) 900,852 727,459
Amounts
due to related parties 8,083 2,303
Total
liabilities (3) 1,300,137 978,338
(1) Amounts due from
the Group companies primarily consisted of inter-company receivables for the sales of goods and the rendering of services made by the
VIEs and their subsidiaries on behalf of other Group companies.
(2) Amounts due to
the Group companies primarily consisted of inter-company payables for the purchase of goods and services made by other Group companies
on behalf of the VIEs and their subsidiaries.
(3) Amounts of the
consolidated VIEs and VIEs’ subsidiaries without recourse to the primary beneficiary is RMB 399,285 250,879 YUNJI
INC. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (All
amounts in thousands, except for share and per share data, unless otherwise noted) 1.
PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED) (d)
Risks in relations to the VIE structure (continued) SCHEDULE
OF RISKS IN RELATION IN FINANCIAL STATEMENTS
Year
Ended December 31,
2021 2022 2023
RMB RMB RMB
Revenues:
Third-party
revenues 513,299 349,259 316,382
Intra-Group
revenues 501,168 229,562 91,657
Total
revenues 1,014,467 578,821 408,039
Operating
cost and expenses:
Third-party
operating cost and expenses (906,559 ) (478,245 ) (272,602 )
Intra-Group
operating cost and expenses (118,456 ) (178,573 ) (142,717 )
Total
operating cost and expenses (1,025,015 ) (656,818 ) (415,319 )
Net
income/(loss) 164,950 (75,329 ) (7,276 )
Net
cash provided by transactions with external parties 539,673 651,432 215,227
Net
cash used in transactions with intra-Group entities (497,190 ) (698,690 ) (453,916 )
Net
cash generated by/(used in) operating activities 42,483 (47,258 ) (238,689 )
Net
cash provided by transactions with external parties 8,102 5,216 9,028
Net
cash (used in)/generated by transactions with intra-Group entities (180,000 ) 60,000 118,831
Net
cash (used in)/generated by investing activities (171,898 ) 65,216 127,859
Net
cash (used in)/provided by transactions with external parties (1,198 ) 197 -
Net
cash provided by transactions with intra-Group entities - 4,250 1,500
Net
cash (used in)/generated by financing activities (1,198 ) 4,447 1,500
Effect
of exchange rate changes on cash, cash equivalents (383 ) 1,127 301
Net
(decrease)/increase in cash, cash equivalents and restricted cash (130,996 ) 23,532 (109,029 )
Cash,
cash equivalents and restricted cash at beginning of year 263,838 132,842 156,374
Cash,
cash equivalents and restricted cash at end of year 132,842 156,374 47,345 YUNJI
INC. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (All
amounts in thousands, except for share and per share data, unless otherwise noted) 1.
PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED) (d)
Risks in relations to the VIE structure (continued) Under
the contractual arrangements with the consolidated VIEs, the Company has the power to direct activities of the consolidated VIEs and
VIEs’ subsidiaries through the Group’s relevant PRC subsidiaries, and can have assets transferred freely out of the consolidated
VIEs and VIEs’ subsidiaries without restrictions. Therefore, the Company considers that there is no restriction requiring that
any asset of the consolidated VIEs and VIEs’ subsidiaries can only be used to settle obligations of the respective VIEs and VIEs’
subsidiaries except for paid-in capital of VIEs and VIEs’ subsidiaries amounting to RMB 33,797 nil The
chairman of the board of directors and the chief executive officer along with other nominees of the Company own the majority of the voting
shares of the VIEs. The enforceability, and therefore the benefits, of the contractual agreements between the Company and the VIEs depend
on these individuals enforcing the contracts. There is a risk that the benefits of ownership between the Company and the VIE may not
be aligned in the future. Given the significance and importance of the VIEs, there would be a significant negative impact to the Company
if these contracts were not enforced. The
Group’s operations depend on the VIEs to honour their contractual agreements with the Group and the Company’s ability to
control the VIEs also depends on the authorization by the shareholders of the VIEs to exercise voting rights on all matters requiring
shareholder approval in the VIEs. The Company believes that the agreements on authorization to exercise shareholder’s voting power
are legally enforceable and the possibility that it will no longer be able to control and consolidate the VIEs as a result of the aforementioned
risks and uncertainties is remote. In
addition, if the current structure of any of the contractual arrangements were found to be in violation of any existing PRC laws, or
if the regulations or the interpretation of existing regulations change or are interpreted differently in the future, the Company may
be subject to penalties, which may include but not be limited to, the cancellation or revocation of the Company’s business and
operating licenses, being required to restructure the Company’s operations or terminate the Company’s operating activities.
The imposition of any of these or other penalties may result in a material and adverse effect on the Company’s ability to conduct
its operations. In such case, the Company may not be able to operate or control the VIEs and VIEs’ subsidiaries, which may result
in deconsolidation of the VIEs and VIEs’ subsidiaries. The
Group’s operations and businesses rely on the operations and businesses of its VIEs, which hold certain recognized and unrecognized
revenue-producing assets. The recognized revenue-producing assets mainly include electronic equipment recorded in property, equipment
and software. Unrecognized revenue-producing assets mainly consist of licenses and intellectual property. Licenses include operations
licenses, such as licenses for online data processing and transaction processing business and internet content-related services. Intellectual
property developed by the Group mainly consists of patents, copyrights, trademarks, and domain names. The Group’s operations and
businesses may be adversely impacted if the Group loses the ability to use and benefit from assets held by these VIEs. YUNJI
INC. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (All
amounts in thousands, except for share and per share data, unless otherwise noted) |
