F-1/A: Registration statement for securities of certain foreign private issuers

Published on July 25, 2023

As filed with the Securities and Exchange Commission on July 24, 2023.

Registration Statement No. 333- 272689

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_____________________________

AMENDMENT NO. 1

TO

Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

_____________________________

DDC Enterprise Limited

(Exact name of Registrant as specified in its charter)

_____________________________

Not Applicable

(Translation of Registrant’s name into English)

_____________________________

Cayman Islands

 

2000

 

Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Room 1601-1602, 16/F, Hollywood Centre
233 Hollywood Road
Sheung Wan, Hong Kong
Telephone: +852
-2803-0688
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

_____________________________

Cogency Global Inc.
122 East 42
nd Street, 18th Floor
New York, NY 10168
+1-800-221-0102
(Name, address, including zip code, and telephone number, including area code, of agent for service)

_____________________________

Copies of all communications, including communications sent to agent for service, should be sent to:

Lawrence S. Venick, Esq.
Loeb & Loeb LLP
2206-19 Jardine House
1 Connaught Place, Central
Hong Kong SAR
Telephone: +852-3923-1111

 

Stephanie Tang, Esq.
Hogan Lovells
11
th Floor, One Pacific Place

88 Queensway Road

Hong Kong SAR
Telephone: +852
-2219-0888

_____________________________

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act:

Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

____________

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

 

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

PRELIMINARY PROSPECTUS (SUBJECT TO COMPLETION)

 

DATED JULY 24, 2023

Class A Ordinary Shares

DDC Enterprise Limited

This is the initial public offering of our Class A ordinary shares (“Class A Ordinary Shares”). We are offering [         ] of our Class A Ordinary Shares, par value $[            ] per share, on a firm commitment basis. The estimated initial public offering price is expected to be $[            ] per share. Currently, no public market exists for our Class A Ordinary Shares. We have applied to list our Class A Ordinary Shares on the NYSE Group, or NYSE, under the symbol “[    ]”. We cannot guarantee that we will be successful in listing our Class A Ordinary Shares on the NYSE Group; however, we will not complete this offering unless we are so listed.

Our ordinary shares will be classified into Class A Ordinary Shares and Class B Ordinary Shares. In respect of matters requiring shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to [thirty] votes.

We are both an “emerging growth company” and a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company and a Foreign Private Issuer” for additional information. Investors are cautioned that you are buying shares of a shell company issuer incorporated in the Cayman Islands with operating subsidiaries in China and Hong Kong, investors will not hold direct equity investments in our China and Hong Kong operating subsidiaries. Our Class A ordinary shares offered in this prospectus are shares of our Cayman Islands holding company. See “Risk Factors — Risks Related to Doing Business in China and Hong Kong — Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our Company’s business and results of operations we may pursue in the future; — Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us; and — The Hong Kong legal system embodies uncertainties which could limit the legal protections available to us.”

We will not be a “controlled company” under the New York Stock Exchange Listed Company Manual post public offering.

Investing in our Class A Ordinary Shares is highly speculative and involves a significant degree of risk. Our Class A ordinary shares offered in this prospectus are shares of our Cayman Islands holding company. Although “we,” “us,” “our,” “our Group,” “the Group” or “our company” refer to DDC Enterprise Limited and its subsidiaries and the VIEs as a whole for ease of reference and discussion, investors should be aware that DDC Cayman and its subsidiaries do not have direct ownership in the VIEs, but rather exert control over and receive economic benefits from the VIEs through various contractual arrangements. In this prospectus where business activities or functions of the VIEs are described, specific references will be made to the relevant VIEs. We currently conduct our business through Shanghai DayDayCook Information Technology Co., Ltd, or SH DDC, Shanghai Lashu Import and Export Trading Co., Ltd., or SH Lashu, and Lin’s Group Limited, each an indirect wholly owned subsidiary of DDC Cayman, and a number of operating subsidiaries non-wholly and wholly owned by SH DDC. All of these operating subsidiaries are established under the laws of the PRC. During the two years ended December 31, 2021 and 2022, we had conducted part of our operations in China through (1) contractual arrangements with two variable interest entities and their consolidated entities (the “Weishi and City Modern VIEs”), namely, Shanghai Weishi Information Technology Co., Ltd., Shanghai City Modern Agriculture Development Co., Ltd., Shanghai City Vegetable Production and Distribution Co-op, Shanghai Jiapin Vegetable Planting Co-op, Shanghai Jiapin Ecological Agriculture Co-op, and (2) the Megnwei VIE. Through such contractual arrangements, we, through our indirect wholly-owned PRC subsidiary SH DDC, control and receive the economic benefits of the Weishi and City Modern VIEs without owning any direct equity interest in them. As of April 2022, such contractual arrangements with the Weishi and City Modern VIEs were terminated. However, as at the date of this prospectus, we still have contractual arrangements with Chongqing Mengwei Technology Co., Ltd. (“Mengwei Technology”), Liao Xuefeng, Chongqing Changshou District Weibang Network Co., Ltd. (“Weibang”), Chongqing Yizhichan Snack Food Electronic Commerce Service Department (“Yizhichan”) and Chongqing Ningqi E-commerce Co. Ltd. (“Ningqi”) to enable us to have the ability to control a number of online stores purchased from them since the titles of such online stores cannot be transferred to us due to the limitations from the policies of certain online platforms. These online stores are considered VIEs and SH DDC is the primary beneficiary. We refer to these online stores the “Mengwei VIE” throughout this prospectus.

Recent statements by the Chinese government have indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investments in China based issuers. Any future action by the Chinese government expanding the categories of industries and companies whose foreign securities offerings are subject to government review could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and could cause the value of such securities to significantly decline or be worthless.

Recently, the PRC government initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using a variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. As there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we cannot assure you that we would not be subject to cybersecurity review or investigations launched by PRC regulators. On December 28, 2021, the Cyberspace Administration of China (the “CAC”), and 12 other relevant PRC government authorities published the amended Cybersecurity Review Measures, which came into effect on February 15, 2022. The final Cybersecurity Review Measures provide that a “network platform operator” that possesses personal information of more than one million users and seeks a listing in a foreign country must apply for a cybersecurity review. Further, the relevant PRC governmental authorities may initiate a cybersecurity review against any company if they determine certain network products, services or data processing activities of such company affect or may affect national security. Through the contractual arrangements with Weishi, DDC SH had collected and possessed personal information of more than one million users. After the contractual arrangements with Weishi were terminated in April 2022, DDC SH still has been possessing this amount of personal information which are stored in mainland China. For purposes of the Cybersecurity Review Measures, we have applied for and completed the cybersecurity review with respect to our proposed overseas listing pursuant to the Cybersecurity Review Measures. See “Risk Factors — We may be liable for improper collection, use or appropriation of personal information provided by our customers.” Because these statements and regulatory actions are new, however, it is highly uncertain how soon legislative or administrative regulation making bodies in China will respond to them, or what existing or new laws or regulations will be modified or promulgated, if any, or the potential impact such modified or new laws and regulations will have on our daily business operations or our ability to accept foreign investments and list on an U.S. exchange.

On February 17, 2023, CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “Trial Measures”), which became effective on March 31, 2023. On the same date, the CSRC circulated Supporting Guidance Rules No. 1 through No. 5, Notes on the Trial Measures, Notice on Administration Arrangements for the Filing of Overseas Listings by Domestic Enterprises and relevant CSRC Answers to Reporter Questions (collectively, the “Guidance Rules and Notice”) on the CSRC’s official website. Under the Trial Measures, either direct or indirect overseas offering and listing by domestic companies shall fulfill the filing procedure with the CSRC with submitting relevant materials. Any overseas offering and listing made by an issuer that meets both the following conditions will be determined as indirect: (1) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic companies; and (2) the main parts of the issuer’s business activities are conducted in the Chinese Mainland, or its main places of business are located in the Chinese Mainland, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in the Chinese Mainland. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on a substance over form basis. When certain circumstances happen, overseas offering and listing shall not be made. And If the intended overseas offering and listing necessitates a national security review, relevant security review procedures shall be completed according to law before the application for such offering and listing is submitted to any overseas parties such as securities regulatory agencies and trading venues. Pursuant to the Trial Measures and the Guidance Rules and Notice, initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas, while PRC domestic enterprises that have submitted valid applications for overseas offerings and listing but have not obtained the approval from the relevant overseas regulatory authority or overseas stock exchanges shall complete filings with the CSRC prior to their overseas offerings and listings. We have submitted the filing materials with the CSRC to fulfill the filing procedure with the CSRC as per requirement of the Trial Measures, but we cannot predict whether or how soon it will be able to complete such proceeding. If we fail to comply with the Trial Measures, we will be required to correct our behaviors, facing warnings and fines which amount will range from RMB1,000,000 to RMB10,000,000, and directly responsible personnel will also be warned and fined which amount will range from RMB500,000 to RMB 5,000,000. Any failure of us to obtain the relevant approval or complete the filings and other relevant

 

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regulatory procedures in a timely manner may significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become worthless. See “Risk Factors — The approval of the China Securities Regulatory Commission and other PRC governmental authorities provided under the M&A rules are not required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval. Except for the CSRC filing for this issuance and listing, we are not required to obtain any permission or approval from any Chinese authority to issue securities to foreign investors or in connection with this offering, which, we cannot predict, whether or how soon will be completed.”

The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. In accordance with the HFCAA, trading in securities of any registrant on a national securities exchange or in the over-the-counter trading market in the United States may be prohibited if the Public Company Accounting Oversight Board (the “PCAOB”) determines that it cannot inspect or fully investigate the registrant’s auditor for three consecutive years beginning in 2021, and, as a result, an exchange may determine to delist the securities of such registrant. On December 23, 2022, the Accelerating Holding Foreign Companies Accountable Act, or the AHFCAA, was enacted, which amended the HFCAA by reducing the aforementioned inspection period from three to two consecutive years, thus reducing the time period before our securities may be prohibited from trading or delisted if our auditor is unable to meet the PCAOB inspection requirement. Pursuant to the HFCAAt, the PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. In addition, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations. Our registered public accounting firm, KPMG Huazhen LLP, is headquartered in mainland China or Hong Kong and was identified in this report as a firm subject to the PCAOB’s determination. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed. If the PCAOB is unable to inspect and investigate completely registered public accounting firms located in China and we fail to retain another registered public accounting firm that the PCAOB is able to inspect and investigate completely in 2023 and beyond, or if we otherwise fail to meet the PCAOB’s requirements, our Class A ordinary Shares will be delisted from the NYSE Group and will not be permitted for trading over the counter in the United States under the HFCAA and related regulations. On December 2, 2021, the SEC adopted final amendments implementing the disclosure and submission requirements under the Holding Foreign Companies Accountable Act, pursuant to which the SEC will (i) identify an issuer as a “Commission-Identified Issuer” if the issuer has filed an annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely because of the position taken by the authority in the foreign jurisdiction and (ii) impose a trading prohibition on the issuer after it is identified as a Commission-Identified Issuer for three consecutive years. See “Risk Factors — The recent enactment of the Holding Foreign Companies Accountable Act may result in de-listing of our securities.

As a holding company, we may rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements. If any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. As at the date of this prospectus, neither of our direct wholly or non-wholly owned subsidiaries nor the VIEs have made any dividends or other distributions to our holding company and the holding company has not made any dividends or distributions to any investors including U.S. investors as of the date of this prospectus. The holding company, its subsidiaries, and VIEs do not have any plan to distribute dividend or settle amounts owed under the prior or current contractual agreements in the foreseeable future. However, to the extent cash/assets in the business is in PRC/Hong Kong or our PRC/Hong Kong entity, the funds/assets may not be available to fund operations or for other use outside of the PRC/Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us, our subsidiaries or the VIEs by the PRC government to transfer cash/assets. See “Transfer of Cash Through our Organization”, and “Risk Factors–Risks Related to Doing Business in China and Hong Kong — PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using part of the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business” and “Restrictions on currency exchange may limit our ability to utilize our revenues effectively.” In the future, cash proceeds raised from overseas financing activities, including this offering, may be transferred by us to our PRC subsidiaries via capital contribution or shareholder loans, as the case may be. We currently don’t have any cash management policies and procedures in place that dictate how funds are transferred through our organization. Rather, the funds can be transferred in accordance with the applicable PRC laws and regulations. As of the date of this prospectus, no cash transfer has been made among the holding company, its subsidiaries and VIE.

Before buying any shares, you should carefully read the discussion of material risks of investing in our Class A Ordinary Shares in “Risk Factors” beginning on page 38 of this prospectus.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

PER SHARE

 

TOTAL

Initial public offering price

 

$

   

$

 

Underwriting discounts and commissions(1)

 

$

   

$

 

Proceeds, before expenses, to us

 

$

   

$

 

____________

(1)        For a description of compensation payable to the underwriter, see “Underwriting” beginning on page 201.

We expect our total cash expenses for this offering (including cash expenses payable to our underwriters for their out-of-pocket expenses) to be approximately $[            ], exclusive of the above discounts and commissions. In addition, we will pay additional items of value in connection with this offering that are viewed by the Financial Industry Regulatory Authority, or FINRA, as underwriting compensation. These payments will further reduce proceeds available to us before expenses. See “Underwriting.”

This offering is being conducted on a firm commitment basis. The underwriters are obligated to take and pay for all of the shares if any such shares are taken. We have granted the underwriters an option for a period of thirty (30) days after the closing of this offering to purchase up to 15% of the total number of our Class A Ordinary Shares to be offered by us pursuant to this offering (excluding shares subject to this option), solely for the purpose of covering over-allotments, at the initial public offering price less the underwriting discounts and commissions. If the Underwriter exercises the option in full, the total underwriting discounts and commissions payable will be $[            ] based on an assumed initial public offering price of $[            ] per Class A Ordinary Shares, and the total proceeds to us, before expenses, will be $[            ]. If we complete this offering, net proceeds will be delivered to us on the closing date.

The underwriters expect to deliver the Class A Ordinary Shares against payment as set forth under “Underwriting”, on or about             , 2023.

CMB International

 

The Benchmark Company

Guotai Junan International

 

Eddid Financial

 

Tiger Brokers

The date of this prospectus is            , 2023.

 

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Page

Prospectus Summary

 

1

Risk Factors

 

38

Special Note Regarding Forward-Looking Statements

 

86

Industry and Market Data

 

87

Use of Proceeds

 

88

Dividend Policy

 

89

Capitalization

 

90

Dilution

 

92

Corporate History and Structure

 

94

Selected Consolidated Financial Data

 

98

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

101

Industry Overview

 

125

Business

 

128

Regulations

 

152

Management

 

164

Principal Shareholders

 

171

Related Party Transactions

 

173

Description of Share Capital and Governing Documents

 

177

Shares Eligible for Future Sale

 

193

Material Income Tax Considerations

 

195

Underwriting

 

201

Expenses Related to this Offering

 

212

Legal Matters

 

213

Experts

 

213

Enforcement of Civil Liabilities

 

214

Where You Can Find Additional Information

 

217

Index to Consolidated Financial Statements

 

F-1

We are responsible for the information contained in this prospectus and any free writing prospectus we prepare or authorize. We have not, and the underwriters have not, authorized anyone to provide you with different information, and we and the underwriters take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell our Class A Ordinary Shares in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or the sale of any Class A Ordinary Shares.

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

We are incorporated under the laws of the Cayman Islands and a majority of our outstanding securities are owned by non-U.S. residents. Under the rules of the U.S. Securities and Exchange Commission, or the SEC, we currently qualify for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the Securities and Exchange Commission, or the SEC, as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Until and including            , 2023 (twenty-five (25) days after the date of this prospectus), all dealers that buy, sell or trade our Class A Ordinary Shares, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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CONVENTIONS THAT APPLY TO THIS PROSPECTUS

Unless we explicitly state otherwise or the context otherwise indicates clearly, all references in this prospectus to “we,” “us,” “our,” “our Group,” “the Group” or “our company” refer to DDC Enterprise Limited and its subsidiaries and the VIEs.

The “Company” or “DDC Cayman” refers to DDC Enterprise Limited.

“HKD” or “HK$” refers to the legal currency of Hong Kong.

“Hong Kong” refers to Hong Kong Special Administrative Region of the People’s Republic of China.

“Macau” refers to Macau Special Administrative Region of the People’s Republic of China.

“RMB” or “Renminbi” refers to the legal currency of China.

“mainland China,” “PRC” or “China” refers to the People’s Republic of China, excluding, for the sole purpose of this prospectus, Hong Kong, Macau and Taiwan, unless the context otherwise indicates.

“paid customers”, with respect to a certain point of time, refers to the Company’s current and past customers who had, as of that point of time, purchased product or service from the Company.

“Prospectus” refers to the public offering prospectus unless we explicitly state otherwise or the context otherwise indicates clearly.

“$” or “U.S. dollars” or “USD” refers to the legal currency of the United States.

We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option and no exercise of the Underwriter Warrants.

Our business is primarily conducted in China, and the financial records of our subsidiaries in Asia are maintained in USD, and our functional currency is USD. Our consolidated financial statements are presented in U.S. dollars. We use U.S. dollars as the reporting currency in our consolidated financial statements and in this prospectus.

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

This prospectus includes trademarks, tradenames and service marks, certain of which belong to us, including the DayDayCook logo, and others that are the property of other organizations. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this prospectus are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

This prospectus contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All such trademarks, service marks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

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PUBLIC OFFERING PROSPECTUS SUMMARY

The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our Class A Ordinary Shares. You should read the entire prospectus carefully, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes thereto, in each case included in this prospectus. You should carefully consider, among other things, the matters discussed in the section of this prospectus titled “Business” before making an investment decision. This prospectus contains information from an industry report commissioned by us and prepared by Frost & Sullivan, an independent research firm, to provide information regarding our industry. We refer to this report as the Frost & Sullivan Report.

Our Mission

Our mission is to inspire others to enjoy cooking as part of a quality lifestyle and culture. We are driven to improve lives by creating easy-to-cook, delicious, and healthy meal solutions. It is our vision to create fun experiences and inspirations in every kitchen.

Overview

We are a leading content driven (i.e. using content to reach and engage target customers) consumer brand offering easy, convenient ready-to-heat (“RTH”), ready-to-cook (“RTC”) and plant-based meal products (i.e. meal products consisting largely or solely of vegetables, fruits, grains and other foods derived from plant-based protein, rather than animal protein) while promoting healthier lifestyle choices to our predominately Millennial and Generation Z (“GenZ”) customer-base. We are also engaged in the provision of advertising services.

We were founded in Hong Kong in 2012 by Ms. Norma Ka Yin Chu, a highly regarded entrepreneur and a true cooking enthusiast, as an online platform which distributed food recipes and culinary content. Subsequently, we further expanded our business to provide advertising services to brands that wish to place advertisements on our platform or video content. In 2015, we entered the Mainland China market through the establishment of Shanghai DayDayCook Information Technology Co., Ltd (“SH DDC”) to engage in technology development of computer software, food circulation and advertising production in China. In 2017, we started expanded our business from content creation to content commerce. Later in 2019, we extened our business to include the production and sale of, among others, own-branded RTH, RTC convenient meal solution products.

As of March 31, 2023, our main product categories include (i) own-branded RTH products — typically semi-cooked meals with some but minimal preparation required ahead of serving, (ii) own-branded RTC products — ready to be consumed within 8 to 15 minutes with some additional cooking preparation, (iii) own-branded RTE products — typically pre -cooked meals that are ready to serve with minimal level of additional preparation, which includes our plant-based meal products localized for the palate of an Asian consumer, and (iv) private label products (i.e. third-party branded food products).

Business Model

Our omni-channel (online and offline) sales, end-to-end (“E2E”) product development and distribution strategy, and data analytics capabilities enable us to successfully identify, assess, and pivot to cater to changing consumer preferences and trends across multiple customer segments and price-points. From a product distribution standpoint, we have created a network of direct-to-customer (“D2C”), retailer, and wholesaler sale options.

        We leverage (i) large China-based e-commerce platforms e.g., Tmall, JD.com, Pinduoduo, (ii) leading livestreaming, video-sharing, content-marketing platforms e.g., ByteDance (TikTok and sister-app Douyin), Bilibili, Weibo, Little Red Book (小红书), Kuaishou etc., and (iii) online-merged-offline (OmO) group-buy platforms e.g., Meituan-Dianping to drive online sales. We would cooperate with third-party online distributors on these e-commerce platforms to promote and sell our products.

        We have access to a network of offline point-of-sales (“POS”) through partnerships with (i) convenience stores e.g., 7/11, Lawson etc., (ii) multi-national retail corporations e.g., Carrefour, Hema etc., (iii) boutique supermarket chains e.g., Ole’, G-Super etc., and (iv) various corporate partnerships e.g., Towngas to distribute and sell our products.

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        We operate in the Mainland China market but are actively expanding into international markets including but not limited to the United States and Canada.

        We own multiple brands in our portfolio that provide convenient meal solution products to a wide range of consumers. We are actively looking for acquitision opportunities in complimentary brands in the Asian food and cooking categories as well as targets that can strengthen the company’s network of sales distribution.

As of March 31, 2023, we had 24.5 million paid customers. Around 69% of our followers on social media & video platforms are GenZ. 50% of customers are from the Eastern & Southern parts of China, and 86% are female. In particular, we believe that our products appeal to GenZ because (1) when compared to older age groups, GenZ generally do not want to spend a long time cooking at home and they value cost effective options like RTC, RTH and RTE meals due to the ease of cooking that RTC, RTH and RTE products provide; (2) we promote our products mainly through social media, the audience of which are mainly the GenZ population; (3) we mainly sell our products through e-commerce platforms, including livestreaming e-commerce, the customers demographics of which are dominated by GenZ; (4) plant-based diets have progressed from a food trend to a globally recognized lifestyle which GenZ is more willing to embrace. The average age of a viewer engaging with our products or marketplace is younger than 30 years old. From 2018 to March 2023, we have a content library with more than 247,874 minutes of in-house created content.

For the three months ended March 31, 2023, we recorded RMB43.0 million (or US$6.3 million) in total revenue compared to RMB36.9 million for the three months ended March 31, 2022, representing a 16.6% increase. Subsequent to March 31, 2023, we signed purchase agreements for three acquisitions. Assuming these three acquisitions had taken place on 1 January 2023, the unaudited pro forma revenue of the Company for the three months ended March 31, 2023 would be RMB68.9 million (or US$10.0 million).

For the year ended December 31, 2022, we recorded RMB179.6 million (or US$26.1 million) in total revenue. This drop in revenue was largely a result of negative impact from extended zero-covid policy in China which led to massive disruptions in the company’s e-commerce operations. In the face of this challenge, we completed four acquisitions in 2022 to speed up the diversification of revenue streams as well as aggressive improvement on overall cost structure. Assuming these four acquisitions had taken place on 1 January 2022, the unaudited pro forma revenue of the Company for the year ended December 31, 2022 will be RMB231.9 million (or US$33.8 million). Equally important, our focus has been on improving the overall cost structure of the business when facing Covid and inflation challenges. For the year ended December 31, 2022, our gross profit margin increased to 24.5% versus 17.8% for the year ended December 31, 2021.

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As the company continues to execute on its M&A strategy, which primarily focuses on the acquisition of complimentary brands in the Asian food and cooking categories as well as sales channel access, in April 2023, we entered into a purchase agreement to acquire 51% equity interest of Shanghai Yuli Development Limited (“Yuli”), to add new sales channels in Ready-To-Cook and Ready-To-Eat product categories; also in April 2023, we entered into a purchase agreement to acquire 100% interest in 4 online stores in Pinduoduo platform to increase our online Ready-To-Heat customer base; in May 2023, we entered into a purchase agreement to acquire “Nona Lim”, an Asian food brand based in San Francisco, USA. The brand sells Ready-To-Cook Asian noodle meal kits and a variety of soup bases to its customers through an established distribution network in the United States, including major retailers such as Whole Foods Market, Target, and Kroger.

We have incurred a loss from operations, had net cash used in operating activities, net current liabilities and an accumulated deficit. In addition, our auditor’s report includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.

Our Industry

We compete primarily in the convenient meal solutions market providing RTE, RTC and RTH products to our customers. With (i) the proliferation of food delivery service options, (ii) a shift in customer preference and behavior away from home-cooked to convenience, and (iii) an increase in GDP per capita/overall disposable income (both in our target demographic and in-general) the demand for convenient meal solution products including RTC/RTE products has increased significantly. Customers have also become more discerning and expect RTC/RTH/RTE products to be of a high quality, have a higher nutritional value, and taste better when compared with other processed or semi-processed food product categories. Typically, RTC and RTE meals are made using high-quality and seasonal ingredients with full traceability at every stage of the food chain and a focus on nutritional value and maintaining a balanced diet is factored into the recipe and product R&D process.

COVID-19 has accelerated the shift to e-commerce and the need to develop and professionalize China’s cold chain transport infrastructure. The logistics industry is benefiting from the proliferation of professional third-party logistics service providers as well as improvements in preservation/storage, information logistics, analysis, and distribution technology. As a result of improvements in logistical infrastructure and the scale of the distribution network, the RTC and RTE industry has been able to expand its geographical reach, improve product delivery efficiency, and guarantee food safety and maintain quality over larger distances.

Internationally, the development history of mature overseas RTC and RTE markets nurtures an extensive customer base of RTC and RTE products. The COVID-19 pandemic further stimulates such demands in overseas markets as it alters people’s lifestyle and increases health consciousness, especially in Southeast Asia. In addition, with the development of those mature RTC markets, an increasing number of customers are in pursuit of a healthier lifestyle and start to favor healthier ready-to-cook products instead of RTC products of high calories as well as healthier ready-to-eat products instead of junk food. Chinese companies in the RTC and RTE industry, because of their well-established value chains, are able to offer RTC and RTE products of competitive prices in markets like North America and Europe despite the additional logistic expenses. Thus, Chinese companies that are actively seeking international expansion opportunities are well positioned to gain share in the global RTC and RTE market.

Plant-based products are a nascent Fast-Moving Consumer Goods (“FMCG”) category in China. Some Chinese brands have recently emerged as strong competitors to international incumbents. Younger individuals are the target demographic of companies offering plant-based substitutes/alternatives. Many new brands have been able to penetrate the younger customer segment by adopting an omnichannel strategy and by offering good quality, varied product offerings at a reasonable price-point.

Around the globe, the public has been paying more attention to environmental and natural resources protection over the past decades. The technology and production of plant-based meat has also experienced rapid development. Benefiting from the mature production technology of plant-based meat, foreign brands, when compared with Chinese brands, have obvious advantages in imitation of meat flavor and texture. However, limiting to product categories, flavor localization, stock-keeping unit (“SKU”) quantity, and high price, it is difficult for them to seize significant business opportunities in Chinese market. Compared to foreign brands, domestic brands pay more attention to recipe R&D and introduce various plant-based meat food products into the market, ranging from Western cuisine to Chinese cuisine, including but not limited to Panini, pizza, hamburgers, braised rice, pies, noodles, and other products. Finally, the processed volume of soybean protein and pea protein in China contributes nearly half of the global volume every year, which provides a significant advantage in raw materials for domestic plant-based meat food products companies.

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Our Competitive Strengths

We believe the following competitive strengths differentiate us from our competitors and will continue to contribute to our success:

Leading Content Driven Consumer Brand in China that Possess a Loyal Customer Base, and Clear Alignment with Consumer Trends

We are a leading content-driven lifestyle brand for young food lovers, especially GenZ customers in China. We believe that our RTH, RTC, RTE, and plant-based meal products portfolio aligns with broader Fast-Moving-Consumer-Goods trends and shifts in consumer behavior. Our products, brand, and mission resonate strongly with our GenZ customer base who seek high quality and nutritional food products that are sustainably and ethically sourced. As of March 31, 2023, more than 24.5 million consumers had purchased our products via one or more e-commerce platforms.

Track Record of Innovation

We allocated and will continue to allocate significant resources to product innovation for our RTC and RTE products. We typically launch new products on a quarterly basis. To position us as a leader in the convenient RTC and RTE categories, we partnered with PFI Foods in the third quarter of 2020, cooperated with Meta Meat in 2021, both companies being leading plant-based meat manufacturers in mainland China, to develop a line of plant-based food products. In 2023, we have also launched a partnership with Nestle China using their Harvest Gourmet brand of plant based meat to bring the first-ever RTC products to market.

In addition, the company is building a library of new product concepts and recipes, ready for further development and testing. We believe that we excel at identifying ingredient combinations, and flavor profiles that appeal to the palate of young Asian consumers. Leveraging our innovation capabilities, our experience in the Chinese markets and our deep understanding of the palate of Asian consumers, we are confident that when executing our international market expansion plan, we can introduce new product innovation and develop food products that appeal to other Asian communities and potentially an even wider audience on the global stage.

Omni-Channel and Multi-Faceted Sales & Distribution Strategy

The Company’s core distribution strategy is to balance the revenue mix of online sales and offline sales. By leveraging the power of e-commerce, we tap into the growing digital market while providing various meal solutions to our consumers all around China. Simultaneously, we maintain a strong presence in physical retail through distributors, ensuring accessibility and brand visibility. This balanced distribution strategy enables us to capture diverse customer segments, optimize sales channels, and mitigate risks associated with concentration on a single distribution channel. In 2022, due to the impact of Covid outbreak in mainland China, we encountered difficult meeting our customers’ need online. As a result, about 83% and 61% of our revenue came from offline sales for the three months ended March 31, 2023 and for the year ended December 31, 2022 respectively.

Our omni-channel (both offline and online) strategy spans (i) popular e-commerce channels e.g., Taobao and JD.com, (ii) social and content platforms e.g., TikTok, Kuaishou, Bilibili, and WeChat, and (iii) community group buying platforms e.g., Meituan-Dianping. From 2019 to March 2023, our online sales network including, among others, Tmall, JD.com, and China Pinduoduo have attracted 107.18 million visitors and for the three months ended March 31, 2023, and for the year ended December 31, 2022, generated online consumer product sales of RMB7.3 million (or US$1.1 million) and RMB67.0 million (or US$9.8 million) respectively. In 2023, we increased our offline retail distribution network and have worked with 709 distributing partners.

We will continue to focus on bringing our customers the best quality Asian meal solution, by implementing a balanced distributing strategy. In 2023, the company’s forecasted online sales will account for 50% of total sales, while offline sales will account for the remaining half.

Customer Engagement Analytics, Customer Service, and Real-Time (“RT”) Feedback Capabilities

We analyze transaction data, collect customer feedbacks through one or more channels, and engage in customer engagement analytics. This helps to (i) streamline the product development lifecycle and reduce the risk of a customer-product mismatch, (ii) uncover new (sub) product categories and/or potential bundling and/or up and cross-sell opportunities within the existing product portfolio, (iii) strengthen our brand image, and (iv) improve customer “stickiness” by providing customers with a forum.

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E2E Supply Chain Visibility, Agile Product Development and Go-to-Market (“GTM”) Capabilities

On average, we can deliver a new product to-market within 8 weeks. Our E2E supply chain visibility and strong product execution i.e., product concept, prototyping, product validation and recalibration, commercial manufacturing, product marketing and placement capabilities mean we can react in almost real-time to changes in customer needs and preferences. As part of our more proactive new product development strategy, we leverage our deep industry and cross-disciplinary expertise to uncover potential market and product opportunities. We have an in-house content development team which focuses on building interest and demand pre product launch. They will keep abreast of the latest market developments and identify potential trends and consumers interests. To promote our new products, we also collaborate with key opinion leaders (“KOLs” or “KOL”). We are well placed to continue to grow our market share and become the dominant player in the RTH, RTC, RTE, and plant-based meal products industry in mainland China.

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Experienced Management Team, Board of Directors, and Advisory Network

We have an experienced management team. Members of our management team have significant experience across the FMCG, e-commerce, and IT services/technology, media, and telecommunications industries/sectors. More importantly, our management team comprises of a few selected individuals that offer strong understanding of the Chinese market as well as have extensive experiences in operating and expanding FMCG businesses in international markets.

In particular, our founder, Ms. Norma Ka Yin Chu, is a highly regarded entrepreneur and a true cooking enthusiast who has won numerous awards as a visionary entrepreneur in the cooking and lifestyle community. She was named as China New Media Top 100 people in 2016, and one of CY Zone’s Most Notable Female Entrepreneurs for three consecutive years from 2017 to 2019. In 2020, she was awarded the Outstanding ICT Women Awards 2020: Women Entrepreneur Category, Harper’s Bazaar The Visionary Woman 2020 and JESSICA Most Successful Women Award 2020 — Digital Women. Prior to founding our group, Norma was the Head of Research of HSBC Private Bank in Hong Kong. Therefore, not only does Ms. Chu have rich experience in the cooking and food products industry, she also has extensive experience in private equity, which together enable her to lead our group’s drive to become a leader in the market.

We further augmented the management team with a Board of Directors and an advisory network with significant operator expertise and experience spanning PepsiCo, General Mills, Danone and Meitu.

Name

 

Previous Roles

 

Description

Chia Hung Yang
Independent Director

 

Tuniu Corp., AirMedia, Dangdang Inc., and Goldman Sachs Group, Inc.

 

   Mr. Yang has over 30 years of experience in capital market across the US & China, held C-level positions at several US-listed Chinese TMT companies

   Former CFO of Tuniu, 51Talk, DangDang and AirMedia. Previously, Mr. Yang was a banker at Goldman Sachs, Morgan Stanley & Lehman Brothers

   Mr. Yang currently serves as an independent director of I-Mab (Nasdaq: IMAB), Ehang (Nasdaq:EH), iQIYI (Nasdaq: IQ) and Up Fintech Holding (Tiger Securities) (Nasdaq: TIGR)

Matthew Gene Mouw Independent Director

 

Danone S.A., Barilla Group, MARS Inc

 

   Mr. Mouw has over 30 years of extensive experience in the food industry, both convenience driven products such as confectionary, water & biscuits as well as planned purchase driven products such as juices, pasta and ready meals

   Former Regional President Asia, Africa, and Australia for Barilla SpA. and General Manager for Danone S.A., in China

   Mr. Mouw has experience with both emerging markets ranging from China to Turkey to Russia as well as developed markets ranging from Australia to Japan and Korea

Sam Shih
Independent Director

 

PepsiCo, Inc., Red Bull GmbH, Accor S.A, and OYO Rooms

 

   Mr. Shih has over 30 years of experience in food & hospitality industry in China.

   Mr. Shih is currently a Partner and Chief Operating Officer of OYO Hotel Company, a unicorn start-up backed by Softbank in China.

   Previously Mr. Shih has served as CEO of PepsiCo Investment (China) Ltd., Asia Pacific Managing Director for Red Bull Gmbh as well as Chairman and CEO of Accor Great China

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Name

 

Previous Roles

 

Description

Malik Sadiq, PhD Advisory Board Member

 

The LIVEKINDLY Company, Inc., Tyson Foods, Inc., Arthur Andersen LLP, and Hitachi Vantara

 

   Mr. Sadiq has more than 25 years of experience in the food and strategy consulting industry in China, India, and the US

   Mr. Sadiq is currently the consulting business owner of Great Doorway Consulting

   Previous roles include several senior management positions at Tyson Foods, most notably, CEO India, COO China, and Head of Global Sourcing and Business Optimization, COO of LIVEKINDLY Co, as well as the Vice President, Consumer Practice at Hitachi Consulting

Chenling Zhang
Advisory Board Member

 

Primavera Capital Acquisition Corp, VCleanse

 

   Being an investor, entrepreneur and influencer, Ms. Zhang started her career on Wall Street, raised NYSE- listed SPAC and founded her own company VCLEANSE as key suppliers of various popular brands

   Ms. Zhang also works closely with a variety of global consumer brands, making contributions to their branding strategies and community building initiatives

   Her roles include director of Primavera Capital Acquisition Corp and founder of VCLEANSE

Our Strategies

International market expansion

Internationally, the development history of mature overseas RTC and RTE markets nurtures an extensive customer base of RTC and RTE products. The COVID-19 pandemic further stimulates such demands in overseas markets as it alters people’s lifestyle and increases health consciousness, especially in Southeast Asia,. Chinese companies in the RTC and RTE industry, attributable to their well-established value chains, are able to offer RTC and RTE products of competitive prices in markets like North America and Europe despite the additional logistic expenses. Thus, Chinese companies that are actively seeking international expansion opportunities are well positioned to further gain share in the global RTC and RTE market.

Moreover, around the globe, the public has been paying more attention to environmental and natural resources protection over the past decades. Compared to foreign brands, domestic Chinese brands pay more attention to the recipe R&D and introduce various plant-based meat food products into the market, covering from Western cuisine to Chinese cuisine, including but not limited to Panini, pizza, hamburgers, braised rice, pies, noodles, and other products to cater consumers. The processed volume of soybean protein and pea protein in China contributes nearly half of the global volume every year, which provides a significant advantage in raw materials for Chinese plant-based meat food products companies.

In view of the above and to the extent permitted due to our recurring losses from operations and an accumulated deficit, we are raising funds from investors for the purpose of expanding our business in the U.S. and Southeast Asia in hope of widening our customer base.

For the U.S., we have devised a three-fold strategy: (1) to launch our products through major Asian-focused online and offline sales channels, (2) to launch our direct-to-consumer stores on Amazon and our U.S. website, and (3) to grow through acquisitions. Since July 2022, we have successfully gained access to the U.S. market through sales on Yamibuy.com, one of the largest Asia food e-commerce platforms headquartered in the U.S.. In May 2023, we entered into a purchase agreement to acquire “Nona Lim”, an Asian food brand based in San Francisco, USA. The brand sells Ready-To-Cook Asian noodle meal kits and a variety of soup bases to its customers through an established distribution network in the United States, including major retailers such as Whole Foods Market, Target, and Kroger.

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This acquisition enables us to expand our customer base into the US market. As for the Southeast Asian market, we are currently negotiating with local companies that would give us instant access to a growing customer base in the RTC and RTE meal markets.

Enhance our sales and marketing capabilities, as well as our sphere of influence

We will continue to monitor the performance of our e-commerce partners and platforms, adapt our product pricing strategy and offerings, and expand our fulfilment capabilities to support our revenue targets. We are raising funds from investors to deepen and broaden our existing partnerships and continue to expand cooperation with a wider network of influencers and KOLs to build our brand awareness. Also, we plan to engage more up-and-coming social e-commerce platforms to (i) drive higher traffic to our stores through more and closer collaborations; (ii) improve our ability to aggressively penetrate non-tier 1 cities and (iii) accelerate the growth of our paid customer base. In addition, we will continue to improve our sales and marketing capabilities and leverage the internet and various social media platforms to build brand awareness in non-Tier 1 cities in China. We will also engage content and social media marketing providers and platforms to drive an increase in average order value (“AOV”), repeat purchases, and to attract net-new users to our platform.

As of March 31, 2023, we had 24.5 million paid customers.

Continue to innovate and expand product offerings

We expect consumer demand for RTH, RTC, RTE and plant-based meal products to not only persist, but to grow at an accelerated rate. We plan to leverage our deep industry expertise, data-informed consumer insights, and predictive analytics to identify meaningful consumer trends and then partner with and solicit product feedback from our customers to optimize and expand on our existing product portfolio. We are committed to strengthening our R&D and product development capabilities to improve our ability to innovate more effectively within our core product categories.

Mergers and Acquisitions (“M&A”) Rollup

M&A is a key growth strategy going forward for the company in order for us to execute on the multi-brand strategy and also further diversify away from brand concentration risks. We have already identified several targets but to the extent permitted due to our recurring losses from operations and an accumulated deficit, we will evaluate and opportunistically execute on strategic joint ventures (JV), potential investments and acquisition opportunities across the value-chain with a focus on supplementing and/or complementing our existing products, sales channels, customer-base and/or allow us to optimize our existing brand marketing and sales channel management capabilities. Apart from executing acquisitions with considerations paid through share exchanges, we are also raising funds from investors to have an option to acquire companies through a mixture of cash and shares.

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Corporate History and Structure

DDC Enterprise Limited (“DDC Cayman”) is a Cayman Islands holding company and conducts its operations primarily in China through its wholly-owned or controlled subsidiaries. We were founded in Hong Kong in 2012 by Ms. Norma Ka Yin Chu as an online platform which distributed food recipes and culinary content. Subsequently, we further expanded its business to provide advertising services to brands that wish to place advertisements on our platform or video content. In 2015, we entered the Mainland China market through the establishment of Shanghai DayDayCook Information Technology Co., Ltd. (“SH DDC”) and Shanghai Weishi Information Technology Co., Ltd. (“Weishi”). In 2017, we expanded our business from content creation to content commerce. Later in 2019, we extended our business to include the production and sale of, among others, own-branded RTH, RTC convenient meal solution products.

During the periods covered by the financial statements included elsewhere in this prospectus, SH DDC had entered into a series of contractual arrangement with Weishi and Shanghai City Modern Agriculture Development Co., Ltd. (“City Modern”), in 2016 and 2019 respectively, which allows SH DDC to exercise effective control over Weishi and City Modern and receive substantially all the economic benefits of Weishi, City Modern and their consolidated entities (collectively, the “Weishi and City Modern VIEs”) via variable interest entity structures. As of the date of this prospectus, such contractual arrangements with the Weishi and City Modern VIEs have been terminated. After the termination of the contractual arrangements with Weishi, we will continue cooperation with it in certain online service areas. For instance, Weishi will develop and maintain the WeChat mini-program related to our business, ensure the ordinary operation of our official websites, make sure the cyber security of the systems and maintain our IT systems and servers. As advised by the PRC legal adviser, our continue cooperation with Weishi does not constitute a VIE because that, since the termination of the contractual arrangements with Weishi, (i) we have no longer enjoyed any controlling rights or decision-making power over the operation of Weishi; (ii) Weishi has independently operated its assets and properties and conducted its businesses, and its shareholder, instead of us, has enjoyed its residual interests and born the loss (if any); (iii) we and Weishi have no contractual relations other than the service contract to be signed between SH DDC and Weishi; and (iv) we have not enjoyed any interests or benefits, or any other transfers, contributed by Weishi, or offered any financial assistance for Weishi.

DDC Cayman directly and wholly owns (a) DDC OpenStudio Limited (“DDC OpenStudio”), a Cayman Islands company incorporated in May 2017, (b) Perfect Foods Inc. (“Perfect Foods Inc.”), a Cayman Islands company incorporated in September 2019 and (c) Grand Leader Technology Limited (“Grand Leader”), a Hong Kong company incorporated in January 2011. DDC OpenStudio in turn holds all the share capital of DDC OpenStudio Media Limited (“DDC OpenStudio Media”), which was incorporated in July 2018 in Hong Kong. Perfect Foods Inc. in turns holds all the share capital of Good Foods HK Limited (“Good Foods HK”), which was incorporated in September 2019 in Hong Kong.

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Through its wholly-owned subsidiary Grand Leader, which was incorporated for the purpose of handling advertising, business-to-consumer e-commerce and cooking classes in Hong Kong, DDC Cayman owns a direct equity interest in SH DDC and Shanghai Lashu Import and Export Trading Co., Ltd. (“SH Lashu”). SH DDC was established in January 2015 in China for the purpose of engaging in technology development of computer hardware and software, food circulation and advertising production in China, whilst SH Lashu was established in August 2017 in China as an import and export vehicle in China.

As of December, 2017, Shanghai Youlong Industrial Co., Ltd. (“SH Youlong”), a wholly owned subsidiary of SH DDC, was established for the purpose of engaging in cooking class services, food and beverage and retail business in China. SH Youlong owns a direct equity interest in Guangzhou Youlong DayDayCook Food and Beverage Co., Ltd., which was established in March 2018 with its main business of engaging in cooking class services, food and beverage and retail business in China.

As of June 2019, Shanghai Juxiang Culture Media Co., Ltd. (“SH Juxiang”), a wholly owned subsidiary of SH DDC, was established for the purpose of engaging in e-commerce business in China.

In January 2019, SH DDC acquired 60% equity interest in Fujian Jinjiang Yunmao Electronic Commerce Co., Ltd. (“Yunmao”), a limited liability company incorporated under the Laws of the PRC, for a combination of a share option consideration equivalent to a value of RMB10.2 million, and a cash consideration of RMB10.2 million, to engage in food and beverage retail and e-commerce. Yunmao owns a direct equity interest in Hangzhou Damao Technology Co., Ltd., which was established in June 2020 with a main business of e-commerce.

In January 2021, SH DDC acquired a number of online stores from Chongqing Mengwei Technology Co., Ltd. (“CQ MW”), Liao Xuefeng, Chongqing Changshou District Weibang Network Co., Ltd. (“Weibang”) and Chongqing Yizhichan Snack Food Electronic Commerce Service Department (“Yizhichan”) (the “Transferors”). In July 2021, SH DDC and Chongqing Mengwei Technology Co., Ltd. set up a joint venture named Chongqing DayDayCook E-commerce Co., Ltd. (“CQ DDC”), which is established for accepting the online stores acquired and operating newly set-up online stores, in which, SH DDC holds 51% equity interest. CQ DDC was established for the purpose of engaging in online food retail business in China. However, due to certain limitations from the policies of third-party online platforms, the titles of such online stores currently cannot be transferred to CQ DDC and the operation of such online stores are still delegated to the Transferors through relevant contractual arrangements to enable us to have the ability to control such online stores. In April 2023, SH DDC acquired more Pinduoduo online stores from CQ MW, Weibang, Yizhichan and Chongqing Ningqi E-commerce Co. Ltd. (“Ningqi”), and has been operating these online stores in the same way. Therefore, these online stores are considered VIEs and SH DDC is the primary beneficiary. We refer to these online stores the “Mengwei VIE” throughout this prospectus. Investors should be aware that they are purchasing equity securities of our ultimate Cayman Islands holding company, namely DDC Cayman, rather than equity securities of the Mengwei VIE, and investors in our securities may never hold equity interests in the Mengwei VIE. DDC Cayman is a Cayman Islands holding company with no material operations of its own. The operations of online stores are conducted through contractual arrangements with the Transferors while other parts of our operations are conducted through our operating subsidiaries established in Hong Kong and mainland China. Although we took every precaution available to effectively enforce the contractual and corporate relationship with the Mengwei VIE, these contractual arrangements may still be less effective than direct ownership and that we may incur substantial costs to enforce the terms of the arrangements. For example, the Transferors, namely the operating agents of the Mengwei VIE, could breach their contractual arrangements by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of the Mengwei VIE, we would be able to exercise our rights as a direct asset-holder to directly and effectively effect changes in the management and daily operation of the Mengwei VIE. However, under the current contractual arrangements, we rely on the performance of the Transferors of their obligations under the contracts to exercise control over the Mengwei VIE. The Transferors may not act in our best interests or may not perform their obligations under these contracts. In addition, failure of the Transferors to perform certain obligations could compel us to rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which may not be effective or sufficient. All the agreements under the Mengwei VIE arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these VIE agreements. The status of the rights of DDC Cayman, as a Cayman Islands holding company, with respect to the contractual arrangements with the Transferors is uncertain. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in

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the context of a VIE structure should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event we are unable to enforce these VIE agreements for the Mengwei VIE, or if it suffers significant delay or other obstacles in the process of enforcing these VIE agreements, we may not be able to exert effective control over the Mengwei VIE, and our ability to conduct our business may be negatively affected.

On July 1, 2021, the Company, through its wholly owned subsidiary, SH DDC, entered into a purchase agreement (“the SPA”) with Mr. Zheng Dongfang and Mr. Han Min (“collectively the YJW Seller”), the shareholders of Fujian Yujiaweng Food Co., Ltd. (“Yujiaweng”) to acquire 60% interests of Yujiaweng’s product sales business, primarily including distribution contracts, the sales and marketing team, procurement team and other supporting function personnel (“the YJW Target Assets”). Yujiaweng is principally engaged in manufacturing and the distribution of snack foods. SH DDC and Mr. Zheng Dongfang agreed to form an entity (“YJW Newco”) with the Company holding 60% equity interest and Mr. Zheng Dongfang holding 40% equity interests. According to the SPA, during the period from July 1, 2021 until the date when YJW Newco is formed (“the transition period”), the Company manages and operates the Target Assets and is entitled to 60% of the net profit arising from the operation of the Target Assets.

On July 1, 2021, the Company, through its wholly owned subsidiary, SH DDC, entered into a purchase agreement (“the SPA”) with Mr. Xu Fuyi, (“the KeKe Seller”), the shareholder of Fujian Keke Food Co., Ltd. (“KeKe”) and Mr. Zheng Dongfang, the president of KeKe, to acquire a 60% interest in KeKe’s product sales business, primarily including distribution contracts, the sales and marketing team, procurement team and other supporting function personnel (“the KeKe Target Assets”). KeKe is principally engaged in manufacturing and distribution of candy products. SH DDC and Mr. Zheng Dongfang agreed to form an entity (“KeKe Newco”) with the Company holding 60% equity interest and Mr. Zheng Dongfang holding 40% equity interests. According to the SPA, during the period from July 1, 2021 and the date when KeKe Newco is formed (“the transition period”), the Company manages and operates the Target Assets and is entitled to 60% of the net profit arising from the operation of the Target Assets.

On February 1, 2022, the Company, through its wholly owned subsidiary, entered into a purchase agreement with Mr. LIN Kai Hang, Mr. SIO Leng Kit and Mr. Tang Wai Cheung, to acquire 51% shares of Lin’s Group Limited (“Lin’s Group”). Lin’s Group have its own brand “Deliverz” and principally engaged in manufacturing and distribution of RTC products with its major online sales channel. This was an upstream integration where Lin’s Group is the major supplier of RTC meal kits for the company’s Hong Kong operations. This acquisition allows the company to optimize cost structure for the RTC meal kits in the Hong Kong market. It also enables the company to expand its product offerings with its own production facility.

As of April 1, 2022, all contractual arrangements with Weishi and City Modern, have been terminated. As a result of the termination of the contractual arrangements with the Weishi and City Modern VIEs, we expect to be able to focus our capital and efforts on selling our products through online e-commerce platforms and offline distributors and retailers. We intend for the termination and discontinuation of business streams to reduce the company’s overall net losses, and free up capital to be allocated into our other fast growing RTH, RTC, RTE and plant based product businesses.

On May 1, 2022, the Company, through its wholly owned subsidiary, entered into a purchase agreement with Mr. Gao Xiaomin, Mr. Zhang Yi and Ms Chen Di, to acquire 51% shares of Shanghai Lishang Trading Ltd, (“Lishang”). Lishang is principally engaged in distribution of private label products. This acquisition was completed during the nation-wide lock down when the company expedited its strategy to diversify revenue streams and improve overall margin structure. Lishang has strong sales channel access into the corporate gifting channel which carries higher margin compared to the company’s existing e-commerce and offline distribution channels. By acquiring Lishang, the Company now has healthier gross margins as well as access to sales and distribution partnerships with global FMCG brands such as Pepsi Co (Lays brand.) These partnerships in turn can help the company secure better traffic and overall sales conversion on social commerce platforms to drive higher sales for its own branded product business.

On June 17, 2022, the “YJW Newco”, Quanzhou DayDayCook Food Co., Limited (“Quanzhou DDC”) was formed. As part of the transaction dated July 1, 2021, the YJW Target Assets and Keke Target Assets from the acquisition were transferred into Quanzhou DDC. And on the same day, SH DDC has obtained control over the YJW Target Assets and Keke Target Assets, and the results were consolidated into the Group.

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On June 17, 2022, the “KeKe Newco”, Quanzhou Weishi Food Co., Limited was formed. The company does not hold any assets or operations.

The following diagram illustrates our corporate structure as of the date of this prospectus. Unless otherwise indicated, equity interests depicted in this diagram are held 100%.

Immediately upon consummation of this offering, our ordinary shares will be classified into Class A Ordinary Shares and Class B Ordinary Shares. In respect of matters requiring shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to [thirty] votes.

Government Regulations and Approvals for this Offering

As our operations are currently conducted through our operating entities established in Hong Kong and mainland China and we have VIE arrangements with various Chinese entities and individuals to enable us to have the ability to control a number of online stores, we are potentially subject to significant regulations by various agencies of the Chinese government. The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, require an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the CSRC and Ministry of Commerce of the PRC (“MOFCOM”), prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. Substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles. As at the date of this prospectus, we have been advised by Grandall Law Firm (Shanghai) that CSRC’s approval under the M&A Rules is not required for the listing and trading of our Class A Ordinary Shares on the NYSE Group in the context of this offering given that (i) our PRC subsidiaries were incorporated as wholly foreign-owned enterprises by means of direct investment rather than by merger or acquisition of equity interest or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are DDC Cayman’s beneficial owners; (ii) we are a company incorporated under the laws of the Cayman Islands controlled by non-PRC citizens and we do not fit into the definition of “overseas special purpose vehicle” under the M&A Regulations; and (iii) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject

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to the M&A Rules. As such, we have never conducted any mergers or acquisitions of any PRC domestic companies with a related party relationship. MOFCOM’s approval under the M&A Rules is also not required as we have never conducted any mergers or acquisitions of any PRC domestic companies with a related party relationship. We cannot assure you that relevant PRC governmental agencies, including the CSRC, would reach the same conclusion as we do.

On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Strictly Cracking Down on Illegal Securities Activities According to Law (the “Opinions”), which called for strengthened regulation over illegal securities activities and supervision on overseas listings by China-based companies and propose to take effective measures. As at the date of this prospectus, no official guidance or related implementation rules have been issued in relation to the Opinions, and the interpretation and implementation of the Opinions also remain unclear to some extent at this stage. Based on our understanding of the current PRC laws and regulations in effect at the time of this prospectus, no prior permission is required under the M&A Rules or the Opinions from any PRC governmental authorities (including the CSRC) for consummating this offering by our company, as advised by our PRC legal adviser, Grandall Law Firm (Shanghai). However, we still need to complete the filing procedure with the CSRC for consummating this offering according to the Trial Measures as described below. Further, there can be no assurance that the relevant PRC governmental authorities, including the CSRC, would reach the same conclusion as us, or that the CSRC or any other PRC governmental authorities would not promulgate new rules or new interpretation of current rules (with retrospective effect) to require us to obtain the CSRC or other PRC governmental approvals for this offering. If we or our subsidiaries inadvertently conclude that such permission is not required, our ability to offer or continue to offer our Class A Ordinary Shares to investors could be significantly limited or completed hindered, which could cause the value of our Class A Ordinary Shares to significantly decline or become worthless. Our Group may also face sanctions by the CSRC, the CAC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from this offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities.

The PRC Data Security Law, which took effect on September 1, 2021, imposes data security and privacy obligations on entities and individuals that carry out data activities, provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data and information. On August 20, 2021, the Standing Committee of the National People’s Congress, or the SCNPC, promulgated the PRC Personal Information Protection Law (the “PIPL”), which took effect on November 1, 2021. The PIPL sets out the regulatory framework for handling and protection of personal information and transmission of personal information to overseas. The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and State Administration for Market Regulation, or the SAMR, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. On November 14, 2021, the Cyberspace Administration of China, or the CAC, issued the Draft Cyber Data Security Regulations for public comments, pursuant to which, data processors carrying out the following activities must, in accordance with the relevant national regulations, apply for a cybersecurity review: (i) the merger, reorganization or spin-off of internet platform operators that possess a large number of data resources related to national security, economic development and public interests that affects or may affect national security; (ii) listing in a foreign country of data processors that process the personal information of more than one million users; (iii) listing in Hong Kong of data processors that affects or may affect national security; and (iv) other data processing activities that affect or may affect national security. The scope of and threshold for determining what “affects or may affect national security” is still subject to uncertainty and further elaboration by the CAC. 

On December 28, 2021, the Cyberspace Administration of China (the “CAC”), and 12 other relevant PRC government authorities published the amended Cybersecurity Review Measures, which came into effect on February 15, 2022. The final Cybersecurity Review Measures provide that a “network platform operator” that possesses personal information of more than one million users and seeks a listing in a foreign country must apply for a cybersecurity review. Further, the relevant PRC governmental authorities may initiate a cybersecurity review against any company if they determine certain network products, services or data processing activities of such company affect or may affect national security. Through the contractual arrangements with Weishi, DDC SH had collected and possessed personal information of more than one million users. After the contractual arrangements with Weishi were terminated in April 2022, DDC SH still have been possessing this amount of personal information which are stored in mainland China. For purposes of the Cybersecurity Review Measures, we have applied for and completed the cybersecurity review with

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respect to our proposed overseas listing pursuant to the Cybersecurity Review Measures. As there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we cannot assure you that we would not become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in rectification, fines or other penalties, including suspension of business, website closure, removal of our app from the relevant app stores, and revocation of prerequisite licenses, as well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial condition or results of operations. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — We may be liable for improper collection, use or appropriation of personal information provided by our customers.

On February 17, 2023, CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “Trial Measures”), which became effective on March 31, 2023. On the same date, the CSRC circulated Supporting Guidance Rules No. 1 through No. 5, Notes on the Trial Measures, Notice on Administration Arrangements for the Filing of Overseas Listings by Domestic Enterprises and relevant CSRC Answers to Reporter Questions (collectively, the “Guidance Rules and Notice”) on the CSRC’s official website. Under the Trial Measures, either direct or indirect overseas offering and listing by domestic companies shall fulfill the filing procedure with the CSRC with submitting relevant materials. Any overseas offering and listing made by an issuer that meets both the following conditions will be determined as indirect: (1) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic companies; and (2) the main parts of the issuer’s business activities are conducted in the Chinese Mainland, or its main places of business are located in the Chinese Mainland, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in the Chinese Mainland. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on a substance over form basis. When certain circumstances happen, overseas offering and listing shall not be made. And If the intended overseas offering and listing necessitates a national security review, relevant security review procedures shall be completed according to law before the application for such offering and listing is submitted to any overseas parties such as securities regulatory agencies and trading venues. Pursuant to the Trial Measures and the Guidance Rules and Notice, initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas, while PRC domestic enterprises that have submitted valid applications for overseas offerings and listing but have not obtained the approval from the relevant overseas regulatory authority or overseas stock exchanges shall complete filings with the CSRC prior to their overseas offerings and listings. We have submitted the filing materials with the CSRC to fulfill the filing procedure with the CSRC as per requirement of the Trial Measures, but we cannot predict whether or how soon it will be able to complete such proceeding. If we fail to comply with the Trial Measures, we will be required to correct our behaviors, facing warnings and fines which amount will range from RMB1,000,000 to RMB10,000,000, and directly responsible personnel will also be warned and fined which amount will range from RMB500,000 to RMB 5,000,000. Any failure of us to obtain the relevant approval or complete the filings and other relevant regulatory procedures in a timely manner may significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become worthless. See “Risk Factors — The approval of the China Securities Regulatory Commission and other PRC governmental authorities provided under the M&A rules are not required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval. Except for the CSRC filing for this issuance and listing, we are not required to obtain any permission or approval from any Chinese authority to issue securities to foreign investors or in connection with this offering, which, we cannot predict, whether or how soon will be completed.”

On February 24, 2023, the CSRC, together with the MOF, National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions on Strengthening Confidentiality and Archives Administration for Overseas Securities Offering and Listing, which were issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009, or the “Provisions.” The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies”, and came into effect on March 31, 2023, together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised

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Provisions require that, among other things, (a) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any failure or perceived failure by our Company or our PRC subsidiaries to comply with the above confidentiality and archives administration requirements under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent authorities and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.

Requisite Licenses and Approvals for Our Operations

Our business is subject to governmental supervision and regulation by the relevant PRC governmental authorities, including but not limited to the State Council, the SAMR, the Ministry of Commerce (the “MOFCOM”), the State Internet Information Office, the General Administration of Customs and other governmental authorities in charge of the relevant services provided by us. These government authorities promulgate and enforce regulations that cover various aspects of the operation of food products and e-commerce, including entry into these industries, scope of permitted business activities, licenses and permits for various business activities.

To operate our general business activities currently conducted in China, we are required and has obtained business licenses and food operation licenses, except for Quanzhou Weishi Food Co., Limited which does not hold any assets or operations for now and we are in the process of applying for relevant food operation licenses for it. In addition, SH Lashu have been filed for record as consignee or consignor of import and export goods. However, we cannot assure you that we can successfully renew these licenses in a timely manner. No application for any such licenses have been denied.

See “Risk Factors — Risks Relating to Our Business and Industry — If we fail to obtain and maintain the requisite licenses and approvals required under the complex regulatory environment applicable to our businesses in China, or if we are required to take compliance actions that are time-consuming or costly, our business, results of operations and financial condition may be materially and adversely affected.

The following tables present the Company’s condensed consolidating schedules depicting the consolidated statements of comprehensive loss for the three months ended March 31, 2022 (comprising the Weishi and City Modern VIEs, and the Mengwei VIE) and 2023 (comprising the Mengwei VIE), and for the fiscal years ended December 31, 2021 and 2022 of the Company, its subsidiaries, the VIEs (comprising the Weishi and City Modern VIEs, and the Mengwei VIE) and the corresponding eliminating adjustments separately.

 

Three Months Ended March 31, 2023

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

Total Revenue

 

 

 

41,827,760

 

 

1,169,374

 

 

 

 

42,997,134

 

Gross profit

 

 

 

10,447,196

 

 

423,021

 

 

 

 

10,870,217

 

Loss from operations

 

(3,811,084

)

 

(5,675,985

)

 

(334,381

)

 

 

 

(9,821,450

)

Share of loss of subsidiaries and consolidated VIEs

 

(7,267,088

)

 

 

 

 

 

7,267,088 (1

)

 

 

Net Loss

 

(1,012,923

)

 

(6,932,792

)

 

(334,296

)

 

7,267,088

 

 

(1,012,923

)

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December 31, 2022

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination
adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

Total Revenue

 

 

 

167,937,082

 

 

11,648,984

 

 

 

 

179,586,066

 

Gross profit

 

 

 

39,412,954

 

 

4,513,915

 

 

 

 

43,926,869

 

Loss from operations

 

(51,660,369

)

 

(26,645,129

)

 

(1,698,798

)

 

 

 

(80,004,296

)

Share of loss of subsidiaries and consolidated VIEs

 

(18,180,868

)

 

 

 

 

 

18,180,868

(1)

 

 

Net Loss

 

(122,248,608

)

 

(16,819,880

)

 

(1,360,988

)

 

18,180,868

 

 

(122,248,608

)

 

Three Months Ended March 31, 2022

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination
adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

Total Revenue

 

 

 

31,122,848

 

 

5,755,346

 

 

 

 

36,878,194

 

Gross profit

 

 

 

7,226,640

 

 

1,438,791

 

 

 

 

8,665,431

 

Loss from operations

 

(3,017,235

)

 

(7,586,658

)

 

(2,676,141

)

 

 

 

(13,280,034

)

Share of loss of subsidiaries and consolidated VIEs

 

(8,931,348

)

 

 

 

 

 

8,931,348

(1)

 

 

Net Loss

 

(29,567,753

)

 

(6,614,067

)

 

(2,317,281

)

 

8,931,348

 

 

(29,567,753

)

 

December 31, 2021

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination
adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

Total Revenue

 

 

 

145,865,084

 

 

66,408,787

 

 

(7,094,429

)(2)

 

205,179,442

 

Gross profit

 

 

 

15,834,045

 

 

20,623,563

 

 

 

 

36,457,608

 

Loss from operations

 

(32,861,932

)

 

(54,509,591

)

 

(26,248,467

)

 

 

 

(113,619,990

)

Share of loss of subsidiaries and consolidated VIEs

 

(79,060,126

)

 

 

 

 

 

79,060,126

(1)

 

 

Net Loss

 

(458,683,434

)

 

(51,028,568

)

 

(20,937,129

)

 

71,965,697

 

 

(458,683,434

)

____________

(1)      To eliminate the Company’s share of loss of its subsidiaries and consolidated VIEs.

(2)      To eliminate the related party transactions between subsidiaries of the Company and consolidated VIEs

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The following tables present the Company’s condensed consolidating schedules depicting the consolidated balance sheets as of March 31, 2022 (comprising the Weishi and City Modern VIEs, and the Mengwei VIE), March 31, 2023 (comprising the Mengwei VIE), December 31, 2021 and 2022 of the Company, its subsidiaries, the VIEs (comprising the Weishi and City Modern VIEs, and the Mengwei VIE) and corresponding eliminating adjustments separately.

 

March 31, 2023

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination
adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

ASSETS

   

 

   

 

   

 

   

 

   

 

Current assets

   

 

   

 

   

 

   

 

   

 

Cash and cash
equivalents

 

14,984,210

 

 

2,964,559

 

 

153,233

 

   

 

 

18,102,002

 

Restricted cash

 

68,717,000

 

 

477,629

 

 

 

   

 

 

69,194,629

 

Amounts due from related parties

 

23,663,515

 

 

(23,663,515

)

 

 

   

 

 

 

Other current assets

 

 

 

40,786,631

 

 

3,732,346

 

 

 

 

 

44,518,977

 

Total current assets

 

107,364,725

 

 

20,565,304

 

 

3,885,579

 

 

 

 

131,815,608

 

Non-current assets

   

 

   

 

   

 

   

 

   

 

Long-term investment

 

21,798,047

 

 

 

 

 

 

 

 

21,798,047

 

Other non-current assets

 

 

 

84,385,862

 

 

2,860,052

 

 

 

 

87,245,914

 

Total non-current
assets

 

21,798,047

 

 

84,385,862

 

 

2,860,052

 

 

 

 

109,043,961

 

Total assets

 

129,162,772

 

 

104,951,166

 

 

6,745,631

 

 

 

 

 

240,859,569

 

     

 

   

 

   

 

   

 

   

 

Liabilities

   

 

   

 

   

 

   

 

   

 

Current liabilities

   

 

   

 

   

 

   

 

   

 

Share of loss of subsidiaries and consolidated VIEs

 

57,573,646

 

 

 

 

 

 

(57,573,646

)(3)

 

 

Amounts due to related parties

 

2,364,650

 

 

15,829,652

 

 

 

 

 

 

18,194,302

 

Other current liabilities

 

118,408,251

 

 

120,089,971

 

 

8,371,961

 

 

 

 

 

246,870,183

 

Total current liabilities

 

178,346,547

 

 

135,919,623

 

 

8,371,961

 

 

(57,573,646

)

 

265,064,485

 

Non-current liabilities

 

85,908,589

 

 

9,584,997

 

 

 

 

 

 

95,493,586

 

Total non-current liabilities

 

85,908,589

 

 

9,584,997

 

 

 

 

 

 

95,493,586

 

Total liabilities

 

264,255,136

 

 

145,504,620

 

 

8,371,961

 

 

(57,573,646

)

 

360,558,071

 

     

 

   

 

   

 

   

 

   

 

Mezzanine equity

 

1,379,164,415

 

 

 

 

 

 

 

 

1,379,164,415

 

Total shareholders’ deficit

 

(1,514,256,779

)

 

(40,553,454

)

 

(1,626,330

)

 

57,573,646

(3)

 

(1,498,862,917

)

Total liabilities, mezzanine equity and shareholders’ deficit

 

129,162,772

 

 

104,951,166

 

 

6,745,631

 

 

 

 

 

240,859,569

 

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December 31, 2022

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

ASSETS

   

 

   

 

   

 

   

 

   

 

Current assets

   

 

   

 

   

 

   

 

   

 

Cash and cash
equivalents

 

23,066,336

 

 

3,383,140

 

 

352,291

 

   

 

 

26,801,767

 

Restricted cash

 

69,646,000

 

 

456,863

 

 

 

   

 

 

70,102,863

 

Amounts due from related parties

   

 

   

 

   

 

   

 

 

 

Other current assets

 

20,253,624

 

 

35,282,753

 

 

3,201,058

 

 

 

 

 

58,737,435

 

Total current assets

 

112,965,960

 

 

39,122,756

 

 

3,553,349

 

 

 

 

155,642,065

 

Non-current assets

   

 

   

 

   

 

   

 

   

 

Long-term investment

 

22,440,969

 

 

 

 

 

 

 

 

22,440,969

 

Other non-current assets

 

 

 

73,920,401

 

 

3,374,338

 

 

 

 

77,294,739

 

Total non-current
assets

 

22,440,969

 

 

73,920,401

 

 

3,374,338

 

 

 

 

99,735,708

 

Total assets

 

135,406,929

 

 

113,043,157

 

 

6,927,687

 

 

 

 

 

255,377,773

 

     

 

   

 

   

 

   

 

   

 

Liabilities

   

 

   

 

   

 

   

 

   

 

Current liabilities

   

 

   

 

   

 

   

 

   

 

Share of loss of subsidiaries and consolidated VIEs

 

49,689,927

 

 

 

 

 

 

(49,689,927

)(3)

 

 

Amounts due to related parties

 

2,257,268

 

 

17,138,442

 

 

 

   

 

 

19,395,710

 

Other current liabilities

 

114,195,693

 

 

119,981,611

 

 

8,219,721

 

 

 

 

 

242,397,025

 

Total current
liabilities

 

166,142,888

 

 

137,120,053

 

 

8,219,721

 

 

(49,689,927

)

 

261,792,735

 

Non-current liabilities

 

102,669,792

 

 

9,894,709

 

 

 

 

 

 

112,564,501

 

Total non-current liabilities

 

102,669,792

 

 

9,894,709

 

 

 

 

 

 

112,564,501

 

Total liabilities

 

268,812,680

 

 

147,014,762

 

 

8,219,721

 

 

(49,689,927

)

 

374,357,236

 

     

 

   

 

   

 

   

 

   

 

Mezzanine equity

 

1,368,520,061

 

 

 

 

 

 

 

 

1,368,520,061

 

Total shareholders’ deficit

 

(1,501,925,812

)

 

(33,971,605

)

 

(1,292,034

)

 

49,689,927

(3)

 

(1,487,499,524

)

Total liabilities, mezzanine equity and shareholders’ deficit

 

135,406,929

 

 

113,043,157

 

 

6,927,687

 

 

 

 

 

255,377,773

 

18

Table of Contents

 

March 31, 2022

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination
adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

ASSETS

   

 

       

 

   

 

   

 

Current assets

   

 

       

 

   

 

   

 

Cash and cash
equivalents

 

680

 

 

4,741,203

 

435,682

 

   

 

 

5,177,565

 

Restricted cash

 

63,485,176

 

 

 

 

   

 

 

63,485,176

 

Amounts due from related parties

 

25,318,500

 

 

120,754,839

 

83,137,208

 

 

(229,210,547

)(1)

 

 

Other current assets

 

3,677,226

 

 

24,417,146

 

9,633,305

 

 

 

 

 

37,727,677

 

Total current assets

 

92,481,582

 

 

149,913,188

 

93,206,195

 

 

(229,210,547

)

 

106,390,418

 

Non-current assets

   

 

       

 

   

 

   

 

Long-term investment

 

49,076,563

 

 

 

2,460,000

 

 

 

 

51,536,563

 

Other non-current assets

 

 

 

58,881,869

 

8,261,591

 

 

 

 

67,143,460

 

Total non-current
assets

 

49,076,563

 

 

58,881,869

 

10,721,591

 

 

 

 

118,680,023

 

Total assets

 

141,558,145

 

 

208,795,057

 

103,927,786

 

 

(229,210,547

)

 

225,070,441

 

     

 

       

 

   

 

   

 

Liabilities

   

 

       

 

   

 

   

 

Current liabilities

   

 

       

 

   

 

   

 

Share of loss of subsidiaries and consolidated VIEs

 

26,553,825

 

 

 

 

 

(26,553,825

)(3)

 

 

Amounts due to related parties

 

2,184,505

 

 

90,274,137

 

146,073,339

 

 

(229,210,547

)

 

9,321,434

 

Other current liabilities

 

95,364,660

 

 

56,765,838

 

34,391,648

 

 

 

 

 

186,522,146

 

Total current liabilities

 

124,102,990

 

 

147,039,975

 

180,464,987

 

 

(255,764,372

)

 

195,843,580

 

Non-current liabilities

 

82,718,894

 

 

5,879,346

 

4,732,531

 

 

 

 

93,330,771

 

Total non-current liabilities

 

82,718,894

 

 

5,879,346

 

4,732,531

 

 

 

 

93,330,771

 

Total liabilities

 

206,821,884

 

 

152,919,321

 

185,197,518

 

 

(255,764,372

)

 

289,174,351

 

     

 

       

 

   

 

   

 

Mezzanine equity

 

1,169,348,375

 

 

 

 

 

 

 

1,169,348,375

 

Total shareholders’ deficit

 

(1,234,612,114

)

 

55,875,736

 

(81,269,732

)

 

26,553,825

(3)

 

(1,233,452,285

)

Total liabilities, mezzanine equity and shareholders’ deficit

 

141,558,145

 

 

208,795,057

 

103,927,786

 

 

(229,210,547

)

 

225,070,441

 

19

Table of Contents

 

December 31, 2021

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination
adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

ASSETS

   

 

       

 

   

 

   

 

Current assets

   

 

       

 

   

 

   

 

Cash and cash
equivalents

 

7,791,447

 

 

4,585,770

 

1,116,284

 

   

 

 

13,493,501

 

Restricted cash

 

63,757,000

 

 

 

 

   

 

 

63,757,000

 

Amounts due from related parties

 


21,210,284

 

 


302,887,132

 


83,274,065

 

 


(407,371,481

)(1)

 


 

Other current assets

 

8,826,824

 

 

29,362,193

 

8,305,565

 

 

(4,279,414

)(2)

 

42,215,168

 

Total current assets

 

101,585,555

 

 

336,835,095

 

92,695,914

 

 

(411,650,895

)

 

119,465,669

 

Non-current assets

   

 

       

 

   

 

   

 

Long-term investment

 

49,289,160

 

 

 

2,460,000

 

 

 

 

51,749,160

 

Other non-current assets

 

 

 

53,552,489

 

3,733,646

 

 

 

 

57,286,135

 

Total non-current
assets

 

49,289,160

 

 

53,552,489

 

6,193,646

 

 

 

 

109,035,295

 

Total assets

 

150,874,715

 

 

390,387,584

 

98,889,560

 

 

(411,650,895

)

 

228,500,964

 

     

 

       

 

   

 

   

 

Liabilities

   

 

       

 

   

 

   

 

Current liabilities

   

 

       

 

   

 

   

 

Share of loss of subsidiaries and consolidated VIEs

 



18,359,545

 

 



 



 

 



(18,359,545

)(3)

 



 

Amounts due to related parties

 


2,257,268

 

 


267,167,771

 


145,358,698

 

 


(407,371,481

)(1)

 


7,412,256

 

Other current liabilities

 

87,896,086

 

 

73,274,896

 

29,583,313

 

 

(21,125,869

)

 

169,628,426

 

Total current
liabilities

 

108,512,899

 

 

340,442,667

 

174,942,011

 

 

(446,856,895

)

 

177,040,682

 

Non-current liabilities

 

79,021,847

 

 

5,961,794

 

2,900,000

 

 

 

 

87,883,641

 

Total liabilities

 

187,534,746

 

 

346,404,461

 

177,842,011

 

 

(446,856,895

)

 

264,924,323

 

Mezzanine equity

 

1,149,874,154

 

 

 

 

 

 

 

1,149,874,154

 

     

 

       

 

   

 

   

 

Total shareholders’ deficit

 

(1,186,534,185

)

 

43,983,123

 

(78,952,451

)

 

35,206,000

(2)(3)

 

(1,186,297,513

)

Total liabilities, mezzanine equity and shareholders’ deficit

 


150,874,715

 

 


390,387,584

 


98,889,560

 

 


(411,650,895

)

 


228,500,964

 

____________

(1)      Being elimination of balances resulted from amounts paid/received by VIEs on behalf of the Company’s subsidiaries.

(2)      To eliminate the loans provided by the Shanghai DayDayCook Information Technology Co., Ltd. to the VIE.

(3)      To eliminate the Company’s share of loss of its subsidiaries and consolidated VIEs.

20

Table of Contents

The following tables present the Company’s condensed consolidating schedules depicting the consolidated cash flows for the three months ended March 31, 2022 (comprising the Weishi and City Modern VIEs, and the Mengwei VIE) and 2023 (comprising the Mengwei VIE), and for the fiscal years ended December 31, 2021 and 2022 of the Company, its subsidiaries, the VIEs (comprising the Weishi and City Modern VIEs, and the Mengwei VIE), and corresponding eliminating adjustments separately.

 

Three Months Ended March 31, 2023

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

Net cash used in operating activities

 

(9,011,126

)

 

(2,807,519

)

 

(199,058

)

 

 

(12,017,703

)

Net cash used in investing activities

 

 

 

(1,773,222

)

 

 

 

 

(1,773,222

)

Net cash provided by financing activities

 

 

 

5,736,372

 

 

 

 

 

5,736,372

 

Effect of foreign currency exchange rate changes on cash

 

 

 

(1,553,446

)

 

 

 

 

(1,553,446

)

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

 

(9,011,126

)

 

(397,815

)

 

(199,058

)

 

 

(9,607,999

)

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

 

92,712,336

 

 

3,840,003

 

 

352,291

 

 

 

96,904,630

 

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

 

83,701,210

 

 

3,442,188

 

 

153,233

 

 

 

87,296,631

 

 

December 31, 2022

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination
adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

Net cash used in operating activities

 


(2,356,633

)

 


(32,814,117

)

 


(1,912,315

)

 


 


(37,083,065

)

Net cash used in investing activities

 


(348,230

)

 


(87,847

)

 


(8,550

)

 


 


(444,627

)

Net cash provided by financing activities

 


23,868,752

 

 


26,198,411

 

 


1,284,986

 

 


 

51,352,149

 

Effect of foreign currency exchange rate changes on cash

 

 

 

5,829,672

 

 

 

 

 

5,829,672

 

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

 

21,163,889

 

 

(873,881

)

 

(635,879)

 

 

 

19,654,129

 

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

 

71,548,447

 

 

4,585,770

 

 

1,116,284

 

 

 

77,250,501

 

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

 

92,712,336

 

 

3,711,889

 

 

480,405

 

 

 

96,904,630

 

21

Table of Contents

 

Three Months Ended March 31, 2022

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

Net cash used in operating activities

 

(7,883,470

)

 

710,884

 

 

(1,957,038

)

 

 

(9,129,624

)

Net cash used in investing activities

 

 

 

97,583

 

 

(8,550

)

 

 

89,033

 

Net cash provided by financing activities

 

(179,121

)

 

(416,594

)

 

1,284,986

 

 

 

689,271

 

Effect of foreign currency exchange rate changes on cash

 

 

 

(236,440

)

 

 

 

 

(236,440

)

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

 

(8,062,591

)

 

155,433

 

 

(680,602

)

 

 

(8,587,760

)

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

 

71,548,447

 

 

4,585,770

 

 

1,116,284

 

 

 

77,250,501

 

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

 

63,485,856

 

 

4,741,203

 

 

435,682

 

 

 

68,662,741

 

 

December 31, 2021

   

The
Company

 

Subsidiaries

 

VIEs

 

Elimination
adjustments

 

Consolidated

   

RMB

 

RMB

 

RMB

 

RMB

 

RMB

Net cash used in operating activities

 

(25,175,497

)

 

(60,234,248

)

 

(6,015,545

)

 

 

 

(91,425,290

)

Net cash used in investing activities

 


(62,413,924

)

 


2,029,305

 

 


(96,601

)

 


52,123,958

(1)

 


(8,357,262

)

Net cash provided by financing activities

 


141,201,960

 

 


19,683,516

 

 


6,995,537

 

 


(52,123,958

)(1)

 


115,757,055

 

Effect of foreign currency exchange rate changes on cash

 

 

 

2,652,471

 

 

 

 

 

 

2,652,471

 

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

 

53,612,539

 

 

(35,868,956

)

 

883,391

 

 

 

 

18,626,974

 

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

 

17,935,908

 

 

40,454,726

 

 

232,893

 

 

 

 

58,623,527

 

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

 

71,548,447

 

 

4,585,770

 

 

1,116,284

 

 

 

 

77,250,501

 

____________

(1)      Being elimination of cash contributions from the Company to its subsidiary.

22

Table of Contents

Transfer of Cash Through our Organization

Currently, DDC Cayman is incorporated in Cayman Islands to be the ultimate parent company of the Group. As a holding company with no material operations of our own, DDC Cayman conduct our operations through our operating subsidiaries established in Hong Kong and mainland China. DDC Cayman is permitted under the laws of Cayman Islands to provide funding to our subsidiaries in Cayman Islands, Hong Kong and mainland China through loans or capital contributions on the amount of the funds. DDC Cayman can distribute earnings from its businesses, including subsidiaries, to the U.S. investors as well as the ability to settle amounts owed under intercompany agreements.

Our operating subsidiaries are permitted under the laws of the PRC and Hong Kong, respectively, to provide funding to DDC Cayman, the holding company incorporated in the Cayman Islands through dividend distributions. Our Group currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. We currently do not have any dividend policy, and we do not anticipate declaring or paying dividends in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. However, to the extent cash and assets in our business are in the PRC or our PRC entities, the funds/assets may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries, by the PRC government. If our subsidiaries incur debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. Other than cash transferred in the ordinary course of business among our subsidiaries, there were no other significant cash transfers and transfers of other assets among DDC Cayman and its subsidiaries to date. Moreover, to the extent cash and assets in our business are in the PRC or our PRC entities, the funds/assets may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries, by the PRC government.

Currently, our operations are currently conducted through our operating entities established in Hong Kong and mainland China, and we have VIE arrangements with various Chinese entities and individuals to enable us to have the ability to control a number of online stores. During the two years ended December 31, 2021 and 2022, we had conducted part of our operations in China through contractual arrangements with the Weishi and City Modern VIEs (namely, Shanghai Weishi Information Technology Co., Ltd., Shanghai City Modern Agriculture Development Co., Ltd., Shanghai City Vegetable Production and Distribution Co-op, Shanghai Jiapin Vegetable Planting Co-op, Shanghai Jiapin Ecological Agriculture Co-op). Through such contractual arrangements, we, through our indirect wholly-owned PRC subsidiary SH DDC, control and receive the economic benefits of the Weishi and City Modern VIEs without owning any direct equity interest in them. As of April 2022, such contractual arrangements with the Weishi and City Modern VIEs have been terminated. However, we still have contractual arrangements with Chongqing Mengwei Technology Co., Ltd., Liao Xuefeng, Chongqing Changshou District Weibang Network Co., Ltd., Chongqing Yizhichan Snack Food Electronic Commerce Service Department and Chongqing Ningqi E-commerce Co. Ltd. to enable us to have the ability to control a number of online stores purchased from them since the titles of such online stores cannot be transferred to us due to the limitations from the policies of certain online platforms. These online stores which we refer to collectively as the Mengwei VIE, are considered VIEs and SH DDC is the primary beneficiary. The contractual arrangements for the Mengwei VIE are not designed to create any ownership over the Mengwei VIE but are designed to provide SH DDC with the power, rights, and obligations equivalent in all material respects to those it would possess as the principal asset-holder of the Mengwei VIE. Neither DDC Cayman nor any of its subsidiaries has an equity ownership or direct foreign investment in, or control of, through such ownership or investment, the Mengwei VIE. Consolidated VIEs are the assets in which our PRC subsidiary SH DDC, through contractual arrangements, exercises effective control over the operating activities that most impact the economic performance, bears the risks of, and enjoys the rewards normally associated with ownership of the assets, and therefore SH DDC is the primary beneficiary of the Mengwei VIE and have, for accounting purposes, consolidated their financial results in our consolidated financial statements in accordance with U.S. GAAP. In this prospectus, any description of control over the Mengwei VIE or benefits from the Mengwei VIE that accrue to us is made based on the assumption that we have met and will continue to meet all the conditions for consolidation under U.S. GAAP. Uncertainties exist as to our ability to enforce the contractual agreements with regard to the Mengwei VIE, and the enforceability of such contractual agreements has not been tested in a court of law. See “Corporate History and Structure — Contractual Arrangements Regarding Several Online Stores — the Mengwei VIE” below.

Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law, providing Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems”. Under Hong Kong law, dividends could only be paid out of distributable profits (that is, accumulated realized profits

23

Table of Contents

less accumulated realized losses) or other distributable reserves. Dividends cannot be paid out of share capital. Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us.

We may make loans to our PRC subsidiaries subject to the approval or registration from governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned subsidiaries in China. Any loans to our subsidiaries in China are subject to foreign debt registrations. In addition, a foreign-invested enterprise, or FIE, shall use its capital pursuant to the principle of authenticity and self-use within its business scope. And the capital shall not be used for the purposes prohibited by law. Non-investing foreign-invested enterprises are permitted to make equity investments in the PRC with their capital funds in accordance with applicable PRC laws and regulations under the premise that the domestic investment projects are true and in compliance with applicable PRC laws and regulations. As the relevant government authorities have broad discretion in interpreting the regulation, it is unclear whether SAFE will permit such capital funds to be used for equity investments in the PRC in actual practice.

Under existing PRC foreign exchange regulations, payment of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. Therefore, our subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulations, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. Approval from, or registration with, appropriate government authorities is, however, required where the RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. Current PRC regulations permit our PRC subsidiaries to pay dividends to the Company only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. As of the date of this prospectus, there are no restrictions or limitations imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to the PRC), except for transfer of funds involving money laundering and criminal activities.

To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and SAFE have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our ordinary shares.

Further, the PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. The dividends and distributions from our PRC subsidiaries are subject to relevant regulations and restrictions on dividends and payment to parties outside of China. See “Risk Factors — Risks Related to Doing Business in China and Hong Kong — PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using part of the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business” and “Restrictions on currency exchange may limit our ability to utilize our revenues effectively” for more information on the risk of PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion with respect to part of the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary and restrictions on currency exchange may limit our ability to utilize our revenues effectively with respect to our operations. Further, investment in Chinese companies, which are governed by the Foreign Investment Law and Company Law, and the dividends and distributions from our PRC subsidiaries are subject to relevant regulations and restrictions on dividends and payment to parties outside of China. Applicable PRC law permits payment of dividends to DDC Cayman by our PRC subsidiaries only out of its net income, if any, determined in accordance with PRC accounting standards and regulations. Each of our PRC subsidiaries required to set aside at least 10% of its after-tax

24

Table of Contents

profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary.

Cash dividends, if any, on our ordinary shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%. A 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises. Any gain realized on the transfer of ordinary shares by such investors is also subject to PRC tax at a current rate of 10% which in the case of dividends will be withheld at source if such gain is regarded as income derived from sources within the PRC.

Within the organization, investor cash inflows have all been received by DDC Cayman. Cash to fund DDC Cayman’s operations is transferred from DDC Cayman down through our Hong Kong and Cayman entities and then into our Chinese entities through capital contributions and loans. Transfers among our Hong Kong entities are not restricted. Furthermore, subject to payment of withholding taxes, there are no restrictions and limitations on our ability to distribute earnings from our subsidiaries to DDC Cayman and U.S. investors as well as the ability to settle amounts owed under any agreements.

In the reporting periods presented in this prospectus and up to the date of this prospectus, save for (i) cash transfers among entities of our Group that are made in the ordinary course of business; and (ii) cash transfers described in the table below, no material cash and other asset transfers have occurred among DDC Cayman, its subsidiaries and the VIEs, or from DDC Cayman and its subsidiaries to investors; and no dividends or distributions from any of the subsidiaries and the VIEs has been made to DDC Cayman or to investors, or from DDC Cayman to any of the subsidiaries and the VIEs or to investors.

The following are the material intra-group cash transfers for the six months ended June 30, 2023 and three months ended March 31, 2022:

From

 

To

 

six months
ended June 30,
2023

 

Purpose of
transfer

 

three months
ended March 31,
2022

 

Purpose of transfer

Shanghai Weishi Information Technology Co., Ltd.

 

Shanghai DayDayCook Information Technology Co., Ltd.

 

N/A

 

Fund for operation

 

Nil

 

Fund for operation

Shanghai Lashu Import and Export Trading Co., Ltd.

 

Shanghai Weishi Information Technology Co., Ltd.

 

N/A

 

Fund for operation

 

RMB583,152

 

Fund for operation

The following are the material intra-group cash transfers for the years ended December 31, 2022 and 2021:

From

 

To

 

FY2021

 

Purpose of
transfer

 

FY2022

 

Purpose of
transfer

Shanghai Weishi Information Technology Co., Ltd.

 

Shanghai DayDayCook Information Technology Co., Ltd.

 

Nil

 

Fund for operation

 

Nil

 

Fund for operation

Shanghai Lashu Import and Export Trading Co., Ltd.

 

Shanghai Weishi Information Technology Co., Ltd.

 

RMB8,794,764

 

Fund for operation

 

RMB583,152

 

Fund for operation

See “Selected Consolidated Financial Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future.

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Transferring cash through our subsidiaries, current VIE and its subsidiaries is subject to risks due to the uncertainty of the interpretation and application of the PRC laws and regulations, including but not limited to regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the contractual arrangement with the current VIE. We are also subject to the risks of the uncertainty that the PRC government could disallow the VIE structure, which would likely result in a material change in our operations, or a complete hindrance of cash flow through the current VIE. The contractual arrangements are less effective than direct ownership due to the inherent risks of the VIE structure. We may have difficulty in enforcing any rights we may have under the contractual arrangements in relation to the Mengwei VIE, since all contractual agreements are governed by the PRC laws and require us to resolve all disputes through arbitration in the PRC, where the legal environment is uncertain and not as developed as in the United States. Moreover, the Chinese government has significant oversight and discretion over the conduct of SH DDC’s business and may intervene or influence SH DDC’s operations at any time with little advance notice, which could result in a material change in our operations and/or the cash flow through our subsidiaries and/or the VIE and their respective subsidiaries. Furthermore, the contractual agreements may not be enforceable in China if the PRC authorities or courts are of the view that such contractual agreements contravene with the PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event we are unable to enforce the contractual agreements, we may not be able to exert effective influence over the current VIE and the current VIE’s ability to conduct its business may be materially and adversely affected.

As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund-raising activities to SH DDC, our subsidiaries, the current VIE and their subsidiaries only through loans or capital contributions, subject to the satisfaction of the applicable government registration and approval requirements. Before providing loans to SH DDC, our subsidiaries, or the current VIE and their subsidiaries, we will be required to make filings with details of the loans with the SAFE in accordance with relevant PRC laws and regulations. SH DDC, our subsidiaries, the current VIE and their subsidiaries that receive the loans are only allowed to use the loans for the purposes set forth in these laws and regulations. Under regulations of the SAFE, Renminbi is not convertible into foreign currencies for capital account items, such as loans, repatriation of investments and investments outside of China, unless the prior approval of the SAFE is obtained and prior registration with the SAFE is made.

Further, subject to the Companies Act and our Tenth Amended and Restated Memorandum and Articles of Association which will take effect immediately prior to the completion of this offering, our board of directors may authorize and declare a dividend to shareholders from time to time out of the profits from DDC Cayman, realized or unrealized, or out of the share premium account, provided that DDC Cayman will remain solvent, meaning DDC Cayman is able to pay its debts as they come due in the ordinary course of business. There is no further Cayman Islands statutory restriction on the amount of funds which may be distributed by us in the form of dividends.

Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. The laws and regulations of the PRC do not currently have any material impact on transfer of cash from DDC Cayman to our Hong Kong subsidiaries or from our Hong Kong subsidiaries to DDC Cayman. There are no restrictions or limitation under the laws of Hong Kong imposed on the conversion of HK dollar into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S investors.

Currently, we do not have specific cash management policies and procedures in place that dictate how funds are transferred through our organization, however, we have been closely monitoring our transfer of funds and will adopt relevant policies and procedures if necessary.

See “Risk Factors — Risk Related to Our Corporate Structure — We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.” for more information.

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Risk Factor Summary  

Our business and our offering are subject to a number of risks, including risks that may prevent us from achieving our business objectives or may materially and adversely affect our business, financial condition, results of operations, cash flows and prospects that you should consider before making a decision to invest in our Class A Ordinary Shares. These risks are discussed more fully in “Risk Factors” beginning on page 38. These risks include, but are not limited to, the following:

Risks Relating to Our Business and Industry

        Our business and future growth prospects rely on consumer demand for our products. Any shift in consumer demand, or any unexpected situation with a negative impact on consumer demand may materially and adversely affect our business and results of operations.

        If we fail to retain existing customers, derive revenue from existing customers consistent with historical performance or acquire new customers cost-effectively, our business could be adversely affected.

        The market for RTH, RTC, RTE, plant-based meal products and private-label in China is continuously evolving and may not grow as quickly as expected, or at all, which could negatively affect our business and prospects.

        We are actively expanding our business outside the PRC, where we may be subject to increased business, regulatory, and economic risks that could materially adversely affect our business, financial condition, results of operations, and prospects. A severe or prolonged downturn in the PRC or global economy could also materially and adversely affect our business, results of operations and financial condition.

        If we are unable to expand our business to international markets successfully, our business and results of operations would be adversely affected.

        Changes to the pricing of our products could adversely affect our results of operations.

        Our business and prospects depend on our ability to build our brands and reputation, which could be harmed by negative publicity with respect to us, our products and operations, our management, brand ambassadors, key opinion leaders (“KOLs”), or other business partners.

        Our products are subject to food safety standards and the failure to satisfy such mandated food safety standards would have a material and adverse effect on our business, results of operations and prospects.

        We may be subject to claims under consumer protection laws, including health and safety claims and product liability claims, if people are harmed by the products sold by us.

        We face risks related to instances of food-borne illnesses, health epidemics, natural disasters and other catastrophic events. The outbreak of any severe contagious diseases, if uncontrolled, could adversely affect our business and results of operation.

        We may be liable for improper collection, use or appropriation of personal information provided by our customers.

        If the content we produce and distribute through online social and content platforms, or content available on our website, is deemed to violate PRC laws or regulations, our business and results of operations may be materially and adversely affected.

        We currently utilize third-party suppliers for our products. Loss of these suppliers could harm our business and impede growth.

        Our growth may be limited if we are unable to expand our distribution channels and secure additional retail space for its products.

        We rely in part on third-party distributors to place our products into the market and we may not be able to control our distributors.

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        Adverse publicity involving us, our products, our raw materials, our directors, our management team, our competitors or our industry could materially and adversely impact our business and results of operations.

        We operate in a highly competitive industry. Failure to compete effectively could adversely affect our market share, growth and profitability.

        We may not be able to successfully implement our growth strategy.

        We may be unable to manage our growth effectively or efficiently.

        We have incurred net loss in the past, and we may not be able to achieve or maintain profitability in the future.

        Our historical financial conditions and results of operations are not representative of our future performance. We may be unable to effectively manage our future growth and expansion, and may not achieve growth in revenue and profit. If we are unable to manage our growth effectively, we may not be able to capitalize on new business opportunities and our business and financial results may be materially and adversely affected.

        We depend on a stable and adequate supply of raw materials which are subject to price volatility and other risks. Inadequate or interrupted supply and price fluctuation for raw materials and packaging materials could adversely affect our profitability.

        The development of online sales network and marketing activities may not meet expectations, or we may fail to manage the coordination of our offline and online sales channels, which may adversely affect our operation results.

        Our online sales depend on the proper operation of third-party online platforms and any serious interruptions of these platforms could adversely affect our operations.

        Our operating results depend on the effectiveness of our marketing and promotional programs. Improper marketing activities may adversely affect our brand image.

        If we fail to obtain and maintain the requisite licenses and approvals required under the complex regulatory environment applicable to our businesses in China, or if we are required to take compliance actions that are time-consuming or costly, our business, results of operations and financial condition may be materially and adversely affected.

        We are subject to PRC Advertising Law and related regulations, rules and measures applicable to advertising.

        Our acquisition activities and other strategic transactions may present managerial, integration, operational and financial risks, which may prevent us from realizing the full intended benefit of the acquisitions we undertake.

        We rely on third-party logistics companies to deliver our products. Any delivery delay, improper handling of goods or increase in transportation costs of our logistic service providers could adversely affect our business and results of operations. If the third-party logistics business is interrupted, we may not have sufficient resources to support our product transportation and face the risk of rising transportation prices.

        We may face the risk of inventory obsolescence.

        We may not be able to adequately protect our intellectual property, which could adversely affect our business and operations.

        We may be accused of infringing intellectual property rights of others and content restrictions of relevant laws.

        Failure to successfully operate our information systems and implement new technology effectively could disrupt our business or reduce our profitability.

        Our success depends on the continuing efforts of our senior management team and key personnel and our business may be harmed if we lose their services and cannot timely find proper candidates for substitution.

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        Our performance depends on favorable labor relations with our employees, and any deterioration in labor relations, shortage of labor or material increase in wages may have an adverse effect on our results of operation.

        We may not be able to detect or prevent fraud, bribery, or other misconduct committed by our employees, customers or other third parties.

        We may be subject to legal proceedings in the ordinary course of our business. Any adverse outcome of these legal proceedings could have a material adverse effect on our business, results of operations and financial condition.

        We have limited insurance to cover our potential losses and claims.

        We may require additional financing to achieve its goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to delay, limit, reduce or terminate its product manufacturing and development, and other operations.

Risks Relating to Our Corporate Structure

        We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business. See “Risk Factors — Risks Relating to Our Corporate Structure — We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.” on page 58.

        PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business. See “Risk Factors — Risks Relating to Our Corporate Structure — PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” on page 58.

        If the chops of our PRC subsidiaries are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised. See “Risk Factors — Risks Relating to Our Corporate Structure — If the chops of our PRC subsidiaries are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.” on page 59.

        We face uncertainties with respect to the interpretation and implementation of the newly enacted Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations. See “Risk Factors — Risks Relating to Our Corporate Structure — We face uncertainties with respect to the interpretation and implementation of the newly enacted Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.” on page 59.

Risks Relating to Doing Business in China and Hong Kong

        A downturn in the Hong Kong, China or global economy, and economic and political policies of China could materially and adversely affect our business and financial condition. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — A downturn in the Hong Kong, China or global economy, and economic and political policies of China could materially and adversely affect our business and financial condition.” on page 59.

        The Hong Kong legal system embodies uncertainties which could limit the legal protections available to us. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — The Hong Kong legal system embodies uncertainties which could limit the legal protections available to us.” on page 60.

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        Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us.” on page 60.

        The Chinese government exerts substantial influence over the manner in which we must conduct our business activities, and may intervene or influence our operations at any time, or may exert more oversight and control over offerings conducted overseas. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares to investors and could cause the value of our Class A Ordinary Shares to significantly decline or become worthless. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — The Chinese government exerts substantial influence over the manner in which we must conduct our business activities, and may intervene or influence our operations at any time, or may exert more oversight and control over offerings conducted overseas. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares to investors and could cause the value of our Class A Ordinary Shares to significantly decline or become worthless.” on page 62.

        There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities.” on page 63.

        PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.” on page 64.

        We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.” on page 65.

        Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.” on page 65.

        PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. See “Risk Factors — Risks Relating to Doing Business in the PRC — PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.” on page 66.

        The approval of the China Securities Regulatory Commission and other PRC governmental authorities provided under the M&A rules are not required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval. Except for the CSRC filing for this issuance and listing, we are not required to obtain any permission or approval from any Chinese authority to issue securities to foreign investors or in connection with this offering, which, we cannot predict, whether or how soon will be completed. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — The approval of the China Securities Regulatory Commission and other PRC governmental authorities provided under the M&A rules are not required in connection with this offering, and, if

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required, we cannot predict whether we will be able to obtain such approval. Except for the CSRC filing for this issuance and listing, we are not required to obtain any permission or approval from any Chinese authority to issue securities to foreign investors or in connection with this offering, which, we cannot predict, whether or how soon will be completed.” on page 66.

        Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our Company’s business and results of operations we may pursue in the future. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our Company’s business and results of operations we may pursue in the future.” on page 69.

        PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using part of the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business. See “Risk Factors — Risks Relating to Doing Business in China and Hong Kong — PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using part of the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” on page 69.

        Our business may be materially and adversely affected if any of our PRC subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — Our business may be materially and adversely affected if any of our PRC subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding.” on page 70.

        Fluctuations in exchange rates could adversely affect our business and the value of our securities. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — Fluctuations in exchange rates could adversely affect our business and the value of our securities.” on page 71.

        Restrictions on currency exchange may limit our ability to utilize our revenues effectively. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — Restrictions on currency exchange may limit our ability to utilize our revenues effectively.” on page 71.

        Dividends paid to our foreign investors and gains on the sale of the Class A Ordinary Shares by our foreign investors may become subject to PRC tax. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — Dividends paid to our foreign investors and gains on the sale of the Class A Ordinary Shares by our foreign investors may become subject to PRC tax.” on page 71.

        We are a holding company and we rely on our subsidiaries for funding dividend payments, which are subject to restrictions under PRC laws. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — We are a holding company and we rely on our subsidiaries for funding dividend payments, which are subject to restrictions under PRC laws.” on page 72.

        Increases in labor costs in the PRC may adversely affect our business and results of operations. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — Increases in labor costs in the PRC may adversely affect our business and results of operations.” on page 72.

        We are a Cayman Islands corporation and all of our business is conducted in the PRC. Moreover, all of our directors and officers are located outside of the United States and except for Mr. Matthew Gene Mouw, are all nationals or residents of jurisdictions other than the United States, and all or a substantial portion of their assets are located outside of the United States. As a result, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. Federal or state courts may be limited. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — We are a Cayman Islands corporation and all of our business is conducted in the PRC. Moreover, all of our directors and officers are located outside of the United States and except for Mr. Matthew Gene Mouw, are all nationals or residents of jurisdictions other than the United States, and all or a substantial portion of their assets

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        Given the rapidly expanding nature of the COVID-19 pandemic, and because most of our business operations and our workforce are concentrated in China, we believe there is a risk that our business, results of operations, and financial condition will be adversely affected. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — Given the rapidly expanding nature of the COVID-19 pandemic, and because most of our business operations and our workforce are concentrated in China, we believe there is a risk that our business, results of operations, and financial condition will be adversely affected.” on page 73.

        Our legal rights to lease certain properties could be challenged, which could prevent us from continuing to use these leased properties or increase the costs for relocating our business premises. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — Our legal rights to lease certain properties could be challenged, which could prevent us from continuing to use these leased properties or increase the costs for relocating our business premises.” on page 75.

        The recent enactment of the Holding Foreign Companies Accountable Act may result in de-listing of our securities. See “Risk Factors Risks Relating to Doing Business in China and Hong Kong — The recent enactment of the Holding Foreign Companies Accountable Act may result in de-listing of our securities.” on page 75.

Risks Related to Our Securities

        There has been no prior public market for our Ordinary Shares and an active trading market may never develop or be sustained.

        Our share is expected to initially trade under $5.00 per Class A ordinary share and thus could be known as a penny stock, subject to certain exceptions. Trading in penny stocks has certain restrictions and these restrictions could negatively affect the price and liquidity of our Class A ordinary shares.

        Our share price may be volatile and may fluctuate.

        We intend to grant employee share options and other share-based awards in the future. We will recognize any share-based compensation expenses in our consolidated statements of comprehensive loss. Any additional grant of employee share options and other share-based awards in the future may have a material adverse effect on our results of operation.

        If we fail to meet applicable listing requirements, the NYSE Group may delist our Class A Ordinary Shares from trading, in which case the liquidity and market price of our Class A Ordinary Shares could decline.

        We do not intend to pay cash dividends on our Class A Ordinary Shares in the foreseeable future.

        We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

        We qualify as a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that permit less detailed and less frequent reporting than that of a U.S. domestic public company.

        As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from NYSE corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.

        There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our Class A Ordinary Shares.

        We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

        We will have broad discretion in the use of proceeds of this offering designated for working capital and general corporate purposes.

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        Our pre-IPO shareholders will be able to sell their shares after the completion of this offering subject to restrictions under Rule 144 under the Securities Act, which could impact the trading price of our Class A Ordinary Shares.

        Failure to comply with anticorruption and anti-money laundering laws, including the FCPA and similar laws associated with activities outside of the United States, could subject us to penalties and other adverse consequences.

        We expect to incur significant additional costs as a result of being a public company, which may materially and adversely affect our business, financial condition and results of operations.

        Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.

        Recently introduced economic substance legislation of the Cayman Islands may impact us and our operations.

Implications of Being an Emerging Growth Company and a Foreign Private Issuer

Emerging Growth Company

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

        being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our filings with the SEC;

        not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

        reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements and registration statements; and

        exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our Class A Ordinary Shares pursuant to this offering. However, if certain events occur before the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company before the end of such five-year period.

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards and acknowledge such election is irrevocable pursuant to Section 107 of the JOBS Act.

Foreign Private Issuer

We are a “foreign private issuer,” as defined by the SEC. As a result, in accordance with the rules and regulations of the New York Stock Exchange, or NYSE, we may comply with home country governance requirements and certain exemptions thereunder rather than complying with NYSE corporate governance standards. We may choose to take advantage of the following exemptions afforded to foreign private issuers:

        Exemption from filing quarterly reports on Form 10-Q or provide current reports on Form 8-K disclosing significant events within four (4) days of their occurrence.

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        Exemption from Section 16 rules regarding sales of Class A Ordinary Shares by insiders, which will provide less data in this regard than shareholders of U.S. companies that are subject to the Exchange Act.

        Exemption from the NYSE rules applicable to domestic issuers requiring disclosure within four (4) business days of any determination to grant a waiver of the code of business conduct and ethics to directors and officers. Although we will require board approval of any such waiver, we may choose not to disclose the waiver in the manner set forth in the NYSE rules, as permitted by the foreign private issuer exemption.

        Exemption from the requirement that our board of directors have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

        Exemption from the requirements that director nominees are selected, or recommended for selection by our board of directors, either by (i) independent directors constituting a majority of our board of directors’ independent directors in a vote in which only independent directors participate, or (ii) a committee comprised solely of independent directors, and that a formal written charter or board resolution, as applicable, addressing the nominations process is adopted.

If we rely on our home country corporate governance practices in lieu of certain of the rules of NYSE, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of NYSE. If we choose to do so, we may utilize these exemptions for as long as we continue to qualify as a foreign private issuer.

Although we are permitted to follow certain corporate governance rules that conform to Cayman Islands requirements in lieu of many of the NYSE corporate governance rules, we intend to comply with the NYSE corporate governance rules applicable to foreign private issuers.

Corporate Information

Our principal executive office is located at Room 1601-1602, 16/F, Hollywood Centre, 233 Hollywood Road, Sheung Wan, Hong Kong. Our telephone number is +852-2803-0688. Our registered office in the Cayman Islands is located at the office of International Corporation Services Ltd., P.O. Box 472, 2nd Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1106, Cayman Islands.

Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168. Our principal website is located at https://www.daydaycook.com.cn/daydaycook. Information contained on, or that can be accessed through, our website is not a part of, and shall not be incorporated by reference into, this prospectus.

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The Offering(1)

Securities being offered:

 

Class A Ordinary Shares on a firm commitment basis.

Initial public offering price:

 

$[____] per share.

Number of Class A Ordinary Shares outstanding before this offering:

 


[_________] Class A Ordinary Shares.

Number of Class A Ordinary Shares outstanding after this offering:

 


[_________] Class A Ordinary Shares (or [_________] Class A Ordinary Shares if the underwriter exercises its over-allotment option in full).

Underwriter over-allotment option:

 

We have granted the underwriter an option for a period of up to 30 days to purchase up to [_________] additional Class A Ordinary Shares.

Use of proceeds:

 

We plan to use the net proceeds of this offering as follows:

   50% for working capital to fund business expansion;

   25% for acquiring suitable targets that operate RTC/RTE brands that complement our current sales channels and customer base, have gross profit margins that are comparable to our Group and are expected to be accretive and profitable. We are still identifying acquisition targets or within negotiations with the sellers, and have not signed Term Sheets or Sales and Purchase Agreements relating to acquisition of targets that require the use of proceeds from the offering;

   15% for repayment of loan from shareholders and related parties; and

   10% for cash reserve.

See “Use of Proceeds” on page 88.

Lock-up:

 

We, our directors, officers, and certain holders of our ordinary shares have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge, or otherwise dispose of any of our ordinary shares or securities convertible into ordinary shares for a period of [180 days] from the date on which the trading of the ordinary shares on a National Securities Exchange commences. See “Underwriting” for more information.

Underwriter Warrants:

 

Upon the closing of this offering, we have agreed to issue to CMB International Capital Limited and The Benchmark Company, LLC, as the underwriters, warrants to purchase five percent (5%) of the aggregate number of the Class A Ordinary Shares issued in this offering (the “Underwriter Warrants”). The Underwriter Warrants are exercisable for a period of five years on a cash-less basis at a price equal to the offering price of the Class A Ordinary Shares offered hereby.

NYSE symbol:

 

We have applied to list our Class A Ordinary Shares listed on the NYSE Group under the symbol “______”.

Risk factors:

 

Investing in our Class A Ordinary Shares is highly speculative and involves a high degree of risk. As an investor you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 38.

____________

(1)      Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the underwriters’ over-allotment option or the Underwriter Warrants and is based on [___________] Ordinary Shares outstanding as of the date of this prospectus.

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Summary Consolidated Financial Data

The consolidated statements of comprehensive loss data (other than US$ data) and consolidated statements of cash flows data (other than US$ data) for the years ended December 31, 2021 and 2022 and the consolidated balance sheets data (other than US$ data) as of December 31, 2021 and 2022, are derived from the audited consolidated financial statements, which are included elsewhere in this prospectus.

The consolidated statements of comprehensive loss data (other than US$ data) and consolidated statements of cash flows data (other than US$ data) for the three months ended March 31, 2022 and 2023, and the consolidated balance sheets data (other than US$ data) as of March 31, 2022 and 2023 are derived from unaudited condensed consolidated financial statements, which are included elsewhere in this prospectus. The unaudited financial statements have been prepared in conformity with U.S. GAAP and are prepared on the same basis as the annual audited financial statements included elsewhere in this prospectus. Results from interim periods are not necessarily indicative of results that may be expected for the entire year. DDC’s historical results are not necessarily indicative of results to be expected for any future period.

The information below is only a summary and should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, condensed consolidated financial statements and related notes thereto, all of which are included elsewhere in this prospectus.

 

For the Year Ended December 31,

 

For the Three Months Ended March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

RMB

 

USD

Consolidated Statements of Comprehensive Loss Data:

   

 

   

 

   

 

   

 

   

 

   

 

Total revenues

 

205,179,442

 

 

179,586,066

 

 

26,149,756

 

 

36,878,194

 

 

42,997,134

 

 

6,260,868

 

Gross profit

 

36,457,608

 

 

43,926,869

 

 

6,396,248

 

 

8,665,431

 

 

10,870,217

 

 

1,582,826

 

Loss from operations

 

(113,619,990

)

 

(80,004,296

)

 

(11,649,528

)

 

(13,280,034

)

 

(9,821,450

)

 

(1,430,114

)

Net loss

 

(458,683,434

)

 

(122,248,608

)

 

(17,800,778

)

 

(29,567,753

)

 

(1,012,923

)

 

(147,493

)

Net loss attributable to DDC Enterprise Limited

 

(835,568,744

)

 

(231,115,249

)

 

(33,652,988

)

 

(52,972,874

)

 

(30,835,635

)

 

(4,490,016

)

Net loss per ordinary share

   

 

   

 

   

 

   

 

   

 

   

 

– Basic and diluted – Class A

 

(10.81

)

 

(2.64

)

 

(0.38

)

 

(0.63

)

 

(0.34

)

 

(0.05

)

– Basic and diluted – Class B

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

As of March 31,

   

2021

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

USD

Consolidated Balance Sheets Data:

   

 

   

 

   

 

   

 

   

 

Cash and cash equivalents

 

13,493,501

 

 

26,801,767

 

 

3,902,639

 

 

18,102,002

 

 

2,635,856

 

Restricted cash

 

63,757,000

 

 

70,102,863

 

 

10,207,767

 

 

69,194,629

 

 

10,075,518

 

Total current assets

 

119,465,669

 

 

155,642,065

 

 

22,663,239

 

 

131,815,608

 

 

19,193,839

 

Total non-current assets

 

109,035,295

 

 

99,735,708

 

 

14,522,644

 

 

109,043,961

 

 

15,878,030

 

Total assets

 

228,500,964

 

 

255,377,773

 

 

37,185,883

 

 

240,859,569

 

 

35,071,869

 

Total current liabilities

 

177,040,682

 

 

261,792,735

 

 

38,119,974

 

 

265,064,485

 

 

38,596,377

 

Total non-current liabilities

 

87,883,641

 

 

112,564,501

 

 

16,390,661

 

 

95,493,586

 

 

13,904,944

 

Total liabilities

 

264,924,323

 

 

374,357,236

 

 

54,510,635

 

 

360,558,071

 

 

52,501,321

 

Total mezzanine equity

 

1,149,874,154

 

 

1,368,520,061

 

 

199,271,953

 

 

1,379,164,415

 

 

200,821,890

 

Total shareholders’ deficit attribute to DDC Enterprise Limited

 

(1,186,534,185

)

 

(1,501,925,812

)

 

(218,697,335

)

 

(1,514,256,779

)

 

(220,492,862

)

Non-controlling interest

 

236,672

 

 

14,426,288

 

 

2,100,630

 

 

15,393,862

 

 

2,241,520

 

Total liabilities, mezzanine equity and shareholders’ deficit

 

228,500,964

 

 

255,377,773

 

 

37,185,883

 

 

240,859,569

 

 

35,071,869

 

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For the Year Ended December 31,

 

For the Three Months Ended March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

RMB

 

USD

Consolidated Statements of Cash Flows Data:

   

 

   

 

   

 

   

 

   

 

   

 

Net cash used in operating
activities

 

(91,425,290

)

 

(37,083,065

)

 

(5,399,713

)

 

(9,129,624

)

 

(12,017,703

)

 

(1,749,911

)

Net cash used in investing
activities

 

(8,357,262

)

 

(444,627

)

 

(64,743

)

 

89,033

 

 

(1,773,222

)

 

(258,201

)

Net cash provided by financing activities

 

115,757,055

 

 

51,352,149

 

 

7,477,453

 

 

689,271

 

 

5,736,372

 

 

835,281

 

Non-GAAP Financial Measure

We use adjusted net loss, non-GAAP financial measures, in evaluating our operating results and for financial and operational decision-making purposes. Adjusted net loss represents net loss excluding changes in income tax expense, interest expenses, interest income, foreign currency exchange (gain)/loss, net, impairment loss for equity investments accounted for using measurement alternative, gain from deconsolidation of VIEs, other income, other expenses, net, changes in fair value of financial instruments, depreciation and amortization, share-based compensation, allowance for other current assets and allowance of accounts receivable.

We believe that the adjusted net loss help identify underly trends in our business that could otherwise be distorted by the effect of certain expenses that we are included in net loss. We believe that adjusted net loss provides useful information about our operating results, enhance the overall understanding of our past performance and future prospect and allow for greater visibility with respect to key metrics used by our management uses in its financial and operational decision making.

 

For the year ended December 31

 

For the three months ended March 31

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

US$

 

RMB

 

RMB

 

USD

Net loss

 

(458,683,434

)

 

(122,248,608

)

 

(17,800,778

)

 

(29,567,753

)

 

(1,012,923

)

 

(147,493

)

Add:

   

 

   

 

   

 

   

 

   

 

   

 

Income tax expense/(benefit)

 

816,868

 

 

3,115,753

 

 

453,689

 

 

(406,153

)

 

829,764

 

 

120,823

 

Interest expenses

 

22,842,091

 

 

30,826,950

 

 

4,488,752

 

 

17,971,034

 

 

3,717,723

 

 

541,342

 

Interest income

 

(9,783

)

 

(465,162

)

 

(67,733

)

 

(100,967

)

 

(589,469

)

 

(85,833

)

Foreign currency exchange (gain)/loss, net

 

147,413

 

 

(671,007

)

 

(97,706

)

 

(176,238

)

 

(163,486

)

 

(23,805

)

Impairment loss for equity investments accounted for using measurement
alternative

 

 

 

22,705,285

 

 

3,306,146

 

 

 

 

 

 

 

Gain from deconsolidation of VIEs

 

 

 

(13,543,650

)

 

(1,972,108

)

 

 

 

 

 

 

Other income

 

(5,581,534

)

 

(1,599,746

)

 

(232,941

)

 

(999,957

)

 

(30,244

)

 

(4,404

)

Other expenses, net

 

266,083,985

 

 

 

 

 

 

 

 

 

 

 

Changes in fair value of
financial instruments

 

60,764,404

 

 

1,875,889

 

 

273,151

 

 

 

 

(12,572,815

)

 

(1,830,744

)

Depreciation and amortization

 

5,110,730

 

 

3,544,322

 

 

516,093

 

 

1,055,564

 

 

709,442

 

 

103,303

 

Share-based compensation

 

 

 

38,993,201

 

 

5,677,850

 

 

 

 

1,560,833

 

 

227,275

 

Allowance for other current assets

 

 

 

4,262,335

 

 

620,644

 

 

 

 

27,500

 

 

4,004

 

Allowance of accounts
receivable

 

4,324,627

 

 

5,334,098

 

 

776,705

 

 

536,920

 

 

563,398

 

 

82,037

 

Adjusted net loss

 

(104,184,633

)

 

(27,870,340

)

 

(4,058,236

)

 

(11,687,550

)

 

(6,960,277

)

 

(1,013,495

)

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RISK FACTORS

An investment in our Class A Ordinary Shares involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this prospectus, before deciding to invest in our Class A Ordinary Shares. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our Class A Ordinary Shares could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

Our business and future growth prospects rely on consumer demand for our products. Any shift in consumer demand, or any unexpected situation with a negative impact on consumer demand may materially and adversely affect our business and results of operations.

Our business relies on consumer demand for our products, which depends substantially on factors such as (i) economic growth and increasing disposable income; (ii) diversified consumption scenarios and increasing consumption frequency; (iii) continuous product innovation and upgrade; and (iv) increasing development and improvement of sales channels. Changes in any of the above at any time could result in decline in consumer demand for our products. Our business development will depend partially on our ability to (i) anticipate, identify or adapt to such changes, (ii) introduce new attractive products and marketing strategies in a timely manner, and (iii) develop an effective sales network accordingly.

Although we dedicate substantial resources to consumer-centric market research and data analysis to upgrade our existing products and to develop, design and launch new products, in order to cater to consumer preferences, we cannot assure you that our product portfolio will continuously lead or capture the market trends. Any changes in consumer preferences and tastes, or any of our failure to anticipate, identify or adapt to market trends, may impose downward pressure on sales and pricing of our products or lead to increases in selling and distribution expenses, and therefore materially and adversely affect our business and results of operations.

In order to promptly respond to rapidly developing market trends and changing tastes, preferences and lifestyle of consumers, our sales and development teams regularly observe the changing trends in our target markets and launch new products or different serving sizes and flavors from time to time. While we have in the past successfully developed, promoted and achieved market acceptance of our products, we cannot assure you that we will be able to continuously develop new products or our existing or new products in the future will continue to generate sufficient consumer demand to be profitable.

If we fail to retain existing customers, derive revenue from existing customers consistent with historical performance or acquire new customers cost-effectively, our business could be adversely affected.

Our ability to increase revenues depends in part on our ability to retain and keep existing customers engaged so that they continue to purchase products from us, and to acquire new customers cost-effectively. We intend to continue to expand our number of customers as part of our growth strategy. If we fail to retain existing customers and to attract and retain new customers, our business, financial condition and results of our operations could be adversely affected.

Further, if customers do not perceive our product offerings to be of sufficient value, quality, or innovation, or if we fail to offer innovative and relevant product offerings, we may not be able to attract or retain customers or engage existing customers so that they continue to purchase products or increase the amount of products purchased from us. We may lose current customers to competitors if the competitors offer superior products or if we are unable to satisfy its customers’ orders in a timely manner.

The market for RTH, RTC and plant-based meal products in China is continuously evolving and may not grow as quickly as expected, or at all, which could negatively affect our business and prospects.

Our business and prospects depend on the continuous development and growth of the markets for RTC, RTH, RTE and plant-based meal products in China. The growth and development of these markets are impacted by numerous factors and subject to uncertainties that are beyond our control, such as the macroeconomic environment, per capita spending, consumers’ interest, consumers’ purchasing frequency, demand for RTH, RTC, RTE and plant-based meal

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products from consumers in lower tier cities, regulatory changes, technological innovations, cultural influences and changes in tastes and preferences. We cannot assure you that the market will continue to grow as rapidly as it has in the past, in ways that are consistent with other markets, such as that of the United States, or at all. If the markets for RTH, RTC, RTE and plant-based meal products in China do not grow as quickly as expected or at all, or if we fail to benefit from such growth by successfully implementing our business strategies, our business and prospects may be negatively affected.

We are actively expanding our business outside the PRC, where we may be subject to increased business, regulatory, and economic risks that could materially adversely affect our business, financial condition, results of operations, and prospects. A severe or prolonged downturn in the PRC or global economy could also materially and adversely affect our business, results of operations and financial condition.

Currently, we conduct our operations primarily in China, but we expect to continue to expand our business in the U.S. and Southeast Asia in hopes of widening our customer base. Any new markets or countries into which we attempt to expand into and sell our products may not be receptive. For example, we may not be able to expand further in some overseas markets if we are not able to adapt our products to fit the needs of prospective customers in those markets or if we are unable to satisfy certain country- and industry-specific laws or regulations. In addition, future international expansion will also require considerable management attention and the investment of significant resources while subjecting us to new risks and increasing certain risks that we already face, including risks associated with:

        recruiting and retaining talented and capable employees outside the PRC, including employees who speak multiple languages and come from a wide variety of different cultural backgrounds and customs;

        maintaining our company culture across all of our global teams;

        providing our products and solutions in different languages;

        compliance with applicable international laws and regulations, including laws and regulations with respect to employment, construction, privacy, data protection, consumer protection, foreign investment and unsolicited email, and the risk of penalties and fines against us and individual members of management or employees if our practices are deemed to be out of compliance;

        managing an employee base in jurisdictions with differing employment regulations;

        operating in jurisdictions that do not protect intellectual property rights to the same extent as the PRC and navigating the practical enforcement of such intellectual property rights outside of the PRC;

        changes in foreign laws that could restrict our ability to use our intellectual property outside of the foreign jurisdiction in which we developed it;

        compliance by us and our partners with anti-corruption laws, competition laws, import and export control laws, tariffs, trade barriers, economic sanctions, and other regulatory limitations on our ability to provide our products or platform in certain international markets;

        foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the PRC;

        political and economic instability;

        changes in diplomatic and trade relationships, including the imposition of new trade restrictions, trade protection measures, import or export requirements, trade embargoes, and other trade barriers;

        generally longer payment cycles and greater difficulty in collecting accounts receivable;

        potentially adverse tax consequences in the United States or the international jurisdictions in which we operate; and

        higher costs of doing business internationally, including increased accounting, travel, infrastructure, and legal compliance costs.

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Compliance with laws and regulations applicable to our global operations substantially increases our cost of doing business. We may be unable to keep current with changes in laws and regulations as they occur. Although we have implemented policies and procedures designed to support compliance with these laws and regulations, there can be no assurance that we or our employees, partners, and agents will always maintain compliance. Any violations could result in enforcement actions, fines, civil and criminal penalties, damages, injunctions, or reputational harm. If we are unable to comply with these laws and regulations or manage the complexity of our global operations successfully, we may need to relocate or cease operations in certain foreign jurisdictions, which could materially adversely impact our business, financial condition, results of operations, and prospects.

Additionally, the global macroeconomic environment is facing challenges. The outbreak of the COVID-19 pandemic in 2020 has brought about an adverse impact on global economies and financial markets. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa and over the conflicts involving Ukraine, Syria and North Korea. There have also been concerns on the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes, and the trade disputes between the United States and China. The ongoing trade tensions between the United States and China may have tremendous negative impact on the economies of not merely the two countries concerned, but the global economy as a whole. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term. Our international market expansion strategy may be hindered if these challenges and uncertainties persist.

If we are unable to expand our business to international markets successfully, our business and results of operations would be adversely affected.

To the extent permitted due to our recurring losses from operations and an accumulated deficit, we plan to expand our business internationally in the U.S. and Southeast Asia through online and offline sales channels, including accessing overseas markets through third-party e-commerce platforms and local distributors. However, we may not be able to expand our business as we planned. For example, we may not be able to identify e-commerce platforms or local distributors with sufficient resources and strong local ties to collaborate with us, which would negatively affect our strategy to expand our business to international markets.

Expanding our business internationally also involves certain risks and uncertainties, such as our ability to obtain adequate funding for development and expansion costs, identify strategic markets globally, identify locations with large consumer base and commercial potential, obtain the required licenses, permits and approvals, and recruit and retain talents with sufficient experience. Any risks and uncertainties listed above, either individually or in aggregate, might delay or fail our plan to expand our business overseas at manageable cost levels.

In addition to the above factors, our overseas expansions face additional difficulties and challenges. We have limited experience operating in overseas markets and may face competition from major, established competitors in these markets. These competitors usually have more experience and resources for their business operations in those markets. In addition, the real estate, employment and labor, transportation and logistics, regulatory, and other operating requirements in these markets differ significantly from those in China. Moreover, a number of factors could have an adverse impact on our operating results if our efforts to expand internationally are not successful. These factors include changes in market needs and product trends, economic fluctuations, political and social turbulence, relevant countries or regions’ relationships with China, changes in legal regulations or other conditions and difficulties in employing and training appropriate local management and employees. There is no assurance that our international market expansion strategy will succeed in the future.

Changes to the pricing of our products could adversely affect our results of operations.

We aim to bring to consumers affordable, healthy, and convenient food products. The pricing of our products is based on multiple factors, including, without limitation, the pricing of the components, ingredients and raw materials, costs of product development, anticipated sales volume, manufacturing costs and logistics service expenditures. Benefiting from our deep engagement with our customers, we are in a good position to analyze consumers’ preferences

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and demands, evaluate the market acceptance and potential sales volume of our new products to be launched, which enables us to price our products at a competitive rate. Nevertheless, we cannot ascertain that we will adopt a competitive pricing strategy for our products at all times. If we price our products too low, our profit margin will suffer. If we price our products higher than consumers’ expected price, we may not achieve the sales volume we expect, in which case revenues from the corresponding products may be negatively affected.

Even if we properly price our products at their launch time, we may need to offer substantial discounts, especially during the major shopping festivals such as “618,” “Singles’ Day” and “Double Twelve,” to promote our brand awareness and to drive sales volume, or cut down the price as our products advance in their life cycles to maintain such products’ attractiveness to consumers. We may also need to reduce the prices to sell excess inventory in the event that we fail to accurately forecast demands. Any such price cuts may not lead to the sales volume we expect and may negatively impact the demand for our other newly launched or higher-end products, in which case our revenues could be negatively impacted. Furthermore, some customers may purchase our products in bulk when we offer substantially discounted or promotional prices and then re-sell them through their proprietary or third-party channels. The market and pricing for our products may be interrupted by the secondary sale pricing strategies adopted by such resellers and the possible negative shopping experience they provide to consumers, which may negatively impact our brand image and our business.

Our business and prospects depend on our ability to build our brands and reputation, which could be harmed by negative publicity with respect to us, our products and operations, our management, brand ambassadors, key opinion leaders (“KOLs”), or other business partners.

We believe that maintaining and enhancing the reputation of our brands is of significant importance to the success of our business and that our financial success is directly dependent on consumer perception of our brands. Well-recognized brands are important to enhancing our attractiveness to consumers. Since we operate in a highly competitive market, brand maintenance and enhancement directly affect our ability to maintain our market position. As a young company, our brand awareness among consumers may not be as strong as the more established food brands, and maintaining and enhancing the recognition and reputation of our brand is critical to our business and future growth.

Our ability to maintain our reputation and brand is affected by many factors, some of which are beyond our control. These factors include our ability to provide a satisfactory consumer experience, which in turn depends on our ability to bring products to the market at competitive prices that respond to consumer demands and preferences, our ability and that of our manufacturing and service partners to comply with ethical and social standards and various and evolving rules and standards related to product quality and safety, labor and environmental protection, our ability to produce safe and healthy products, our ability to provide satisfactory order fulfilment services, and our ability to provide responsive and superior customer services. Failure to succeed in any of these areas could damage our customer experience, our reputation and brand image and our ability to retain and attract customers. The success of our brand may also suffer if our marketing plans or product initiatives do not have the desired impact on our brand’s image or its ability to attract consumers. If we are unable to conduct our sales and marketing efforts in a cost-effective and efficient manner, our results of operations and financial conditions may be materially and adversely affected.” We cannot assure you, however, that these activities are and will be successful or that we can achieve the brand promotion effect we expect. If we are unable to preserve our reputation, enhance our brand recognition or increase positive awareness of our products, it may be difficult for us to maintain and grow our consumer base, and our business, financial condition and results of operations may be materially and adversely affected.

In addition, any failure by our third-party manufacturers or raw material suppliers to comply with food safety, ethical, social, product, labor and environmental laws, regulations or standards could negatively impact our reputations and lead to various adverse consequences, including decreased sales and consumer boycotts. Also, we may face customer complaints or negative publicity about us, our products, our management, our business partners or the KOLs we collaborate with from time to time, which may adversely affect our brand, reputation and business and diminish the appeal of our brand to consumers. Certain of such negative publicity may come from malicious harassment or unfair acts by third parties or our competitors, which are beyond our control.

Damage to our reputation or the reputations of our business partners or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations and financial condition, as well as require additional resources to rebuild our brand and reputation.

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Our products are subject to food safety standards and the failure to satisfy such mandated food safety standards would have a material and adverse effect on our business, results of operations and prospects.

Our products are subject to food safety standards in China. To comply with the applicable food safety laws and regulations, new food product shall be submitted to the applicable PRC regulatory authorities for food safety inspections and sale of product is prohibited if relevant product is uninspected or fails to pass the inspection. Failure to satisfy such mandated food safety standards would delay the launch of our new products and may cost us additional resources in time, capital and human power to modify the product to comply with the food safety standards, which may have a material and adverse effect on our business, results of operations and prospects.

After we launch the products, our products are still subject to those mandated food safety standards. We have adopted internal procedures to run tests on our launched products from time to time to make sure they comply with the mandated food safety standards. However, there can be no assurance that we could satisfy such standards at all times. In the event that our products fail to continue to satisfy the mandated food safety standards, we are required to stop selling such products and may need to initiate callbacks for those products. In addition, we may be subject to negative publicity for such failure. Moreover, as the food safety is crucial to our business, the customers’ confidence in our brand may be impaired. As a result, our reputation, brand image, business, results of operations may be materially and adversely affected.

We may be subject to claims under consumer protection laws, including health and safety claims and product liability claims, if people are harmed by the products sold by us.

The PRC government, media outlets and public advocacy groups have been increasingly focused on consumer protection in recent years. The products sold by us or may be defectively designed, manufactured or of quality issue, or cause harm and adverse effect to the health of our customers. The offerings of such products by us may expose us to liabilities associated with consumer protection laws. Pursuant to the Law of PRC on the Protection of Rights and Interests of Consumers (the “Consumer Protection Law”), business operators must guarantee that the commodities they sell satisfy the requirements for personal or property safety, provide consumers with authentic information about the commodities, and guarantee the quality, function, usage and term of validity, etc. of the commodities. Failure to comply with the Consumer Protection Law may subject business operators to civil liabilities such as refunding purchase prices, replacement of commodities, repairing, ceasing damages, compensation, and restoring reputation, and even subject the business operators to criminal penalties when personal damages are involved or if the circumstances are severe. Although we would have legal recourse against the manufacturer of such products under PRC law if the liabilities are attributable to the manufacturer, attempting to enforce our rights against the manufacturer may be expensive, time-consuming and ultimately futile.

We do not maintain product liability insurance for products we sold. Even unsuccessful claims could result in significant expenditure of funds and diversion of management time and resources, which could materially and adversely affect our business, financial condition and prospects.

We face risks related to instances of food-borne illnesses, health epidemics, natural disasters and other catastrophic events. The outbreak of any severe contagious diseases, if uncontrolled, could adversely affect our business and results of operation.

Our business is susceptible to food-borne illnesses, health epidemics and other outbreaks. We cannot guarantee that our internal controls and trainings will be fully effective in preventing all food-borne illnesses. Furthermore, we rely on third-party suppliers in our operations, which may increase such risk. New illnesses resistant to any precautions or diseases with long incubation periods could arise on a retroactive basis. Reports in the media of instances of food-borne illnesses could, if highly publicized, negatively affect our industry and us. This risk exists even if it were later determined that the illness in fact were not spread by our products. We also face risks related to health epidemics. Past occurrences of epidemics or pandemics, depending on their scale of occurrence, have caused different degrees of damage to the national and local economies in China. An outbreak of any epidemics or pandemics in China may adversely affect the local economy and willingness to spend in local areas and result in a decrease in the number of our customers in such areas. Any of the above may cause material disruptions to our operations, which in turn may materially and adversely affect our financial condition and results of operations, and may continue to affect the demand for our products, our business operations and financial conditions. Our operations are also vulnerable to natural disasters and other catastrophic events, including wars, terrorist attacks, earthquakes, typhoons, fires, floods, extreme high temperature events, power failures and shortages, water shortages, information system failures, and similar events that may or may not be foreseeable.

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Our business could be materially and adversely affected by the outbreaks of contagious diseases such as Severe Acute Respiratory Syndrome, or SARS, influenza A (including H1N1, H7N9 and H10N8), Ebola and COVID-19 that spread across China and the world in recent years. In the future, if a contagious disaster occurs in the regions where we operate, our operations may be materially and adversely affected as a result of loss of personnel, damages to property or decreased demand for our products.

In addition, if any of our employees is infected or affected by any severe infectious diseases, it could adversely affect or disrupt our business operations as we may be required to close our production facilities to prevent the spread of the disease. If any of such diseases occur, our ability to operate our facilities may be restricted and we may have to incur substantial additional expenses for the well-being of our employees. The spread of any severe infections disease in China may also affect the operations of our suppliers, distributors and customers, causing delivery disruptions, which could in turn adversely affect our operating results.

We may be liable for improper collection, use or appropriation of personal information provided by our customers.

Our business involves collecting and retaining large volumes of customer data, including personal information as our various information technology systems enter, process, summarize and report such data. We also maintain information about various aspects of our operations. The integrity and protection of our customer and company data is critical to our business. Our customers expect that we will adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.

The PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits any person from selling or providing a citizen’s personal information obtained during the course of performing duties or providing services, or obtaining such information through theft or other illegal ways. On November 7, 2016, the SCNPC issued the Cyber Security Law of the PRC, or the Cyber Security Law, which became effective on June 1, 2017. Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations. The Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, MIIT, and the Ministry of Public Security have been increasingly focusing on regulation in the areas of data security and data protection. The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and State Administration for Market Regulation, or the SAMR, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. On November 14, 2021, the Cyberspace Administration of China, or the CAC, issued the Draft Cyber Data Security Regulations for public comments, pursuant to which, data processors carrying out the following activities must, in accordance with the relevant national regulations, apply for a cybersecurity review: (i) the merger, reorganization or spin-off of internet platform operators that possess a large number of data resources related to national security, economic development and public interests that affects or may affect national security; (ii) listing in a foreign country of data processors that process the personal information of more than one million users; (iii) listing in Hong Kong of data processors that affect or may affect national security; and (iv) other data processing activities that affect or may affect national security. The scope of and threshold for determining what “affects or may affect national security” is still subject to uncertainty and further elaboration by the CAC. On December 28, 2021, the CAC, and 12 other relevant PRC government authorities published the amended Cybersecurity Review Measures, which came into effect on February 15, 2022. The final Cybersecurity Review Measures provide that a “network platform operator” that possesses personal information of more than one million users and seeks a listing in a foreign country must apply for a cybersecurity review. Further, the relevant PRC governmental authorities may initiate a cybersecurity review against any company if they determine certain network products, services or data processing activities of such company affect or may affect national security. Through the contractual arrangements with Weishi, DDC SH had collected and possessed personal information of more than one million users. After the contractual arrangements with Weishi were terminated in April 2022, DDC SH still have been possessing this amount of personal information which are stored in mainland China. For purposes of the Cybersecurity Review Measures, we have applied for and completed the cybersecurity review with respect to our proposed overseas listing pursuant to the Cybersecurity Review Measures.

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As there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we cannot assure you that we would not become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in rectification, fines or other penalties, including suspension of business, website closure, removal of our app from the relevant app stores, and revocation of prerequisite licenses, as well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial condition or results of operations.

On June 10, 2021, the SCNPC promulgated the PRC Data Security Law, which took effect on September 1, 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data and information. As uncertainties remain regarding the interpretation and implementation of these laws and regulations, we cannot assure you that we will comply with such regulations in all respects and we may be ordered to rectify or terminate any actions that are deemed illegal by regulatory authorities. We may also become subject to fines and/or other sanctions which may have material adverse effect on our business, operations and financial condition.

On August 20, 2021, the SCNPC promulgated the PRC Personal Information Protection Law, or the PIPL, which took effect in November 2021. In addition to other rules and principles of personal information processing, the PIPL specifically provides rules for processing sensitive personal information. Sensitive personal information refers to personal information that, once leaked or illegally used, could easily lead to the infringement of human dignity or harm to the personal or property safety of an individual, including biometric recognition, religious belief, specific identity, medical and health, financial account, personal whereabouts and other information of an individual, as well as any personal information of a minor under the age of 14. Only where there is a specific purpose and sufficient necessity, and under circumstances where strict protection measures are taken, may personal information processors process sensitive personal information. A personal information processor shall inform the individual of the necessity of processing such sensitive personal information and the impact thereof on the individual’s rights and interests apart from the matters of, including without limitation, name and contact number of the processor, processing purpose and method, type to be processed, preservation period of the information, means and procedures by which individuals exercise the rights provided by the PIPL. As uncertainties remain regarding the interpretation and implementation of the PIPL, we cannot assure you that we will comply with the PIPL in all respects and regulatory authorities may order us to rectify or terminate our current practice of collecting and processing sensitive personal information.

While we take various measures to comply with all applicable data privacy and protection laws and regulations, there is no guarantee that our current security measures and those of our third-party service providers may always be adequate for the protection of our customer or company data. Any failure, or perceived failure to maintain the security of our user data or to comply with applicable PRC or foreign privacy, data security and personal information protection laws and obligations may result in civil or regulatory liability, including governmental or data protection authority enforcement actions and investigations, fines, penalties, enforcement orders requiring us to cease operating in a certain way, litigation, or adverse publicity, and may require us to expend significant resources in responding to and defending allegations and claims, all of which may have material adverse effect on our business, operations and financial condition. In addition, compliance with applicable laws on data privacy requires substantial expenditure and resources, including to continually evaluate our policies and processes and adapt to new requirements that are or become applicable to us on a jurisdiction-by-jurisdiction basis, which would impose significant burdens and costs on our operations or may require us to alter our business practices.

In addition, we may be a particularly attractive target for computer hackers, foreign governments or cyber terrorists. Unauthorized access to our proprietary internal and customer data may be obtained through break-ins, sabotage, breach of our secure network by an unauthorized party, computer viruses, computer denial-of-service attacks, employee theft or misuse, breach of the security of the networks of our third-party service providers, or other misconduct. Because the techniques used by computer programmers who may attempt to penetrate and sabotage our proprietary internal and customer data change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. Unauthorized access to our proprietary internal and customer data may also be obtained through inadequate use of security controls. We may incur significant costs in protecting against cyberattacks, and if an actual or perceived breach of security occurs to our systems or a third party’s systems, we could

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be required to expend significant resources to mitigate the breach of security and to address matters related to any such breach, including notifying users or regulators. Any of such incidents may also harm our reputation and adversely affect our business and results of operations. In addition, we may be subject to negative publicity about our security and privacy policies, systems, or measurements from time to time.

Any failure to prevent or mitigate security breaches, cyber-attacks or other unauthorized access to our systems or disclosure of our customers’ data, including their personal information, could result in loss or misuse of such data, interruptions to our service system, diminished customer experience, loss of customer confidence and trust, impairment of our technology infrastructure, and harm our reputation.

As of the date of this prospectus, on the basis that there exists no outstanding inquiry, notice, warning, or sanctions in relation to our data security and data protection, we believe we are in compliance of PRC laws and regulations in material aspects in relation to data security and data protection.

However, in anticipation of the strengthened implementation of cybersecurity laws and regulations and the continued expansion of our business, we face potential risks of being required to comply with higher cybersecurity standards. If we are not able to comply with the cybersecurity and data privacy requirements in a timely manner, or at all, we may be subject to government enforcement actions and investigations, rectification, fines, penalties, suspension of our non-compliant operations, or removal of our app from the relevant application stores, among other sanctions, which could materially and adversely affect our business and results of operations.

If the content we produce and distribute through online social and content platforms, or content available on our website, is deemed to violate PRC laws or regulations, our business and results of operations may be materially and adversely affected.

We produce and distribute professionally generated food and cooking related content on third party online social and content platforms such as Weixin, Kuaishou, Bilibili, and RED to promote healthy lifestyle, to improve our brand awareness and to generate consumers interest in our products. Under PRC laws, we are required to monitor content we produce and distribute for items that are factually incorrect, socially destabilizing, obscene or defamatory, and promptly take actions with respect to such content items. Sometimes, it is arguable as to whether a piece of information is factually incorrect or involved other types of illegality, and it may be difficult to determine the type of content that may result in liability to us. If we are found to be liable, we may be subject to fines, revocation of our relevant licenses and other administrative and civil actions, which may interrupt our business. We have implemented measures to review content in light of the relevant laws and regulations before any of them is published. However, such procedures may not prevent all illegal or impropriate contents from being distributed, especially content created during living streaming by KOLs we collaborate with.

We currently utilize third-party suppliers for our products. Loss of these suppliers could harm our business and impede growth.

The termination of a supplier relationship may leave us with periods during which it has limited or no ability to manufacture certain products. An interruption in, or the loss of operations at, any of these manufacturing facilities, which may be caused by work stoppages, production disruptions, product quality issues, disease outbreaks or pandemics (such as the recent coronavirus (COVID-19) pandemic), acts of war, terrorism, fire, earthquakes, weather, flooding or other natural disasters, could delay, postpone or reduce production of our products, which could adversely affect our business, results of operations and financial condition until the interruption is resolved or an alternate source of production is secured. Moreover, we are exposed to concentration risks of heavy reliance on our major suppliers. There is no assurance that our major suppliers will continue to supply their products in the quantities and within the timeframes required by us to meet the needs of our customers. If our major suppliers terminate their agreement with us, or do not supply products to us in a timely manner or in sufficient quantities, our business and results of operations will be adversely affected.

We believe that there are a limited number of competent, high-quality suppliers in the industry that meet our quality and control standards, and as we seek to obtain additional or alternative supply arrangements in the future, or alternatives to bring this manufacturing capability in-house, there can be no assurance that we would be able to do so on satisfactory terms, in a timely manner, or at all. Therefore, the loss of one or more suppliers, any disruption or delay at a supplier or any failure to identify and engage a supplier for products could delay, postpone or reduce production of products, which could adversely affect our business, results of operations and financial condition.

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Our growth may be limited if we are unable to expand our distribution channels and secure additional retail space for its products.

Our results will depend on its ability to drive revenue growth, in part, by expanding the distribution channels for its products and the number of products carried by each retailer. Our ability to do so, however, may be limited by an inability to secure additional retail space for its products. Retail space for RTH, RTC, RTE and plant-based meal products is limited and is subject to competitive and other pressures, and there can be no assurance that retail stores will provide sufficient space to enable us to meet its growth objectives.

We rely in part on third-party distributors to place our products into the market and we may not be able to control our distributors.

We rely in part on third-party distributors to sell our products. As of March 31, 2023, our distribution and sales network in China consisted of 23 offline distributors. Purchases by distributors accounted for the substantial majority of our sales. For the three months ended March 2023 and for the year ended December 31, 2022, our offline consumer product sales accounted for 83% and 64% of our revenue respectively. As we sell and distribute our products through distributors, any one of the following events could cause fluctuations or declines in our revenue and could have an adverse effect on our financial condition and results of operations:

        reduction, delay or cancelation of orders from one or more of our distributors;

        selection or increased sales by our distributors of our competitors’ products;

        failure to renew distribution agreements and maintain relationships with our existing distributors;

        failure to establish relationships with new distributors on favorable terms; and

        inability to timely identify and appoint additional or replacement distributors upon the loss of one or more of our distributors.

We may not be able to compete successfully against larger and better-funded sales and marketing campaigns of some of our current or future competitors, especially if these competitors provide their distributors with more favorable arrangements. We cannot assure you that we will not lose any of our distributors to our competitors, which could cause us to lose some or all of our favorable arrangements with such distributors and may result in the termination of our relationships with other distributors. In addition, we may not be able to successfully manage our distributors and the cost of any consolidation or further expansion of our distribution and sales network may exceed the revenue generated from these efforts. There can be no assurance that we will be successful in detecting any non-compliance by our distributors with the provisions of their distribution agreements. Non-compliance by our distributors could, among other things, negatively affect our brand, demand for our products and our relationships with other distributors. Furthermore, if the sales volumes of our products to consumers are not maintained at a satisfactory level or if distributor orders fail to track consumers demand, our distributors may not place orders for new products from us, or decrease the quantity of their usual orders. The occurrence of any of these factors could result in a significant decrease in the sales volume of our products and therefore adversely affect our financial condition and results of operations.

Adverse publicity involving us, our products, our raw materials, our directors, our management team, our competitors or our industry could materially and adversely impact our business and results of operations.

The food industry in China as a whole is particularly sensitive to concerns over food safety and quality related issues and can be materially and adversely affected by negative publicity or news reports, whether accurate or not, regarding food safety and quality and public health concerns. Any such negative publicity on our industry, whether targeting us in particular or not, could materially harm our brand, business and results of operations. Complaints or claims against us, if any, even if without any sufficient evidence, could force us to divert our resources, which may adversely affect our business, operations and financial performance.

We operate in a highly competitive industry. Failure to compete effectively could adversely affect our market share, growth and profitability.

We operate in China’s food industry, in particular the RTC and RTE food industry, which is highly competitive, and the competition may further intensify. Some of our competitors, may have been in their respective businesses longer than we have and may have substantially greater financial, research and development and other resources than us. We also cannot assure you that our current or potential competitors will not market products comparable or superior to those we

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provide or adapt more quickly to evolving industry trends or changing market demand. Our competitors in certain regional markets may also benefit from raw material sources or production facilities that are closer to these markets. It is also possible that there will be a consolidation trend in the RTC, RTE and plant-based food industry, integration of upstream and downstream businesses or alliances among competitors; and as a result, our competitors may rapidly acquire significant market share. Any of these events may cause our market share, business and results of operations to be adversely affected.

Furthermore, competition may cause our competitors to substantially increase their advertising and promotional activities or to engage in irrational or predatory pricing behavior. We cannot guarantee that our marketing efforts will be sufficient to compete with our competitors. An increase in competition could require us to continue to increase our promotion and advertising expenses, which might place pressure on our margins and affect our profitability. Additionally, competition may result in price reductions, reduced margins and loss of market shares for us, any of which could have an adverse impact on our results of operations. We also cannot assure you that our competitors will not actively engage in activities, whether legal or illegal, designed to undermine our brands and product quality or to influence consumer confidence in our products.

The RTH, RTC and RTE industry is intensely competitive with respect to, among other things, brand recognition, flavor, product quality and consistency, services, prices, availability, selection and accessibility. Furthermore, new competitors may emerge from time to time, which may further intensify the competition. In particular, competitors may start to offer products that are similar to our products. There are also many well-established competitors with substantially greater financial, marketing, personnel and other resources than ours.

Our ability to effectively compete will depend on various factors, including the successful implementation of our sales network expansion strategy, and our ability to improve existing products, to develop and launch new products, and to enhance production capacity and efficiency. Failure to successfully compete may prevent us from increasing or sustaining our revenue and profitability and potentially lead to a loss of market share, which could have a material and adverse effect on our business, financial condition, results of operations and cash flows.

We may not be able to successfully implement our growth strategy.

Our future growth, profitability and cash flows depend upon our ability to successfully implement our business strategy, which, in turn, is dependent upon a number of factors, including our ability to:

        further penetrate our targeted markets by attracting new consumers and retaining and further engaging our existing customers;

        capture the industry trends and develop and launch new products and expand into relevant adjacencies in answer to such trends;

        integrate offline and online experience to provide a seamless omni-channel environment for our customers;

        effectively manage the quality and efficiency of our ODM/OEM and packaging supply partners and logistics and other third-party service providers’ performance;

        continue to broaden and diversify our online and offline distribution channels;

        pursue strategic investments and collaborations to complement our existing capabilities and expand our product portfolio and geographic reach; and

        leverage our high-performance team culture to drive margins.

There can be no assurance that we can successfully achieve any or all of the above initiatives in the manner or time period that we expect. Further, achieving these objectives will require investments which may result in short-term costs without generating any current net sales and therefore may be dilutive to our earnings. We cannot provide any assurance that we will realize, in full or in part, the anticipated benefits we expect our strategy will achieve. The failure to realize those benefits could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to manage our growth effectively or efficiently.

Growing our business rapidly will place a strain on our management team, financial and information systems, supply chain and distribution capacity and other resources. To manage growth effectively, we must continue to enhance our operational, financial and management systems, including our warehouse management and inventory control; maintain and improve our internal controls and disclosure controls and procedures; maintain and improve our information technology systems and procedures; and expand, train and manage our employee base.

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We may not be able to effectively manage this expansion in any one or more of these areas, and any failure to do so could significantly harm our business, financial condition and results of operations. Growing our business rapidly may make it difficult for us to adequately predict the expenditures we will need to make in the future. If we do not make the necessary overhead expenditures to accommodate our future growth, we may not be successful in executing our growth strategy, and our results of operations would suffer.

We have incurred net loss in the past, and we may not be able to achieve or maintain profitability in the future.

For the three months ended March 31, 2023, we incurred net loss of RMB1.0 million (US$0.1 million) and net loss of RMB29.6 million for the three months ended March 31, 2022. We also had negative cash flows from operating activities of RMB12.0 million (US$1.7 million) and RMB9.1 million for the three months ended March 31, 2023 and 2022 respectively. Management uses the adjusted net loss, a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes. For the three months ended March 31, 2023 and March 31, 2022, we incurred an adjusted net loss of RMB7.0 million (US$1.0 million) and RMB11.7 million respectively, for details, please refer to section “Non-GAAP Financial Measure”. When excluding professional service expenses of RMB5.8 million (US$0.8 million) and RMB3.5 million, the adjusted net loss will be RMB1.2 million and RMB8.2 million respectively.

We incurred net loss of RMB458.7 million in 2021 and net loss of RMB122.2 million (US$17.8 million) in 2022. We also had negative cash flows from operating activities of RMB91.4 million and RMB37.1 million (US$5.4 million) in the fiscal years ended December 31, 2021 and 2022 respectively. Management uses the adjusted net loss, a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes. For the years ended December 31, 2021 and December 31, 2022, we incurred an adjusted net loss of RMB104.2 million and RMB27.9 million (US$4.1 million) respectively, for details, please refer to section “Non-GAAP Financial Measure”.

We cannot assure you that we will be able to generate net profits or positive cash flow from operating activities in the future. Our ability to maintain profitability will depend in large part on our ability to maintain or increase our operating margin, either by growing our revenues at a rate faster than our costs and operating expenses increase, or by reducing our costs and operating expenses as a percentage of our net revenues. We also expect to continue to make significant future expenditures related to the continuous development and expansion of our business, including:

        investments in our product development team and research and development team and in the development of new products;

        investments in sales and marketing, enlarging our customer base and promoting market awareness of our brands and products;

        investments in expansion of our online and offline distribution channels in a measured manner;

        investment in enhancing data and information technology and improving operating efficiency, including improving the efficiency in supply chain management, warehouse management and inventory control; and

        incurring costs associated with general administration, including legal, accounting and other expenses related to being a public company.

As a result of these significant expenses, we will have to generate sufficient revenue to remain profitable in future periods. We may not generate sufficient revenue for a number of reasons, including potential lack of demand for our products, increasing competition, challenging macro-economic environment, the ramifications of the COVID-19 pandemic, as well as other risks discussed elsewhere in this prospectus. If we fail to sustain or increase profitability, our business and results of operations could be adversely affected.

Our historical financial conditions and results of operations are not representative of our future performance. We may be unable to effectively manage our future growth and expansion, and may not achieve growth in revenue and profit. If we are unable to manage our growth effectively, we may not be able to capitalize on new business opportunities and our business and financial results may be materially and adversely affected.

We have experienced stable growth and plan to further expand in the future. For the three months ended March 31, 2023, we recorded RMB43.0 million (or US$6.3 million) in total revenue compared to RMB36.9 million for the three months ended March 31, 2022, representing a 16.6% increase. Subsequent to March 31, 2023, we

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signed purchase agreements for three acquisitions. Assuming these three acquisitions had taken place on 1 January 2023, the unaudited pro forma revenue of the Company for the three months ended March 31, 2023 would be RMB68.9 million (or US$10.0 million).

For the year ended December 31, 2022, our total revenue decreased from RMB205.2 million in December 31, 2021 to RMB 179.6 million in December 31, 2022. This drop in revenue was largely a result of negative impact from extended zero-covid policy in China which led to massive disruptions in the company’s e-commerce operations. In the face of this challenge, we completed four acquisitions in 2022 to speed up the diversification of revenue streams as well as aggressive improvement on overall cost structure. Assuming these four acquisitions had taken place on 1 January 2022, the unaudited pro forma revenue of the Company for the year ended December 31, 2022 will be RMB231.9 million (or US$33.8 million). Equally important, our focus has been on improving the overall cost structure of the business when facing Covid and inflation challenges. For the year ended December 31, 2022, our gross profit margin increased to 24.5% versus 17.8% for the year ended December 31, 2021. Our planned expansion may place substantial demands on our resources. However, historical period-over-period comparisons of our sales and operating results are not necessarily indicative of future quarter-to-quarter and period-over-period results. You should not rely on the results of a single quarter or period as an indication of our annual results or its future performance.

Our ability to further increase our research and development capabilities, selling and marketing capacity is critical to supporting our stable and continuous business growth, which involves additional costs and uncertainties. In addition, to manage and support our growth, we must improve our existing operational and administrative systems as well as our financial and management controls. Our continued success also depends on our ability to recruit, train and retain qualified management personnel as well as other administrative and sales and marketing personnel, particularly when we expand into new markets. We also need to continue to manage our relationships with our suppliers and customers. All of these endeavors will require substantial management resources. As a result, our revenue and results of operations in future may fluctuate significantly and our results for a given fiscal period are not necessarily indicative of results to be expected for our operations in future. We cannot assure you that we will be able to manage any future growth effectively and efficiently, and any failure to do so may materially and adversely affect our ability to capitalize on new business opportunities, which in turn may have a material and adverse effect on our business and financial performance.

Furthermore, we may not be able to achieve our expansion goals or effectively ramp up the sales of our new products. If we encounter any difficulty in expanding our distributors and sales network, our growth prospects may be adversely affected, which could in turn have a material and adverse effect on our business, financial condition and results of operations.

Our future growth may result from improving our research and development capabilities, introducing new products, expanding our sales and distribution network and entering new markets or new sales channels. Our ability to achieve growth will be subject to a range of factors, including:

        expanding our sales network;

        enhancing our research and development capabilities;

        hiring and training qualified personnel;

        controlling our costs and maintaining sufficient liquidity;

        prioritizing our financial and management controls in an efficient and effective manner;

        exercising effective quality control;

        managing our various suppliers and leveraging our purchasing power;

        maintaining our high food-safety standards; and

        strengthening our existing relationships with distributors.

We face increased risks when we enter new markets, or enter new sales channels, including social media and e-commerce channels. New markets and sales channels may have different regulatory requirements, competitive conditions, consumer preferences and different spending patterns from our existing markets and sales channels. Consumers in new markets and sales channels are likely to be unfamiliar with our brands and products and we may

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need to build or increase brand awareness in the relevant markets and sales channels by increasing investments in advertising and promotional activities than we originally planned. We may find it more difficult in new markets to hire, train and retain qualified employees who share our business philosophy and culture. In addition, we may have difficulty in finding reliable suppliers with adequate supplies of raw materials meeting our quality standards or distributors with efficient distribution networks. As a result, any products we introduce in new markets may be more expensive to produce and/or distribute and may take longer to reach expected sales and profit levels than in our existing markets, which could affect the viabilities of these new operations or our overall profitability.

We also sell our products to major e-commerce platforms and online distributors. Our development of the e-commerce channel depends on many factors, most of which are beyond our control, including: the trust and confidence level of China’s online consumers, as well as changes in consumer consumption patterns, tastes and preferences; the growth of internet usage in China; and the development of fulfillment, payment and other ancillary services associated with e-commerce sales. Any failure to respond to trends and consumer requirements in the e-commerce channel may adversely affect our sales and our business and growth prospects in this sales channel.

Additionally, our expansion plans and business growth could strain our managerial, operational and financial resources. Our ability to manage future growth will depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage our workforce. We cannot assure you that our personnel, systems, procedures and controls will be adequate to support our future growth. Failure to effectively manage our expansion may lead to increased costs and reduced profitability and may adversely affect our growth prospects. In addition, as we expand our operations, we may encounter regulatory, personnel and other difficulties that may also increase our costs of operations.

We depend on a stable and adequate supply of raw materials which are subject to price volatility and other risks. Inadequate or interrupted supply and price fluctuation for raw materials and packaging materials could adversely affect our profitability.

We source a majority of our products from suppliers located in China, and our suppliers source raw materials and packaging materials within China, Raw materials used within the production process include meat, rice, oil, soy beans, starch and sugar. To date, inflationary pressures have not materially impacted the cost of sourcing our products. However, raw materials and packaging materials are subject to price volatility caused by external factors, such as commodity price fluctuations, changes in supply and demand, logistics and processing costs, our bargaining power with suppliers, inflation, and governmental regulations and policies. Our production volume, quality of products and profit margins may be adversely affected. There is no assurance that raw material costs will not increase significantly in the future. As is customary in our industry, we typically are not able to immediately pass raw material price increases onto our customers. As a result, any significant price increase of raw materials may have an adverse effect on our profitability and results of operations. Also, if we were to increase price, we may not be able to completely pass on the increase in raw materials to consumers. Also, such an increase in price may adversely affect our demand. If all or a significant number of our suppliers are unable or unwilling to meet our requirements, we could suffer shortages or significant cost increases. Our suppliers could fail to meet our needs for various reasons, including fires, natural disasters, weather, manufacturing problems, epidemic, crop failure, strikes, transportation interruptions, or government regulation. A failure of supply could also occur due to suppliers’ financial difficulties, including insolvency. Changing suppliers may require long lead time. We may not be able to locate alternative suppliers in sufficient quantities, of suitable quality, or at an acceptable price. Continued supply disruptions could exert pressure on our costs, and we cannot assure you that all or part of any increased costs can be passed along to our customers in a timely manner or at all, which could negatively affect our business, overall profitability and financial performance.

In the second quarter of 2022, nation-wide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant which led to disruption to social and economic activities. As a result, fewer shipping locations were open and our daily logistics volume was adversely affected. As of June 30, 2022, shippings of our products have resumed to normal. In December 2022, the Chinese government announced that it will be downgrading its management of COVID-19 as of January 8, 2023, rolling back some of its stringent anti-COVID-19 restrictions. Those who are infected with mild symptoms and close contacts are now allowed to quarantine at home. Since December 2022, China has been facing a rapid surge in COVID-19 cases. Due to the evolving and uncertain nature of this event, we cannot predict at this time the full extent to which the COVID-19 pandemic and the COVID-19 prevention policy implemented by the Chinese government will adversely impact our business, results, and financial condition. We are staying in close communication with our employees, dealers and suppliers, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee we will

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be able to do so. While the short, medium-to-longer term impact of COVID-19 remains unclear, we expect that our business operations and results of operations including revenue, earnings, and cash-flows will not be unduly impacted in the remainder of 2023.

To mitigate the potential impact of COVID-19 (and future pandemics) and other business disruptions (e.g. geopolitical or trade conflicts, natural disasters, or cybercrime etc), we have taken and will continue to take proactive steps to diversify our supply chain, moving away from single-sourcing to a network of diverse, alternative, pre-qualified suppliers of raw materials needed to produce one or more of our products. This approach allows us to secure more favorable commercial terms with our existing suppliers and also reduces the risk of business disruption at one or more stages of the E2E supply chain.

Our business segments, products, lines of service, projects, or operations have not been materially impacted by supply chain disruptions, especially in light of Russia’s invasion of Ukraine.

The development of online sales network and marketing activities may not meet expectations, or we may fail to manage the coordination of our offline and online sales channels, which may adversely affect our operation results.

Our revenue generated by online sales channels had been growing significantly due to the increasing sales online. However, as online and social media platforms continue to grow in popularity, any significant growth in our sales through online sales channels in the future may give rise to competition between offline and online sale channels. If we fail to balance the marketing efforts or optimize product mix and pricing strategies among our online and offline sales channels, or otherwise fail to effectively manage the integration of these channels, the competition among these channels may adversely affect our business, financial condition and results of operations.

We expect to further enhance our online strategies and increase sales from our online channels. However, we may not be able to maintain a high growth rate of our online sales, and if we fail to manage the continuous development of our online sales, our business, financial condition and results of operations may be adversely affected.

Our online sales depend on the proper operation of third-party online platforms and any serious interruptions of these platforms could adversely affect our operations.

The development of sales through third-party online platforms is part of our business strategy. We have launched profile pages and sales channels on our third-party online platforms. However, we do not have control over the operation of third-party online platforms and such platform may be vulnerable to damage or interruptions such as power failure, computer viruses, acts of hacking, vandalism and similar events. Any serious interruption or damage to the online platforms may have an adverse effect on our business, financial condition and results of operations. There is no assurance that our online sales strategy will be implemented in accordance with our plan or at all.

Our operating results depend on the effectiveness of our marketing and promotional programs. Improper marketing activities may adversely affect our brand image.

Our operating results are dependent on our brand marketing efforts and advertising activities. We continuously invest in our brands to further raise brand recognition and acceptance and engage in marketing campaigns to promote our products. We utilize tailored and creative branding and marketing strategies, which have achieved positive results. We expect to continue to adopt such strategies in the future. However, if our marketing and advertising strategies do not continue to be successful, our business and operating results may be materially and adversely affected. In addition, we believe marketing trends in China are evolving, which requires us to experiment with new marketing strategies to keep pace with industry developments and consumer preferences. Moreover, as we continue to build up our online platform, we expect our marketing expenses relating to cooperation with online channels to continue to increase.

If we fail to obtain and maintain the requisite licenses and approvals required under the complex regulatory environment applicable to our businesses in China, or if we are required to take compliance actions that are time-consuming or costly, our business, results of operations and financial condition may be materially and adversely affected.

Our business is subject to governmental supervision and regulation by the relevant PRC governmental authorities, including but not limited to the State Council, the SAMR, the Ministry of Commerce(“MOFCOM”), the State Internet Information Office, the General Administration of Customs and other governmental authorities in

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charge of the relevant services provided by us. These government authorities promulgate and enforce regulations that cover various aspects of the operation of food products and e-commerce, etc., including entry into these industries, scope of permitted business activities, licenses and permits for various business activities, and restriction on foreign investments. Violations of regulations may lead to the imposition of significant penalties which may affect our business, operations, reputation and financial prospects. In respect of the food industry, in particular, any violation of the relevant laws, rules and regulations may result in penalties and, under certain circumstances, lead to criminal prosecution.

We have obtained food operation licenses to operate our general business activities currently conducted in China, except for Quanzhou Weishi Food Co., Limited which does not hold any assets or operations for now and we are in the process of applying for relevant food operation licenses for it. In addition, SH Lashu have been filed for record as consignee or consignor of import and export goods. However, we cannot assure you that we can successfully renew these licenses in a timely manner or that these licenses are sufficient to conduct all of our present or future business.

New laws and regulations may be adopted from time to time, and substantial uncertainties exist regarding interpretation and implementation of current and future PRC laws and regulations applicable to our business operations. For example, in August 2018, the SCNPC promulgated the E-Commerce Law, which took effect in January 2019. We have to cooperate with e-commerce platforms and be in full compliance with E-Commerce Law in order to continue to operate on those e-commerce platforms. We cannot assure you that our current business activities will not be found in violation of any future laws and regulations or any of the laws and regulations currently in effect due to changes in the relevant authorities’ interpretation of these laws and regulations.

If we fail to adapt to any new regulatory requirement or any competent government authority considers that we operate our business operation without any requisite license, permit or approval, or otherwise fails to comply with applicable regulatory requirements, we may be subject to administrative actions and penalties against us, including fines, confiscation of our incomes, revocation of our licenses or permits, or, in severe cases, cessation of certain business. Any of these actions may have a material and adverse effect on our business, financial condition and results of operations.

As we expand into different business models and introduce new products and services to our customers, we may be required to comply with additional laws and regulations that are yet to be determined. To comply with such additional laws and regulations, we may be required to obtain necessary certificates, licenses or permits, as well as allocate additional resources to monitor regulatory and policy developments. Our failure to adequately comply with such additional laws and regulations may delay, or possibly prevent, some of our products or services from being offered to our customers, which may have a material adverse effect on our business, results of operations and financial condition.

We are subject to PRC Advertising Law and related regulations, rules and measures applicable to advertising.

Certain amounts of our revenue are derived from online advertising services. In July 2016, the former State Administration for Industry and Commerce promulgated the Interim Administrative Measures on Internet Advertising, or the Internet Advertising Measures, effective in September 2016, pursuant to which internet advertisements are defined as any commercial advertising that directly or indirectly promotes goods or services through internet media in any form including paid-for search results. Under the Internet Advertising Measures, our online advertising services may constitute internet advertisement. On February 25, 2023, the SAMR issued Administrative Measures for Internet Advertising, or the Internet Advertising Administrative Measures, which became effective on May 1, 2023, and replaced the Interim Measures for the Administration of Internet Advertising which became effective on September 1, 2016. According to the Internet Advertising Administrative Measures, the provisions of the Advertising Law and the Internet Advertising Administrative Measures shall apply to commercial advertising for direct or indirect marketing goods or services in the form of text, image, audio, video, or other means through websites, web pages, Internet apps, or other Internet media within the territory of PRC. Our online advertising may be subject to the Internet Advertising Administrative Measures.

PRC advertising laws, rules and regulations require advertisers, advertising operators and advertising distributors to ensure that the content of the advertisements they prepare or distribute is fair and accurate and is in full compliance with applicable law. For the three months ended March 31, 2022 and 2023 and for the year ended December 31, 2021 and 2022 , 0.4%, 0.2%, 1.7% and 0.5% of our revenues were derived from advertising services. Violation of these laws, rules or regulations may result in penalties, including fines, confiscation of advertising fees and orders to cease

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dissemination of the advertisements. In circumstances involving three or more illegal acts within two years or other serious violations, a fine of not less than five times but not more than ten times the advertising expense or a fine of not less than RMB1,000,000 but not more than RMB2,000,000 shall be imposed, and the PRC government may revoke a violator’s business license and revoke the advertisement examination and approval documents and refuse to accept its application for advertisement examination within one year. Complying with these requirements and any penalties or fines for any failure to comply may significantly reduce the attractiveness of our platform and increase our costs and could have a material adverse effect on our business, financial condition and results of operations.

In addition, for advertising content related to specific types of products and services, advertisers, advertising agencies and advertising distributors must confirm that the advertisers have obtained requisite government approvals, including the advertiser’s operating qualifications, proof of quality inspection of the advertised products, and, with respect to certain industries, government approval of the content of the advertisement and filing with the local authorities. Pursuant to the Internet Advertising Administrative Measures, we are required to take steps to monitor the content of advertisements displayed by us. This requires considerable resources and time, and could significantly affect the operation of our business, while at the same time also exposing us to increased liability under the relevant laws, rules and regulations. The costs associated with complying with these laws, rules and regulations, including any penalties or fines for our failure to so comply if required, could have a material adverse effect on our business, financial condition and results of operations. Any further change in the classification of our online advertising and other related services by the PRC government may also significantly disrupt our operations and materially and adversely affect our business and prospects.

Our acquisition activities and other strategic transactions may present managerial, integration, operational and financial risks, which may prevent us from realizing the full intended benefit of the acquisitions we undertake.

We have in the past and may continue to seek acquisitions that we believe strengthen our competitive position in our key segments and geographies or accelerate our ability to grow into adjacent product categories and channels and emerging markets or which otherwise fit our strategies.

In addition, investments and acquisitions could result in distraction of management from current operations, greater than expected liabilities and expenses, unidentified issues not discovered in our due diligence, the use of substantial amounts of cash, potentially dilutive issuances of equity securities, significant amortization expenses related to goodwill or intangible assets and exposure to potential unknown liabilities of the acquired business. If the goodwill or intangible assets become impaired, we may be required to record a significant charge to our results of operations.

Further, the assumptions we use to evaluate acquisition opportunities may not prove to be accurate and our investments or acquisitions may not yield the results we expect. Even if our assumption is accurate, the integration of acquired businesses into ours may be costly and disruptive to our existing business operations. The integration process involves certain risks and uncertainties, some of which are outside our control, and there can be no assurance that we will be able to realize the anticipated benefits, synergies, cost savings or efficiencies. In the event that our investments and acquisitions are not successful, our results of operations and financial condition may be materially and adversely affected.

We rely on third-party logistics companies to deliver our products. Any delivery delay, improper handling of goods or increase in transportation costs of our logistic service providers could adversely affect our business and results of operations. If the third-party logistics business is interrupted, we may not have sufficient resources to support our product transportation and face the risk of rising transportation prices.

We engage logistics service providers to store and transport products to our customers. For the three months ended March 31, 2022 and 2023, and for the year ended December 31, 2021 and 2022, our fulfilment expenses were RMB5.0 million, RMB1.5 million (US$0.2 million), RMB24.0 million and RMB10.6 million (US$1.5 million), respectively, which represented 13.7%, 3.6%, 11.7% and 5.9% of our total revenue, respectively. The vast majority of our products are delivered by trucks or trains. The services provided by our logistics service providers may be suspended or cancelled due to unforeseen events, which could cause interruption to the sales or delivery of our products. In addition, delivery delays may occur for various reasons beyond our control, including improper handling by our logistics service providers, labor disputes or strikes, acts of war or terrorism, outbreaks of epidemics, earthquakes and other natural disasters. For example, we experienced some delay in the transportation of our products due to logistics constraints during the COVID-19 outbreak.

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The majority of our product transportation was provided by independent third-party logistics service providers. Disputes with or a termination of our contractual relationships with one or more of our logistics companies could result in delayed delivery of products or increased costs. There can be no assurance that we can continue or extend relationships with our current logistics companies on terms acceptable to us, or that we will be able to establish relationships with new logistics companies or expand our logistics team to ensure accurate, timely and cost-efficient delivery services. If we are unable to maintain or develop good relationships with logistics companies or expand our logistics team to cover new territories, it may inhibit our ability to offer products in sufficient quantities, on a timely basis, or at prices acceptable to our customers. In addition, as we do not have any direct control over these logistics companies, we cannot guarantee their quality of services. If there is any delay in delivery, damage to products or any other issue, our sales and brand image may be affected.

Any improper handling of our products by the logistics service providers could also result in product contamination or damage, which may in turn lead to product recalls, product liabilities, increased costs and damage to our reputation, which may in turn adversely affect our business, financial condition and results of operations.

The transportation costs of our logistics service providers are subject to factors beyond our control, such as the fluctuation in the gasoline price, increases in road tolls and bridge tolls, and changes in transportation regulations. Any increase in the service costs of our logistics service providers may lead to an increase to our fulfilment expenses, which may in turn negatively affect our results of operations.

We may face the risk of inventory obsolescence.

As of March 31, 2023 and as of December 31, 2022, we had inventories of RMB5.0 million and RMB6.1 million respectively. Our inventory turnover days were 16 days and 21 days respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our business relies on consumer demand for our products, which depends substantially on factors such as (i) consumer spending patterns, (ii) consumer preferences and tastes, (iii) consumer income, (iv) consumer perceptions of and confidence in our product quality and food safety, and (v) consumer lifestyle. Any change in consumer demand for our products or the occurrences of catastrophic events may have an adverse impact on our product sales, which may in turn lead to inventory obsolescence, decline in inventory value or inventory write-off.

We may not be able to adequately protect our intellectual property, which could adversely affect our business and operations.

We regard our trademarks, copyrights, domain names, know-how, patents, and similar intellectual property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality and non-compete agreements with our employees and others, to protect our proprietary rights As of March 31, 2023, we had registered 273 trademarks, 1 copyright of works and 5 computer software copyrights in China, including three registered trademarks in Hong Kong. We may fail to own or apply for key trademarks in a timely fashion, or at all. For example, several logos we have used for years cannot be registered as trademarks in certain trademark categories in China because a company unaffiliated to us has pre-emptively registered similar logos as trademarks in such categories. As a result, we have been and will not be able to use such logos in areas covered by such trademark categories. Such company complained to the Market Supervision Bureau for the trademark infringement of SH DDC, and SH DDC has already applied for the invalidations of these trademarks at the State Intellectual Property Office, or the SIPO, as well as indicted a series of related administrative actions which have been already accepted by the court. As the trademarks under the legal proceeding are not relevant to our main business and we have adopted timely steps to make enough adjustments to relevant business, including stopped using them in any public place, the unavailability of these trademarks would not materially and adversely affect our business. If such third party actually use such trademarks in product or service similar to us in the future, consumers may be confused and associate any quality issue on the products and services such third party provides with us, which will have an adverse impact on our brand image. We may become an attractive target for certain copycat websites that attempt to cause confusion or diversion of traffic from us in the future because of our brand recognition as a food-related content-driven lifestyle brand in China. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages. In addition, there can be no assurance that (i) our application for registration of trademarks, patents, and other intellectual property rights will be approved, (ii) any intellectual property rights will be adequately protected, or (iii) such intellectual property rights will not be challenged by third parties or found by a judicial authority to be invalid

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or unenforceable. Further, because of the rapid pace of technological changes in our industry, parts of our business rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties at all or on reasonable terms.

It is often difficult to register, maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Policing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the infringement or misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our management and financial resources, and could put our intellectual property at risk of being invalidated or narrowed in scope. We can provide no assurance that we will prevail in such litigation, and even if we do prevail, we may not obtain a meaningful recovery. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in maintaining, protecting or enforcing our intellectual property rights could have a material adverse effect on our business, results of operations and financial condition.

We may be accused of infringing intellectual property rights of others and content restrictions of relevant laws.

Third parties may claim that the content posted by us or our products and services infringe upon their intellectual property rights. For example, while offering our advertising services, we may be subject to liabilities such as infringement of copyrights or trademarks and to other claims based on the materials and content posted by us or used on our products and services. The possibility of intellectual property claims against us increases as we continue to grow. Such claims, whether or not having merit, may result in our expenditure of significant financial and management resources, injunctions against us or payment of damages. We may need to obtain licenses from third parties who allege that we have infringed their rights, but such licenses may not be available on terms acceptable to us or at all. These risks have been amplified by the increase in the number of third parties whose sole or primary business is to assert such claims.

China has enacted laws and regulations governing internet access and the distribution of products, services, news, information, audio-video programs and other content through the internet. The PRC government has prohibited the distribution of information through the internet that it deems to be in violation of PRC laws and regulations. If any of the information disseminated by us or our user communities were deemed by the PRC government to violate any content restrictions, we would not be able to continue displaying such content and could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required licenses, which could materially and adversely affect our business, financial condition and results of operations.

The outcome of any claims, investigations and proceedings is inherently uncertain, and in any event, defending against these claims could be both costly and time-consuming and could significantly divert the efforts and resources of our management and other personnel. An adverse determination in any such litigation or proceedings could cause us to pay damages, legal fees and other costs, as well as limit our ability to conduct business or require us to change the manner in which we operate. Even if such assertions against us are unsuccessful, they may cause us to lose existing and future business and incur reputational harm and substantial legal fees.

Failure to successfully operate our information systems and implement new technology effectively could disrupt our business or reduce our profitability.

We increasingly rely on information technology systems to process, transmit and store information in relation to our operations. A portion of the communications between our personnel and our suppliers, distributors and consumers depends on information technology. Our information technology systems may be vulnerable to interruption due to a variety of events beyond our control, including but not limited to, natural disasters, telecommunications failures, computer viruses, hackers and other security issues. Any such interruption to our information technology system could disrupt our operations and negatively impact our production and ability to fulfill sales orders, which could have an adverse effect on our business, financial condition and results of operations.

In addition, we may from time to time implement, modify and upgrade our information technology systems and procedures to support our growth and the development of our e-commerce business. These modifications and upgrades could require substantial investment and may not improve our profitability at a level that outweighs their costs, or at all.

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Our success depends on the continuing efforts of our senior management team and key personnel and our business may be harmed if we lose their services and cannot timely find proper candidates for substitution.

Our current business performance and future success depend substantially on the abilities and contributions of our senior management members, including our founder, Ms. Norma Ka Yin Chu, all of our executive directors and other key personnel with industry expertise, know-how or experience in areas such as research and development, manufacturing, sales, marketing, financial management, human resources and risk management. If any member of our senior management is unable or ceases to serve in his or her present position, we may not be able to find replacement in a timely basis due to local conditions. As a result, our business may be disrupted, our management quality may deteriorate and our results of operations may be materially and adversely affected. In addition, if any member of our senior management team joins a competitor or forms a competing business, we may lose trade secrets and business know-how as a result. Competition for experienced management in our industry is intense, and the pool of qualified candidates is limited. We may not be able to retain the services of our senior management or attract and retain additional high quality senior executives in the future. Moreover, we rely on our sales personnel to effectively operate our retail network. As we expand our operations, we may not be able to retain such skilled sales personnel at a reasonable cost and our business and results of operations may be materially and adversely affected.

Our performance depends on favorable labor relations with our employees, and any deterioration in labor relations, shortage of labor or material increase in wages may have an adverse effect on our results of operation.

Our success depends on our ability to hire, train, retain and motivate our employees. We consider favorable labor relations as a significant factor that can affect our performance, and any deterioration of our labor relations could cause labor disputes, which could result in disruption of production and operations.

Since the reform and opening up, China has experienced rapid economic growth, which has resulted in significantly increased labor costs. Average labor wages are expected to increase. In addition, we may need to increase our total compensations to attract and retain experienced personnel required to achieve our business objectives. Any material increase in our labor costs may have an adverse effect on our results of operations.

We may not be able to detect or prevent fraud, bribery, or other misconduct committed by our employees, customers or other third parties.

We may be exposed to fraud, bribery, or other misconduct committed by our employees, customers or other third parties, which could subject us to financial losses and penalties from governmental authorities. Although our internal control procedures are designed to monitor our operations and ensure overall compliance, our internal control procedures may be unable to identify all non-compliances, suspicious transactions, fraud, corruption or bribery in a timely manner. If such misconduct occurs, we may suffer from negative publicity and reputation damages.

We may be subject to legal proceedings in the ordinary course of our business. Any adverse outcome of these legal proceedings could have a material adverse effect on our business, results of operations and financial condition.

We may from time to time become a party to various litigations, arbitrations, legal disputes, claims or administrative proceedings arising in the ordinary course of our business. For example, we may be required to negotiate with, or institute litigation when negotiation fails, against our suppliers for the losses arising out of contaminated raw materials. The compensation clauses in the supply contract may not be adequate enough to remedy our damages. Such litigation could result in substantial costs and diversion of resources, which could negatively affect our sales, profitability and prospects. Even if any such litigation is resolved in our favor, we may not be able to successfully enforce the judgment and remedies awarded by the court and such remedies may not be adequate to compensate us for our actual or anticipated related losses, whether tangible or intangible. Negative publicity relating to such litigation, arbitrations, legal disputes, claims or administrative proceedings may damage our reputation and adversely affect the image of our brands and services. In addition, ongoing litigation, arbitrations, legal disputes, claims or administrative proceedings may distract our management’s attention and consume our time and other resources. Furthermore, any litigations, arbitrations, legal disputes, claims or administrative proceedings which are not of material importance may escalate due to the various factors involved, such as the facts and circumstances of the cases, the likelihood of winning or losing, the monetary amount at stake, and the parties concerned continue to evolve in the future, and such factors may result in these cases becoming of material importance to us. We are subject to several legal proceedings, which, in the opinion of our management, would not have a material and/or adverse effect on our business, financial condition or results of operations. We may continue to subject to legal proceedings in the future. We cannot assure you that

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the outcome of the legal proceedings in the future, if any, will be favorable to us. If any verdict or award is rendered against us or if we decide to settle the disputes, we may be required to incur monetary damages or other liabilities. Even if we can successfully defend ourselves, we may have to incur substantial costs and spend substantial time and efforts in these lawsuits. Consequently, any future litigation, legal disputes, claims or administrative proceedings could materially and adversely affect our business, financial condition and results of operations.

We have limited insurance to cover our potential losses and claims.

We maintained limited statutory insurance, which we believe is customary for businesses of our size and type and in line with the standard commercial practice in our industry. See “Our Business — Insurance.” If we were held liable for uninsured losses, our business and results of operations may be materially and adversely affected. In addition, we are not insured against product liability or business interruptions resulting from natural disasters such as droughts, floods, earthquakes or severe weather conditions, any suspension or cessation in the supply of utilities or other calamities. Any liability claims for damages relating to our products, interruption to our operations, and the resulting losses or damages, could materially and adversely affect our business, results of operations and financial condition.

We may require additional financing to achieve its goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to delay, limit, reduce or terminate its product manufacturing and development, and other operations.

We believe that we will continue to expend substantial resources for the foreseeable future as we expand into additional markets that we may choose to pursue. These expenditures are expected to include costs associated with research and development, the acquisition or expansion of manufacturing and supply capabilities, as well as marketing and selling existing and new products. In addition, other unanticipated costs may arise.

Our operating plan may change because of factors currently unknown to us, and we may need to seek additional funds sooner than planned, including through public equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to shareholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Our future capital requirements depend on many factors, including:

        the number and characteristics of any additional products or manufacturing processes we develop or acquires to serve new or existing markets;

        the expenses associated with our marketing initiatives;

        the costs required to fund domestic and international growth, including acquisitions;

        the scope, progress, results and costs of researching and developing future products or improvements to existing products;

        any lawsuits related to our products or commenced against us;

        the expenses needed to attract and retain skilled personnel;

        the costs associated with being a public company; and

        the timing, receipt and amount of sales of future products.

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available on a timely basis, we may be required to:

        delay, limit, reduce or terminate our research and development activities or growth and expansion plans; and

        delay, limit, reduce or terminate the expansion of sales and marketing capabilities or other activities that may be necessary to generate revenue and increase profitability.

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Risks Relating to Our Corporate Structure

We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.

We are a Cayman Islands holding company and we rely principally on dividends and other distributions on equity from our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders for services of any debt we may incur. If any of our PRC subsidiaries incur debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries may pay dividends only out of its respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of their respective registered capital. Such reserve funds cannot be distributed to us as dividends.

Our PRC subsidiaries generate primarily all of their revenue in RMB, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our applicable PRC subsidiaries to use their RMB revenues to pay dividends to us.

The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our applicable PRC subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises (having no institution or establishment within China or whose incomes have no actual connection to its institution or establishment within China) unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

We are a Cayman Islands holding company conducting our operations in China through our PRC subsidiaries. We may make loans to our PRC subsidiaries subject to the approval or registration from governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned subsidiaries in China. Any loans to our subsidiaries in China are subject to foreign debt registrations. In addition, a foreign-invested enterprise, or FIE, shall use its capital pursuant to the principle of authenticity and self-use within its business scope. The capital of an FIE shall not be used for the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations; (ii) directly or indirectly used for investment in securities unless otherwise provided by relevant laws and regulations; (iii) directly or indirectly used for granting entrusted RMB loans (unless permitted in the business scope), repaying loans (including the third-party advances) between enterprises, or repaying RMB bank loans that have been re-lent to a third party; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises). On October 23, 2019, SAFE promulgated the Circular Regarding Further Promotion of the Facilitation of Cross-Border Trade and Investment, or SAFE Circular No. 28, under which non-investing foreign-invested enterprises are permitted to make equity investments in the PRC with their capital funds in accordance with applicable PRC laws and regulations under the premise that the domestic investment projects are true and in compliance with applicable PRC laws and regulations. As the relevant government authorities have broad discretion in interpreting the regulation, it is unclear whether SAFE will permit such capital funds to be used for equity investments in the PRC in actual practice.

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In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or filing on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or filing, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

If the chops of our PRC subsidiaries are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.

In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiaries are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so. In addition, if the chops are misused by unauthorized persons, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management from our operations.

We face uncertainties with respect to the interpretation and implementation of the newly enacted Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.

On March 15, 2019, the National People’s Congress approved the Foreign Investment Law (the “FIL”), which took effect on January 1, 2020 (with the Implementation Rules to the FIL come into effect from the same day) and replaced the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations, to become the legal foundation for foreign investment in the PRC.

However, uncertainties still exist in relation to interpretation and implementation of the FIL, especially in regard to, including, among other things, and specific rules regulating the organization form of foreign-invested enterprises within the five-year transition period. Under the FIL, foreign investors and foreign-invested enterprises will be subject to legal liabilities if they fail to report investment information in accordance with the FIL. In addition, the FIL provides that foreign-invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within a five-year transition period, which means that we may be required to adjust the structure and corporate governance of certain of our PRC subsidiaries in such transition period. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations.

Risks Related to Doing Business in China and Hong Kong

A downturn in the Hong Kong, China or global economy, and economic and political policies of China could materially and adversely affect our business and financial condition.

A part of our operations is located in Hong Kong and mainland China. Accordingly, our business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in Hong Kong and China generally and by continued economic growth in Hong Kong and China as a whole. The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us.

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Economic conditions in Hong Kong and mainland China are sensitive to global economic conditions. Any prolonged slowdown in the global or Chinese economy may affect potential clients’ confidence in financial market as a whole and have a negative impact on our business, results of operations and financial condition. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.

The Hong Kong legal system embodies uncertainties which could limit the legal protections available to us.

Hong Kong is a Special Administrative Region of the PRC. Following British colonial rule from 1842 to 1997, China assumed sovereignty under the “one country, two systems” principle. The Hong Kong Special Administrative Region’s constitutional document, the Basic Law, ensures that the current political situation will remain in effect for 50 years. Hong Kong has enjoyed the freedom to function in a high degree of autonomy for its affairs, including currencies, immigration and custom, independent judiciary system and parliamentary system. On July 14, 2020, the United States signed an executive order to end the special status enjoyed by Hong Kong post-1997. As the autonomy currently enjoyed were compromised, it could potentially impact Hong Kong’s common law legal system and may in turn bring about uncertainty in, for example, the enforcement of our contractual rights. This could, in turn, materially and adversely affect our business and operation. Additionally, intellectual property rights and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the Hong Kong legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the pre-emption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our clients.

Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us.

A part of our operations is located in mainland China, and thus, our PRC subsidiaries are governed by PRC laws and regulations. PRC companies are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.

In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the nonbinding nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.

Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business, financial condition and results of operations.

In addition, the Opinions jointly issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council on July 6, 2021 called for strengthened regulation over illegal securities activities and supervision of overseas listings by China-based companies and propose to take effective measures. As of the date of this prospectus, no official guidance and related implementation rules have been issued in relation to these recently issued opinions and the interpretation and implementation of the Opinions remain unclear at this stage.

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On December 28, 2021, the Cyberspace Administration of China (the “CAC”), and 12 other relevant PRC government authorities published the amended Cybersecurity Review Measures, which came into effect on February 15, 2022. The final Cybersecurity Review Measures provide that a “network platform operator” that possesses personal information of more than one million users and seeks a listing in a foreign country must apply for a cybersecurity review. Further, the relevant PRC governmental authorities may initiate a cybersecurity review against any company if they determine certain network products, services or data processing activities of such company affect or may affect national security. Through the contractual arrangements with Weishi, DDC SH had collected and possessed personal information of more than one million users. After the contractual arrangements with Weishi were terminated in April 2022, DDC SH still have been possessing this amount of personal information which are stored in mainland China. For purposes of the Cybersecurity Review Measures, we have applied for and completed the cybersecurity review with respect to our proposed overseas listing pursuant to the Cybersecurity Review Measures.

As there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we cannot assure you that we would not become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in rectification, fines or other penalties, including suspension of business, website closure, removal of our app from the relevant app stores, and revocation of prerequisite licenses, as well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial condition or results of operations.

On February 17, 2023, the CSRC issued the Trial Measures which became effective on March 31, 2023. On the same date, the CSRC circulated the Guidance Rules and Notice on the CSRC’s official website which became effective on March 31, 2023. Under the Trial Measures, either direct or indirect overseas offering and listing by domestic companies shall fulfill the filing procedure with the CSRC with submitting relevant materials. Any overseas offering and listing made by an issuer that meets both the following conditions will be determined as indirect: (1) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic companies; and (2) the main parts of the issuer’s business activities are conducted in the Chinese Mainland, or its main places of business are located in the Chinese Mainland, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in the Chinese Mainland. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on a substance over form basis. When certain circumstances happen, overseas offering and listing shall not be made. And If the intended overseas offering and listing necessitates a national security review, relevant security review procedures shall be completed according to law before the application for such offering and listing is submitted to any overseas parties such as securities regulatory agencies and trading venues. Pursuant to the Trial Measures, the Guidance Rules and Notice, initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas, while domestic enterprises that have submitted valid applications for overseas offerings and listings but have not obtained the approval from the relevant overseas regulatory authority or overseas stock exchange shall complete filings with the CSRC prior to their overseas offerings and listings. Our PRC counsel, Grandall Law Firm (Shanghai) has advised us that, based on its understanding of the current PRC laws and regulations, our offering and listing will be identified as an indirect overseas issuance and listing by the CSRC, in view of the fact that the Trial Measures have come into effect on 31 March 2023. We have submitted the filing materials with the CSRC to fulfill the filing procedure with the CSRC as per requirement of the Trial Measures, but we cannot predict whether or how soon it will be able to complete such proceeding. If we fail to comply with the Trial Measures, we will be required to correct our behaviors, facing warnings and fines which amount will range from RMB1,000,000 to RMB10,000,000, and directly responsible personnel will also be warned and fined which amount will range from RMB500,000 to RMB 5,000,000. Any new policies, regulations, rules, actions or laws by the PRC government may subject us to material changes in operations, which could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or become worthless.

On February 24, 2023, the CSRC, together with the MOF, National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies”, and came into effect on March 31, 2023, together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (a) a domestic company that plans to, either directly or indirectly through its overseas

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listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any failure or perceived failure by our Company or our PRC subsidiaries to comply with the above confidentiality and archives administration requirements under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent authorities and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.

The Opinions, the Trial Measures, the Guidance Rules and Notice, the revised Provisions, and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. Any failure of us to obtain the relevant approval or complete the filings and other relevant regulatory procedures in a timely manner may significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become worthless.

The PRC government has significant oversight and discretion over the conduct of a PRC company’s business and may intervene with or influence its operations at any time as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding any industry that could adversely affect the business, financial condition and results of operations of our PRC subsidiaries.

Uncertainties regarding the enforcement of laws and the fact that rules and regulations in China can change quickly with little advance notice, along with the risk that the Chinese government may intervene or influence our operations at any time, could result in a material change in our operations, financial performance and/or the value of our Class A Ordinary Shares or impair our ability to raise money.

Moreover, if the PRC government determines that the contractual arrangements constituting part of Mengwei VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, our securities may decline in value or be worthless. If we are unable to assert our contractual control rights over the assets, business, and operation of Mengwei VIE that conduct a part or all of our operations, our securities may also decline in value or be worthless. Furthermore, these types of contractual arrangement may be less effective and if the Mengwei VIE and relevant parties fail to perform their obligations under these contractual arrangements, we may incur substantial costs, time and expend substantial resources to enforce such arrangements through arbitral or judicial agencies, if any.

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities, and may intervene or influence our operations at any time, or may exert more oversight and control over offerings conducted overseas. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares to investors and could cause the value of our Class A Ordinary Shares to significantly decline or become worthless.

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.

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For example, the Chinese cybersecurity regulator announced on July 2, 2021 that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that Didi Global Inc.’s app be removed from smartphone app stores.

As such, our PRC subsidiaries may be subjected to various government and regulatory interference in the provinces in which they operate. Our PRC subsidiaries could be subject to regulations by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. If the PRC government initiates an investigation into us at any time alleging us violation of cybersecurity laws, anti-monopoly laws, and securities offering rules in China in connection with this offering, we may have to spend additional resources and incur additional time delays to comply with the applicable rules, and our business operations will be affected materially and any such action could cause the value of our securities to significantly decline or be worthless.

Further, any actions by the PRC government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. We could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply.

As at the date of this prospectus, we have been advised by Grandall Law Firm (Shanghai), our PRC legal adviser, that there are no PRC laws and regulations in force explicitly requiring that our Group or our PRC subsidiaries to obtain permission from PRC authorities for this offering or to issue securities to foreign investors (by DDC Cayman), and our Group or our PRC subsidiaries have not received any inquiry, notice, warning, sanction or any regulatory objection to this offering from any relevant PRC authorities, except for the CSRC filing for this issuance and listing which shall be completed before the listing as described in this prospectus. However, we cannot predict whether or how soon such proceedings will be completed and when such proceedings are completed, whether it will be denied or rescinded. Any new policies, regulations, rules, actions or laws by the PRC government may subject us to material changes in operations, which could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or become worthless.

There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities.

We conduct most of our business operations in China, and a majority of our directors and senior management are based in China, which is an emerging market. The SEC, U.S. Department of Justice and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in emerging markets where we operate, as shareholder claims that are common in the United States, including class action securities law and fraud claims, generally are difficult to pursue as a matter of law or practicality in many emerging markets, including China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, the regulatory cooperation with the securities regulatory authorities in the Unities States has not been efficient in the absence of a mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no foreign securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to foreign securities regulators.

As a result, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

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PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

In July 2014, the SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC entities) to register with SAFE or its local branches in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.

Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles (“SPV”), will be required to register such investments with the SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its filed registration with the local branch of SAFE with respect to that SPV, to reflect any material change. If any PRC shareholder of such SPV fails to make the required registration or to update the previously filed registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiary in China. On February 13, 2015, the SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015 and was further amended in December 2019. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be registered with qualified banks instead of the SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of the SAFE or its local branch. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to their position as director, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications to the SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are PRC residents and who were granted options may follow SAFE Circular 37 to apply for the foreign exchange registration before our company became an overseas listed company.

We have taken steps to notify significant beneficial owners of ordinary shares whom we know are PRC residents of their filing obligations. For example, Mr. Liu Zhixuan, who participated in the share incentive plan and exercised his option right recently, has been informed by us to complete his registration duty under SAFE Circular 37. However, we may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company, and we cannot provide any assurance that these PRC residents will comply with our request to make or obtain any applicable registrations or comply with other requirements under SAFE Circular 37 and other applicable laws and regulations or compel all such PRC residents to do so. The failure or inability of our PRC resident shareholders to comply with the registration procedures set forth in such regulations may subject us to fines and legal sanctions, restrict our cross-border investment activities, limit the ability of our wholly foreign-owned subsidiaries in China to distribute dividends and the proceeds from any reduction in capital, share transfer or liquidation to us, and we may also be prohibited from injecting additional capital into these subsidiaries. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result, our business operations and prospects and our ability to distribute profits to you could be materially and adversely affected.

Upon listing, we and directors, executive officers and other employees of our PRC subsidiaries and who have been granted options will be subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, or SAFE Circular 7, according to which, among others, employees, directors, supervisors and other management members of PRC companies participating in any stock incentive plan of an overseas publicly listed company who are domestic individuals as defined therein are required to register and make regular periodic filings with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. Failure to complete the SAFE registrations or meet other requirements may subject relevant participants in our share incentive plans to fines and legal sanctions and may also limit the ability to make payment under our share incentive plans or receive dividends or sales proceeds related thereto, or our ability to

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contribute additional capital into our wholly-foreign owned enterprises in China and limit our wholly-foreign owned enterprises’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional share incentive plans for our directors and employees under PRC law.

We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.

In connection with this offering, we will become subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We have operations agreements with third parties, and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of our franchisees and their employees, consultants or distributors, because these parties are not always subject to our control. Our franchisees are independent operators and are not subject to our control regarding to our FCPA practice.

Although we believe, to date, we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, franchisees or distributors of our franchisees may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59 and Circular 698, which became effective in January 2008, and a Circular 7 in replacement of some of the existing rules in Circular 698, which became effective in February 2015.

Under Circular 698, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC corporate income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

In February 2015, the SAT issued Circular 7 to replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced a new tax regime that is significantly different from that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC corporate income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.

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We may face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiary to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under Circular 59 or Circular 698 and Circular 7, and may be required to expend valuable resources to comply with Circular 59, Circular 698 and Circular 7 or to establish that we and our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

The PRC tax authorities have the discretion under SAT Circular 59, Circular 698 and Circular 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. We may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC corporate income tax law and if the PRC tax authorities make adjustments to the taxable income of the transactions under SAT Circular 59 or Circular 698 and Circular 7, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.

PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

PRC regulations and rules concerning mergers and acquisitions including the Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the “M&A Rules”), established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, (iii) such transaction will lead to a change in control of a domestic enterprise which holds famous trademarks or PRC time-honored brands, or (iv) such PRC domestic enterprise is an affiliate of the foreign investor as stipulated under the M&A Rules. Moreover, the Anti-Monopoly Law requires that the anti-trust governmental authority shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions. It is unclear whether our business would be deemed to be in an industry that raises “national defense and security” or “national security” concerns. However, the MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.

The approval of the China Securities Regulatory Commission and other PRC governmental authorities provided under the M&A rules are not required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval. Except for the CSRC filing for this issuance and listing, we are not required to obtain any permission or approval from any Chinese authority to issue securities to foreign investors or in connection with this offering, which, we cannot predict, whether or how soon will be completed.

The M&A Rules include, among other things, provisions that purport to require that an offshore special purpose vehicle formed for the purpose of an overseas listing of securities in a PRC company obtain the approval of CSRC and MOFCOM, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. Substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles. As at the date of this prospectus, we have been advised by Grandall Law Firm (Shanghai), CSRC’s approval

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under the M&A Rules is not required for the listing and trading of our Class A Ordinary Shares on the NYSE Group in the context of this offering given that we are an exempted company with limited liability incorporated under the laws of the Cayman Islands controlled by non-PRC citizens and we do not fit into the definition of “overseas special purpose vehicle” under the M&A Regulations. As such, we do not fit into the definition of “overseas special purpose vehicle” under the M&A Regulations and we have never conducted any merger or acquisitions of any PRC domestic companies with a related party relationship. MOFCOM’s approval under the M&A Rules is not required as we have never conducted any merger or acquisitions of any PRC domestic companies with a related party relationship.

There remain some uncertainties as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as we do. If it is determined that CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for this offering. These sanctions may include fines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiary, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our securities. Furthermore, the CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the securities that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the securities we are offering, you would be doing so at the risk that the settlement and delivery may not occur.

Moreover, except for emphasizing the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies, the Opinions, which was made available to the public on July 6, 2021, also provides that the State Council will revise provisions regarding the overseas issuance and listing of shares by companies limited by shares and will clarify the duties of domestic regulatory authorities.

On February 17, 2023, the CSRC issued the Trial Measures which became effective on March 31, 2023. On the same date, the CSRC circulated the Guidance Rules and Notice on the CSRC’s official website which became effective on March 31, 2023. Under the Trial Measures, either direct or indirect overseas offering and listing by domestic companies shall fulfill the filing procedure with the CSRC with submitting relevant materials. Any overseas offering and listing made by an issuer that meets both the following conditions will be determined as indirect: (1) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic companies; and (2) the main parts of the issuer’s business activities are conducted in the Chinese Mainland, or its main places of business are located in the Chinese Mainland, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in the Chinese Mainland. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on a substance over form basis. When certain circumstances happen, overseas offering and listing shall not be made. And If the intended overseas offering and listing necessitates a national security review, relevant security review procedures shall be completed according to law before the application for such offering and listing is submitted to any overseas parties such as securities regulatory agencies and trading venues. Pursuant to the Trial Measures, the Guidance Rules and Notice, initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas, while domestic enterprises that have submitted valid applications for overseas offerings and listings but have not obtained the approval from the relevant overseas regulatory authority or overseas stock exchange shall complete filings with the CSRC prior to their overseas offerings and listings. Our PRC counsel, Grandall Law Firm (Shanghai) has advised us that, based on its understanding of the current PRC laws and regulations, our offering and listing will be identified as an indirect overseas issuance and listing by the CSRC, in view of the fact that the Trial Measures have come into effect on 31 March 2023. We have submitted the filing materials with the CSRC to fulfill the filing procedure with the CSRC as per requirement of the Trial Measures, but we cannot predict whether or how soon it will be able to complete such proceeding. If we fail to comply with the Trial Measures, we will be required to correct our behaviors, facing warnings and fines which amount will range from RMB1,000,000 to RMB10,000,000, and directly responsible personnel will also be warned and fined which amount will range from RMB500,000 to RMB 5,000,000. Any new policies, regulations, rules, actions or laws by the PRC government may subject us to material changes in operations, which could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or become worthless.

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On February 24, 2023, the CSRC, together with the MOF, National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies”, and came into effect on March 31, 2023, together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (a) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any failure or perceived failure by our Company or our PRC subsidiaries to comply with the above confidentiality and archives administration requirements under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent authorities and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.

The Opinions, the Trial Measures, the Guidance Rules and Notice, the revised Provisions, and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. Any failure of us to obtain the relevant approval or complete the filings and other relevant regulatory procedures in a timely manner may significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become worthless.

As of the date of this prospectus, we have been advised by Grandall Law Firm (Shanghai) that no prior permission is required under the M&A Rules or the Opinions from any PRC governmental authorities (including the CSRC and MOFCOM) for the listing and trading of our securities on the NYSE Group in the context of this offering, given that: (a) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to the M&A Rules; (b) DDC Cayman is a company incorporated under the laws of the Cayman Islands controlled by non-PRC citizens, and we do not fit into the definition of “overseas special purpose vehicle” under the M&A Regulations and (c) we have never conducted any merger or acquisitions of any PRC domestic companies with a related party relationship. We also believe that MOFCOM’s approval under the M&A Rules is not required as we have never conducted any merger or acquisitions of any PRC domestic companies with a related party relationship. However, we still need to complete the filing procedure with the CSRC for consummating this offering according to the Trial Measures as described in this Prospectus. Further, we cannot assure you that relevant PRC governmental agencies, including the CSRC, would reach the same conclusion as we do. If we or our subsidiaries inadvertently conclude that such permissions or approvals are not required, our ability to offer or continue to offer our Class A Ordinary Shares to investors could be significantly limited or completed hindered, which could cause the value of our Class A Ordinary Shares to significantly decline or become worthless. We may also face sanctions by the CSRC, the MOFCOM or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from this offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities.

We have been further advised by Grandall Law Firm (Shanghai), our PRC legal adviser, that (i) our PRC subsidiaries have obtained all necessary permissions or approvals and authorizations in the PRC in all material aspects in relation to conducting its current business operations in China, except for Quanzhou Weishi Food Co., Limited which does not hold any assets or operations for now and we are in the process of applying for relevant food operation license for it; and (ii) we are not required to obtain any permission or approval from any Chinese authority to issue securities to foreign investors (by DDC Cayman) or in connection with this offering under Chinese laws or regulations in effect, except for the CSRC filing for this issuance and listing which shall be completed before the listing as described in this prospectus. However, we cannot predict whether or how soon such proceedings will be completed

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and when such proceedings are completed, whether it will be denied or rescinded. We (including DDC Cayman and all its subsidiaries) have not received any inquiry, notice, warning, sanctions or regulatory objection to this offering from the CSRC or any other PRC governmental authorities.

However, we cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as we do. If it is determined that CSRC approval under the M&A rules is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for this offering. These sanctions may include fines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiary, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our securities. Furthermore, the CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the securities that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the securities we are offering, you would be doing so at the risk that the settlement and delivery may not occur. Besides, any failure of us to fully comply with any new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become worthless.

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our Company’s business and results of operations we may pursue in the future.

A part of our operations is located in mainland China and Hong Kong, and thus, or business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole. Policies, regulations, rules, and the enforcement of laws of the PRC government can have significant effects on economic conditions in the PRC and the ability of businesses to operate profitably. Our ability to operate profitably in the PRC and Hong Kong may be adversely affected by changes in policies by the PRC government, including changes in laws, regulations or their interpretation, particularly those dealing with the Internet, including censorship and other restriction on material which can be transmitted over the Internet, security, intellectual property, money laundering, taxation and other laws that affect our PRC and Hong Kong subsidiaries’ ability to operate its business.

Any actions by the PRC government to exert more oversight and control over offerings (including businesses whose primary operations are in Hong Kong) that are conducted overseas and/or foreign investments in Hong Kong- or PRC-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or be worthless.

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using part of the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Any funds our Group transfers to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on FIEs in China, capital contributions to our PRC subsidiary are subject to registration with the SAMR (or its local branches) and filing with the Ministry of Commerce of the PRC, or the MOFCOM, or its local branches and (if applicable) registration with other relevant governmental authorities in China. In addition, (a) any foreign loan procured by our PRC subsidiary is required to be registered with SAFE or its local branches, and (b) our PRC subsidiary may not procure loans which exceed the statutory amount as approved by the MOFCOM or its local branches. We may not complete such registrations on a timely basis, with respect to future capital contributions or foreign loans by us to our PRC subsidiary. If we fail to complete such registration, our ability to use part of the proceeds of this offering and to capitalize our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

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In 2008, SAFE promulgated the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142. SAFE Circular 142 regulates the conversion by FIEs of foreign currency into Renminbi by restricting the usage of converted Renminbi. SAFE Circular 142 provides that any Renminbi capital converted from registered capitals in foreign currency of FIEs may only be used for purposes within the business scopes approved by PRC governmental authority and such Renminbi capital may not be used for equity investments within China unless otherwise permitted by PRC law. In addition, the SAFE strengthened its oversight of the flow and use of Renminbi capital converted from registered capital in foreign currency of FIEs. The use of such Renminbi capital may not be changed without SAFE approval, and such Renminbi capital may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been utilized. On July 4, 2014, SAFE issued the Circular of the SAFE on Relevant Issues Concerning the Pilot Reform in Certain Areas of the Administrative Method of the Conversion of Foreign Exchange Funds by Foreign-invested Enterprises, or SAFE Circular 36, which launched the pilot reform of administration regarding conversion of foreign currency registered capitals of FIEs in 16 pilot areas. According to SAFE Circular 36, some of the restrictions under SAFE Circular 142 will not apply to the settlement of the foreign exchange capitals of an ordinary FIE in the pilot areas, and such FIE is permitted to use Renminbi converted from its foreign-currency registered capital to make equity investments in the PRC within and in accordance with the authorized business scope of such FIEs, subject to certain registration and settlement procedure as set forth in SAFE Circular 36. On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign Exchange Capital Settlement of Foreign-Invested Enterprises, or SAFE Circular 19. SAFE Circular 19 took effect as of June 1, 2015 and superseded SAFE Circular 36 and SAFE Circular 142 on the same date. SAFE Circular 19 launched a nationwide reform of the administration of the settlement of the foreign exchange capitals of FIEs and allows FIEs to settle their foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fund converted from their foreign exchange capitals for (i) expenditure beyond their business scopes or prohibited by the laws and regulations of the state, (ii) directly or indirectly investing in securities unless otherwise provided by laws and regulations, (iii) providing entrusted loans in RMB (except where the business scope permits), repaying loans between non-financial enterprises (including advances from third parties) or repaying RMB loans from bank that have been transferred to third parties, (iv) paying the related expenses of purchasing real estate not for self-use except for foreign-invested real estate enterprises. Violations of these Circulars could result in severe monetary or other penalties. SAFE Circular 19 may significantly limit our ability to use Renminbi converted from part of the net proceeds of this offering to fund the establishment of new entities in China by our subsidiary, to invest in or acquire any other PRC companies through our PRC subsidiary, or to establish variable interest entities in the PRC, which may materially and adversely affect our business, financial condition and results of operations. In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary registration or obtain the necessary approval on a timely basis, or at all. If we fail to complete the necessary registration or obtain the necessary approval, our ability to make loans or equity contributions to our PRC subsidiary may be negatively affected, which could materially and adversely affect our PRC subsidiary’ liquidity and its ability to fund its working capital and expansion projects and meet its obligations and commitments.

Our business may be materially and adversely affected if any of our PRC subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding.

The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts.

Our PRC subsidiary holds certain assets that are important to our business operations. If our PRC subsidiary undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

According to SAFE’s Notice on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, effective on December 17, 2012, and the Provisions for Administration of Foreign Exchange Relating to Inbound Direct Investment by Foreign Investors, effective on May 13, 2013, if any of our PRC subsidiaries undergoes a liquidation proceeding, prior approval from SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still need to conduct a registration process with the SAFE local branch. It is not clear whether “registration” is a mere formality or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past.

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Fluctuations in exchange rates could adversely affect our business and the value of our securities.

Changes in the value of the RMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S. dollars we receive from our public offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of paying dividends on our Class A ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers or products relying on foreign inputs.

Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Restrictions on currency exchange may limit our ability to utilize our revenues effectively.

Some of our cash are denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from our PRC subsidiaries. Currently, our Shanghai subsidiary may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. As we have some operations in PRC, we expect a portion of our cash will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize our Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiary.

Dividends paid to our foreign investors and gains on the sale of the Class A Ordinary Shares by our foreign investors may become subject to PRC tax.

Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable to dividends paid to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. Any gain realized on the transfer of Class A Ordinary Shares by such investors is also subject to PRC tax at a current rate of 10%, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our Class A Ordinary Shares, and any gain realized from the transfer of our Class A Ordinary Shares, would be treated as income derived from sources within the PRC and would as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to individual investors who are non-PRC residents and any gain realized on the transfer of Class A Ordinary Shares by such investors may be subject to PRC tax (which in the case of dividends may be withheld at source) at a rate of 20%. Any PRC tax liability may be reduced by an applicable tax treaty. However, if we or our subsidiary established outside China are considered a PRC resident enterprise, it is unclear whether holders of the Class A Ordinary Shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends paid to our non-PRC investors, or gains from the transfer of the Class A Ordinary Shares by such investors, are deemed as income derived from sources within the PRC and thus are subject to PRC tax, the value of your investment in the Class A Ordinary Shares may decline significantly.

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We are a holding company and we rely on our subsidiaries for funding dividend payments, which are subject to restrictions under PRC laws.

We are a holding company incorporated in the Cayman Islands, and we operate our core businesses through our subsidiaries in the PRC and Hong Kong. Therefore, the availability of funds for us to pay dividends to our shareholders and to service our indebtedness depends upon dividends received from our subsidiaries If our subsidiaries incur debt or losses, their ability to pay dividends or other distributions to us may be impaired. As a result, our ability to pay dividends and to repay our indebtedness will be restricted. Our PRC subsidiaries are required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends. In addition, restrictive covenants in bank credit facilities or other agreements that we or our Affiliated Entities may enter into in the future may also restrict the ability of our Affiliated Entities to pay dividends to us. These restrictions on the availability of our funding may impact our ability to pay dividends to our shareholders and to service our indebtedness.

Increases in labor costs in the PRC may adversely affect our business and results of operations.

The currently effective PRC Labor Contract Law, or the Labor Contract Law was first adopted on June 29, 2007 and later amended on December 28, 2012. The PRC Labor Contract Law has reinforced the protection of employees who, under the Labor Contract Law, have the right, among others, to have written employment contracts, to enter into employment contracts with no fixed term under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. Furthermore, the Labor Contract Law sets forth additional restrictions and increases the costs involved with dismissing employees. To the extent that we need to significantly reduce our workforce, the Labor Contract Law could adversely affect our ability to do so in a timely and cost-effective manner, and our results of operations could be adversely affected. In addition, for employees whose employment contracts include noncompetition terms, the Labor Contract Law requires us to pay monthly compensation after such employment is terminated, which will increase our operating expenses.

We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our buyers by increasing the prices of our products and services, our financial condition and results of operations would be materially and adversely affected.

We are a Cayman Islands corporation and all of our business is conducted in the PRC. Moreover, all of our directors and officers are located outside of the United States and except for Mr. Matthew Gene Mouw, are all nationals or residents of jurisdictions other than the United States, and all or a substantial portion of their assets are located outside of the United States. As a result, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. Federal or state courts may be limited.

We are a company incorporated under the laws of the Cayman Islands, we conduct most of our operations in China, and most of our assets are located in China. All of our directors and officers are located outside of the United States and except for Mr. Matthew Gene Mouw, are all nationals or residents of jurisdictions other than the United States, and all or a substantial portion of their assets are located outside of the United States. Ms. Norma Ka Yin Chu, our Chief Executive Officer and Chairwoman, Ms. Katherine Shuk Kwan Lui, our Chief Financial Officer and director, and Mr. Chia Hung Yang, our independent director, are permanent residents of Hong Kong; and Samuel Chun Kong Shih, our independent director, is a permanent resident of Canada.

As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons in the Cayman Islands or in China, or to enforce judgments obtained in U.S. courts against us or them, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. A judgment of a United States court for civil liabilities predicated upon the federal securities laws of the United States may not be enforceable in or recognized by the courts of the jurisdictions where our directors and officers reside, and the judicial recognition process may be time-consuming. It may be difficult for you to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors.

In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the Cayman Islands and many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

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Shareholder claims that are common in the United States, including securities law class actions and fraud claims, generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the Unities States has not been efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC.

In addition, our corporate affairs are governed by our amended and restated memorandum and articles of association, the Companies Act (Revised) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a Federal court of the United States.

The Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company.

Given the rapidly expanding nature of the COVID-19 pandemic, and because most of our business operations and our workforce are concentrated in China, we believe there is a risk that our business, results of operations, and financial condition will be adversely affected.

Recently, there is an ongoing outbreak of a novel strain of coronavirus (COVID-19) first identified in China and has since spread rapidly globally. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities globally for the past year. In March 2020, the World Health Organization declared the COVID-19 to be a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of our business operations and our workforce are concentrated in China, we believe there is a risk that our business, results of operations, and financial condition will be adversely affected. Potential impact to our results of operations will also depend on future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or mitigate its impact, almost all of which are beyond our control.

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The outbreak of COVID-19 has had certain negative impact on the overall economy of the regions where we deliver our products or services. Due to the prolonged closure of our offline retail locations which impacted sales volume for our experience store, fresh products and our advertising services. We have taken various measures to mitigate the COVID-19 risk to our business, including, from a supply-chain standpoint, we have taken proactive steps to move away from single-sourcing to a network of diverse, alternative, pre-qualified suppliers of finished goods.

As of March 2023, we had 20 supply chain partners and 13 active and reserve suppliers responsible for distributing and producing our products to customers. While the short, medium-to-longer term impact of COVID-19 remains unclear, we expect that our business operations and results of operations including revenue, earnings, and cash-flows will not be unduly impacted in the remainder of 2023. To date, there has been no material impact to our liquidity position and we have not had to raise additional capital, reduce our capital expenditures, or modify any terms or contractual arrangements in response to COVID-19.

In December 2022, the Chinese government announced that it will be downgrading its management of COVID-19 as of January 8, 2023, rolling back some of its stringent anti-COVID-19 restrictions. Those who are infected with mild symptoms and close contacts are now allowed to quarantine at home. Since December 2022, China has been facing a rapid surge in COVID-19 cases. Due to the evolving and uncertain nature of this event, we cannot predict at this time the full extent to which the COVID-19 pandemic and the COVID-19 prevention policy implemented by the Chinese government will adversely impact our business, results, and financial condition. We are staying in close communication with our employees, dealers and suppliers, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee we will be able to do so.

Our contractual arrangements may not be as effective in providing control over certain assets as direct ownership.

In January 2021, we acquired a number of online stores registered on third party online platforms, such as Pinduoduo, Kuaishou and Taobao and all assets related to those online stores from Chongqing Mengwei Technology Co., Ltd., Liao Xuefeng, Chongqing Changshou District Weibang Network Co., Ltd. and Chongqing Yizhichan Snack Food Electronic Commerce Service Department (the “Transferors”). However, due to the limitations from the policies of those online platforms, the titles of such online stores and related assets currently cannot be transferred to our subsidiary so that the operation of such online stores are delegated to the Transferors as nominal holders through relevant contractual agreements. In April 2023, SH DDC acquired more Pinduoduo online stores from CQ MW, Weibang, Yizhichan and Ningqi and has been operating these online stores in the same way. For a description of these contractual arrangements, see “Corporate History and Structure — Contractual Arrangements Regarding Several Online Stores — the Mengwei VIE” below. These contractual arrangements enable us to control those online stores and provide us the right to obtain substantially all of the economic benefits from such online stores. However, the contractual arrangements may not be as effective as direct ownership in providing us with control over such assets. Under our contractual arrangements, we rely on the Transferors to perform their obligations to exercise our control over such assets. These Transferors may have conflicts of interest with us or our shareholders, and they may not act in the best interests of our Company or may not perform their obligations under these contracts, in which case we may not be able to conduct our operations in the manner in which we currently do.

We cannot assure you that when conflicts of interest arise, the Transferors will act in the best interests of our Company or that conflicts of interest will be resolved in our favor. In the event of any such conflicts of interest, these Transferors may breach or refuse to renew the contractual arrangements that allow us to effectively control and receive economic benefits from such assets. If we cannot resolve such conflicts of interest or disputes between us and such Transferors should they arise, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to uncertainty as to the outcome of any such legal proceedings. If we are unable to resolve any such conflicts, or if we experience significant delays or other obstacles as a result of such conflicts, our business and operations could materially and adversely affect our results of operations and damage our reputation.

Risks related to required contributions to various employee benefit plans and individual income tax withholdings on employees’ salaries as required by PRC regulations.

Companies operating in China are required to participate in various government-mandated employee benefit contribution plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances,

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of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. Companies operating in China are also required to withhold individual income tax on employees’ salaries based on the actual salary of each employee upon payment. We may be subject to late fees and fines in relation to the underpaid employee benefits and under-withheld individual income tax, our financial condition and results of operations may be adversely affected.

Our legal rights to lease certain properties could be challenged, which could prevent us from continuing to use these leased properties or increase the costs for relocating our business premises.

We leased our business premises from third parties who either own the properties or lease the properties from the ultimate property owner. Some of our lessors were unable to provide us with copies of title certificates or documents evidencing the authorization or consent of the owners of such properties. Where the lessors do not have the proper legal right to lease the properties, the corresponding lease agreements may be deemed invalid. Furthermore, some properties may not be designated for commercial use. If we are not adequately indemnified by the lessors for our related losses, our business may be adversely affected. Some of the properties we lease from the third parties have been mortgaged by the owners prior to leasing to us. We may not be able to continue using such properties if the mortgage is foreclosed. In addition, under the PRC law, failure to register a lease agreement with the local housing bureau may result in the risk that we may not be able to continue to occupy the relevant properties if the lease is challenged by third parties. Our lease agreements generally require the lessor to make such registrations, however, as of the date of this Prospectus, the lease agreements relating to certain of our business premises had not been duly registered by the relevant lessors. Accordingly, if these lessors do not have the appropriate titles to the properties or necessary approvals from the ultimate owners or fail to make the requisite registrations, or if the mortgage over the leased properties is foreclosed, we may be unable to continue to operate the affected properties or incur additional costs for relocating our business premises.

The recent enactment of the Holding Foreign Companies Accountable Act may result in de-listing of our securities.

Over the past decade, U.S. SEC and PCAOB and the Chinese counterparts, namely, the China Securities Regulatory Commission, or the CSRC, and PRC Ministry of Finance have been in an impasse over the ability of the PCAOB to have access to the audit work papers and inspect the audit work of China based accounting firms, including our auditor. In May 2013, the PCAOB entered into a Memorandum of Understanding on Enforcement Cooperation (the “MOU”) with the CSRC, and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. Despite the MOU, on December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. On April 21, 2020, the SEC and the PCAOB reiterated in another joint statement the greater risk associated with the PCAOB’s inability to inspect audit work paper and practices of accounting firms in China, with respect to their audit work of U.S. reporting companies.

As part of a continued regulatory focus in the United States on access to audit and other information currently protected by laws in China, on December 2, 2020, U.S. Congress passed S. 945, the Holding Foreign Companies Accountable Act. The HFCAA has been signed by the President into law. Pursuant to the HFCAA, the SEC is required to propose rules to prohibit the securities of any registrant from being listed on any of the U.S. securities exchanges or traded “over the counter” if the PCAOB is unable to inspect the work of the accounting firm for three consecutive years. On March 24, 2021, the SEC issued amendments to Form 20 and sought public comment in response to the HFCAA. Consistent with the HFCAA, these amendments require the submission of documentation to the SEC establishing that a “commission-identified registrant” (as defined in the amendments) is not owned or controlled by a governmental entity in that foreign jurisdiction and also require disclosure in a foreign issuer’s annual report regarding the audit arrangements of, and governmental influence on, such registrant. We will be required to comply with these rules if the SEC identifies us as having a ‘non-inspection’ year under a process to be subsequently established by the SEC.

On December 23, 2022, the Accelerating Holding Foreign Companies Accountable Act, was signed into law, which reduced the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two years, thus reducing the time period before which our securities may be prohibited from trading or delisted. The enactment of the HFCAA and other efforts to increase U.S. regulatory access to audit

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work papers could cause investor uncertainty for affected issuers, including us, and the market price of the share could be adversely affected as uncertainty remains over whether there will be a compromise solution. In the worst case, our Class A ordinary shares could be delisted if we were unable to cure the situation to meet the PCAOB inspection requirement in time.

On December 2, 2021, the SEC adopted final rules implementing the HFCAA. On a rolling basis, the SEC will identify issuers with auditors that the PCAOB is unable to inspect or investigate completely because of non-US governmental restrictions. If an issuer is identified for three consecutive years, the SEC will publish an order prohibiting the trading of the issuer’s securities on a U.S. stock exchange and the U.S. over-the-counter market. If, after completion of this offering, the SEC identifies us for three consecutive years as an issuer with auditors that the PCAOB is unable to inspect or investigate completely because of non-US governmental restrictions, under the HFCAA, our securities may be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States. Pursuant to the HFCAA, the PCAOB issued a Determination Report on December 16, 2021, which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in mainland China or Hong Kong, a Special Administrative Region of the PRC, because of a position taken by one or more authorities in the PRC or Hong Kong. In addition, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations. Our registered public accounting firm, KPMG Huazhen LLP, is headquartered in mainland China or Hong Kong and was identified in this report as a firm subject to the PCAOB’s determination.

On Aug. 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the PRC governing inspections and investigations of audit firms based in China and Hong Kong, and stated the cooperation will be launched soon. The Statement scheduled several important issues including the purpose, scope and form of the cooperation, use of information and specific data protection during the cooperation, etc. In particular, Chinese authorities have committed to four critical items: First, in accordance with the Sarbanes-Oxley Act, the PCAOB has independent discretion to select any issuer audits for inspection or investigation; Second, the PCAOB gets direct access to interview or take testimony from all personnel of the audit firms whose issuer engagements are being inspected or investigated; Third, the PCAOB has the unfettered ability to transfer information to the SEC, in accordance with the Sarbanes-Oxley Act; and Fourth, PCAOB inspectors can see complete audit work papers without any redactions. On the last item, the PCAOB was able to establish view only procedures — as it has done in the past with certain other jurisdictions — for targeted pieces of information (for example, personally identifiable information). As uncertainties remain regarding the details of the cooperation and the implementation by the authorities of the two sides, the risks we faced regarding the de-listing of our securities because of non-compliance to the laws and regulations adopted by the US authorities will still exist.

On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed. If the PCAOB is unable to inspect and investigate completely registered public accounting firms located in China and we fail to retain another registered public accounting firm that the PCAOB is able to inspect and investigate completely in 2023 and beyond, or if we otherwise fail to meet the PCAOB’s requirements, our Class A ordinary Shares will be delisted from the NYSE Group and will not be permitted for trading over the counter in the United States under the HFCAA and related regulations.

Our ability to retain an auditor subject to the PCAOB inspection and investigation, including but not limited to inspection of the audit working papers related to our operations, may depend on the relevant positions of U.S. and Chinese regulators. Our auditor’s audit working papers related to our operations are located in China. With respect to audits of companies with operations in China, there are uncertainties about the ability of its auditor to fully cooperate with a request by the PCAOB for audit working papers in China without the approval of Chinese authorities. If the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction, or the PCAOB re-evaluates its determination as a result of any obstruction with the implementation of the

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Statement of Protocol, then such lack of inspection or re-evaluation could cause trading in the Company’s securities to be prohibited under the HFCAA, and ultimately result in a determination by a securities exchange to delist our securities. Accordingly, the HFCAA calls for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.

If in the future the PCAOB is unable to conduct full inspections of auditors in China, it will become more difficult to evaluate the effectiveness of our auditors’ audit procedures and quality control procedures as compared to auditors who primarily work in jurisdictions where the PCAOB has full inspection access. As a result, investors may be deprived of the benefits of PCAOB inspections. In addition, the SEC may initiate proceedings against our independent registered public accounting firm, which could result in the imposition of penalties against such accounting firm, such as suspension of its ability to practice before the SEC. If we are required to engage a new audit firm, we may incur significant expense and management time. All of these could cause our investors and potential investors in our securities to lose confidence in our audit procedures, reported financial information and the quality of our financial statements. The market price of our Class A ordinary shares could be adversely affected. Further, if the PCAOB determines that it cannot inspect or investigate completely independent registered public accounting firm for a period of two consecutive years, trading in our securities may be prohibited under the HFCAA and an exchange may determine to delist our securities. The delisting of our securities, or the threat of such securities being delisted, may materially and adversely affect the value of your investment.

In addition, on August 6, 2020, the President’s Working Group on Financial Markets, or PWG, released a report recommending that the SEC take steps to implement the five recommendations, including enhanced listing standards on U.S. stock exchanges with respect to PCAOB inspection of accounting firms. This would require, as a condition to initial and continued listing on a U.S. stock exchange, PCAOB access to work papers of the principal audit firm for the audit of the listed company. The report permits the new listing standards to provide for a transition period until January 1, 2022 for listed companies, but would apply immediately to new listings once the necessary rulemakings and/or standard-setting are effective. It is unclear if and when the SEC will make rules to implement the recommendations proposed in the PWG report, especially in light of its ongoing rulemaking pursuant to the HFCAA. Any of these factors and developments could potentially lead to a material adverse effect on our business, prospects, financial condition and results of operations.

Proceedings instituted by the SEC against Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act. In December 2012, the SEC instituted administrative proceedings against the “big four” PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ audit work papers with respect to certain PRC-based companies that are publicly traded in the United States. On January 22, 2014, the administrative law judge, or the ALJ, presiding over the matter rendered an initial decision that each of the firms had violated the SEC’s rules of practice by failing to produce audit papers and other documents to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months. On February 6, 2015, the four China-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required the firms to follow detailed procedures and to seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC. Under the terms of the settlement, the underlying proceeding against the four China-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019.

While we cannot predict if the SEC will further challenge the four China-based accounting firms’ compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions, if the accounting firms are subject to additional remedial measures, our ability to file our financial statements in compliance with SEC requirements could be impacted. A determination that we have not timely filed financial statements in compliance with the SEC requirements could ultimately lead to the delisting of our securities from the NYSE Group or the termination of the registration of our securities under the Securities Exchange Act of 1934, or both, which would substantially reduce or effectively terminate the trading of our in the United States.

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Risks Related to Our Securities

There has been no prior public market for our Ordinary Shares and an active trading market may never develop or be sustained.

Prior to this offering, there has been no public market for our Ordinary Shares, including our Class A Ordinary Shares. An active trading market for our Class A Ordinary Shares may never develop following completion of this offering or, if developed, may not be sustained. The lack of an active trading market may impair the value of your shares and your ability to sell your shares at the time you wish to sell them. An inactive trading market may also impair our ability to raise capital by selling our Class A Ordinary Shares and entering into strategic partnerships or acquiring other complementary products, technologies or businesses by using our Class A Ordinary Shares as consideration. In addition, if we fail to satisfy exchange listing standards, we could be delisted, which would have a negative effect on the price of our securities.

We expect that the price of our Class A Ordinary Shares will fluctuate substantially and you may not be able to sell the shares you purchase in this offering at or above the initial public offering price.

The initial public offering price for our Class A Ordinary Shares sold in this offering is determined by negotiation between the representative of the underwriters and us. This price may not reflect the market price of our Class A Ordinary Shares following this offering. In addition, the market price of our Class A Ordinary Shares is likely to be highly volatile and may fluctuate substantially due to many factors, including:

        the volume and timing of sales of our products;

        the introduction of new products or product enhancements by us or others in our industry;

        disputes or other developments with respect to our or others’ intellectual property rights;

        our ability to develop, obtain regulatory clearance or approval for, and market new and enhanced products on a timely basis;

        product liability claims or other litigation;

        quarterly variations in our results of operations or those of others in our industry;

        media exposure of our products or of those of others in our industry;

        changes in governmental regulations;

        changes in earnings estimates or recommendations by securities analysts; and

        general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors

In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may significantly affect the market price of our Class A Ordinary Shares, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our Class A Ordinary Shares shortly following this offering. If the market price of our Class A Ordinary Shares after this offering does not ever exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.

In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business.

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Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A Ordinary Shares may view as beneficial.

We will adopt a dual-class share structure such that our ordinary shares will consist of Class A Ordinary Shares and Class B Ordinary Shares effective immediately prior to the completion of this offering. In respect of matters requiring the votes of shareholders, each Class A Ordinary Share is entitled to one vote and each Class B Ordinary Share is entitled to [thirty] votes. Under our Articles, Class B Ordinary Shares are not convertible into Class A Ordinary Shares. Class A Ordinary Shares are not convertible into Class B Ordinary Shares. Only Class A Ordinary Shares are tradable on the market immediately after consummation of this offering.

After this offering, the holder of Class B ordinary shares will have the ability to control matters requiring shareholders’ approval, including any amendment of our memorandum and articles of association. Any future issuances of Class B ordinary shares may be dilutive to the voting power of holders of Class A ordinary shares. As a result of the dual-class share structure and the concentration of ownership, holders of Class B ordinary shares have and will continue to have considerable influence over matters such as decisions regarding mergers and consolidations, election of directors and other significant corporate actions. Such holders may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our Class A Ordinary Shares. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A Ordinary Shares may view as beneficial.

Our share is expected to initially trade under $5.00 per Class A Ordinary Share and thus could be known as a penny stock, subject to certain exceptions. Trading in penny stocks has certain restrictions and these restrictions could negatively affect the price and liquidity of our Class A Ordinary Shares.

Our stock is expected to initially trade below $5.00 per share. As a result, our stock could be known as a “penny stock”, subject to certain exceptions, which is subject to various regulations involving disclosures to be given to you prior to the purchase of any penny stock. The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Depending on market fluctuations, our Class A Ordinary Shares could be considered to be a “penny stock”, subject to certain exceptions. A penny stock is subject to rules that impose additional sales practice requirements on broker/dealers who sell these securities to persons other than established members and accredited investors. For transactions covered by these rules, the broker/dealer must make a special suitability determination for the purchase of these securities. In addition, a broker/dealer must receive the purchaser’s written consent to the transaction prior to the purchase and must also provide certain written disclosures to the purchaser. Consequently, the “penny stock” rules may restrict the ability of broker/dealers to sell our Class A Ordinary Shares, and may negatively affect the ability of holders of shares of our Class A Ordinary Shares to resell them, if the “penny stock” rules apply. These disclosures require you to acknowledge that you understand the risks associated with buying penny stocks and that you can absorb the loss of your entire investment. Penny stocks generally do not have a very high trading volume. Consequently, the price of the stock is often volatile and you may not be able to buy or sell the stock when you want to.

Our share price may be volatile and may fluctuate.

The factors below may also have a material adverse effect on the market price of our Class A Ordinary Shares:

        fluctuations in our results of operations;

        our ability to enter new markets;

        negative publicity;

        changes in securities or industry analyst recommendations regarding our company, the sectors in which we operate, the securities market generally and conditions in the financial markets;

        regulatory developments affecting our industry;

        announcements of studies and reports relating to our products or those of our competitors;

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        changes in economic performance or market valuations of our competitors;

        actual or anticipated fluctuations in our quarterly results;

        conditions in the industries in which we operate;

        announcements by us or our competitors of new products, acquisitions, strategic relations, joint ventures or capital commitments;

        additions to or departures of our key executives and employees;

        fluctuations of exchange rates;

        release or expiry of lock-up or other transfer restrictions on our outstanding Class A Ordinary Shares; and

        sales or perceived sales of additional shares of our Class A Ordinary Shares.

In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the issuer that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit and divert the time and attention of our management, which could seriously harm our business.

We intend to grant employee share options and other share-based awards in the future. We will recognize any share-based compensation expenses in our consolidated statements of comprehensive loss. Any additional grant of employee share options and other share-based awards in the future may have a material adverse effect on our results of operation.

In connection with this offering, we intend to adopt an employee share option plan in 2023, or the 2023 ESOP, for the purpose of granting share-based compensation awards, in an aggregate amount of up to 10% of our issued and outstanding Class A ordinary shares following this offering, to our employees, directors and consultants to incentivize their performance and align their interests with ours. Under the 2023 ESOP, we expect to be permitted to issue options to purchase up to [________] Class A ordinary shares. As of the date of this prospectus, we intend to grant options to purchase [_________] Class A ordinary shares, no options to purchase Class A ordinary shares have been exercised and no Class A ordinary shares have been issued upon exercised vested options, in each case under the 2023 ESOP. As a result of these grants and potential future grants, we expect to continue to incur significant share-based compensation expenses in the future. The amount of these expenses is based on the fair value of the share-based awards. We account for compensation costs for all share options using a fair-value based method and recognize expenses in our consolidated statements of profit or loss and other comprehensive income. The expenses associated with share-based compensation will decrease our profitability, perhaps materially, and the additional securities issued under share-based compensation plans will dilute the ownership interests of our shareholders. However, if we limit the scope of our share-based compensation plan, we may not be able to attract or retain key personnel who expect to be compensated by options.

If we fail to meet applicable listing requirements, the NYSE Group may delist our Class A Ordinary Shares from trading, in which case the liquidity and market price of our Class A Ordinary Shares could decline.

Assuming our Class A Ordinary Shares are listed on the NYSE Group, we cannot assure you that we will be able to meet the continued listing standards of NYSE in the future. If we fail to comply with the applicable listing standards and NYSE delists our Class A Ordinary Shares, we and our shareholders could face significant material adverse consequences, including:

        a limited availability of market quotations for our Class A Ordinary Shares;

        reduced liquidity for our Class A Ordinary Shares;

        a determination that our Class A Ordinary Shares are “penny stock”, which would require brokers trading in our Class A Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Class A Ordinary Shares;

        a limited amount of news about us and analyst coverage of us; and

        a decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future.

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The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because we expect that our Class A Ordinary Shares will be listed on the NYSE Group, such securities will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer listed on the NYSE Group, our securities would not be covered securities and we would be subject to regulations in each state in which we offer our securities.

We have identified one material weakness in our internal control over financial reporting. If we are unable to remediate the material weakness, or if our remediation of the material weakness is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely consolidated financial statements could be impaired, investors may lose confidence in our financial reporting and the trading price of our Class A ordinary shares may decline.

Pursuant to Section 404 of Sarbanes-Oxley Act of 2002, our management will be required to report upon the effectiveness of our internal control over financial reporting beginning with the annual report for our fiscal year ending December 31, 2024. When we lose our status as an “emerging growth company” and reach an accelerated filer threshold, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, we will need to upgrade our information technology systems, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. If we or, if required, our auditor is unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting and the trading price of our Class A ordinary shares may decline.

We and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting as of December 31, 2022. The material weakness identified is our lack of sufficient accounting personnel with appropriate U.S. GAAP knowledge to prepare financial statements in accordance with U.S. GAAP and SEC reporting requirements. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control under the Sarbanes-Oxley Act of 2002 for purposes of identifying and reporting any weakness in our internal control over financial reporting. Had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional material weaknesses or control deficiencies may have been identified.

We are working to remediate the material weakness and are taking steps to strengthen our internal control over financial reporting through the development and implementation of processes and controls over the financial reporting process. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Internal Control Over Financial Reporting.” However, we cannot assure you that these measures will significantly improve or remediate the material weakness described above.

We cannot assure you that there will not be additional material weaknesses or any significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its reviews under Section 404 of the Sarbanes-Oxley Act of 2002, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Class A ordinary shares could decline, and we could be subject to sanctions or investigations by the NYSE, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

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We do not intend to pay cash dividends on our Ordinary Shares in the foreseeable future.

We have never paid dividends on Ordinary Shares and do not currently anticipate paying any cash dividends on our Ordinary Shares in the foreseeable future. Under Cayman Islands law, any payment of dividends would be subject to relevant legislation and our articles of association, which provide that all dividends must be approved by our board of directors and, in some cases, our shareholders, and may only be paid from our distributable profits available for the purpose, determined on an unconsolidated basis.

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies, including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we remain an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important.

The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We do not plan to “opt out” of such exemptions afforded to an emerging growth company. As a result of this election, our financial statements may not be comparable to those of companies that comply with public company effective dates.

We qualify as a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that permit less detailed and less frequent reporting than that of a U.S. domestic public company.

Upon the closing of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant events. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our Class A Ordinary Shares. In addition, foreign private issuers are not required to file their annual report on Form 20-F until one hundred twenty (120) days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within seventy-five (75) days after the end of each fiscal year. Foreign private issuers also are exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

If we lose our status as a foreign private issuer, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and NYSE rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain and maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.

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As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from NYSE corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.

As a foreign private issuer, we are permitted to take advantage of certain provisions in the NYSE rules that allow us to follow our home country law for certain governance matters. Certain corporate governance practices in our home country, the Cayman Islands, may differ significantly from corporate governance listing standards. Currently, we do not plan to rely on home country practices with respect to our corporate governance after we complete this offering. If we choose to follow home country practices in the future, our shareholders may be afforded less protection than they would otherwise enjoy under the NYSE corporate governance listing standards applicable to U.S. domestic issuers.

There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our Class A Ordinary Shares.

We will be classified as a passive foreign investment company, or PFIC, for any taxable year if either (a) 75% or more of our gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of our assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income (the “asset test”). Based upon our current and expected income and assets, including goodwill (taking into account the expected proceeds from this offering) and projections as to the market price of our Class A Ordinary Shares following the completion of this offering, we do not presently expect to be classified as a PFIC for the current taxable year or the foreseeable future.

While we do not expect to be treated as a PFIC, because the value of our assets for purposes of the asset test may be determined by reference to the market price of our Class A Ordinary Shares, fluctuations in the market price of our Shares may cause us to become a PFIC for the current or subsequent taxable years. The determination of whether we will be or become a PFIC will also depend, in part, on the composition and classification of our income, including the relative amounts of income generated by and the value of assets of our strategic investment business as compared to our other businesses. Because there are uncertainties in the application of the relevant rules, it is possible that the Internal Revenue Service, or the IRS, may challenge our classification of certain income and assets as non-passive which may result in our being or becoming a PFIC in the current or subsequent years. In addition, the composition of our income and assets will also be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. If we determine not to deploy significant amounts of cash for active purposes, our risk of being a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year.

If we are a PFIC in any taxable year, a U.S. Holder (as defined in “Taxation — United States Federal Income Tax Considerations”) may incur significantly increased United States income tax on gain recognized on the sale or other disposition of our Class A Ordinary Shares and on the receipt of distributions on our Class A Ordinary Shares to the extent such gain or distribution is treated as an “excess distribution” under the United States federal income tax rules and such holder may be subject to burdensome reporting requirements. Further, if we are a PFIC for any year during which a U.S. Holder holds our Class A Ordinary Shares, we will generally continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our Class A Ordinary Shares. For more information see “Taxation — United States Federal Income Tax Considerations — Passive Foreign Investment Company Rules.”

Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules to the Class A Ordinary Shares.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of our Ordinary Shares are directly or indirectly held by residents of the United States and we fail to meet additional requirements necessary to maintain our foreign private

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issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the NYSE rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.

We will have broad discretion in the use of proceeds of this offering designated for working capital and general corporate purposes.

We intend to use the net proceeds from this offering for strengthening sales and marketing, research and development, and working capital and general corporate purposes, including future capital expenditures and increasing our liquidity. Within those categories, we have not determined the specific allocation of the net proceeds of this offering. Our management will have broad discretion over the use and investment of the net proceeds of this offering within those categories. Accordingly, investors in this offering have only limited information concerning management’s specific intentions and will need to rely upon the judgment of our management with respect to the use of proceeds.

Our pre-IPO shareholders will be able to sell their shares after the completion of this offering subject to restrictions under Rule 144 under the Securities Act, which could impact the trading price of our Class A Ordinary Shares.

[261,389,639] Ordinary Shares are issued and outstanding as of the date of this prospectus. Our pre-IPO shareholders may be able to sell their Ordinary Shares under Rule 144 after the completion of this offering. See “Shares Eligible for Future Sale” below. Because these shareholders have paid a lower price per Ordinary Share than participants in this offering, when they are able to sell their pre-IPO shares under Rule 144, they may be more willing to accept a lower sales price than the IPO price, which could impact the trading price of our Class A Ordinary Shares following the completion of the offering, to the detriment of participants in this offering. Under Rule 144, before our pre-IPO shareholders can sell their shares, in addition to meeting other requirements, they must meet the required holding period. We do not expect any of the Ordinary Shares to be sold pursuant to Rule 144 during the pendency of this offering.

Failure to comply with anticorruption and anti-money laundering laws, including the FCPA and similar laws associated with activities outside of the United States, could subject us to penalties and other adverse consequences.

We are subject to the Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq., referred to as the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the UK Bribery Act, and possibly other anti-bribery and anti-money laundering laws in countries in which we conduct activities. We face significant risks if we fail to comply with the FCPA and other anti-corruption laws that prohibit companies and their employees and third-party intermediaries from promising, authorizing, offering, or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties, and private-sector recipients for the purpose of obtaining or retaining business, directing business to any person, or securing any advantage. Any violation of the FCPA, other applicable anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, or severe criminal or civil sanctions, which could have a material adverse effect on our reputation, business, operating results, and prospects. In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources, significant defense costs, and other professional fees.

We expect to incur significant additional costs as a result of being a public company, which may materially and adversely affect our business, financial condition and results of operations.

Upon completion of this offering, we expect to incur costs associated with corporate governance requirements that will become applicable to us as a public company, including rules and regulations of the SEC, under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Exchange Act, as well as the rules of the NYSE. These rules and regulations are expected to significantly increase our accounting, legal and financial compliance costs and make some activities more time-consuming. We also expect these rules and regulations to make it more expensive for us to obtain and maintain directors’ and officers’ liability insurance. As a

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result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Accordingly, increases in costs incurred as a result of becoming a publicly traded company may materially and adversely affect our business, financial condition and results of operations.

Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.

If a trading market for our securities develops, the trading market will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our securities will have had relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline and result in the loss of all or a part of your investment in us.

Recently introduced economic substance legislation of the Cayman Islands may impact us and our operations.

The Cayman Islands, together with several other non-European Union jurisdictions, has recently introduced legislation aimed at addressing concerns raised by the Council of the European Union as to offshore structures engaged in certain activities which attract profits without real economic activity. With effect from January 1, 2019, the International Tax Co-operation (Economic Substance) Act (Revised), or the Substance Law, and issued Regulations and Guidance Notes came into force in the Cayman Islands introducing certain economic substance requirements for “relevant entities” which are engaged in certain “relevant activities,” which in the case of exempted companies incorporated before January 1, 2019, will apply in respect of financial years commencing July 1, 2019 and onwards. A “relevant entity” includes an exempted company incorporated in the Cayman Islands, as is DDC Cayman; however, it is anticipated that our Company may remain out of scope of the legislation or else be subject to more limited substance requirements. Although it is presently anticipated that the Substance Law will have little material impact on us and our operations, as the legislation is new and remains subject to further clarification and interpretation, it is not currently possible to ascertain the precise impact of these legislative changes on us and our operations.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “goal,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements and opinions contained in this prospectus are based upon information available to us as of the date of this prospectus and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements include statements about:

        timing of the development of future business;

        capabilities of our business operations;

        expected future economic performance;

        competition in our market;

        continued market acceptance of our services and products;

        protection of our intellectual property rights;

        changes in the laws that affect our operations;

        inflation and fluctuations in foreign currency exchange rates;

        our ability to obtain and maintain all necessary government certifications, approvals, and/or licenses to conduct our business;

        continued development of a public trading market for our securities;

        the cost of complying with current and future governmental regulations and the impact of any changes in the regulations on our operations;

        managing our growth effectively;

        projections of revenue, earnings, capital structure and other financial items;

        fluctuations in operating results;

        dependence on our senior management and key employees; and

        other factors set forth under “Risk Factors.”

You should refer to the section titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus forms a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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INDUSTRY AND MARKET DATA

We are responsible for the information contained in this prospectus and any free writing prospectus we prepare or authorize. This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties, as well estimates by our management based on such data. The market data and estimates used in this prospectus involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such data and estimates. While we believe that the information from these industry publications, surveys and studies is reliable, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

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USE OF PROCEEDS

After deducting the estimated underwriter’s discount and offering expenses payable by us, we expect to receive net proceeds of approximately $[__________] (or $[__________] in the aggregate if the underwriter exercises its over-allotment option in full) from this offering.

We plan to use the net proceeds of this offering as follows:

        50% for working capital to fund business expansion;

        25% for acquiring suitable targets that operate RTC/RTE brands that complement our current sales channels and customer base, have gross profit margins that are comparable to our Group and are expected to be accretive and profitable. We are still identifying acquisition targets or within negotiations with the sellers, and have not signed Term Sheets or Sales and Purchase Agreements relating to acquisition of targets that require the use of proceeds from the offering;

        15% for repayment of loan from shareholders and related parties. We plan to repay and restructure our C-1 shareholder loans, incurred on January 22, 2021, which have a total principal amount of USD9,010,736, accruing 8% interest per annum. The C-1 shareholder loans will be due on January 1, 2024. We plan to use our proceeds to repay part of this shareholder loan balance, and for the remaining, restructure into convertible debt or renegotiate loan terms; and

        10% for cash reserve.

The precise amounts and percentage of proceeds we devote to particular categories of activity, and their priority of use, will depend on prevailing market and business conditions as well as on the nature of particular opportunities that may arise from time to time. Accordingly, we reserve the right to change the use of proceeds that we presently anticipate and describe herein.

The foregoing is set forth based on the order of priority of each purpose and represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

We have agreed with the underwriters in this offering to establish an escrow account in the United States and to fund such account with the cash portion of any fees due and payable to the underwriters from this offering. The escrow account will be interest bearing, and we will be free to invest the assets in securities. All funds that are not subject to an indemnification claim will be returned to us after the applicable period expires.

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DIVIDEND POLICY

For the years ended December 31, 2022 and 2021, we have not declared any dividend. We do not anticipate declaring or paying dividends in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business.

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CAPITALIZATION

The following table sets forth our capitalization as of [March 31, 2023] presented on:

        an actual basis;

        a pro forma basis to reflect the automatic conversion of all our outstanding convertible preference shares and convertible loans into [_____] of our ordinary shares; and

        on a pro forma as adjusted basis to give effect to (i) the automatic conversion of all our outstanding convertible preference shares and convertible loans into [_____] of our ordinary shares concurrently with the completion of this offering and (ii) the issuance and sale of [_____] Class A ordinary shares by us in this offering at an assumed initial public offering price of US$[____] per share after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma and pro forma as adjusted information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the initial public offering price of our Class A ordinary shares and other terms of this offering determined at pricing.

You should read this information together with our audited consolidated financial statements appearing elsewhere in this prospectus and the information set forth under the sections titled “Selected Consolidated Financial Data,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

As of March 31, 2023

   

Actual

 

Pro forma

 

Pro forma as adjusted

   

RMB

 

US$

 

RMB

 

US$

 

RMB

 

US$

   

(except for share and per share data)

Mezzanine equity

                       

Series A redeemable convertible preferred shares (US$0.001 par value; [__] shares authorised, issued and outstanding as of March 31, 2023)

 

         ]

 

         ]

               

Series A-1 redeemable convertible preferred shares (US$0.001 par value; [__] shares authorised, issued and outstanding as of March 31, 2023)

 

         ]

 

         ]

               

Series B redeemable convertible preferred shares (US$0.001 par value; [__] shares authorised, issued and outstanding as of March 31, 2023)

 

         ]

 

         ]

               

Series B-1 redeemable convertible preferred shares (US$0.001 par value; [__] shares authorised, issued and outstanding as of March 31, 2023)

 

         ]

 

         ]

               

Series B-2 redeemable convertible preferred shares (US$0.001 par value; [__] shares authorised, [__] shares issued and outstanding as of March 31, 2023)

 

         ]

 

         ]

               

Series C redeemable convertible preferred shares (US$0.001 par value; [__] shares authorised, issued and outstanding as of March 31, 2023)

 

         ]

 

         ]

               

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As of March 31, 2023

   

Actual

 

Pro forma

 

Pro forma as adjusted

   

RMB

 

US$

 

RMB

 

US$

 

RMB

 

US$

   

(except for share and per share data)

Series C-1 redeemable convertible preferred shares (US$0.001 par value; [__] shares authorized, issued and outstanding as of March 31, 2023)

 

         ]

 

         ]

               

Total mezzanine equity

 

         ]

 

         ]

               
                         

Shareholders’ deficit

                       

Class A ordinary shares (US$0.001 par value per share, [__] shares authorised, [__] shares issued and outstanding as of March 31, 2023)

 

         ]

 

         ]

               

Class B ordinary shares (US$0.001 par value per share, [__] shares authorised, issued and outstanding as of March 31, 2023)

 

         ]

 

         ]

               

Series seed convertible preferred shares (US$0.001 par value, [__] shares authorised, issued and outstanding as of March 31, 2023)

 

         ]

 

         ]

               

Additional paid-in capital

 

         ]

 

         ]

               

Accumulated other comprehensive loss

                       

Accumulated deficit

                       

Non-controlling interest

                       

Total shareholders’ equity

                       

Total capitalization

                       

____________

(1)      Pro forma additional paid in capital reflects the net proceeds we expect to receive, after deducting underwriting fee, underwriter expense allowance and other expenses. We expect to receive net proceeds of approximately US$[_________] (offering proceeds of US$[___________], less underwriting discounts of US$[_________] and offering expenses of $[________] ). The additional paid in capital reflects the net proceeds we expect to receive, after deducting underwriting discounts, Underwriter expense allowance and other expenses.

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DILUTION

If you invest in our Class A Ordinary Shares, your interest will be diluted to the extent of the difference between the initial public offering price per Class A Ordinary Share and our net tangible book value per Class A Ordinary Share after this offering. Dilution results from the fact that the initial public offering price per Class A Ordinary Share is substantially in excess of the book value per Ordinary Share attributable to the existing shareholders for our presently outstanding Ordinary Shares and holders of our convertible preference shares and convertible loans which will automatically convert into our Class A Ordinary Shares concurrently with the completion of this offering.

The net tangible book value of our Ordinary Shares as of [March 31, 2023] was approximately US$[__] million, or US$[__] per Ordinary Shares. Net tangible book value represents the amount of our total consolidated assets, less the amount of our intangible assets, goodwill, total consolidated liabilities and mezzanine equity.

Pro forma net tangible book value per Ordinary Share is calculated after giving effect to the automatic conversion of all of our issued and outstanding convertible preference shares and convertible loans. Pro forma as adjusted net tangible book value per Ordinary Share is calculated after giving effect to the automatic conversion of all our issued and outstanding convertible preference shares, convertible loans and the issuance of Class A Ordinary Shares by us in this offering. Dilution is determined by subtracting pro forma as adjusted net tangible book value per Ordinary Share from the public offering price per Ordinary Share.

Without taking into account any other changes in net tangible book value after [March 31, 2023], other than to give effect to (i) the automatic conversion of all of our issued and outstanding convertible preference shares and convertible loans into [__] of our Class A Ordinary Shares concurrently with the completion of this offering and (ii) the issuance and sale by us of [__________] Class A Ordinary Shares in this offering at an assumed initial public offering price of US$[____] per Class A Ordinary Share after deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2023 would have been US$[_______], or US$[____] per outstanding Class A Ordinary Share. This represents an immediate increase in pro forma net tangible book value of US$[___] per Class A Ordinary Share to the existing shareholders and an immediate dilution in net tangible book value of US$[___] per Class A Ordinary Share to investors purchasing in this offering. The following table illustrates such dilution:

 

Per ordinary
share

   

Without
exercise of
over-allotment
option

 

Full
exercise of
over-allotment option

Actual net tangible book value per Ordinary Share as of March 31, 2023

 

US$          [____]

 

US$         [____]

Pro forma net tangible book value per Ordinary Share after giving effect to the automatic conversion of all of our issued and outstanding convertible preference shares and convertible loans into Ordinary Shares

 

US$          [____]

 

US$         [____]

Pro forma as adjusted net tangible book value per Ordinary Share after giving effect to (i) the automatic conversion of all of our issued and outstanding convertible preference shares and convertible loans into Ordinary Shares and (ii) the issuance of [________] Ordinary Shares in in this offering

 

US$          [____]

 

US$         [____]

Assumed initial public offering price

 

US$          [____]

 

US$         [____]

Dilution in net tangible book value per Ordinary Shares to new investors in the offering

 

US$          [____]

 

US$         [____]

A US$1.00 increase (decrease) in the assumed public offering price of US$[___] per Ordinary Shares would increase (decrease) our pro forma net tangible book value per share after this offering by approximately US$[_____], and increase the pro forma net tangible book value per ordinary share after giving effect to the automatic conversion of our convertible preference shares, convertible loans and this offering by US$[___] per Ordinary Share and the dilution in pro forma net tangible book value per Ordinary Share to new investors in this offering by US$[___] per Ordinary Share, assuming no change to the number of Ordinary Share offered by us as set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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The following table sets forth, on a pro forma as adjusted basis as of [March 31, 2023], the differences between existing shareholders, including holders of our convertible preference shares, convertible loans and new investors with respect to the number of Ordinary Shares purchased from us, the total consideration paid and the average price per Ordinary Share paid before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 



Ordinary Shares Purchased

 

Total Consideration

 

Average
Price per
Ordinary
Shar
e

   

Number

 

Percent

 

Amount

 

Percent

 
   

(in thousand of US$, except number of shares and percentages)

Existing shareholders (Ordinary Shareholders)

 

[________]

 

[__]

 

 

US$      [___]

 

[___]

 

 

US$      [___]

New investors from public offering

 

[________]

 

[__]

%

 

US$      [___]

 

[___]

%

 

US$      [___]

Total

 

[________]

 

100

%

 

US$      [___]

 

100

%

 

US$      [___]

The pro forma as adjusted information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our Class A Ordinary Shares and other terms of this offering determined at pricing.

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CORPORATE HISTORY AND STRUCTURE

Our History

DDC Enterprise Limited is a Cayman Islands holding company and conducts its operations primarily in China through its wholly-owned or controlled subsidiaries. We were founded in Hong Kong in 2012 by Ms. Norma Ka Yin Chu as an online platform which distributed food recipes and culinary content. Subsequently, we further expanded our business to provide advertising services to brands that wish to place advertisements on our platform or video content. In 2015, we entered the Mainland China market through the establishment of Shanghai DayDayCook Information Technology Co., Ltd. (“SH DDC”) and Shanghai Weishi Information Technology Co., Ltd. (“Weishi”). In 2017, we expanded our business from content creation to content commerce. Later in 2019, we extended our business to include the production and sale of, among others, own-branded RTH, RTC convenient meal solution products.

Our Corporate Structure

During the periods covered by the financial statements included elsewhere in this prospectus, SH DDC had entered into a series of contractual arrangement with Weishi and Shanghai City Modern Agriculture Development Co., Ltd. (“City Modern”), in 2016 and 2019 respectively, which allows SH DDC to exercise effective control over Weishi and City Modern and receive substantially all the economic benefits of Weishi, City Modern and their consolidated entities via variable interest entity structures. As of the date of this prospectus, such contractual arrangements with the Weishi and City Modern VIEs have been terminated. After the termination of the contractual arrangements with Weishi, we will continue cooperation with it in certain online service areas. For instance, Weishi will develop and maintain the WeChat mini-program related to our business, ensure the ordinary operation of our official websites, make sure the cyber security of the systems and maintain our IT systems and servers. As advised by the PRC legal adviser, our continued cooperation with Weishi does not constitute a VIE because that, since the termination of the contractual arrangements with Weishi, (i) we have no longer enjoyed any controlling rights or decision-making power over the operation of Weishi; (ii) Weishi has independently operated its assets and properties and conducted its businesses, and its shareholder, instead of us, has enjoyed its residual interests and born the loss (if any); (iii) we and Weishi have no contractual relations other than the service contract to be signed between SH DDC and Weishi; (iv) we have not enjoyed any interests or benefits, or any other transfers, contributed by Weishi, or offered any financial assistance for Weishi.

DDC Cayman directly and wholly owns (a) DDC OpenStudio Limited (“DDC OpenStudio”), a Cayman Islands company incorporated in May 2017, (b) Perfect Foods Inc. (“Perfect Foods Inc.”), a Cayman Islands company incorporated in September 2019 and (c) Grand Leader Technology Limited (“Grand Leader”), a Hong Kong company incorporated in January 2011. DDC OpenStudio in turn holds all the share capital of DDC OpenStudio Media Limited (“DDC OpenStudio Media”), which was incorporated in July 2018 in Hong Kong. Perfect Foods Inc. in turns holds all the share capital of Good Foods HK Limited (“Good Foods HK”), which was incorporated in September 2019 in Hong Kong.

Through its wholly-owned subsidiary Grand Leader, which was incorporated for the purpose of handling advertising, business-to-consumer e-commerce and cooking classes in Hong Kong, DDC Cayman owns a direct equity interest in SH DDC and Shanghai Lashu Import and Export Trading Co., Ltd. (“SH Lashu”). SH DDC was established in January 2015 in China for the purpose of engaging in technology development of computer hardware and software, food circulation and advertising production in China, whilst SH Lashu was established in August 2017 in China as an import and export vehicle in China.

As of December, 2017, Shanghai Youlong Industrial Co., Ltd. (“SH Youlong”), a wholly owned subsidiary of SH DDC, was established for the purpose of engaging in cooking class services, food and beverage and retail business in China. SH Youlong owns a direct equity interest in Guangzhou Youlong DayDayCook Food and Beverage Co., Ltd., which was established in March 2018 with its main business of engaging in cooking class services, food and beverage and retail business in China.

As of June 2019, Shanghai Juxiang Culture Media Co., Ltd. (“SH Juxiang”), a wholly owned subsidiary of SH DDC, was established for the purpose of engaging in e-commerce business in China.

As of January 2019, SH DDC acquired 60% equity interest in Fujian Jinjiang Yunmao Electronic Commerce Co., Ltd. (“Yunmao”), a limited liability company incorporated under the Laws of the PRC, for a combination of a share option consideration equivalent to a value of RMB10.2 million, and a cash consideration of RMB10.2 million, to engage in food and beverage retail and e-commerce Yunmao owns a direct equity interest in Hangzhou Damao Technology Co., Ltd., which was established in June 2020 with a main business of e-commerce.

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In January 2021, SH DDC acquired a number of online stores from Chongqing Mengwei Technology Co., Ltd. (“CQ MW”), Liao Xuefeng, Chongqing Changshou District Weibang Network Co., Ltd. and Chongqing Yizhichan Snack Food Electronic Commerce Service Department (the “Transferors”). In July 2021, SH DDC and Chongqing Mengwei Technology Co., Ltd. set up a joint venture named Chongqing DayDayCook E-commerce Co., Ltd. (“CQ DDC”) which is established for operating newly set-up online stores, in which, SH DDC holds 51% equity interest. CQ DDC was established for the purpose of engaging in online food retail business in China. However, due to certain limitations from the policies of third party online platforms, such eight online stores currently cannot be transferred to CQ DDC and the operation of the eight online stores are still delegated to the Transferors as nominal holders through relevant contractual agreements. In April 2023, SH DDC acquired more Pinduoduo online stores from CQ MW, Weibang, Yizhichan and Ningqi, and has been operating these online stores in the same way. These online stores are considered VIEs and SH DDC is the primary beneficiary. For a description of these contractual arrangements, see “Corporate History and Structure — Contractual Arrangements Regarding Several Online Stores — the Mengwei VIE” below. These contractual arrangements enable us to control those online stores and provide us the right to obtain substantially all of the economic benefits from such online stores.

On July 1, 2021, the Company, through its wholly owned subsidiary, SH DDC, entered into a purchase agreement (“the SPA”) with Mr. Zheng Dongfang and Mr. Han Min (“collectively the YJW Seller”), the shareholders of Fujian Yujiaweng Food Co., Ltd. (“Yujiaweng”) to acquire 60% interests of Yujiaweng’s product sales business, primarily including distribution contracts, the sales and marketing team, procurement team and other supporting function personnel (“the YJW Target Assets”). Yujiaweng is principally engaged in manufacturing and the distribution of snack foods. SH DDC and Mr. Zheng Dongfang agreed to form an entity (“YJW Newco”) with the Company holding 60% equity interest and Mr. Zheng Dongfang holding 40% equity interests. According to the SPA, during the period from July 1, 2021 until the date when YJW Newco is formed (“the transition period”), the Company manages and operates the Target Assets and is entitled to 60% of the net profit arising from the operation of the Target Assets.

On July 1, 2021, the Company, through its wholly owned subsidiary, SH DDC, entered into a purchase agreement (“the SPA”) with Mr. Xu Fuyi, (“the KeKe Seller”), the shareholder of Fujian Keke Food Co., Ltd. (“KeKe”) and Mr. Zheng Dongfang, the president of KeKe, to acquire a 60% interest in KeKe’s product sales business, primarily including distribution contracts, the sales and marketing team, procurement team and other supporting function personnel (“the KeKe Target Assets”). KeKe is principally engaged in manufacturing and distribution of candy products. SH DDC and Mr. Zheng Dongfang agreed to form an entity (“KeKe Newco”) with the Company holding 60% equity interest and Mr. Zheng Dongfang holding 40% equity interests. According to the SPA, during the period from July 1, 2021 and the date when KeKe Newco is formed (“the transition period”), the Company manages and operates the Target Assets and is entitled to 60% of the net profit arising from the operation of the Target Assets.

On February 1, 2022, the Company, through its wholly owned subsidiary, entered into a purchase agreement with Mr. LIN Kai Hang, Mr. SIO Leng Kit and Mr. Tang Wai Cheung, to acquire 51% shares of Lin’s Group Limited (“Lin’s Group”). Lin’s Group have its own brand “Deliverz” and principally engaged in manufacturing and distribution of RTC products with its major online sales channel. This was an upstream integration where Lin’s Group is the major supplier of RTC meal kits for the company’s Hong Kong operations. This acquisition allows the company to optimize cost structure for the RTC meal kits in the Hong Kong market. It also enables the company to expand its product offerings with its own production facility.

As of April 1, 2022, all contractual arrangements with Weishi and City Modern, have been terminated. As a result of the termination of the contractual arrangements with the Weishi and City Modern VIEs, we expect to be able to focus our capital and efforts on selling our products through online e-commerce platforms and offline distributors and retailers. We intend for the termination and discontinuation of business streams to reduce the company’s overall net losses, and free up capital to be allocated into our other fast growing RTH, RTC, RTE and plant based product businesses.

On May 1, 2022, the Company, through its wholly owned subsidiary, entered into a purchase agreement with Mr. Gao Xiaomin, Mr. Zhang Yi and Ms Chen Di, to acquire 51% shares of Shanghai Lishang Trading Ltd, (“Lishang”). Lishang is principally engaged in distribution of private label products. This acquisition was completed during the nation-wide lock down when the company expedited its strategy to diversify revenue streams and improve overall margin structure. Lishang has strong sales channel access into the corporate gifting channel which carries higher margin compared to the company’s existing e-commerce and offline distribution channels. By acquiring Lishang, the company now has healthier gross margins as well as access to sales and distribution partnerships with global FMCG brands such as Pepsi Co (Lays brand.) These partnerships in turn can help the company secure better traffic and overall sales conversion on social commerce platforms to drive higher sales for its own branded product business.

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On June 17, 2022, the “YJW Newco”, Quanzhou DayDayCook Food Co., Limited (“Quanzhou DDC”) was formed. As part of the transaction dated July 1, 2021, the YJW Target Assets and Keke Target Assets from the acquisition were transferred into Quanzhou DDC. And on the same day, SH DDC has obtained control over the YJW Target Assets and Keke Target Assets, and the results were consolidated into the Group.

On June 17, 2022, the “KeKe Newco”, Quanzhou Weishi Food Co., Limited was formed. The company does not hold any assets or operations.

The following diagram illustrates our corporate structure as of the date of this prospectus. Unless otherwise indicated, equity interests depicted in this diagram are held 100%.

Contractual Arrangements Regarding Several Online Stores — the Mengwei VIE

Agreements that provide us with control over the business of several online stores and allows us to receive economic benefits from those online stores

Purchase Agreement.    Pursuant to the Purchase Agreement entered into between SH DDC (the “Transferee”) and Chongqing Mengwei Technology Co., Ltd., Liao Xuefeng, Chongqing Changshou District Weibang Network Co., Ltd., Chongqing Yizhichan Snack Food Electronic Commerce Service Department (collectively, the “Transferors”), SH DDC purchased eight online stores and related business and assets from the Transferors, and would have the right to, including without limitation, control such online stores and the target assets, receive all the revenues generated from the business, freely use certain trademarks of the Transferor, sell products of certain brands of the Transferors, and control the receipt and payment accounts, third-party payment platform accounts and bank accounts of the online stores. In addition, each of the Transferors warranted that the online stores would be continually operated and served by persons designated by the Transferee, such as Liao Xuefeng, Zheng Haohua, etc. In April 2023, SH DDC entered into a similar purchase agreement with CQ MW, Weibang, Yizhichan and Chongqing Ningqi E-commerce Co. Ltd. for purchasing another four online stores and related business and assets.

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Store Operation Agreements.    Pursuant to the Store Operation Agreements entered into between SH DDC and Chongqing Mengwei, SH DDC shall be deemed as the owner, actual operator and investor of the online stores and Chongqing Mengwei is the nominal operator on the third-party online platforms. Additionally, the two parties agreed that the actual ownership, operation and management rights have been transferred from Chongqing Mengwei to SH DDC since January 12, 2021, and SH DDC would delegate the operation right of the online stores to Chongqing Mengwei, under which Chongqing Mengwei was authorized by SH DDC to enjoy certain rights set forth in this Agreement, such as to be registered as the nominal operator on the third-party online platforms, collect all proceeds from the online stores, manage the accounts in a way as provided by the SH DDC’s internal control system, etc. and would continually operate the online stores until being required to terminate by SH DDC. SH DDC would have the right to enjoy the ownership and the exclusive right of operation and management of the stores, the exclusive right of the revenue accounts, the property rights of the online stores as well as all the proceeds generated accordingly, and the right to supervise and correct improper fiduciary conduct, etc. Chongqing Mengwei would have the duty to participate in daily operation, except financial management, of the online stores, ensure the stability of the operational team, and provide development target and implementation plan, etc. Without prior written consent from SH DDC, Chongqing Mengwei are prevented from changing any information of the online stores, sub-entrusting the operation right or the related assets, transferring, disposing, or set any form of guarantee on the online stores and related proceeds.

Other Transferors, like Liao Xuefeng, Weibang, Yizhichan and Ningqi entered into similar store operation agreements as above with SH DDC.

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated statements of comprehensive income data (other than US$ data) for the year ended December 31, 2021 and 2022, the selected consolidated balance sheets data (other than US$ data) as of December 31, 2021 and 2022 and the selected consolidated statements of cash flows data (other than US$ data) for the years ended December 31, 2021 and 2022 have been derived from the audited consolidated financial statements included elsewhere in this prospectus.

The selected historical consolidated statements of comprehensive income data (other than US$ data) for the three months ended March 31, 2022 and 2023, the selected consolidated balance sheets data (other than US$ data) as of March 31, 2022 and 2023, and the selected consolidated statements of cash flows data (other than US$ data) for the three months ended March 31, 2022 and 2023 have been derived from unaudited condensed consolidated financial statements. Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.

Our historical results are not necessarily indicative of results to be expected for any future period. The information is only a summary and should be read in conjunction with our consolidated financial statements and related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere herein. The historical results included below and elsewhere in this prospectus are not indicative of our future performance.

 

For the Year Ended December 31,

 

For the Three Months Ended March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

RMB

 

USD

Consolidated Statements of Comprehensive Loss Data:

   

 

   

 

   

 

   

 

   

 

   

 

Total revenues

 

205,179,442

 

 

179,586,066

 

 

26,149,756

 

 

36,878,194

 

 

42,997,134

 

 

6,260,868

 

Total cost of revenues

 

(168,721,834

)

 

(135,659,197

)

 

(19,753,508

)

 

(28,212,763

)

 

(32,126,917

)

 

(4,678,042

)

Gross profit

 

36,457,608

 

 

43,926,869

 

 

6,396,248

 

 

8,665,431

 

 

10,870,217

 

 

1,582,826

 

Fulfilment expenses

 

(23,967,825

)

 

(10,630,884

)

 

(1,547,977

)

 

(5,037,639

)

 

(1,528,241

)

 

(222,529

)

Sales and marketing expenses

 

(59,239,750

)

 

(20,763,218

)

 

(3,023,359

)

 

(6,442,805

)

 

(4,512,564

)

 

(657,080

)

Research and development expenses

 

(233,663

)

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

(66,636,360

)

 

(53,543,862

)

 

(7,796,590

)

 

(10,465,021

)

 

(13,090,029

)

 

(1,906,056

)

Share based compensation

 

 

 

(38,993,201

)

 

(5,677,850

)

 

 

 

(1,560,833

)

 

(227,275

)

Loss from operations

 

(113,619,990

)

 

(80,004,296

)

 

(11,649,528

)

 

(13,280,034

)

 

(9,821,450

)

 

(1,430,114

)

Interest expenses

 

(22,842,091

)

 

(30,826,950

)

 

(4,488,752

)

 

(17,971,034

)

 

(3,717,723

)

 

(541,342

)

Interest income

 

9,783

 

 

465,162

 

 

67,733

 

 

100,967

 

 

589,469

 

 

85,833

 

Foreign currency exchange (loss)/gain, net

 

(147,413

)

 

671,007

 

 

97,706

 

 

176,238

 

 

163,486

 

 

23,805

 

Impairment loss for equity investments accounted for using measurement alternative

 

 

 

(22,705,285

)

 

(3,306,146

)

 

 

 

 

 

 

Gain from deconsolidation of VIEs

 

 

 

13,543,650

 

 

1,972,108

 

 

 

 

 

 

 

Other income

 

5,581,534

 

 

1,599,746

 

 

232,941

 

 

999,957

 

 

30,244

 

 

4,404

 

Other expenses, net

 

(266,083,985

)

 

 

 

 

 

 

 

 

 

 

Changes in fair value of financial instruments

 

(60,764,404

)

 

(1,875,889

)

 

(273,151

)

 

 

 

12,572,815

 

 

1,830,744

 

Loss before income tax expenses

 

(457,866,566

)

 

(119,132,855

)

 

(17,347,089

)

 

(29,973,906

)

 

(183,159

)

 

(26,670

)

Income tax (expense)/benefit

 

(816,868

)

 

(3,115,753

)

 

(453,689

)

 

406,153

 

 

(829,764

)

 

(120,823

)

Net loss

 

(458,683,434

)

 

(122,248,608

)

 

(17,800,778

)

 

(29,567,753

)

 

(1,012,923

)

 

(147,493

)

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As of December 31,

 

As of March 31,

   

2021

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

USD

Consolidated Balance Sheets Data:

   

 

   

 

   

 

   

 

   

 

Total current assets

 

119,465,669

 

 

155,642,065

 

 

22,663,239

 

 

131,815,608

 

 

19,193,939

 

Total non-current assets

 

109,035,295

 

 

99,735,708

 

 

14,522,644

 

 

109,043,961

 

 

15,878,030

 

Total assets

 

228,500,964

 

 

255,377,773

 

 

37,185,883

 

 

240,859,569

 

 

35,071,869

 

Total current liabilities

 

177,040,682

 

 

261,792,735

 

 

38,119,974

 

 

265,064,485

 

 

38,596,377

 

Total non-current liabilities

 

87,883,641

 

 

112,564,501

 

 

16,390,661

 

 

95,493,586

 

 

13,904,944

 

Total liabilities

 

264,924,323

 

 

374,357,236

 

 

54,510,635

 

 

360,558,071

 

 

52,501,321

 

Total mezzanine equity

 

1,149,874,154

 

 

1,368,520,061

 

 

199,271,953

 

 

1,379,164,415

 

 

200,821,890

 

Total shareholders’ deficit

 

(1,186,297,513

)

 

(1,487,499,524

)

 

(216,596,705

)

 

(1,498,862,917

)

 

(218,251,342

)

Total liabilities, mezzanine equity and shareholders’ deficit

 

228,500,964

 

 

255,377,773

 

 

37,185,883

 

 

240,859,569

 

 

35,071,869

 

 

For the Year Ended December 31,

 

For the Three Months Ended March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

RMB

 

USD

Consolidated Statements of Cash Flows Data:

   

 

   

 

   

 

   

 

   

 

   

 

Net cash used in operating activities

 

(91,425,290

)

 

(37,083,065

)

 

(5,399,713

)

 

(9,129,624

)

 

(12,017,703

)

 

(1,749,911

)

Net cash used in investing activities

 

(8,357,262

)

 

(444,627

)

 

(64,743

)

 

89,033

 

 

(1,773,222

)

 

(258,201

)

Net cash provided by financing activities

 

115,757,055

 

 

51,352,149

 

 

7,477,453

 

 

689,271

 

 

5,736,372

 

 

835,281

 

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

 

2,652,471

 

 

5,829,672

 

 

848,865

 

 

(236,440

)

 

(1,553,446

)

 

(226,202

)

Net increase in cash, cash equivalents and restricted cash

 

18,626,974

 

 

19,654,129

 

 

2,861,862

 

 

(8,587,760

)

 

(9,607,999

)

 

(1,399,033

)

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

 

58,623,527

 

 

77,250,501

 

 

11,248,544

 

 

77,250,501

 

 

96,904,630

 

 

14,110,407

 

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

 

77,250,501

 

 

96,904,630

 

 

14,110,406

 

 

68,662,741

 

 

87,296,631

 

 

12,711,374

 

Non-GAAP Financial Measure

We use adjusted net loss, non-GAAP financial measures, in evaluating our operating results and for financial and operational decision-making purposes. Adjusted net loss represents net loss excluding changes in income tax expense, interest expenses, interest income, foreign currency exchange (gain)/loss, net, impairment loss for equity investments accounted for using measurement alternative, gain from deconsolidation of VIEs, other income, other expenses, net, changes in fair value of financial instruments, depreciation and amortization, share-based compensation, allowance for other current assets and allowance of accounts receivable.

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We believe that the adjusted net loss help identify underly trends in our business that could otherwise be distorted by the effect of certain expenses that we are included in net loss. We believe that adjusted net loss provides useful information about our operating results, enhance the overall understanding of our past performance and future prospect and allow for greater visibility with respect to key metrics used by our management uses in its financial and operational decision making.

 

For the year ended December 31

 

For the Three Months Ended March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

US$

 

RMB

 

RMB

 

USD

Net loss

 

(458,683,434

)

 

(122,248,608

)

 

(17,800,778

)

 

(29,567,753

)

 

(1,012,923

)

 

(147,493

)

Add:

   

 

   

 

   

 

   

 

   

 

   

 

Income tax expense/(benefit)

 

816,868

 

 

3,115,753

 

 

453,689

 

 

(406,153

)

 

829,764

 

 

120,823

 

Interest expenses

 

22,842,091

 

 

30,826,950

 

 

4,488,752

 

 

17,971,034

 

 

3,717,723

 

 

541,342

 

Interest income

 

(9,783

)

 

(465,162

)

 

(67,733

)

 

(100,967

)

 

(589,469

)

 

(85,833

)

Foreign currency exchange (gain)/loss, net

 

147,413

 

 

(671,007

)

 

(97,706

)

 

(176,238

)

 

(163,486

)

 

(23,805

)

Impairment loss for equity investments accounted for using measurement alternative

 

 

 

22,705,285

 

 

3,306,146

 

 

 

 

 

 

 

Gain from deconsolidation of VIEs

 

 

 

(13,543,650

)

 

(1,972,108

)

 

 

 

 

 

 

Other income

 

(5,581,534

)

 

(1,599,746

)

 

(232,941

)

 

(999,957

)

 

(30,244

)

 

(4,404

)

Other expenses, net

 

266,083,985

 

 

 

 

 

 

 

 

 

 

 

Changes in fair value of financial instruments

 

60,764,404

 

 

1,875,889

 

 

273,151

 

 

 

 

(12,572,815

)

 

(1,830,744

)

Depreciation and amortization

 

5,110,730

 

 

3,544,322

 

 

516,093

 

 

1,055,564

 

 

709,442

 

 

103,303

 

Share-based compensation

 

 

 

38,993,201

 

 

5,677,850

 

 

 

 

1,560,833

 

 

227,275

 

Allowance for other current assets

 

 

 

4,262,335

 

 

620,644

 

 

 

 

27,500

 

 

4,004

 

Allowance of accounts receivable

 

4,324,627

 

 

5,334,098

 

 

776,705

 

 

536,920

 

 

563,398

 

 

82,037

 

Adjusted net loss

 

(104,184,633

)

 

(27,870,340

)

 

(4,058,236

)

 

(11,687,550

)

 

(6,960,277

)

 

(1,013,495

)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and analysis and other parts of this prospectus contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. You should carefully read the “Risk Factors” section of this prospectus to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

Overview

We are a leading content driven consumer brand in China. We offer easy, convenient ready-to-heat (“RTH”), ready-to-cook (“RTC”), ready-to-eat (“RTE”) (i.e. meal products are typically portioned with only the servings you actually need, which can reduce waste! Convenience is at an all-time high with ready-to-eat prepared food. They reduce the time and energy needed to prepare a meal at home while never compromising on food safety, variety, and selection. We also offer plant-based meal products promoting healthier lifestyle choices to our predominately Millennial and Generation Z (“GenZ”) customer-base. We are also engaged in the provision of advertising services.

We have an omni-channel (online and offline) sales, end-to-end (“E2E”) product development and distribution strategy. We have partnered with (i) large China-based e-commerce platforms, (ii) leading livestreaming, video-sharing, content-marketing platforms, and (iii) online-merged-offline (“OmO”) group-buy platforms to drive online sales. We have access to a network of direct-to-consumer (“D2C”) retail, wholesale Point-of-Sales (“POS”), and other corporate partnerships for the offline sale and distribution of our products. We continue to engage and grow our customer-base through curated and relevant video-content, product placement, and a customer-feedback informed product development and distribution strategy.

For the three months ended March 31, 2023, we recorded RMB43.0 million (or US$6.3 million) in total revenue compared to RMB36.9 million for the three months ended March 31, 2022, representing a 16.6% increase. Subsequent to March 31, 2023, we signed purchase agreements for three acquisitions. Assuming these three acquisitions had taken place on 1 January 2023, the unaudited pro forma revenue of the Company for the three months ended March 31, 2023 would be RMB68.9 million (or US$10.0 million).

The increase in total revenue was due to the increase in offline consumer product sales of RMB31.7 million, net off with the decrease in online consumer product sales of RMB24.9 million. In the second quarter of 2022, nationwide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant, which led to disruption to all social and economic activities. As a result, fewer shipping locations were open, and our e-commerce operations were adversely affected. As a result, we decided to expand DayDayCook’s brand portfolio via acquisition of target companies with more scope of offline distributors.

For the three months ended March 31, 2023, we incurred net loss of RMB1.0 million (US$0.1 million) and net loss of RMB29.6 million for the three months ended March 31, 2022. We also had negative cash flows from operating activities of RMB12.0 million (US$1.7 million) and RMB9.1 million for the three months ended March 31, 2023 and 2022 respectively. Management uses the adjusted net loss, a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes. For the three months ended March 31, 2023 and March 31, 2022, we incurred an adjusted net loss of RMB7.0 million (US$1.0 million) and RMB11.7 million respectively. When excluding professional service expenses of RMB5.8 million (US$0.8 million) and RMB3.5 million, the adjusted net loss will be RMB1.2 million and RMB8.2 million respectively.

For the years ended December 31, 2021 and 2022, our total revenues were RMB205.2 million and RMB179.6 million (US$26.0 million) respectively. This drop in revenue was largely a result of negative impact from extended zero-covid policy in China which led to massive disruptions in the company’s e-commerce operations. In the face of this challenge, we completed four acquisitions in 2022 to speed up the diversification of revenue streams as well as aggressive improvement on overall cost structure. Assuming these four acquisitions had taken place on 1 January 2022, the unaudited pro forma revenue of the Company for the year ended December 31, 2022 will be RMB231.9 million (or US$33.8 million).

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This decrease in total revenue was due to the decrease in online consumer product sales of RMB81.6 million. During the second quarter of 2022, nation-wide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant which led to disruption to traffic and economic activities. As a result, fewer shipping locations were open and our daily logistics volume was adversely affected. The decrease in online consumer product sales were offset by the increase in revenues from offline consumer product sales of RMB66.6 million from (1) YJW Newco with YJW Target Assets which principally engaged in the distribution of snack foods, (2) KeKe Newco with KK Target Assets which principally engaged in the distribution of candy products, (3) new acquisition Shanghai Lishang Trading Ltd, (“Lishang”) which principally engaged in the distribution of private label products in high margin sales channels.

For the years ended December 31, 2021 and December 31, 2022, we incurred a net loss of RMB458.7 million and RMB122.2 million (US$17.8 million) respectively. The decrease in net loss was mainly attributable from (i) a decrease of general and administrative expenses by RMB13.1 million from RMB66.6 million for the year ended December 31, 2021 to RMB53.5 million (US$7.8 million) for the year ended December 31, 2022, attributable to the streamlining of costs in 2022, (ii) a decrease in fulfilment and sales and marketing expenses of RMB51.8 million, (iii) a decrease in changes in fair value of financial instruments of RMB58.9 million, and (iv) a decrease in other expenses for the year end December 31, 2022 of RMB266.1 million, due to the extinguishment losses of RMB229.6 million attributed from the extinguishment of January 2019 shareholder loans, July 2019 convertible loans, 2020 convertible loans and May 2021 convertible loans during the issuance of Series C-1 redeemable convertible preference shares, and a loss of RMB36.5 million was recognized from the excess of fair value of instruments granted over proceeds received during the issuance of Series C-1 redeemable convertible preference shares for the year ended 31 December 2021. Management uses the adjusted net loss, a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes. For the years ended December 31, 2021 and December 31, 2022, we incurred an adjusted net loss of RMB104.2 million and RMB27.9 million (US$4.1 million) respectively, for details, please refer to section “Non-GAAP Financial Measure”.

DDC Cayman was incorporated under the laws of the British Virgin Islands on April 30, 2012. The Company then registered by way of continuation in the Cayman Islands on November 10, 2015, and deregistered in the British Virgin Islands as of that date. We have 1,000,000,000 authorized shares at a par value of $0.001 by December 31, 2021. We operate our business in the PRC through our wholly-owned subsidiary, Shanghai DayDayCook Information Technology Co., Ltd (“SH DDC”), and under a contractual arrangement with Shanghai Weishi Information Technology Co., Ltd (“Weishi”), which holds the necessary PRC operating licenses for the online businesses.

No revenue was contributed by Weishi in the years ended December 31, 2021 and 2022. SH DDC was also under a contractual arrangement with Shanghai City Modern Agriculture Development Co., Ltd (“City Modern”), which controlled three separate entities in the PRC (collectively “Farm Entities”), producing, marketing and selling premium quality vegetable products in PRC. Farm Entities contributed 6.8% and 1.0% of our total revenue in the years ended December 31, 2021 and 2022. As of April 2022, all contractual arrangements with the Weishi and City Modern VIEs had been terminated. SH DDC entered into contractual arrangement with Chongqing Mengwei, which controlled several online stores and contributed 25.5% and 5.5% of our total revenue in the years ended December 31, 2021 and 2022.

As a result of the termination of the contractual arrangements with the Weishi and City Modern VIEs, and the discontinuation of our experience stores in 2022, we expect to be able to focus our capital and efforts on selling our products through online e-commerce platforms and offline distributors and retailers. We believe such strategy of not owning physical stores and fresh produce supply to be more resilient to recent negative trends such as COVID-19 in China. We intend for the termination and discontinuation of business streams to reduce the company’s overall net losses, and to free up capital to be allocated into our other fast growing RTC, RTH, RTE and plant-based product sales businesses. Moreover, we are continually expanding through acquisitions, and we expect our new acquisitions to bolster our customer reach, generate revenue from cross-selling of our products, and enhance our overall cashflows, profitability, and liquidity.

Key Factors Affecting Our Results of Operations

There are several macro and microeconomic factors that contributed to the growth of our business, specifically the RTC, RTH, RTE and plant-based product and service markets in China. These include (but are not limited to):

        China’s rapid economic growth and urbanization, which has resulted in an increase in per capita annual disposable income;

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        China’s investments in its technological infrastructure and increase in internet and mobile subscriber penetration rates induced by COVID-19;

        Favorable domestic social, governmental, and economic reforms centered on promoting a healthier lifestyle and life-choices; and

        Broader shift in consumer preferences, trends, and purchasing behavior to convenience without compromising on quality and/or nutritional value.

Unfavorable changes in any of the above factors could adversely affect demand for our products and/or services and impact our results of operations.

There are specific internal and external factors that could impact our results of operations. These include (but are not limited to):

Sales Strategy — We rely on both growing our own “DayDayCook” branded product sales and private label product sales. This combined strategy was prompted by the need to (i) improve our competitiveness in the RTC, RTH, RTE and plant-based meat food sectors, (ii) to expand DayDayCook own-branded in the market by new acquisition with more scope of offline distributors and (iii) improve the overall margin profile of the business. Sales from DayDayCook own-branded RTC, RTH, RTE and plant-based meat food product has decreased from 74.0% of our revenue for the three months ended March 31, 2022 to 35.0% of our revenue for the three months ended March 31, 2023. This was a result of acquisitions of companies focusing on offline distribution of both DayDayCook own-branded and private label products, which generated higher net margins.

Sales from DayDayCook own-branded RTC, RTH, RTE and plant-based meat food product has decreased from 47.4% of our revenue in the year ended December 31, 2021 to 29.5% of our revenue in the year ended December 31, 2022. The decrease was mainly due to the second quarter of 2022, during which nationwide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant, and had led to disruption to traffic and economic activities. As a result, fewer shipping locations were open, and our daily logistics volume was adversely affected.

We expect growth for the DayDayCook own-branded product to outpace private-label product sales. This shift will require us to plan, develop, and successfully execute on multi-channel sales, marketing, and distribution strategy.

Long-Term Consumer Trends and Demand — Based on a 2022 independent report prepared by Frost & Sullivan, the China RTC market grew from RMB94.3 billion (US$13.9 billion) in 2017 to approximately RMB254.8 billion (US$37.7 billion) in 2021, at a Compound Annual Growth Rate (“CAGR”) (2017-2021) of 28.2%. As the China RTC market is expected to benefit from a shift in customer taste and preferences to convenient cooking and meal options, the RTC market is expected to grow to RMB564.5 billion (US$83.5 billion) by 2026, a CAGR (2021-2026) of 17.2%. While plant-based products are a nascent Fast-Moving Consumer Goods (“FMCG”) category in China, there is significant demand from younger customer segments for plant-based substitutes/alternatives. According to the same 2022 report, the China market for plant-based products increased from RMB2.8 billion (US$415.6 million) in 2018 to RMB5.1 billion (US$757.3 million) in 2021; a CAGR (2018-2021) of 22.1%. Demand for food products that are more environmentally friendly and viable alternatives to/substitutes for traditional protein sources is expected to increase. As a result, the market for plant-based products is expected to experience a CAGR (2021-2026) of 11.0%. Total revenue is projected to increase from RMB5.1 billion (US$757.3 million) in 2021 to RMB8.6 billion (US$1.3 billion) in 2026. As a leader in the RTC/RTH space, given the recent partnership with PFI Foods, a leading China-based alternative meat manufacturer, and a Board of Directors and advisory network with significant operating and domain expertise, we should be able to identify and pivot to cater to evolving customer trends and consumption behavior.

Competition — The food and e-commerce industries in China are highly competitive. We compete with different competitors in each of our business lines. Our current and potential competitors can be divided into different categories: (i) traditional RTH, emerging RTC, and RTC food companies (domestic and international) in China, (ii) major plant-based food companies in China, (iii) major content providers in China focused on food, and (iv) other major internet companies in China that may enter the food-related content distribution or e-commerce business area. There are certain barriers to entry that have limited the number and success of foreign entrants, emerging, and traditional-cum-emerging brands, including our (i) brand awareness, (ii) E2E supply-chain visibility, (iii) strategic and preferred service agreements with product and distribution partners, (iv) product R&D and go-to-market capabilities, and (v) board of directors and advisory network.

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Regulatory Environment — As we are an (i) omni-channel B2B and B2C and (ii) food production and distribution business, we are subject to various customer data, food safety and quality control, and employer-employee related regulations and policy frameworks. We work with the Cyberspace Administration of China (CAC), the State Administration for Market Regulation (SAMR), the Ministry of Commerce (the “MOFCOM”), the State Internet Information Office, the General Administration of Customs, All-China Federation of Trade Unions (ACFTU) and other governmental authorities in charge of the relevant services provided by us to ensure we are compliant with evolving laws, regulations, and standards.

Operating Costs — Our operating costs include packaged product costs, direct labor, other wages and related benefits, selling, distribution, and other general and administrative expenses. We proactively manage and look for opportunities to reduce our operating expenses as a percentage (%) of revenues by negotiating preferred or renegotiating existing purchasing agreements with one or more vendors/service providers. We do, however expect operating expenses to increase due to the fees, costs, and compensation expenses related to share options of RMB84.3 million (USD12.3 million) are expected to be recognized upon being a publicly-traded entity.

Sales and Marketing Costs — We expect costs associated with sales and marketing to increase in 2023 to support our revenue growth continually. However, we expect to be more efficient in utilizing our sales and marketing budget to generate better customer conversion rates through (i) stronger brand awareness, (ii) our plan to leverage more content and social media marketing providers and platforms to drive repeat purchases, an increase in Average Order Value (“AOV”), and attract net-new users to our platform, and (iii) improvements in referral rates.

Debt Obligations — our debt obligations primarily consist of shareholder loans and convertible loans used to finance our ongoing working capital requirements. As of March 31, 2023 and December 31, 2022, the outstanding balance on the shareholder loan was RMB94.3 million and RMB95.6 million respectively. The outstanding balances of convertible loans as of March 31, 2023 and December 31, 2022 were RMB37.5 million and RMB37.8 million, respectively.

Mergers and Acquisitions (“M&A”) — M&A is a key growth strategy going forward. To the extent permitted due to our recurring losses from operations and an accumulated deficit, we will evaluate and opportunistically execute strategic joint ventures (JV), potential investments, and acquisition opportunities with a focus on supplementing and/or complementing our existing products, sales channels, customer-base and/or allow us to optimise our existing supply-chain management capabilities. The M&A strategy will continue to evolve with our changing needs and requirements.

COVID-19 — The World Health Organization (“WHO”) declared that COVID-19 was a “Public Health Emergency of International Concern” on January 30, 2020 and a “pandemic” on March 11, 2020. COVID-19 has the potential to adversely affect our business. We are in constant communication with the relevant local, national, and international health agencies and governing bodies to ensure we are and remain compliant with evolving requirements and policy frameworks. To mitigate the COVID-19 risk to our business, we instituted specific measures from a workplace, distribution strategy, and supply-chain integrity standpoint and are executing on several initiatives to enable us to benefit through and post-COVID. From a workplace measures standpoint, we are taking the necessary preventative actions and implementing additional measures to protect our employees, including (but not limited to) physical distances and hygienic practices, including (but not limited to) mandatory face coverings, increased hand-washing, and more frequent sanitization of hard surfaces in-compliance with suggested Personal Protective Equipment guidelines published by the United States Centers for Disease Control and World Health Organization and WHO. We continue to explore and execute on one or more strategic partnerships to reduce and/or limit our counterparty risk and exposure. From a supply-chain standpoint, we have taken proactive steps to move away from single-sourcing to a network of diverse, alternative, pre-qualified suppliers of raw materials.

As of March 31, 2023, we had 20 supply chain partners and 36 active and reserve suppliers responsible for distributing and producing our products to customers. In the second quarter of 2022, the Chinese government imposed nation-wide strict lockdown measures in response to the outbreak of the COVID-19 Omicron variant which led to disruption to traffic and economic activities. As a result, fewer shipping locations were open and our daily logistics volume was adversely affected. In December 2022, the Chinese government announced that it would be downgrading its management of COVID-19 as of January 8, 2023, rolling back some of its stringent anti-COVID-19 restrictions. Those who are infected with mild symptoms and close contacts are now allowed to quarantine at home. Since December 2022, China has been facing a rapid surge in COVID-19 cases. Due to the evolving and uncertain nature of this event, we cannot predict at this time the full extent to which the COVID-19 pandemic and the COVID-19 prevention policy implemented by the Chinese government will adversely impact our business, results, and financial condition. We are staying in close communication with our employees, dealers, and

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suppliers, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee we will be able to do so. While the short, medium-to-longer term impact of COVID-19 remains to be determined, we expect that our business operations and results of operations including revenue, earnings, and cash-flows will not be unduly impacted in the remainder of 2023. To date, there has been no material impact to our liquidity position, and we have not had to raise additional capital, reduce our capital expenditures, or modify any terms or contractual arrangements in response to COVID-19.

To mitigate the potential impact of COVID-19 (and future pandemics) and other business disruptions (e.g. geopolitical or trade conflicts, natural disasters, or cybercrime etc.), we have taken and will continue to take proactive steps to diversify our supply chain, moving away from single-sourcing to a network of diverse, alternative, pre-qualified suppliers of raw materials needed to produce one or more of our products. This approach allows us to secure more favorable commercial terms with our existing suppliers and also reduces the risk of business disruption at one or more stages of the E2E supply chain. To ensure food safety and quality of products produced by our OEM supplier-partners, we also request our suppliers to engage third party audit specialist to perform factory audit and to assess, among other things, the quality systems, workplace environment, record keeping, and hygiene situations of our supplier-partners’ factories.

 

For the Year Ended December 31,

 

For the Three Months Ended March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

RMB

 

USD

Online consumer product sales

 

148,570,430

 

 

67,016,645

 

 

9,758,380

 

 

32,160,680

 

 

7,305,413

 

 

1,063,750

 

Offline consumer product sales

 

42,819,538

 

 

109,403,748

 

 

15,930,419

 

 

3,934,188

 

 

35,585,652

 

 

5,175,585

 

Revenues from collaborative arrangement

 

8,244,967

 

 

1,867,042

 

 

271,862

 

 

438,446

 

 

 

 

 

Advertising service

 

3,413,183

 

 

870,580

 

 

126,766

 

 

143,945

 

 

106,069

 

 

21,533

 

Experience stores

 

2,131,324

 

 

428,051

 

 

62,329

 

 

200,935

 

 

 

 

 

Total Revenues

 

205,179,442

 

 

179,586,066

 

 

26,149,756

 

 

36,878,194

 

 

42,997,134

 

 

6,260,868

 

     

 

   

 

 

 

   

 

   

 

   

 

Cost of products

 

(164,541,069

)

 

(134,462,728

)

 

(19,579,289

)

 

(28,073,208

)

 

(32,074,224

)

 

(4,670,369

)

Cost of services

 

(4,180,765

)

 

(1,196,469

)

 

(174,219

)

 

(139,555

)

 

(52,693

)

 

(7,673

)

Total Cost of revenues

 

(168,721,834

)

 

(135,659,197

)

 

(19,753,508

)

 

(28,212,763

)

 

(32,126,917

)

 

(4,678,042

)

     

 

   

 

 

 

   

 

   

 

   

 

Gross profit

 

36,457,608

 

 

43,926,869

 

 

6,396,248

 

 

8,665,431

 

 

10,870,217

 

 

1,582,826

 

Fulfilment expenses

 

(23,967,825

)

 

(10,630,884

)

 

(1,547,977

)

 

(5,037,639

)

 

(1,528,241

)

 

(222,529

)

Sales and marketing expenses

 

(59,239,750

)

 

(20,763,218

)

 

(3,023,359

)

 

(6,442,805

)

 

(4,512,564

)

 

(657,080

)

Research and development expenses

 

(233,663

)

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

(66,636,360

)

 

(53,543,862

)

 

(7,796,590

)

 

(10,465,021

)

 

(13,090,029

)

 

(1,906,056

)

     

 

   

 

   

 

   

 

   

 

   

 

Share based compensation

 

 

 

(38,993,201

)

 

(5,677,850

)

 

 

 

(1,560,833

)

 

(227,275

)

Loss from operations

 

(113,619,990

)

 

(80,004,296

)

 

(11,649,528

)

 

(13,280,034

)

 

(9,821,450

)

 

(1,430,114

)

     

 

   

 

   

 

   

 

   

 

   

 

Interest expenses

 

(22,842,091

)

 

(30,826,950

)

 

(4,488,752

)

 

(17,971,034

)

 

(3,717,723

)

 

(541,342

)

Interest income

 

9,783

 

 

465,162

 

 

67,733

 

 

100,967

 

 

589,469

 

 

85,833

 

Foreign currency exchange (loss)/gain, net

 

(147,413)

 

 

671,007

 

 

97,706

 

 

176,238

 

 

163,486

 

 

23,805

 

Impairment loss for equity investments accounted for using measurement alternative

 

 

 

(22,705,285

)

 

(3,306,146

)

 

 

 

 

 

 

Gain from deconsolidation of VIEs

 

 

 

13,543,650

 

 

1,972,108

 

 

 

 

 

 

 

Other income

 

5,581,534

 

 

1,599,746

 

 

232,941

 

 

999,957

 

 

30,244

 

 

4,404

 

Other expenses, net

 

(266,083,985

)

 

 

 

 

 

 

 

 

 

 

Changes in fair value of financial instruments

 

(60,764,404

)

 

(1,875,889

)

 

(273,151

)

 

 

 

12,572,815

 

 

1,830,744

 

     

 

   

 

 

 

   

 

   

 

   

 

Loss before income tax
expenses

 

(457,866,566

)

 

(119,132,855

)

 

(17,347,089

)

 

(29,973,906

)

 

(183,159

)

 

(26,670

)

Income tax (expense)/benefit

 

(816,868

)

 

(3,115,753

)

 

(453,689

)

 

406,153

 

 

(829,764

)

 

(120,823

)

Net loss

 

(458,683,434

)

 

(122,248,608

)

 

(17,800,778

)

 

(29,567,753

)

 

(1,012,923

)

 

(147,493

)

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Revenues

We are primarily focused on selling and distributing RTC, RTH, RTE, plant-based, and private-label products to individual customers through (i) popular large e-commerce channel e.g. Tmall, JD.com, Pinduoduo, (ii) leading livestreaming, video-sharing, content-marketing platforms e.g. TikTok (Douyin), Bilibili, Weibo, Little Red Book (小红书), Kuaishou etc., (iii) community group buying platforms e.g. Meituan-Dianping, and (iv) a network (through partnership) of offline mixed retail locations. We generate most of our revenue from online and offline to-business and to-customer product sales. The online consumer products and offline consumer products business represented 98.0%, 99.9%, 93.3% and 98.2% of total revenue for the three months ended March 31, 2022 and 2023 and for the years ended December 31, 2021 and 2022 respectively. As we plan to expand our online network in e-commerce platforms and content-marketing platforms, we expect total revenue via the online channel to continue to grow.

In the second quarter of 2022, nationwide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant, which led to disruption to all social and economic activities. As a result, fewer shipping locations were open, and our e-commerce operations were adversely affected. As a result of the financial year ending 2022, we decided to expand DayDayCook’s brand portfolio via acquisition of target companies with more scope of offline distributors.

We also recognised revenues from collaborative agreements. On July 1, 2021, we entered into purchase agreements with the selling shareholders of Yujiaweng and KeKe to acquire the respective 60% interests of Yujiaweng and KeKe’s product sales business, which primarily included distribution contracts, their sales and marketing teams, procurement team and other supporting function personnel (“the Target Assets”). We and the selling shareholders agree to form an entity specific to each purchase agreement, in which we holding 60% and the selling shareholder holding 40% equity interests respectively, that will acquire the Target Assets. During the period from July 1, 2021 until the date when the new entities are formed (“the transition period”), we manage and operate the Target Assets and are entitled to 60% of the net profit arising from the operation of the Target Assets. We have determined that the arrangements during the transition period are collaborative arrangements between us and Yujiaweng and KeKe to jointly operate the product distribution activities. We recognised 60% of the net profit arising from the operation of the Target Assets as revenue of RMB8.2 million during the period from the acquisition date of July 1, 2021 up to December 31, 2021. The revenues from collaborative agreement represented 4% of total revenue for the year ended December 31, 2021.

On June 17, 2022, YJW and KeKe Newco, Quanzhou DayDayCook Food Co., Limited was formed. The collaborative arrangements between us and Yujiaweng and KeKe were terminated. The revenues from collaborative agreement decreased from 4% to 1% of total revenue for the year ended December 31, 2022. For the three months ended March 31, 2023, there were no revenue recognized from collaborative arrangements.

We also provide advertising, principally customized promotional videos, offline promotion, and store exhibition-related services to our customers, which are published through channels including our website, APP, WeChat mini-program, Facebook, and YouTube etc.. Advertising revenue accounted for 0.4%, 0.2%, 1.7% and 0.5% of group level total revenue for the three months ended March 31, 2022 and 2023, and for the years ended December 31, 2021 and 2022 respectively. The decrease is mainly due to our focus on growing as a consumer product brand operating online and offline food product sales.

As of March 31, 2023, we do not operate any experience stores. Revenue from experience stores accounted for 0.5%, 0%, 1.0% and 0.2% of our total revenue for the three months ended March 31, 2022 and 2023, and for the years ended December 31, 2021 and 2022 respectively. As of the date of this prospectus, we have permanently closed down all our experience stores due to the prolonged impact of the pandemic.

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The following table sets forth types of our revenue for the periods indicated:

 

For the Year Ended December 31,

 

For the Three Months Ended March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

RMB

 

USD

Online consumer product sales

 

148,570,430

 

67,016,645

 

9,758,380

 

32,160,680

 

7,305,413

 

1,063,750

Offline consumer product sales

 

42,819,538

 

109,403,748

 

15,930,419

 

3,934,188

 

35,585,652

 

5,175,585

Revenues from collaborative arrangement

 

8,244,967

 

1,867,042

 

271,862

 

438,446

 

 

Advertising

 

3,413,183

 

870,580

 

126,766

 

143,945

 

106,069

 

21,533

Experience stores

 

2,131,324

 

428,051

 

62,329

 

200,935

 

 

Total Revenues

 

205,179,442

 

179,586,066

 

26,149,756

 

36,878,194

 

42,997,134

 

6,260,868

For the three months ended March 31, 2023, we recorded RMB43.0 million (or US$6.3 million) in total revenue compared to RMB36.9 million for the three months ended March 31, 2022, representing a 16.6% increase. Subsequent to March 31, 2023, we signed purchase agreements for three acquisitions. Assuming these three acquisitions had taken place on 1 January 2023, the unaudited pro forma revenue of the Company for the three months ended March 31, 2023 would be RMB68.9 million (or US$10.0 million).

The increase in total revenue was due to the increase in offline consumer product sales of RMB31.7 million, net off with the decrease in online consumer product sales of RMB24.9 million. In the second quarter of 2022, nationwide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant, which led to disruption to all social and economic activities. As a result, fewer shipping locations were open, and our e-commerce operations were adversely affected. As a result, we decided to expand DayDayCook’s brand portfolio via acquisition of target companies with more scope of offline distributors.

Our revenue decreased to RMB179.6 million (US$26.1 million) for the year ended December 31, 2022 from RMB205.2 million for the year ended December 31, 2021. This drop in revenue was primarily a result of the negative impact from the extended zero-covid policy in China, which led to massive disruptions in the company’s e-commerce operations. In the face of this challenge, we completed four acquisitions in 2022 to speed up the diversification of revenue streams as well as aggressive improvement on overall cost structure. Assuming these four acquisitions had taken place on 1 January 2022, the unaudited pro forma revenue of the Company for the year ended December 31, 2022 will be RMB231.9 million (or US$33.8 million).

For the year ended December 31, 2022, the decrease in total revenue was due to the decline in online consumer product sales of RMB81.6 million offset by an increase in revenues from offline consumer product sales of RMB66.6 million. As of the second quarter of 2022, nationwide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant, which led to disruption to social and economic activities. As a result, fewer shipping locations were open, and our daily logistics volume was adversely affected. As the Company proactively shifted towards an acquisition mode to diversify revenue streams and to optimize cost structure. The overall decrease in online revenues were partially offset by an increase in revenues from offline consumer product sales of RMB66.6 million from (1) YJW Target Assets which principally engaged in the distribution of RTE products, (2) KK Target Assets which principally engaged in distribution of RTE products, and (3) New acquisition Shanghai Lishang Trading Ltd, (“Lishang”) which principally engaged in distribution of private-label products into high margin sales channels for food related products.

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For the Year Ended December 31,

 

For the Three Months Ended March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

RMB

 

USD

Ready to heat (“RTH”)

 

56,786,910

 

16,381,564

 

2,385,340

 

10,610,378

 

672,386

 

97,907

Ready to cook (“RTC”)

 

856,254

 

2,545,547

 

370,660

 

352,968

 

600,808

 

87,484

Ready to eat (“RTE”) & Plant base

 

39,643,744

 

34,115,276

 

4,967,569

 

16,317,755

 

13,771,587

 

2,005,299

Private label products

 

80,108,791

 

121,656,429

 

17,714,549

 

7,092,190

 

27,846,284

 

4,048,645

Fresh products

 

13,994,269

 

1,721,577

 

250,681

 

1,721,577

 

 

Revenues from collaborative arrangement

 

8,244,967

 

1,867,042

 

271,862

 

438,446

 

 

Advertising service

 

3,413,183

 

870,580

 

126,766

 

143,945

 

106,069

 

21,533

Experience stores

 

2,131,324

 

428,051

 

62,329

 

200,935

 

 

Revenues

 

205,179,442

 

179,586,066

 

26,149,756

 

36,878,194

 

42,997,134

 

6,260,868

Our products and services offering included RTH, RTC, RTE, plant-based, private label products, revenues from collaborative agreements, fresh products, advertisement services, and experience stores. Total revenues from RTH decreased by 93.7% from RMB10.6 million for the three months ended March 31, 2022 to RMB0.7 million for the three months ended March 31, 2023, and decreased by 71.2% from RMB56.8 million in the year ended December 31, 2021 to RMB16.4 million (US$2.4 million) in the year ended December 31, 2022. The decrease was mainly due to management’s decision to shift away from overly packaged products in the RTH category in order to reduce the use of single-use plastic in our product packaging. Second, the shift in strategy was prompted by the need to improve the company’s level gross margin, as RTH product carry lower margins than RTC and RTE product categories. The focus is to grow our RTC, RTE, and plant-based meat food product as a percentage (%) of total revenues.

Also, amidst the lockdown of Shanghai in the second quarter of 2022, the company shifted its focus to strengthen its offline distribution networks in order to reduce its reliance on e-commerce channels to generate revenue in the face of the challenging environment. As a result, total revenues from private-label products increased by 292.6% from RMB7.1 million to RMB28.0 million (US$4.1 million) for the three months ended March 31 2022 and 2023 respectively, and increased by 51.9% from RMB80.1 million to RMB121.7 million (US$17.6 million) for the year ended December 31, 2021 and 2022 respectively. Over time, we plan to execute a well-balanced distribution strategy where the contribution of revenue from online sales channel and offline distributors will each make up 50% of the total revenue.

Cost of Revenues

Our cost of revenues primarily consists of (i) product costs, (ii) personnel costs, (iii) lease expenses, (iv) costs of advertising service; (v) costs of experience stores, and (vi) other costs. The table below shows the cost of revenues in absolute amounts for the periods indicated.

 

For the Year Ended
December 31,

 

For the Three Months Ended
March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

RMB

 

USD

Product costs

 

158,908,546

 

131,376,909

 

19,129,960

 

25,145,824

 

32,112,633

 

4,675,962

Personnel costs

 

5,024,247

 

2,424,475

 

353,031

 

1,451,784

 

14,284

 

2,080

Lease expenses

 

3,363,524

 

643,311

 

93,673

 

400,653

 

 

Others

 

1,425,517

 

1,214,502

 

176,844

 

1,214,502

 

 

Total cost of revenues

 

168,721,834

 

135,659,197

 

19,753,508

 

28,212,763

 

32,126,917

 

4,678,042

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Product Costs:

“Product Costs” represents costs of consumer products sold online and offline. The product cost increased by 27.7% from RMB25.1 million for the three months ended March 31, 2022 to RMB32.1 million for the three months ended March 31, 2023. The product cost reduced by 17.3% from RMB158.9 million for the year ended December 31, 2021 to RMB131.4 million (US$19.1 million) for the year ended December 31, 2022. The increase in product cost for the three months ended March 31, 2022 and 2023, and decrease in product cost for the year ended December 31, 2021 and 2022 were in line with consumer product sales.

Product costs were 69.7%, 74.9%, 86.0% and 74.5% of consumer product sales revenues (including both online & offline) for the three months ended March 31, 2022 and 2023, and for the years ended December 31, 2021 and 2022 respectively. Due to an increase in competitors during COVID-19, the fierce competition affected our online sales during the period of early 2022. The Group offered discounts to customers to maintain and grow its market share, but at the same time was able to transfer part of that cost to suppliers who offered more competitive product costs.

Personnel Costs:

“Personnel Costs” represents the costs directly related to the revenue such as operation employee of experience store and retail shops. Due to COVID-19, we had to close all our experience stores in 2022. This resulted in a reduction in personnel costs by 99% from RMB1.4 million to RMB0.01 million for the three months ended March 31, 2022 and 2023, and reduction by 31.6% from RMB5.0 million in 2021 to RMB2.4 million (US$0.3 million) in 2022. The closure of all retail locations also corresponded to a decrease in the revenue from experience stores.

Lease expenses:

“Lease expenses” represents (i) the lease expenses associated with the farm land located near Shanghai, and (ii) the experience store lease expenses. Our total lease expenses for the three months ended March 31, 2022 and 2023 were RMB0.4 million and Nil respectively, and for the year ended December 31, 2021 and 2022 were RMB3.4 million and RMB0.6 million (US$0.1 million) respectively. The decrease was mainly attributable to the closure of all experience store during the year, and the termination of all contractual arrangements with City Modern.

Others:

“Others” primarily includes depreciation and amortization expenses for equipment directly related to revenue. For the three months ended March 31, 2022 and 2023, other costs represented 4% and less than 1% of total costs. For the years ended December 31, 2021 and 2022, other costs represented less than 1% of total costs.

Operating Expenses

Our operating expenses consists of (i) fulfilment expenses, (ii) sales and marketing expenses, and (iii) general and administrative expenses.

 

For the Years Ended December 31,

 

For the Three Months Ended March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

USD

 

RMB

 

RMB

 

USD

Fulfilment expenses

 

23,967,825

 

10,630,884

 

1,547,977

 

5,037,639

 

1,528,241

 

222,529

Sales and marketing expenses

 

59,239,750

 

20,763,218

 

3,023,359

 

6,442,805

 

4,512,564

 

657,080

General and administrative expenses (including research and development expenses)

 

66,870,023

 

53,543,862

 

7,796,590

 

10,465,021

 

13,090,029

 

1,906,056

Share-based compensation

 

 

38,993,201

 

5,677,850

 

 

1,560,833

 

227,275

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Fulfilment expenses:

“Fulfilment expenses” mainly consists of (i) logistics and shipping costs for delivering the goods to the customers, and (ii) packaging costs for the products sales. The fulfilment expenses decreased from RMB5.0 million to RMB1.5 million (US$0.2 million) for the three months ended March 31, 2022 and 2023, and RMB24.0 million to RMB10.6 million (US$1.5 million) for the year ended December 31, 2021 and 2022. The cost reduction was a result of the decline in online consumer product sales since the second quarter of 2022. During that period, nationwide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant, which led to disruption to social and economic activities. As a result, fewer shipping locations were open and our daily logistics volume was adversely affected.

Sales and marketing expenses:

“Sales and marketing expenses” mainly consists of (i) salaries and benefits for sales and marketing employees, and (ii) branding and advertisement expenses paid to the online platform providers and third-party marketing partners.

The sales and marketing expenses were RMB6.4 million and RMB4.5 million for the three months ended March 31, 2022 and 2023, and RMB59.2 million and RMB20.8 million (US$3.0 million) for the years ended December 31, 2022 and 2023. The decrease in sales and marketing expenses was due to a renewed focus on improving return-on-marketing investment by optimizing marketing spend across one or more customer acquisition, and/or sales distribution channels.

General and administrative expenses:

“General and administrative expenses” primarily consists of (i) salaries and benefits for its general and administrative staff, (ii) consulting fees, (iii) other expenses primarily including general office expenses, (iv) research and development expenses, and (iv) office rental expenses.

The general and administrative expenses increased by 21.0% from RMB10.5 million to RMB13.1 million (US$1.9 million) for the three months ended March 31, 2022 and 2023, and decreased by 19.6%, from RMB66.6 million for the year ended December 31, 2021, to RMB53.5 million (US$7.8 million) for the year ended December 31, 2022. The decrease in general and administrative expenses was attributed to management’s efforts to streamline costs.

We expect that general and administrative expenses to increase when we become a public company and incur additional costs of share-based compensation of US$12.2 million for the year ended March 31, 2023 to comply with its reporting obligations under the U.S. securities laws.

Share-based compensation:

Certain share options became fully vested as the performance condition of occurrence of a qualified IPO was removed upon the Company’s modification of these share options for some senior management members. Therefore, for the year ended December 31, 2022, we recognized compensation cost of RMB33.5million (US$5.1 million) on the modification dates based on the modification date fair values of these awards. In October 2022, we granted 311,177 share options to one senior management member which does not include the performance condition of occurrence of a qualified IPO and we recognized compensation costs of RMB1,345,156 (US$190,067) for those vested awards. The Company has not recognized any share-based compensation expenses for 18,021,317 and 17,997,751 share options granted and outstanding as at December 31, 2022 and March 31, 2023 respectively, because the Company considers it is not probable that the performance conditions will be satisfied until the event occurs. As a result, the share-based compensation expenses for these options that are only exercisable upon the occurrence of the Company’s qualified IPO and will be recognized using the graded-vesting method upon the consummation of the qualified IPO.

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In addition, the Company may be required to grant share options to the Seller at the end of each performance period, adjusted based on the achievement of Lishang’s revenue, gross profit and net profit for each of the four performance periods during May 1, 2022 to December 31, 2024, over the target performance. If the qualified IPO does not occur by January 1, 2024, the Company is obliged to pay RMB3.5million cash corresponding to 495,751 number of share options out of the total base number of 702,969 share options to be issued for the third performance period. If the qualified IPO does not occur by January 1, 2025, the Company is obligated to deliver a fixed amount of RMB12.4million cash in addition to the previous payment of RMB3.5million, with all previously issued share options, if any, cancelled.

As of December 31, 2022 and March 31, 2023, the Company has not issued any share options to the Seller as the financial information of Lishang for the first two performance periods up to December 31, 2022 was still under preparation and was subject to audit. As the Seller is required to continuously provide services to Lishang for no less than three years after the acquisition, and as the Company is obligated to deliver cash unless a qualified IPO takes place, these share-based arrangements are accounted for as liability-classified award and were amortized over the service period of the Seller based on the cash amount to be paid the qualified IPO does not occur. The compensation cost recognized in connection with this liability-classified award for the three months ended March 31, 2023 amounted to RMB1.6 million.

Results of Operations

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Revenue:    For the three months ended March 31, 2023, we recorded RMB43.0 million (or US$6.3 million) in total revenue compared to RMB36.9 million for the three months ended March 31, 2022, representing a 16.6% increase. Subsequent to March 31, 2023, we signed purchase agreements for three acquisitions. Assuming these three acquisitions had taken place on 1 January 2023, the unaudited pro forma revenue of the Company for the three months ended March 31, 2023 would be RMB68.9 million (or US$10.0 million).

The increase in total revenue was due to the increase in offline consumer product sales of RMB31.7 million, net off with the decrease in online consumer product sales of RMB24.9 million. In the second quarter of 2022, nationwide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant, which led to disruption to all social and economic activities. As a result, fewer shipping locations were open, and our e-commerce operations were adversely affected. As a result, we decided to expand DayDayCook’s brand portfolio via acquisition of target companies with more scope of offline distributors.

Cost of revenues:    Our total cost of revenues decreased by 13.9%, from RMB28.2 million for the three months ended March 31, 2022 to RMB32.1 million (US$4.7 million) for the three months ended March 31, 2023. The decrease was primarily attributable to a change in sales mix.

Gross profit:    Our gross profit increased by 25.4% from RMB8.7 million for the three months ended March 31, 2022 to RMB10.9 million (US$1.6 million) for the three months ended March 31, 2023. The gross profit margin increased from 23.5% for the three months ended March 31, 2022 to 25.3% for the three months ended March 31, 2023.

Operating expenses:    Our total operating expenses decreased by 7.0%, from RMB22.3 million to RMB20.7 million (US$3.0 million) for the three months ended March 31, 2022 and 2023.

        Fulfilment expenses:    The fulfilment expenses decreased by 69.7%, from RMB5.0 million for the three months ended March 31, 2022 to RMB1.5 million (US$0.2 million) for the three months ended March 31, 2023, as a result of the decrease in online consumer product sales since the second quarter of 2022, nationwide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant, which led to disruption to social and economic activities. As a result, fewer shipping locations were open and our daily logistics volume was adversely affected.

        Sales and marketing expenses:    our sales and marketing expenses decreased by 30.0%, from RMB6.4 million for the three months ended March 31, 2022 to RMB4.5 million (US$0.7 million) for the three months ended March 31, 2023. This decrease was primarily attributable to a renewed focus on improving return-on-marketing investment by optimizing marketing spend across one or more customer acquisition and/or sales distribution channels.

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        General and administrative expenses:    our general and administrative expenses increased from RMB10.8 million for the three months ended March 31, 2022, to RMB13.1 million (US$1.9 million) for the three months ended March 31, 2023. The decrease was attributable management’s efforts to streamline costs. During the three months ended March 31, 2022 and 2023, we also incurred professional service expenses of RMB3.5 million and RMB5.8 million (US$0.8 million) respectively.

Net loss:    As the result of the foregoing, For the three months ended March 31, 2023, we incurred net loss of RMB1.0 million (US$0.1 million) and net loss of RMB30.3 million for the three months ended March 31, 2022. We also had negative cash flows from operating activities of RMB12.6 million (US$1.8 million) and RMB9.1 million for the three months ended March 31, 2023 and 2022 respectively. Management uses the adjusted net loss, a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes. For the three months ended March 31, 2023 and March 31, 2022, we incurred an adjusted net loss of RMB7.0 million (US$1.0 million) and RMB11.7 million respectively. When excluding professional service expenses of RMB5.8 million (US$0.8 million) and RMB3.5 million, the adjusted net loss will be RMB1.2 million and RMB8.2 million respectively.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenue:    Our total revenues decreased from RMB205.2 million for the year ended December 31, 2021 to RMB179.6 million (US$26.1 million) for the year ended December 31, 2022. This drop in revenue was largely a result of the negative impact from the extended zero-covid policy in China, which led to massive disruptions to the company’s e-commerce operations. In the face of this challenge, we completed four acquisitions in 2022 to speed up the diversification of revenue streams as well as aggressive improvement on overall cost structure. Assuming these four acquisitions had taken place on 1 January 2022, the unaudited pro forma revenue of the Company for the year ended December 31, 2022 will be RMB231.9 million (or US$33.8 million).

Cost of revenues:    Our total cost of revenues decreased by 19.6%, from RMB168.7 million for the year ended December 31, 2021 to RMB135.7 million (US$19.8 million) for the year ended December 31, 2022. The decrease was primarily attributable to a change in sales mix.

Gross profit:    Our gross profit increased by 20.5% from RMB36.5 million for the year ended December 31, 2021 to RMB43.9 million (US$6.4 million) for the year ended December 31, 2022. The gross profit margin increased from 17.8% for the year ended December 31, 2021 to 24.5% for the year ended December 31, 2022.

Operating expenses:    Our total operating expenses decreased by 17.4%, from RMB150.1 million in 2021 to RMB124.0 million (US$18.1 million) in 2022.

        Fulfilment expenses:    The fulfilment expenses decreased by 55.6%, from RMB24.0 million for the year ended December 31, 2021 to RMB10.6 million (US$1.5 million) for the year ended December 31, 2022, as a result of the decrease in online consumer product sales since the second quarter of 2022, nationwide strict lockdown measures were imposed by the Chinese government in response to the outbreak of the COVID-19 Omicron variant, which led to disruption to social and economic activities. As a result, fewer shipping locations were open and our daily logistics volume was adversely affected.

        Sales and marketing expenses:    our sales and marketing expenses decreased by 65.0%, from RMB59.2 million for the year ended December 31, 2021 to RMB20.8 million (US$3.0 million) for the year ended December 31, 2022. This decrease was primarily attributable to a renewed focus on improving return-on-marketing investment by optimizing marketing spend across one or more customer acquisition and/or sales distribution channels.

        General and administrative expenses:    our general and administrative expenses decreased from RMB66.6 million for the year ended December 31, 2021, to RMB53.5 million (US$7.8 million) for the year ended December 31, 2022. The decrease was attributable management’s efforts to streamline costs in 2022.

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Other expenses, net:    Other expenses, net for the years ended December 31, 2021 and 2022 were RMB266.1 million and nil, respectively. Other expenses, net for the year end December 31, 2022 consisted of the net extinguishment losses of RMB222.1 million (US$32.3 million) attributed from the extinguishment of January 2019 shareholder loans, July 2019 convertible loans, 2020 convertible loans, and May 2021 convertible loans during the issuance of Series C-1 redeemable convertible preference shares, and a loss of RMB36.5 million (US$5.3 million) was recognized from the excess of fair value of instruments granted over proceeds received during the issuance of Series C-1 redeemable convertible preference shares.

Net loss:    As the result of the foregoing, our net loss decreased by 73.4% from RMB458.7 million for the year ended December 31, 2021 to RMB122.2 million (US$17.8 million) for the year ended December 31, 2022. Management uses the adjusted net loss, a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes. For the years ended December 31, 2021 and December 31, 2022, we incurred an adjusted net loss of RMB104.2 million and RMB27.9 million (US$4.1 million) respectively, for details, please refer to section “Non-GAAP Financial Measure”.

Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, its own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in its estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.

The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our combined and consolidated financial statements and accompanying notes and other disclosures included in this proxy statement.

Share-based compensation

We measure our employee share-based awards that are subject to both service conditions and the occurrence of an initial public offering (“IPO”) as performance condition, at the fair value on grant date. Cumulative share-based compensation expenses for the awards that have satisfied the service condition will be recorded upon the completion of the IPO, using the graded-vesting method.

In 2022, we modified certain employees’ share-based awards to remove the performance condition conditional upon the occurrence of IPO. Such employee share-based awards were measured at the fair value on modification dates and are recorded as compensation expense based on the vesting conditions.

The fair value of share options at the time of grant are determined using the binomial-lattice option pricing model with the following key assumptions used.

 

For the Year Ended December 31,

 

For the Three Months Ended March 31,

   

2021

 

2022

 

2022

 

2023

Risk-free rate of return

 

1.37% – 1.65%

 

1.65% – 3.90%

 

1.65% – 2.47%

   

Volatility

 

37.3% – 37.85%

 

36.92% – 39.48%

 

37.11% – 37.32%

   

Expected dividend yield

 

 

 

   

Exercise multiple

 

2.2 – 2.8

 

2.2 – 2.8

 

2.2

   

Fair value of underlying ordinary share

 

US$0.94 – US$1.06

 

US$0.81 – US$0.94

 

US$0.94

   

Expected terms

 

10 years

 

10 years

 

10 years

 

Nil

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The expected volatility was estimated based on the historical volatility of comparable peer public companies with a time horizon close to the expected term of the Company’s options. The risk-free interest rate was estimated based on the yield to maturity of U.S. treasury bonds denominated in US$ for a term consistent with the expected term of the Company’s options in effect at the option valuation date. Expected dividend yield is zero as the Company does not anticipate any dividend payments in the foreseeable future. The expected exercise multiple was estimated as the average ratio of the stock price to the exercise price of when employees would decide to voluntarily exercise their vested options. Expected term is the contract life of the option.

Fair value of Class A ordinary shares

Prior to this offering, we have been a private company with no quoted market prices for our Class A ordinary shares. We therefore need to make estimates of the fair value of our Class A ordinary shares at various dates for the purposes of:

       the initial recognition of the fair value of ordinary shares issued to our investors during the recent financing activity in February 2021;

       at the date of grant of a share-based award as one of the inputs in determining the grant date fair value of the award;

       at the date of issuance of freestanding financial instruments including warrant liabilities and option liabilities as one of the inputs in determining the fair value of the underlying instruments

       at the date of issuance of convertible instruments for which the Company was required to determine if a beneficial conversion feature existed by comparing the respective effective conversion prices with the fair value of ordinary shares at the respective commitment dates.

In determining the fair value of our Class A ordinary shares, we applied the income approach as the primary approach based on our discounted future cash flow using our best estimate as of the valuation date. The determination of the fair value of our Class A ordinary shares requires complex and subjective judgments to be made regarding our future financial and operating results, our unique business risks, the liquidity of our shares and our operating history and prospects at the time of valuation.

The option-pricing method was used to allocate equity value of our company to preferred and ordinary shares, taking into account the guidance prescribed by the AICPA Audit and Accounting Practice Aid. This method requires making estimates of the anticipated timing of a potential liquidity event, such as a sale of our company or an initial public offering, and estimates of the volatility of our equity securities. The anticipated timing is based on the plans of our board and management.

The assumptions used in the valuation model are based on future expectations combined with management judgment, with inputs of numerous objective and subjective factors, to determine the fair value of the ordinary shares, including:

        operating and financial performance

        current business conditions and projections

        the likelihood of achieving a liquidity event

        WACC, lack of marketability discount (“LoMD“)

Impairment of equity investment in PFI Food Industries Limited (“PFI”) accounted for using Measurement alternative

We acquired an investment in the equity interests of PFI Food Industries Limited by issuing our own financial instruments including redeemable convertible preferred shares and warrants to acquire those redeemable convertible preferred shares. These financial instruments were issued in August 2021 before we obtained the equity investment in PFI and were determined as non-derivative forward contracts measured at fair value. As of December 31, 2022, we made a qualitative

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assessment and considered there to be impairment indicators that investment in PFI was impaired as it was significantly behind the forecasted revenue growth target and there was a declining trend of the plant-based meat industry performance. As a result, the investment in PFI was written down to its fair value. In determining the fair value of the PFI investment, we made estimates and judgments in determining the fair value regarding the cash flow forecasts of PFI, the weighted average cost of capital and the discount for lack of marketability applied to the projected cash flows. As we do not have significant influence over PFI, we elected to measure investment in PFI, without a readily determinable fair value, subsequently at cost adjusted for changes resulting from impairments, if any, and observable price changes in orderly transactions for the identical or similar securities of the same issuer.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (ASC 842). ASU 2016-02 specifies the accounting for leases. For operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheets. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. ASU 2016-02 was further amended in June 2020 by ASU 2020-05. Revenue from Contracts with Customers (ASC 606) and Leases (ASC 842), ASU 2020-05 deferred the effective date of new leases standard. As a result, ASC 842, Leases, is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2018. For all other entities, it is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. As the Company is an “emerging growth company” and elects to apply for the new and revised accounting standards at the effective date for a private company, the Company adopted ASU 2016-02 for the fiscal year ended December 31, 2022.

In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, to simplify the goodwill impairment test by eliminating Step 2 from the goodwill impairment test. Under the new guidance, goodwill impairment will be measured by the amount by which the carrying value of a reporting unit exceeds its fair value, without exceeding the carrying amount of goodwill allocated to that reporting unit. As a result, ASU 2017-04 is effective for public companies for annual and interim impairment tests for periods beginning after December 15, 2019. For other entities, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. This guidance is effective January 1, 2022 and is required to be adopted on a prospective basis, with early adoption permitted. As the Company is an “emerging growth company” and elects to apply for the new and revised accounting standards at the effective date for a private company, the Company adopted this standard for the year ended December 31, 2022.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) — Disclosures by Business Entities about Government Assistance (“ASU 2021-10”). It requires issuers to make annual disclosures about government assistance, including the nature of the transaction, the related accounting policy, the financial statement line items affected and the amounts applicable to each financial statement line item, as well as any significant terms and conditions, including commitments and contingencies. The amendments in ASU 2021-10 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. The Company adopted the standard for the year ended December 31, 2022 and the adoption of this standard did not have a material impact on its consolidated financial statements.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which eliminates two of the three models in ASC 470-20 that require separate accounting for embedded conversion features and eliminates some of the conditions for equity classification in ASC 815-40 for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and generally requires them to include the effect of share settlement for instruments that may be settled in cash or shares. The Company adopted this standard on January 1, 2022, and such adoption did not impact on the consolidated financial statements.

In June 2016, the FASB amended ASU 2016-13, Financial Instruments — Credit Losses (ASC 326), Measurement of Credit Losses on Financial Instruments. ASU 2016-13 was further amended in November 2019 by ASU 2019-09, Financial Instruments — Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Leases (ASC 842). As a result, ASC 326, Financial Instruments — Credit Losses is effective for public companies for annual reporting periods,

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and interim periods within those years beginning after December 15, 2019. For all other entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this standard on January 1, 2023, and such adoption did not have a material impact on our financial statements.

In October 2021, the FASB issued ASU 2021-08 Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance is applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company adopted this standard on January 1, 2023, and such adoption did not have a material impact on our financial statements.

Non-GAAP Financial Measure

We use adjusted net loss, non-GAAP financial measures, in evaluating our operating results and for financial and operational decision-making purposes. Adjusted net loss represents net loss excluding changes in income tax expense, interest expenses, interest income, foreign currency exchange (gain)/loss, net, impairment loss for equity investments accounted for using measurement alternative, gain from deconsolidation of VIEs, other income, other expenses, net, changes in fair value of financial instruments, depreciation and amortization, share-based compensation, allowance for other current assets and allowance of accounts receivable.

We believe that the adjusted net loss help identify underly trends in our business that could otherwise be distorted by the effect of certain expenses that we are included in net loss. We believe that adjusted net loss provides useful information about our operating results, enhance the overall understanding of our past performance and future prospect and allow for greater visibility with respect to key metrics used by our management uses in its financial and operational decision making.

 

For the year ended December 31,

 

For the three months ended March 31,

   

2021

 

2022

 

2022

 

2022

 

2023

 

2023

   

RMB

 

RMB

 

US$

 

RMB

 

RMB

 

US$

Net loss

 

(458,683,434

)

 

(122,248,608

)

 

(17,800,778

)

 

(29,567,753

)

 

(1,012,923

)