[H1 2023 Performance Overview](index=1&type=section&id=H1%202023%20Performance%20Overview) [Financial Highlights](index=1&type=section&id=First%20Half%202023%20Financial%20Highlights) In H1 2023, FangDD achieved a significant financial turnaround, with revenue slightly increasing by 6.0% year-over-year to RMB153.5 million, shifting from a substantial net loss to a net income of RMB9.4 million H1 2023 Key Financial Metrics (vs. H1 2022) | Financial Metric | H1 2023 (RMB million) | H1 2022 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Revenue | 153.5 | 144.8 | +6.0% | | Net Income/(Loss) | 9.4 | (192.1) | Turnaround to Profit | | Non-GAAP Net Income/(Loss) | 9.4 | (182.9) | Turnaround to Profit | [Operating Highlights](index=1&type=section&id=First%20Half%202023%20Operating%20Highlights) Operational metrics showed a contraction in H1 2023, with closed-loop agents decreasing by 50.9% and total closed-loop GMV falling by 25.5%, attributed to strategic project selection and business clear-up - The number of closed-loop agents decreased by **50.9%** to **4.6 thousand** in H1 2023 from 9.4 thousand in H1 2022[3](index=3&type=chunk) - Total closed-loop GMV decreased by **25.5%** to **RMB8.3 billion** in H1 2023, down from RMB11.2 billion in the same period of 2022, mainly due to careful selection of new property projects and clearing up the resale property business[3](index=3&type=chunk) [Management Commentary](index=2&type=section&id=Management%20Commentary) Chairman and CEO Mr. Xi Zeng highlighted the company's focus on sustainable operations, cash flow security, and profitability, leading to the first profit since H1 2021 and early loan repayment, while exploring property asset service innovations - The company focused on cash flow security and profitability enhancement, achieving profitability for the first time since the first half of 2021[6](index=6&type=chunk) - FangDD repaid short-term loans ahead of schedule and is actively exploring transformation opportunities, with a particular emphasis on innovating products related to property asset services[6](index=6&type=chunk) [Detailed Financial Results](index=2&type=section&id=First%20Half%202023%20Financial%20Results) [Revenue](index=2&type=section&id=REVENUE) Revenue for H1 2023 increased by 6.0% to RMB153.5 million (US$21.2 million), attributed to supportive PRC government policies for the real estate market - Revenue increased by **6.0%** YoY to **RMB153.5 million**, attributed to supportive government policies for the real estate market[7](index=7&type=chunk) [Cost of Revenue](index=2&type=section&id=COST%20OF%20REVENUE) Cost of revenue decreased by 4.6% to RMB133.7 million (US$18.4 million) in H1 2023, primarily due to business line structure optimization and continuous cost control measures - Cost of revenue decreased by **4.6%** YoY to **RMB133.7 million**, driven by business structure optimization and improved operating efficiency[8](index=8&type=chunk) [Gross Profit and Gross Margin](index=2&type=section&id=GROSS%20PROFIT%20AND%20GROSS%20MARGIN) Gross profit increased substantially by 321.1% to RMB19.8 million (US$2.7 million) for H1 2023, with gross margin expanding significantly to 12.9% from 3.2%, reflecting improved revenue scale and cost optimization Gross Profit and Margin Performance (H1 2023 vs. H1 2022) | Metric | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | | Gross Profit (RMB million) | 19.8 | 4.7 | +321.1% | | Gross Margin | 12.9% | 3.2% | +9.7 p.p. | [Operating Expenses](index=2&type=section&id=OPERATING%20EXPENSES) Total operating expenses for H1 2023 were significantly reduced by 51.5% to RMB88.8 million (US$12.2 million) from RMB182.9 million in H1 2022, driven by substantial cuts across all expense categories - Total operating expenses decreased by **51.5%** YoY to **RMB88.8 million**, with share-based compensation expenses dropping to **RMB82 thousand** from RMB9.2 million[10](index=10&type=chunk) [Sales and Marketing Expenses](index=3&type=section&id=Sales%20and%20marketing%20expenses) Sales and marketing expenses decreased to RMB1.9 million from RMB8.8 million year-over-year, primarily due to an optimized sales department, reduced marketing activities, and lower sales labor expenditure [Product Development Expenses](index=3&type=section&id=Product%20development%20expenses) Product development expenses were reduced to RMB17.7 million from RMB39.8 million year-over-year, as the company adopted a more conservative approach to R&D investments, leading to lower personnel-related expenses [General and Administrative Expenses](index=3&type=section&id=General%20and%20administrative%20expenses) General and administrative expenses fell to RMB69.2 million from RMB134.3 million year-over-year, mainly due to decreased impairment provisions for assets and efficiency improvements, including staff reductions [Net Income and EPS](index=3&type=section&id=NET%20INCOME) The company reported a net income of RMB9.4 million (US$1.3 million) for H1 2023, a significant turnaround from a net loss of RMB192.1 million in H1 2022, with basic and diluted net income per ADS at RMB0.26 (US$0.04) Net Income (Loss) Comparison (H1 2023 vs. H1 2022) | Metric | H1 2023 (RMB million) | H1 2022 (RMB million) | | :--- | :--- | :--- | | Net Income/(Loss) | 9.4 | (192.1) | | Non-GAAP Net Income/(Loss) | 9.4 | (182.9) | - Basic and diluted net income per ADS for H1 2023 were both **RMB0.26 (US$0.04)**, compared to a loss of RMB36.08 per ADS in H1 2022[14](index=14&type=chunk) [Liquidity](index=3&type=section&id=Liquidity) As of June 30, 2023, FangDD's liquidity included cash, cash equivalents, restricted cash, and short-term investments totaling RMB144.5 million (US$19.9 million), with net cash used in operating activities at RMB160.1 million (US$22.1 million) - As of June 30, 2023, the Company had cash, cash equivalents, restricted cash, and short-term investments of **RMB144.5 million (US$19.9 million)**[15](index=15&type=chunk) - Net cash used in operating activities for H1 2023 was **RMB160.1 million (US$22.1 million)**[15](index=15&type=chunk) [Financial Statements](index=6&type=section&id=Financial%20Statements) [Unaudited Condensed Consolidated Balance Sheets](index=6&type=section&id=SELECTED%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS%20DATA) As of June 30, 2023, total assets were RMB972.5 million, total liabilities significantly reduced to RMB720.5 million due to loan repayment, and total equity increased to RMB252.0 million Selected Balance Sheet Data (in thousands of RMB) | Account | As of June 30, 2023 | As of Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | 814,812 | 858,895 | | Total assets | 972,547 | 1,076,679 | | Short-term bank borrowings | - | 72,500 | | Total current liabilities | 688,078 | 949,721 | | Total liabilities | 720,538 | 981,285 | | Total equity | 252,009 | 95,394 | [Unaudited Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=SELECTED%20UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)%20DATA) The H1 2023 income statement shows revenue of RMB153.5 million, gross profit of RMB19.8 million, and a net income of RMB9.4 million, a significant turnaround from a RMB192.1 million net loss in H1 2022 Selected Income Statement Data (in thousands of RMB) | Account | For the six months ended June 30, 2023 | For the six months ended June 30, 2022 | | :--- | :--- | :--- | | Revenue | 153,488 | 144,834 | | Gross profit | 19,815 | 4,706 | | Loss from operations | (68,969) | (178,193) | | Net (loss) income | 9,361 | (192,100) | | Net (loss) income attributable to ordinary shareholders | 9,458 | (196,845) | [Reconciliation of GAAP and Non-GAAP Results](index=8&type=section&id=Reconciliation%20of%20GAAP%20and%20Non-GAAP%20Results) The company reconciles GAAP to non-GAAP results by excluding share-based compensation, showing a non-GAAP net income of RMB9.4 million for H1 2023 compared to a non-GAAP net loss of RMB182.9 million in H1 2022 GAAP to Non-GAAP Net Income Reconciliation (in thousands of RMB) | Metric | For the six months ended June 30, 2023 | For the six months ended June 30, 2022 | | :--- | :--- | :--- | | GAAP net (loss) income | 9,361 | (192,100) | | Share-based compensation expenses | 82 | 9,207 | | Non-GAAP net (loss) income | 9,443 | (182,893) | [Supplementary Information](index=4&type=section&id=Supplementary%20Information) [Non-GAAP Financial Measures](index=4&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP financial measures, excluding share-based compensation, to provide investors with a clearer view of core operating performance and business trends, while acknowledging their limitations and providing reconciliation - The company presents non-GAAP financial measures by excluding share-based compensation expenses to help investors understand core operating and financial performance[18](index=18&type=chunk) [Safe Harbor Statement](index=5&type=section&id=Safe%20Harbor%20Statement) This section contains a standard safe harbor statement, cautioning that forward-looking statements are subject to inherent risks and uncertainties, including economic conditions and competition, with no obligation to update them - The announcement contains forward-looking statements made under the 'safe harbor' provisions of U.S. law, which involve inherent risks and uncertainties that could cause actual results to differ materially[21](index=21&type=chunk)

PART I [Introduction and Special Notes](index=4&type=section&id=Introduction%20and%20Special%20Notes) The company operates through a PRC Variable Interest Entity (VIE) due to foreign ownership restrictions, facing risks from this structure, PRC regulations, and the HFCA Act, despite engaging a PCAOB-inspectable auditor for 2022 - Fangdd Network Group Ltd. is a **Cayman Islands holding company**, not an operating company, with primary operations conducted through its PRC subsidiaries and a **Variable Interest Entity (VIE)**, Shenzhen Fangdd Network Technology Co., Ltd., due to PRC restrictions on foreign ownership in value-added telecommunications services[24](index=24&type=chunk) - The company was conclusively identified by the SEC under the **Holding Foreign Companies Accountable Act (HFCA Act)** in **May 2022** but the PCAOB vacated this determination on **December 15, 2022**, after gaining inspection access[28](index=28&type=chunk)[29](index=29&type=chunk) - For the **fiscal year ending December 31, 2022**, the company engaged a **Singapore-based accounting firm** registered with the PCAOB, which can be inspected, to mitigate risks associated with the HFCA Act[30](index=30&type=chunk)[249](index=249&type=chunk) - The company faces significant regulatory uncertainty from PRC authorities, with new regulations effective **March 31, 2023**, requiring CSRC filings for overseas offerings and cybersecurity reviews for foreign listings by platform operators with **over one million users' personal data**[33](index=33&type=chunk)[38](index=38&type=chunk)[42](index=42&type=chunk) - Cash transfers from PRC entities to the holding company are **restricted**, with dividends from PRC subsidiaries subject to PRC laws and potential **withholding taxes**; the VIE has **historically incurred losses** and has not paid service fees to the WFOE, limiting cash flow to the parent company[41](index=41&type=chunk)[68](index=68&type=chunk)[73](index=73&type=chunk) [ITEM 3. KEY INFORMATION](index=13&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section details the company's VIE corporate structure, presents condensed consolidating financial statements, and outlines extensive risk factors across business, corporate structure, China operations, and ADSs [Corporate Structure and Financial Information](index=13&type=section&id=Corporate%20Structure%20and%20Financial%20Information) The company operates via a VIE structure, presenting condensed consolidating financial statements for 2020-2022, detailing financial performance, position, and cash flows, while outlining cash transfer limitations due to the VIE's historical losses - The company utilizes a **VIE structure**, where Shenzhen Fangdd Network Technology Co., Ltd. (the VIE) holds essential operating licenses, with control maintained through a series of **contractual agreements**, including Business Operation, Powers of Attorney, Equity Pledge, and Option Agreements[45](index=45&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) Condensed Consolidated Results of Operations (For the Year Ended Dec 31, 2022) | (in RMB thousands) | Parent | Other Subsidiaries | VIE and Its Subsidiaries | Consolidated Totals | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | — | 6,906 | 239,879 | 245,948 | | **Gross profit** | — | (679) | 26,251 | 24,735 | | **Loss from operations** | (167,076) | (64,266) | (32,000) | (249,393) | | **Net loss** | (268,216) | (53,686) | (43,722) | (239,588) | Condensed Consolidated Financial Position (As of Dec 31, 2022) | (in RMB thousands) | Parent | Other Subsidiaries | VIE and Its Subsidiaries | Consolidated Totals | | :--- | :--- | :--- | :--- | :--- | | **Total assets** | 1,689,340 | 2,140,292 | 1,579,706 | 1,076,679 | | **Total liabilities** | 27,224 | 2,394,654 | 2,453,490 | 981,285 | | **Total equity (deficit)** | 1,662,116 | (254,362) | (873,784) | 95,394 | Condensed Consolidated Cash Flows (For the Year Ended Dec 31, 2022) | (in RMB thousands) | Parent | Other Subsidiaries | VIE and Its Subsidiaries | Consolidated Totals | | :--- | :--- | :--- | :--- | :--- | | **Net cash used in operating activities** | (5,064) | (24,555) | (77,162) | (126,983) | | **Net cash used in investing activities** | (149,372) | (2,838) | (8,355) | (159,268) | | **Net cash (used in) provided by financing activities** | 3,136 | (10,000) | (70,695) | (58,654) | | **Cash, cash equivalents and restricted cash at end of year** | 22,710 | 64,374 | 95,661 | 182,745 | - Cash is primarily transferred from the parent company to the VIE through bank-entrusted loans from the WFOE, with **US$5.7 million** transferred in 2022; due to the VIE's **accumulated losses**, no service fees have been paid from the VIE to the WFOE[66](index=66&type=chunk)[68](index=68&type=chunk) [D. Risk Factors](index=23&type=section&id=D.%20Risk%20Factors) This subsection details principal risks, including business challenges like net losses and real estate market volatility, corporate structure risks from the VIE arrangement, significant operational risks in China, and ADS-related risks such as market volatility and concentrated voting power History of Net Losses and Negative Operating Cash Flow | Year | Net Loss (RMB million) | Negative Cash Flow from Operations (RMB million) | | :--- | :--- | :--- | | 2020 | 221.4 | 325.0 | | 2021 | 1,200.0 | 60.6 | | 2022 | 239.6 | 127.0 | - The company's business is **highly susceptible** to fluctuations in China's real estate market, which is subject to **government regulations** intended to control prices, such as tightened mortgage lending and restricted debt financing for developers[91](index=91&type=chunk)[93](index=93&type=chunk) - The VIE contractual arrangements may be **not as effective as direct ownership**, and their enforcement is subject to **substantial uncertainties** within the PRC legal system; if deemed non-compliant, the company could face **severe penalties**, including relinquishing interests in the VIE's operations[177](index=177&type=chunk)[184](index=184&type=chunk) - The company's ADSs may be **prohibited from trading** in the U.S. under the **HFCA Act** if the PCAOB is unable to inspect auditors in China in the future, though it has since engaged a **Singapore-based auditor** that is subject to PCAOB inspection[247](index=247&type=chunk)[249](index=249&type=chunk) - The company has a **triple-class voting structure** (Class A: 1 vote, Class B: 10 votes, Class C: **10,000 votes per share**), which **concentrates significant voting power** with Class B and Class C shareholders, limiting ADS holders' influence on corporate matters[262](index=262&type=chunk)[264](index=264&type=chunk) - The company has previously **failed to comply** with Nasdaq's minimum bid price and minimum market value of publicly held shares requirements, receiving notices in **January 2022** and **October 2022**, but has since **regained compliance** for both matters[259](index=259&type=chunk)[260](index=260&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=70&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides a comprehensive overview of the company's history, PropTech marketplace business model, organizational structure, and property, detailing its evolution, IPO, Class C share creation, SaaS offerings, and pertinent PRC regulations - The company is a customer-oriented **PropTech company** in China operating an **online marketplace** for real estate transactions, focusing on providing real estate transaction digitalization services through **SaaS solutions** and intelligent matching algorithms[308](index=308&type=chunk)[409](index=409&type=chunk) Key Operating Metrics (2022) | Metric | Value | | :--- | :--- | | Closed-loop GMV | RMB 22.5 billion (US$3.3 billion) | | Active Agents | Over 143.7 thousand | | New Property Projects | 1,613 | - Primary revenue sources are **property transaction services** (base commissions) and **innovation initiatives/other value-added services** (including SaaS solutions and financial services)[324](index=324&type=chunk)[410](index=410&type=chunk) - The company's technology infrastructure is built on a database covering **157 million properties** in China as of December 31, 2022, utilizing **AI and big data** for matching and verification[326](index=326&type=chunk) - The company's **VIE structure** is maintained through a series of **contractual arrangements**, including a Business Operation Agreement, Powers of Attorney, Equity Interest Pledge Agreements, and Option Agreements, which collectively give the WFOE **effective control** over the VIE[396](index=396&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk)[400](index=400&type=chunk) - The business is subject to **extensive PRC regulations**, including those on foreign investment (**Negative List**), value-added telecommunications services (requiring licenses held by the VIE), **data security** (Cyber Security Law, Data Security Law), and real estate brokerage[349](index=349&type=chunk)[351](index=351&type=chunk)[361](index=361&type=chunk) [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=94&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes the company's financial performance, noting a **73.9% revenue decrease** in 2022 to **RMB 245.9 million** and a net loss of **RMB 239.6 million**, while highlighting liquidity stress and going concern doubts due to recurring losses and negative operating cash flow Consolidated Results of Operations (in RMB thousands) | | 2020 | 2021 | 2022 | | :--- | :--- | :--- | :--- | | **Revenue** | 2,451,287 | 942,380 | 245,948 | | **Gross profit** | 414,466 | 106,507 | 24,735 | | **Loss from operations** | (226,020) | (957,295) | (249,393) | | **Net loss** | (221,375) | (1,202,997) | (239,588) | - Revenue **decreased by 73.9%** in 2022, from **RMB 942.4 million** in 2021 to **RMB 245.9 million**, primarily due to a **72.6% decrease** in total closed-loop GMV resulting from the property market downturn, COVID-19 outbreaks, and a strategic reduction in business scale[434](index=434&type=chunk) - General and administrative expenses decreased significantly to **RMB 195.0 million** in 2022 from **RMB 831.4 million** in 2021, mainly due to a decrease in the provision for impairment of assets like accounts receivable[440](index=440&type=chunk) - The company has experienced **recurring losses** and **negative operating cash flows**, and as of December 31, 2022, had an accumulated deficit of **RMB 4.6 billion**, raising **substantial doubt** about its ability to continue as a going concern[458](index=458&type=chunk)[811](index=811&type=chunk) Cash Flow Summary (in RMB thousands) | | 2020 | 2021 | 2022 | | :--- | :--- | :--- | :--- | | **Net cash used in operating activities** | (324,995) | (60,618) | (126,983) | | **Net cash (used in) provided by investing activities** | 5,848 | (43,725) | (159,268) | | **Net cash used in financing activities** | (46,557) | (307,129) | (58,654) | | **Cash, cash equivalents and restricted cash at end of year** | 936,030 | 516,238 | 182,745 | - Critical accounting estimates include the allowance for doubtful accounts, which was **RMB 557.1 million** as of Dec 31, 2022, and impairment of goodwill, which was **fully impaired in 2021**[485](index=485&type=chunk)[487](index=487&type=chunk)[490](index=490&type=chunk) [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=109&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's leadership, compensation, board practices, and employee base, noting **RMB 2.9 million** in executive compensation for 2022, a significant employee reduction to **212**, and highly concentrated share ownership with directors and executive officers controlling **74.9% of voting rights** - For the year ended December 31, 2022, the aggregate cash and benefits paid to executive officers was approximately **RMB 2.9 million (US$426.0 thousand)**[504](index=504&type=chunk) - Under the 2018 Share Incentive Plan, the maximum number of shares issuable is **356,514,660**, with awards to purchase **69,094,125** ordinary shares granted and outstanding as of March 31, 2023[510](index=510&type=chunk) - The company's employee count has **decreased dramatically**, from **1,725** at the end of 2020 to **212** as of December 31, 2022[532](index=532&type=chunk) - As of March 31, 2023, directors and executive officers as a group beneficially own approximately **2.6%** of total outstanding ordinary shares, but control **74.9% of the total voting rights** due to the **triple-class share structure**[275](index=275&type=chunk)[540](index=540&type=chunk) [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=118&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details transactions with major shareholders and related parties, including fundamental VIE contractual arrangements, registration rights, recent issuance of high-vote Class C shares to CEO-controlled entities, and ongoing business relationships with limited partnerships involving shared commissions - The company has granted demand and piggyback **registration rights** to its shareholders under an amended and restated shareholders' agreement from **June 2015**, though preferential rights **terminated upon the IPO**[551](index=551&type=chunk)[552](index=552&type=chunk) - In **November 2022 and March 2023**, the company issued newly created **Class C ordinary shares**, which carry **10,000 votes per share**, to ZX INTERNATIONAL LTD, a company controlled by Chairman and CEO Mr. Xi Zeng[559](index=559&type=chunk)[560](index=560&type=chunk) - The company is a **limited partner** in numerous investment partnerships that also act as funding partners for its exclusive property selling arrangements, and **shares commission and sales incentive income** with these entities[563](index=563&type=chunk) - In 2021 and 2022, related parties, including an equity method investee and a company owned by the CEO's spouse, **pledged real estate properties as collateral** for the company's bank borrowings[567](index=567&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=122&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section refers to consolidated financial statements in Item 18, discloses increased legal proceedings due to the market downturn, and states no current plans to pay dividends, intending to retain earnings for business operations - The company has initiated an **increased number of lawsuits** against real estate developers to protect its accounts receivable and has also seen more lawsuits from real estate agencies against it due to the **downturn in China's real estate market**[572](index=572&type=chunk) - The company has **no current plans to pay cash dividends** and intends to retain future earnings to operate and expand the business; dividend payments are also **restricted by PRC regulations** on its subsidiaries[574](index=574&type=chunk)[575](index=575&type=chunk) [ITEM 10. ADDITIONAL INFORMATION](index=124&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section details the company's corporate governance and legal framework, summarizing its Cayman Islands memorandum and articles of association, focusing on the three classes of ordinary shares with differing voting powers and conversion rights, and covering material tax considerations for investors - The company's share capital consists of **three classes**: Class A (1 vote/share), Class B (10 votes/share), and Class C (**10,000 votes/share**); Class B and C shares are **convertible into Class A shares**, but not vice-versa[585](index=585&type=chunk)[593](index=593&type=chunk) - Class B shares **automatically convert** to Class A shares upon transfer to a non-founder, while Class C shares **automatically convert** to Class A shares upon **certain transfer events** or if CEO Mr. Xi Zeng's beneficial ownership or capacity to manage the business falls **below certain thresholds**[587](index=587&type=chunk)[588](index=588&type=chunk) - The company is an **exempted company** under Cayman Islands law, which provides **certain privileges** such as not having to hold an annual general meeting, though it will hold one as required by Nasdaq rules[583](index=583&type=chunk)[594](index=594&type=chunk) - The company does not believe it was a **Passive Foreign Investment Company (PFIC)** for U.S. federal income tax purposes for 2022, but its status is a **factual determination** made annually and could change, which would have **adverse tax consequences** for U.S. Holders[276](index=276&type=chunk)[660](index=660&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=140&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the company's market risk exposure, primarily foreign exchange risk due to RMB-denominated operations and USD-traded ADSs, and notes that interest rate risk is not material, with no derivative instruments used - The company's primary market risk is **foreign exchange risk**, as its business is denominated in **RMB** while its ADSs are traded in **U.S. dollars**; fluctuations in the RMB/USD exchange rate will affect the value of the investment in ADSs[679](index=679&type=chunk) - The company has **not been exposed to material risks** from changes in market interest rates and has **not used any derivative financial instruments** to manage this exposure[682](index=682&type=chunk) PART II [ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS](index=143&type=section&id=ITEM%2014.%20MATERIAL%20MODIFICATIONS%20TO%20THE%20RIGHTS%20OF%20SECURITY%20HOLDERS%20AND%20USE%20OF%20PROCEEDS) This section confirms no material modifications to security holder rights and details the use of **US$71.6 million** net IPO proceeds, with **US$66.0 million** allocated to R&D, sales & marketing, and general corporate purposes by December 31, 2022 - From the November 2019 IPO, the company received net proceeds of approximately **US$71.6 million**; as of December 31, 2022, **US$66.0 million** had been used for R&D, sales & marketing, and general corporate purposes[695](index=695&type=chunk) [ITEM 15. CONTROLS AND PROCEDURES](index=143&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were ineffective as of December 31, 2022, due to a material weakness in internal control over financial reporting, with remediation measures underway - Management concluded that internal control over financial reporting was **ineffective** as of **December 31, 2022**[699](index=699&type=chunk) - A **material weakness** was identified: a **lack of sufficient financial reporting and accounting personnel** with appropriate **U.S. GAAP knowledge** to handle complex accounting issues and prepare SEC-compliant financial statements[701](index=701&type=chunk)[166](index=166&type=chunk) - **Remediation measures are underway**, including hiring more qualified personnel, adopting new accounting guidance, upgrading financial systems, and establishing better oversight for complex transactions[702](index=702&type=chunk) [ITEM 16. Corporate Governance and Other Matters](index=144&type=section&id=ITEM%2016.%20Corporate%20Governance%20and%20Other%20Matters) This section covers corporate governance, including a change in auditor to Audit Alliance LLP in July 2022, adherence to Cayman Islands governance practices as a foreign private issuer, and engagement of a PCAOB-inspectable auditor for 2022 to address HFCA Act concerns - On **July 25, 2022**, the company dismissed **KPMG Huazhen LLP** and engaged **Audit Alliance LLP** as its principal accountant on July 29, 2022[712](index=712&type=chunk) - As a **foreign private issuer**, the company follows its home country (**Cayman Islands practices**) in lieu of certain Nasdaq corporate governance standards, such as the requirement for a majority-independent board and for certain committees to be comprised solely of independent directors[718](index=718&type=chunk)[273](index=273&type=chunk) - Regarding the **HFCA Act**, the company was identified as a Commission-Identified Issuer in **May 2022**; for the fiscal year 2022, it engaged a **Singapore-based auditor** that can be inspected by the PCAOB[721](index=721&type=chunk)[722](index=722&type=chunk) PART III [ITEM 18. FINANCIAL STATEMENTS](index=149&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the company's audited consolidated financial statements for 2020-2022, prepared under U.S. GAAP, with the auditor's report for 2022 including a "Going Concern" paragraph due to recurring losses and significant revenue decline - The independent auditor's report for the 2022 financial statements contains a paragraph expressing **substantial doubt** about the company's ability to continue as a **going concern**, citing **recurring losses** from operations and a **significant decline in revenue**[740](index=740&type=chunk)[748](index=748&type=chunk) Consolidated Balance Sheet Highlights (in RMB thousands) | | Dec 31, 2021 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | 1,912,983 | 1,076,679 | | Cash and cash equivalents | 492,107 | 143,934 | | Accounts receivable, net | 884,740 | 470,997 | | **Total Liabilities** | 1,609,306 | 981,285 | | Short-term bank borrowings | 134,780 | 72,500 | | Accounts payable | 1,175,943 | 659,215 | | **Total Equity** | 303,677 | 95,394 | - The company's VIE and its subsidiaries held total assets of **RMB 1.58 billion** and total liabilities of **RMB 2.45 billion** as of December 31, 2022[793](index=793&type=chunk) - The company recognized an **impairment loss of RMB 62.6 million** for equity method investments in 2022, following an impairment of **RMB 187.3 million** in 2021, due to current real estate market conditions[492](index=492&type=chunk)[930](index=930&type=chunk) [ITEM 19. EXHIBITS](index=150&type=section&id=ITEM%2019.%20EXHIBITS) This section lists all exhibits filed with the annual report, including the company's memorandum and articles, securities agreements, the 2018 Share Incentive Plan, English translations of VIE contractual agreements, and CEO/CFO certifications - The report includes as exhibits the **English translations** of the **key contractual agreements** that form the basis of the company's **VIE structure**, such as the Business Operation Agreement, Powers of Attorney, and Equity Interest Pledge Agreements[730](index=730&type=chunk) - A letter from the former auditor, **KPMG Huazhen LLP**, to the SEC regarding its dismissal is filed as **Exhibit 16.1**[731](index=731&type=chunk)

Fangdd Network Group Ltd. (NASDAQ:DUO) Q3 2021 Earnings Conference Call November 18, 2021 10:00 AM ET Company Participants Linda Li - Director of Capital Markets Department Xi Zeng - Co-Founder, Co-CEO & Director Jiaorong Pan. - CFO & Director Conference Call Participants Operator Ladies and gentlemen, thank you for standing by. And welcome to Fangdd Network Group Limited's Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, we ...

Fangdd Network Group Ltd. (NASDAQ:DUO) Q2 2021 Earnings Conference Call August 13, 2021 8:00 AM ET Company Participants Linda Li – Director-Capital Markets Xi Zeng – Co-Chief Executive Officer Jiaorong Pan – Chief Financial Officer Conference Call Participants Lisa Thompson – Zacks Investment Operator Ladies and gentlemen, thank you for standing by, and welcome to Fangdd Network Group Limited Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the ma ...

[Financial & Operating Highlights](index=1&type=section&id=Financial%20%26%20Operating%20Highlights) Q2 2021 revenue increased 37.9% to RMB 401.4 million, but net loss widened to RMB 139.0 million, driven by a significant doubtful accounts provision Q2 2021 Key Financial Highlights (vs Q1 2021) | Financial Metric | Q2 2021 (RMB million) | Q1 2021 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Revenue | 401.4 | 291.0 | +37.9% | | Net Loss | 139.0 | 104.8 | Widened | | Net Loss (ex-provision) | 59.9 | 84.8 | Narrowed | | Non-GAAP Net Loss | 127.9 | 93.0 | Widened | Q2 2021 Key Operating Highlights (vs Q1 2021) | Operating Metric | Q2 2021 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Active Agents | 249.9 thousand | 221.1 thousand | +13.0% | | Closed-loop Agents | 19.0 thousand | 18.4 thousand | +3.3% | | Total Closed-loop GMV | RMB 29.6 billion | RMB 29.9 billion | -1.0% | [Management Commentary](index=2&type=section&id=Management%20Commentary) Management sees growth for asset-light platforms amid challenging regulations, committing to core business growth and strengthened financial management - Chairman Yi Duan commented that intensified government regulations, while creating cash flow difficulties for some developers, present growth opportunities for asset-light, efficiency-focused real estate transaction service platforms[6](index=6&type=chunk) - Co-CEO Xi Zeng stated the company's commitment to its growth strategy, focusing on improving new construction property sales, refining Property Cloud SaaS solutions, and enhancing the resale property business[6](index=6&type=chunk) - CFO Jiaorong Pan noted that the company has strengthened its accounts receivable management and is utilizing multi-channel funding solutions to support business development and maintain healthy cash flows[6](index=6&type=chunk) [Detailed Financial Results](index=2&type=section&id=Second%20Quarter%202021%20Financial%20Results) Revenue grew 37.9% to RMB 401.4 million, with strong SaaS growth, but operating expenses increased 46.2% due to higher product development and a significant doubtful accounts provision, resulting in a wider net loss [Revenue](index=2&type=section&id=REVENUE) Total revenue increased significantly quarter-over-quarter, driven by strong growth across all segments, particularly SaaS solutions Revenue Breakdown (Q2 2021 vs Q1 2021) | Revenue Source | Q2 2021 (RMB million) | Q1 2021 (RMB million) | QoQ Growth | | :--- | :--- | :--- | :--- | | **Total Revenue** | **401.4** | **291.0** | **+37.9%** | | New Property Transaction | 358.8 | 271.6 | +32.1% | | Resale Property Transaction | 40.3 | 18.8 | +114.4% | | SaaS Solutions | 2.3 | 0.6 | +268.4% | [Cost of Revenue and Gross Profit](index=3&type=section&id=COST%20OF%20REVENUE) Cost of revenue increased due to higher commission fees and service costs, while gross profit surged, improving the gross margin to 15.6% - Cost of revenue increased by **31.5%** to **RMB 338.9 million** from RMB 257.7 million in Q1 2021, primarily due to higher commission fees to agents and increased costs related to value-added services and SaaS solutions[9](index=9&type=chunk) Gross Profit and Margin (Q2 2021 vs Q1 2021) | Metric | Q2 2021 (RMB million) | Q1 2021 (RMB million) | | :--- | :--- | :--- | | Gross Profit | 62.5 | 33.3 | | Gross Margin | 15.6% | 11.4% | [Operating Expenses](index=3&type=section&id=OPERATING%20EXPENSES) Total operating expenses increased significantly, driven by higher general and administrative costs due to a doubtful accounts provision, despite reduced sales and marketing expenses Operating Expenses Breakdown (Q2 2021 vs Q1 2021) | Expense Category | Q2 2021 (RMB million) | Q1 2021 (RMB million) | Change | | :--- | :--- | :--- | :--- | | **Total Operating Expenses** | **205.1** | **140.3** | **+46.2%** | | Sales and Marketing | 13.1 | 37.9 | -65.4% | | Product Development | 64.5 | 37.3 | +72.9% | | General and Administrative | 127.5 | 65.2 | +95.5% | - The decrease in Sales and marketing expenses was due to optimizing staff and reducing marketing activities for new property services to focus on SaaS solutions[11](index=11&type=chunk) - The increase in General and administrative expenses was mainly due to a higher provision for doubtful accounts, which rose to **RMB 79.1 million** in Q2 from RMB 20.0 million in Q1[12](index=12&type=chunk) [Net Loss and Net Loss Per ADS](index=3&type=section&id=NET%20LOSS) Net loss widened to RMB 139.0 million in Q2 2021, with basic and diluted net loss per ADS increasing to RMB 1.64 Net Loss Summary (Q2 2021 vs Q1 2021) | Metric | Q2 2021 (RMB million) | Q1 2021 (RMB million) | | :--- | :--- | :--- | | Net Loss | (139.0) | (104.8) | | Net Loss (ex-provision) | (59.9) | (84.8) | | Non-GAAP Net Loss | (127.9) | (93.0) | - Basic and diluted net loss per ADS were both **RMB 1.64 (US$0.25)** in Q2 2021, compared to RMB 1.27 in Q1 2021[14](index=14&type=chunk) [Liquidity](index=4&type=section&id=Liquidity) As of June 30, 2021, the company maintained RMB 749.4 million in cash and equivalents, with net cash used in operating activities totaling RMB 53.0 million for the quarter - As of June 30, 2021, the Company had cash, cash equivalents, restricted cash, and short-term investments totaling **RMB 749.4 million (US$116.1 million)**[15](index=15&type=chunk) - Net cash used in operating activities for the second quarter of 2021 was **RMB 53.0 million (US$8.2 million)**[15](index=15&type=chunk) [Business Outlook](index=4&type=section&id=Business%20Outlook) The company forecasts Q3 2021 revenue between RMB 250 million and RMB 300 million, reflecting uncertainties from Covid-19 impacts in core markets - For the third quarter of 2021, the Company expects its revenue to be between **RMB 250 million and RMB 300 million**[16](index=16&type=chunk) - This forecast is subject to change and reflects the company's preliminary views on market and operational conditions, which are affected by the impact of Covid-19[16](index=16&type=chunk) [Financial Statements](index=7&type=section&id=Financial%20Statements) Unaudited financial statements detail the company's financial position and performance, showing a net loss of RMB 139.0 million in Q2 2021 and reconciling GAAP to Non-GAAP results [Condensed Consolidated Balance Sheets](index=7&type=section&id=SELECTED%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS%20DATA) The balance sheet as of June 30, 2021, shows total assets of RMB 3.38 billion, a decrease from year-end 2020, with corresponding changes in liabilities and equity Selected Balance Sheet Data (in thousands RMB) | Account | As of June 30, 2021 (RMB thousands) | As of Dec 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | 674,920 | 843,448 | | Accounts receivable, net | 1,783,583 | 2,252,103 | | Total assets | 3,384,662 | 4,047,952 | | Total liabilities | 2,141,974 | 2,581,954 | | Total equity | 1,242,688 | 1,465,998 | [Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=SELECTED%20UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)%20DATA) The income statement for Q2 2021 reports a net loss of RMB 139.0 million, significantly wider than Q2 2020, with a basic net loss per ADS of RMB 1.64 Selected Income Statement Data for Three Months Ended June 30 (in thousands RMB) | Account | 2021 (RMB thousands) | 2020 (RMB thousands) | | :--- | :--- | :--- | | Revenue | 401,424 | 737,690 | | Gross profit | 62,486 | 120,953 | | Loss from operations | (142,607) | (32,954) | | Net loss | (139,023) | (13,987) | | Net loss per ADS (Basic) | (1.64) | (0.18) | [Reconciliation of GAAP and Non-GAAP Results](index=9&type=section&id=Reconciliation%20of%20GAAP%20and%20Non-GAAP%20Results) A reconciliation table clarifies adjustments from GAAP to Non-GAAP figures, primarily by excluding share-based compensation for a clearer view of core operating performance GAAP to Non-GAAP Reconciliation for Three Months Ended June 30 (in thousands RMB) | Metric | 2021 (RMB thousands) | 2020 (RMB thousands) | | :--- | :--- | :--- | | GAAP loss from operations | (142,607) | (32,954) | | Share-based compensation | 11,092 | 25,916 | | **Non-GAAP loss from operations** | **(131,515)** | **(7,038)** | | GAAP net loss | (139,023) | (13,987) | | Share-based compensation | 11,092 | 25,916 | | **Non-GAAP net (loss)/income** | **(127,931)** | **11,929** | [Supplementary Information](index=4&type=section&id=Supplementary%20Information) This section provides earnings call logistics, currency exchange rates, non-GAAP measure definitions, a corporate overview, and a standard safe harbor statement - The earnings conference call was scheduled for **August 13, 2021, at 8:00 A.M. Eastern Time**[17](index=17&type=chunk) - The press release uses an exchange rate of **RMB 6.4566 per US$1.00** for currency conversions, based on the Federal Reserve Board rate on June 30, 2021[21](index=21&type=chunk) - Non-GAAP financial measures presented exclude share-based compensation expenses to help investors better understand the company's core operating performance[22](index=22&type=chunk)

Financial Data and Key Metrics Changes - Revenue in Q1 2021 increased by 6.9% to RMB291 million from RMB272.1 million in Q1 2020 [26] - Gross profit decreased by 32.6% to RMB33.3 million from RMB49.4 million in the same period of 2020, with gross margin dropping to 11.4% from 18.2% [27] - Net loss in Q1 2021 was RMB104.8 million, an improvement from RMB136.4 million in Q1 2020 [30] Business Line Data and Key Metrics Changes - New construction property projects on the platform numbered 1,941, with distribution revenue reaching RMB270 million [16] - Resale property GMV reached RMB13.56 billion, representing an increase of 81.8% from Q1 2020, with revenue from the resale properties segment increasing by 183.6% sequentially [18] - Active agents on the platform increased by 1.2% to 221,000 compared to Q1 2020 [13] Market Data and Key Metrics Changes - The overall net profit margin in the real estate industry was 9.85% in 2020, down by 1.9 percentage points from the prior year [8] - Shanghai's resale property transaction volume was RMB1.2 trillion in 2020, accounting for 16.5% of the national total [11] Company Strategy and Development Direction - The company is focusing on transforming from real estate development to real estate services, emphasizing digitalization capabilities [9][10] - The strategy includes enhancing SaaS solutions and improving operational efficiencies to drive growth margins [28][22] Management's Comments on Operating Environment and Future Outlook - Management noted that the real estate market is facing challenges such as declining profit margins and increasing land costs, necessitating improved efficiencies [9] - For Q2 2021, the company expects new construction property business revenue to be between RMB314 million and RMB370 million, and resale property business revenue to be between RMB40 million and RMB50 million [22][24] Other Important Information - The company has established partnerships with 24 of the top 100 real estate developers in China, including major players like Country Garden and China Vanke [17] - Cash and cash equivalents as of March 31, 2021, totaled RMB872.3 million, with short-term bank borrowings of RMB374.5 million [30] Q&A Session Summary Question: Inquiry about supply chain financing and its impact - Management confirmed cooperation with seven banks for supply chain financing amounting to about RMB2 billion, indicating potential positive impacts on business [35][39] Question: Expectations for gross margins and net loss in Q2 - Management indicated expectations for increasing gross margins and improvements in profitability due to revenue growth from SaaS and resale property businesses [41][42] Question: Breakeven revenue levels and gross margin assumptions - Management did not provide specific figures but indicated that higher gross margins from SaaS solutions and resale properties would contribute positively to future revenue [43][45] Question: Confidence in SaaS business success - Management expressed confidence in the SaaS business despite market competition, emphasizing ongoing investments in R&D and market-oriented production [46][47]