Niu(NIU) - 2021 Q4 - Annual Report

Part I Key Information Niu Technologies operates as a Cayman Islands holding company through PRC subsidiaries and a VIE, facing risks from its structure, regulations, potential delisting, and cash flow restrictions - Niu Technologies operates as a Cayman Islands holding company through PRC subsidiaries and a VIE, with the VIE contributing 100% of total revenues from 2019 to 2021[12] - Significant risks stem from the VIE structure, including enforceability of contractual arrangements and potential PRC government intervention, which could result in severe penalties or operational relinquishment[13][14] - The company's ADSs face delisting risk from U.S. exchanges under the HFCAA due to the PCAOB's inability to inspect its China-based auditor[16] - Dividend payments depend on PRC subsidiaries, subject to PRC regulations on profit distribution, statutory reserves, and currency conversion controls[17][25][26] Selected Consolidated Statements of Comprehensive Income Data (2019-2021) | Indicator | 2019 (RMB thousands) | 2020 (RMB thousands) | 2021 (RMB thousands) | 2021 (US$ thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenues | 2,076,289 | 2,444,329 | 3,704,537 | 581,323 | | Gross profit | 486,551 | 559,149 | 812,779 | 127,543 | | Operating income | 186,709 | 170,634 | 252,481 | 39,620 | | Net income | 190,085 | 168,652 | 225,820 | 35,436 | | Net income per ordinary share — Basic | 1.28 | 1.12 | 1.47 | 0.23 | | Net income per ordinary share — Diluted | 1.24 | 1.07 | 1.41 | 0.22 | Selected Consolidated Balance Sheets Data (as of Dec 31, 2020 & 2021) | Indicator | 2020 (RMB thousands) | 2021 (RMB thousands) | 2021 (US$ thousands) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 227,004 | 208,374 | 32,698 | | Total assets | 1,846,809 | 2,441,213 | 383,080 | | Total liabilities | 853,435 | 1,176,659 | 184,644 | | Total shareholders' equity | 993,374 | 1,264,554 | 198,436 | Selected Consolidated Statements of Cash Flows Data (2019-2021) | Indicator | 2019 (RMB thousands) | 2020 (RMB thousands) | 2021 (RMB thousands) | 2021 (US$ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 178,680 | 465,599 | 334,175 | 52,439 | | Net cash used in investing activities | (467,889) | (535,232) | (295,059) | (46,301) | | Net cash provided by (used in) financing activities | 35,282 | (13,164) | 6,246 | 980 | Risk Factors This section outlines principal investment risks, categorized into business, VIE structure, China operations, and ADSs, including brand dependency, competition, regulatory oversight, delisting, and dual-class voting - Business and Industry Risks: Dependence on brand strength, product innovation, consumer preferences, city partners, franchised stores, external suppliers, intense competition, product quality issues, and intellectual property protection[55] - Corporate Structure Risks: The VIE structure may be less effective than direct ownership, potentially non-compliant with PRC regulations, and subject to uncertainties in China's Foreign Investment Law[56][57] - Risks of Doing Business in China: Adverse impacts from changes in China's economic and political policies, significant PRC government oversight on internet, data, and cybersecurity, and delisting risks under HFCAA due to PCAOB inspection inability[58] - Risks Related to ADSs: Volatile trading price, limited influence of Class A shareholders and ADS holders due to dual-class voting structure, and potential adverse impact on market price from substantial ADS sales[59] Information on the Company This section details Niu Technologies' history, business operations, and structure, focusing on its smart electric two-wheeled vehicle portfolio, omnichannel retail, data analytics, manufacturing, and critical VIE structure History and Development of the Company Niu Technologies began operations in 2014, launched its first e-scooter in 2015, established its VIE structure for PRC compliance, and completed its Nasdaq IPO in October 2018 - The company was founded in 2014 and launched its first product, the NQi-series, in June 2015[297] - A VIE structure was established in May 2015 to comply with PRC foreign ownership restrictions, facilitating online and related business operations[298] - The company's ADSs commenced trading on Nasdaq on October 19, 2018, raising approximately US$55.2 million in net IPO proceeds[299] Business Overview Niu Technologies provides smart urban mobility solutions, manufacturing electric two-wheeled vehicles through an omnichannel model, supported by the NIU app, data analytics, R&D, and a Changzhou manufacturing base - The company aims to redefine urban mobility with a diversified product portfolio including electric scooters, motorcycles, kick-scooters, and e-bikes[300][306] - Niu utilizes an omnichannel retail model, with 3,108 franchised stores in China and 42 distributors across 50 countries as of December 31, 2021[300][372] - The NIU app serves as a central user experience platform, providing real-time scooter data, service access, an e-commerce store, and a social forum[314][315][317] - Big data analytics from its connected fleet, comprising 1,843,000 e-scooters and 10 billion kilometers of riding data by year-end 2021, are leveraged for product and service improvement[328][330] - Core technologies include NIU Energy smart power with a proprietary Battery Management System (BMS), Cloud ECU for control and connectivity, and OTA firmware updates[336][337][343] - Manufacturing is based in Changzhou, China, with operations commencing in December 2019 and expanding in September 2021, increasing total production capacity to over 2,000,000 units per annum[357][359] Organizational Structure This section details Niu Technologies' corporate structure, including its Cayman Islands holding company, Hong Kong subsidiary, PRC WFOE, and critical VIE contractual arrangements for control and economic benefits, ensuring PRC regulatory compliance - The company uses a VIE structure, Beijing Niudian, for its PRC online business due to foreign ownership restrictions, controlled via contractual agreements[447][298] - Effective control is secured through key contractual agreements, including Powers of Attorney, an Equity Pledge Agreement, and an Exclusive Option Agreement for VIE equity purchase[448][449][452] - An Exclusive Business Cooperation Agreement enables the WFOE to receive substantially all economic benefits from the VIE via service fees[450] - PRC legal counsel believes the ownership structure and contractual arrangements are valid under current PRC laws, but acknowledges significant uncertainties in legal interpretation and application[453][454] Property, Plants and Equipment The company's physical assets include leased offices in Beijing and Shanghai, a large Changzhou manufacturing facility, and a new manufacturing facility completed in August 2021 for expanded capacity Owned and Leased Facilities | Location | Approx. Size (sq. meters) | Primary Use | Ownership/Lease Expiry | | :--- | :--- | :--- | :--- | | Changzhou | 111,467 | Manufacturing and Maintenance | Owned | | Beijing | 1,394 | Office | Leased (Dec 31, 2024) | | Shanghai | 1,720 | Office | Leased (Apr 30, 2026) | | Changzhou | 12,000 | Manufacturing Facility | Leased (Dec 31, 2024) | - A new manufacturing facility was completed in August 2021 to expand production capacity, with operations starting in September 2021[457] Operating and Financial Review and Prospects This section analyzes financial performance, highlighting a 72.5% increase in e-scooter sales and 51.6% revenue growth to RMB 3.7 billion in 2021, alongside liquidity, capital resources, and critical accounting policies Operating Results Operating results show e-scooter sales volume increased 72.5% to 1,037,914 units in 2021, driving 51.6% revenue growth to RMB 3.7 billion, while gross margin slightly declined to 21.9% and net income rose to RMB 225.8 million E-Scooters Sold by Series (2019-2021) | Series | 2019 (Units) | 2020 (Units) | 2021 (Units) | | :--- | :--- | :--- | :--- | | NQi Series | 116,693 | 103,345 | 100,111 | | MQi Series | 75,802 | 136,032 | 106,914 | | UQi Series | 206,747 | 193,718 | 180,491 | | Gova Series | 22,085 | 168,537 | 634,358 | | KQi Series | — | — | 15,908 | | NIU Aero Series | — | 20 | 132 | | Total | 421,327 | 601,652 | 1,037,914 | - Total revenues increased by 51.6% from RMB 2,444.3 million in 2020 to RMB 3,704.5 million (US$581.3 million) in 2021, driven by a 72.5% increase in e-scooter sales volume[502] - Gross margin slightly decreased from 22.9% in 2020 to 21.9% in 2021, primarily due to higher raw material costs and product mix changes[506] - Net income increased to RMB 225.8 million (US$35.4 million) in 2021 from RMB 168.7 million in 2020[510] Liquidity and Capital Resources Liquidity is primarily from operating and financing activities, with RMB 432.3 million in cash as of December 31, 2021, and RMB 334.2 million net cash from operations, alongside working capital trends, RMB 180.0 million in short-term borrowings, and PRC cash repatriation restrictions Cash Flow Summary (2019-2021) | Indicator (RMB thousands) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 178,680 | 465,599 | 334,175 | | Net cash used in investing activities | (467,889) | (535,232) | (295,059) | | Net cash provided by (used in) financing activities | 35,282 | (13,164) | 6,246 | - As of December 31, 2021, the company held RMB 432.3 million (US$67.8 million) in cash, cash equivalents, and restricted cash[521] - Working capital metrics for 2021 included accounts receivable turnover days at 18, accounts payable turnover days at 68, and inventory turnover days at 26[523][524][526] - Outstanding short-term bank borrowings totaled RMB 180.0 million as of December 31, 2021, primarily from SPD Silicon Valley Bank and China Merchants Bank[528][530][894] - Cash transfers from PRC subsidiaries are restricted by the holding company structure and PRC laws, requiring statutory reserves before dividend distribution[543][544] Critical Accounting Policies and Estimates This section details critical accounting policies, including VIE consolidation, revenue recognition under ASC 606, and income tax accounting, emphasizing management judgment and estimates - The company consolidates its VIE, Beijing Niudian, as the primary beneficiary under ASC 810, based on contractual arrangements providing effective control and economic benefits[549] - Revenue is recognized under ASC 606 upon satisfaction of performance obligations and transfer of goods control, typically at acceptance by distributors or individual customers for product sales[551][552][555] - Deferred income taxes are provided using the liability method, with a valuation allowance established if realization of deferred tax assets is unlikely[558][560] Directors, Senior Management and Employees This section details the company's leadership, governance, and workforce, covering director and executive biographies, compensation, share incentive plans, board committees, employee demographics, and share ownership - The board of directors comprises six members, including Chairman and CEO Dr. Yan Li, with detailed biographies provided for all directors and the CFO[564][566][572] - In 2021, executive officers received approximately RMB 5.06 million in cash, non-executive directors received RMB 1.0 million, and the company maintains the 2016 Plan and 2018 Plan share incentive programs[573][574][575] - The board operates with three committees: Audit, Compensation, and Nominating and Corporate Governance, each with defined compositions and responsibilities[587][588][590] - As of December 31, 2021, the company had 702 full-time employees, with 40.3% in sales and marketing, 31.9% in R&D, and 27.8% in supply chain and administration[601][602] Principal Shareholder Ownership (as of March 31, 2022) | Shareholder | % of total ordinary shares | % of aggregate voting power | | :--- | :--- | :--- | | Glory Achievement Fund Limited | 28.1% | 21.2% | | Niu Holding Inc. | 6.5% | 19.5% | | All Directors and Executive Officers as a Group | 10.2% | 29.6% | Major Shareholders and Related Party Transactions This section details major shareholder relationships and related party transactions, including essential VIE contractual arrangements, and historical shareholder agreements and registration rights that terminated post-IPO - Company operations rely on contractual arrangements with its VIE and shareholders, which are classified as related party transactions[615] - A historical shareholders' agreement, providing participation, right of first refusal, and co-sale rights, terminated upon the company's IPO[616] - Certain shareholders hold registration rights (demand, piggyback, and Form F-3) for their shares, terminating five years post-IPO or when Rule 144 sales are permissible[617][618][619] Financial Information This section confirms appended consolidated financial statements, absence of material legal proceedings, and a dividend policy focused on retaining earnings for business expansion - The company is not currently involved in any material legal or administrative proceedings[625] - The company has no current plans to pay cash dividends, intending to retain future earnings for business operations and expansion[627] Additional Information This section provides supplementary corporate framework details, including memorandum and articles, dual-class shares, anti-takeover measures, material contracts, exchange controls, and tax analysis across Cayman Islands, PRC, and U.S., including PFIC risk - The company operates with a dual-class share structure: Class A ordinary shares carry one vote per share, Class B ordinary shares carry four votes per share, and Class B shares are convertible to Class A shares[633][634][636] - As an exempted company under Cayman Islands law, the company benefits from corporate flexibilities, including exemption from holding an annual general meeting[652] - The company does not consider itself a PRC resident enterprise for tax purposes, but if classified as such, it could face a 25% tax on global income and PRC withholding tax on foreign dividends[659][660][661] - There is a risk of the company being classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, leading to adverse tax consequences for U.S. holders of its ADSs or shares[670][672][682] Quantitative and Qualitative Disclosures about Market Risk This section addresses market risks, including interest rate risk on borrowings, foreign exchange risk from RMB-USD currency differences, and inflation risk in China - The company's primary market risks encompass interest rate risk on bank borrowings, foreign exchange risk, and inflation[693][694][697] - Significant foreign exchange risk exists due to RMB-denominated revenues and expenses versus USD-traded ADSs, where RMB depreciation could adversely affect USD-reported financial results[694][696] Description of Securities Other than Equity Securities This section details ADS holder fees and charges to the depositary bank for services like issuance and distributions, and notes depositary reimbursements for ADR program expenses ADS Holder Fees and Charges | Service | Fee (US$) | | :--- | :--- | | Issuance of ADSs | Up to 5₵ per ADS issued | | Cancellation of ADSs | Up to 5₵ per ADS cancelled | | Distribution of cash dividends | Up to 5₵ per ADS held | | Distribution of ADSs (stock dividends, etc.) | Up to 5₵ per ADS held | | ADS Services | Up to 5₵ per ADS held on the applicable record date(s) | - In 2021, the company received approximately US$0.6 million in reimbursement from the depositary bank for ADR program expenses[705] Part II Controls and Procedures This section reports effective disclosure controls and internal control over financial reporting as of December 31, 2021, affirmed by management and an unqualified auditor's opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[711] - Based on the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2021[712][713] - KPMG Huazhen LLP, the independent auditor, issued an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2021[715][716] Other Information This section covers corporate governance, identifying the audit committee financial expert, code of conduct adoption, principal accountant fees, and reliance on Cayman Islands home country practices for Nasdaq exemptions - The board has identified Mr. Changqing Ye as the audit committee financial expert[722] - The company has adopted a code of business conduct and ethics applicable to all directors, officers, and employees[723] Principal Accountant Fees (KPMG Huazhen LLP) | Fee Type | 2020 (US$) | 2021 (US$) | | :--- | :--- | :--- | | Audit fees | 861,488 | 1,296,108 | | Tax fees | 13,042 | Nil | - As a foreign private issuer, the company follows Cayman Islands practice, exempting it from Nasdaq's annual shareholder meeting requirement[728] Part III Financial Statements This section presents the complete audited consolidated financial statements for 2019-2021, prepared under U.S. GAAP, including the auditor's report and detailed financial statements - KPMG Huazhen LLP, the independent auditor, issued an unqualified opinion on the consolidated financial statements for the three-year period ended December 31, 2021[744] - The auditor's report highlights revenue recognition timing for electric scooter sales to distributors as a critical audit matter, requiring significant effort and judgment[748][750] - The company adopted ASC 842 (Leases) on January 1, 2021, recognizing operating lease right-of-use assets of RMB 79.1 million and lease liabilities of RMB 31.3 million[745][807] Exhibits This section lists all exhibits filed, including corporate documents, ADS deposit agreement, share incentive plans, employment and VIE contractual agreements, and required certifications - A comprehensive list of exhibits is provided, including foundational corporate documents, VIE structure agreements, share incentive plans, and material business contracts[731][735]