Leju(LEJU) - 2023 Q4 - Annual Report

PART I Key Information This section details Leju's corporate structure, which relies on Variable Interest Entities (VIEs) for its operations in China, contributing 100% of total revenues in 2023, and presents selected financial data showing consistent revenue decline and persistent net losses, with the company also identified as a Passive Foreign Investment Company (PFIC) for U.S. tax purposes Holding Company Structure and Contractual Arrangements Leju Holdings Limited is a Cayman Islands holding company that conducts its operations in China primarily through contractual arrangements with its Variable Interest Entities (VIEs), which are essential for navigating PRC restrictions on foreign investment in the internet and advertising sectors and constituted 100% of the company's total revenues in 2023 - Leju Holdings Limited is a Cayman Islands holding company with no direct equity ownership in its Chinese operating entities, known as Variable Interest Entities (VIEs)[15] - The company relies on a series of contractual arrangements (e.g., exclusive call option, equity pledge) to control the VIEs and consolidate their financial results[16] VIE Revenue Contribution | Fiscal Year | Revenue Contribution from VIEs | |:---|:---| | 2021 | 99.9% | | 2022 | 100.0% | | 2023 | 100.0% | - The company faces substantial risks related to the VIE structure, including potential PRC government intervention that could deem the arrangements non-compliant, leading to severe penalties or loss of control over operations[17] - As of the report date, the company believes it has obtained all necessary licenses for its business operations, except for internet publication and online audio-visual program transmission licenses, for which it relies on SINA's licenses[18] Selected Consolidated Financial Data The company's financial performance shows a consistent decline over the past three years, with total net revenues decreasing to $316.9 million and net losses persisting at $55.9 million in 2023, while total assets significantly reduced and shareholders' equity turned negative Selected Consolidated Statement of Operations Data (in millions of $) | | 2021 | 2022 | 2023 | |:---|---:|---:|---:| | Total net revenues | 534.1 | 343.2 | 316.9 | | E-commerce | 411.1 | 278.5 | 266.1 | | Online advertising | 122.5 | 64.7 | 50.7 | | Income (loss) from operations | (166.7) | (105.6) | (58.7) | | Net loss attributable to Leju | (150.9) | (89.7) | (55.9) | | Loss per ADS (Basic & Diluted) | (11.05) | (6.54) | (4.07) | Selected Consolidated Balance Sheet Data (in millions of $) | | As of Dec 31, 2021 | As of Dec 31, 2022 | As of Dec 31, 2023 | |:---|---:|---:|---:| | Cash and cash equivalents | 250.3 | 123.4 | 48.2 | | Total assets | 437.2 | 216.1 | 102.2 | | Total liabilities | 286.2 | 163.2 | 103.5 | | Total Leju Holdings Limited shareholders' equity | 151.3 | 53.2 | (1.2) | Reconciliation of Non-GAAP Financial Measures (in millions of $) | | 2021 | 2022 | 2023 | |:---|---:|---:|---:| | Income (loss) from operations | (166.7) | (105.6) | (58.7) | | Adjusted income (loss) from operations | (154.5) | (93.2) | (46.4) | | Net loss | (149.9) | (89.7) | (55.8) | | Adjusted net loss | (140.3) | (79.9) | (46.1) | | Net loss attributable to Leju | (150.9) | (89.7) | (55.9) | | Adjusted net loss attributable to Leju | (141.4) | (79.9) | (46.2) | Risk Factors The company faces a multitude of significant risks, including business risks tied to the volatile Chinese real estate market, structural risks from the VIE arrangement, regulatory risks from both Chinese and U.S. authorities, and investment risks related to its ADSs delisting and PFIC classification - Going Concern Risk: The company has incurred significant net losses and negative operating cash flows in recent years ($55.8M net loss and $73.6M negative operating cash flow in 2023), and its auditors have expressed substantial doubt about its ability to continue as a going concern[57][58] - Business Risk: The business is highly susceptible to fluctuations and government policies in China's real estate industry, which has been in a steep downturn, with a substantial portion of revenue (64% in 2023) concentrated in a few major urban centers[60][62][76] - VIE Structure Risk: The company relies on contractual arrangements with its VIEs, which may not be as effective as direct ownership and face risks of being deemed non-compliant with PRC laws, potentially leading to severe penalties or loss of control[49][141][147] - Regulatory and Political Risk: The company faces risks from PRC government oversight, potential changes in foreign investment laws, U.S.-China political tensions, and regulations like the HFCAA, which could lead to trading prohibitions if the PCAOB cannot inspect its auditor[51][52][53] - ADS & Investment Risk: The company's ADSs were delisted from the NYSE in April 2024 and now trade on the OTC Pink market, which may reduce liquidity and depress the price, and the company also believes it was a Passive Foreign Investment Company (PFIC) in 2023, which could result in adverse U.S. federal income tax consequences for U.S. holders[55][215][245] Information on the Company Leju Holdings Limited is a leading O2O real estate service provider in China, operating through an extensive online platform and complementary offline services, with its business divided into E-commerce and Online Advertising, relying on a VIE framework and strategic relationships with major entities like E-House Enterprise, SINA, and Tencent, and recently delisted from the NYSE to the OTC market History and Development of the Company Leju was incorporated in 2013 by E-House, went public on the NYSE in 2014, and became a subsidiary of E-House Enterprise in 2020, with TM Home becoming its direct parent in 2021, maintaining key strategic relationships with SINA and Tencent, and recently delisting its ADSs from the NYSE to the OTC Pink market in April 2024 - In November 2020, E-House Enterprise acquired a controlling stake in Leju, making it a subsidiary, and subsequently, in November 2021, TM Home (owned by E-House Enterprise and Alibaba) became Leju's direct parent company, holding approximately 55.4% of its shares as of March 31, 2024[254] - E-House Enterprise is contemplating a restructuring plan which, if consummated, could result in it ceasing to be the controlling beneficial owner of Leju[137][255] - The company's ADSs were delisted from the New York Stock Exchange (NYSE) on April 29, 2024, and have since been quoted on the OTC Pink market under the symbol 'LEJUY'[253] - On May 20, 2022, the company changed its ADS to ordinary share ratio from 1:1 to 1:10, effectively a one-for-ten reverse ADS split[252] Business Overview Leju operates as an O2O real estate service provider in China, connecting property buyers with developers through E-commerce (primarily discount and commission coupons) and Online Advertising, with its online presence covering 405 cities and mobile applications, and its business is highly seasonal - Leju is an O2O real estate service provider in China with an online platform covering 405 cities and various mobile applications[263][267] Revenue by Service (in millions of $) | Service | 2021 | 2022 | 2023 | |:---|---:|---:|---:| | E-commerce | 411.1 | 278.5 | 266.1 | | Online Advertising | 122.5 | 64.7 | 50.7 | | Listing | 0.5 | 0.01 | 0 | | Total Revenues | 534.1 | 343.2 | 316.9 | - The E-commerce business has shifted significantly towards commission coupons, which generated $237.7 million in 2023, up from $95.5 million in 2022, while discount coupon revenue fell sharply to $28.4 million from $183.0 million[411] - The company faces intense competition from other real estate internet portals like fang.com and anjuke.com, as well as mobile news providers like toutiao.com[289] - The business is seasonal, with the first quarter being the weakest due to the Chinese New Year holiday, and the third and fourth quarters being the strongest[288] Organizational Structure Leju Holdings Limited, a Cayman Islands company, operates in China through a Variable Interest Entity (VIE) structure to comply with PRC restrictions on foreign investment in internet and advertising services, controlling its main operating entities through contractual arrangements that transfer economic benefits and generated virtually all of the company's revenue, while introducing significant legal and regulatory risks - The company operates in China through three main VIEs: Beijing Leju, Leju Hao Fang, and Beijing Jiajujiu, due to PRC restrictions on foreign ownership in internet services[385][386] - Control over the VIEs is maintained through a series of contractual arrangements, including Exclusive Call Option Agreements, Loan Agreements, Powers of Attorney, and Equity Pledge Agreements[387][391][396] - Economic benefits are transferred from the VIEs to Leju's PRC subsidiaries via Exclusive Business Cooperation Agreements, under which the subsidiaries provide technical and consulting services in exchange for fees equivalent to 100% of the VIEs' consolidated profit[401][402] - In 2023, the VIEs contributed 100.0% of the company's total net revenues, with total service fees received by PRC subsidiaries from the VIEs amounting to $10.3 million[388] - The company's PRC legal counsel believes the VIE structure complies with current PRC laws, but acknowledges substantial uncertainties regarding the interpretation and application of these laws by regulatory authorities[405][406] Property, Plants and Equipment The company's principal executive offices are located in Beijing, and as of March 31, 2024, Leju leases approximately 10,100 square meters of office space across 15 local offices in China and one in Hong Kong, which it believes are adequate for its operations - As of March 31, 2024, the company leased an aggregate gross floor area of approximately 10,100 square meters for its 15 local offices in China and its Hong Kong office[407] Operating and Financial Review and Prospects The company's financial performance continues to be heavily impacted by the downturn in China's real estate industry, with total revenues decreasing by 7.7% in 2023 and a net loss of $55.8 million, leading to a 'going concern' warning from auditors due to liquidity concerns and negative operating cash flow, while critical accounting estimates involve significant judgment Operating Results In 2023, total revenues fell 7.7% to $316.9 million, primarily due to the downturn in China's real estate market, with E-commerce revenue decreasing 4.4% despite a surge in commission coupon revenue, and online advertising revenue declining 21.6%, resulting in a net loss of $55.8 million despite reduced SG&A expenses Consolidated Results of Operations (in millions of $) | | 2021 | 2022 | 2023 | |:---|---:|---:|---:| | Total net revenues | 534.1 | 343.2 | 316.9 | | Cost of revenues | (55.8) | (30.6) | (23.1) | | Selling, general and administrative expenses | (645.6) | (418.5) | (349.6) | | Loss from operations | (166.7) | (105.6) | (58.7) | | Net loss | (149.9) | (89.7) | (55.8) | - Total revenues decreased by 7.7% in 2023, primarily due to the continued downturn in China's real estate industry and a change in revenue recognition policy for certain customers, where revenue is only recognized upon cash receipt[451] E-commerce Revenue Breakdown (in millions of $) | E-commerce Type | 2021 | 2022 | 2023 | |:---|---:|---:|---:| | Discount Coupons | 411.1 | 183.0 | 28.4 | | Commission Coupons | 0.0 | 95.5 | 237.7 | | Total E-commerce Revenue | 411.1 | 278.5 | 266.1 | - Selling, general and administrative expenses decreased by 16.5% in 2023, mainly due to reduced marketing expenses for the e-commerce business[453] Liquidity and Capital Resources The company's liquidity position is critical, with cash and cash equivalents dropping to $48.2 million and significant negative operating cash flow of $73.7 million in 2023, leading auditors to issue a 'going concern' warning, while the company's ability to transfer funds from its PRC subsidiaries is restricted by regulations - Auditors have issued a 'going concern' warning due to significant operating losses, negative operating cash flows, and a negative working capital of $15.3 million as of Dec 31, 2023[470][471][697] Summary of Cash Flows (in millions of $) | | 2021 | 2022 | 2023 | |:---|---:|---:|---:| | Net cash used in operating activities | (39.9) | (108.0) | (73.6) | | Net cash provided by (used in) investing activities | (0.3) | 0.0 | 2.6 | | Net cash provided by (used in) financing activities | 1.0 | (0.1) | (0.7) | | Net decrease in cash and cash equivalents | (33.3) | (124.7) | (73.3) | - As of December 31, 2023, the company's PRC subsidiaries had restricted net assets of $36.0 million, which are not readily transferable to the holding company due to PRC regulations[479][852] - The company's material cash requirements primarily consist of operating lease obligations, with total future lease payments amounting to $12.3 million as of December 31, 2023[481][482] Research and Development, Patents and Licenses, etc. Leju emphasizes technology development to maintain competitiveness, employing 130 software developers and technology personnel as of December 31, 2023, and has developed proprietary mobile applications, with its intellectual property portfolio including 152 registered copyrights, 332 owned or licensed trademarks, and 59 registered domain names as of March 31, 2024 - As of December 31, 2023, the company employed 130 software developers and other technology-related personnel[485] - As of March 31, 2024, the company's intellectual property included 152 registered copyrights, 332 owned or licensed trademarks, and 59 registered domain names[486] Trend Information The company states that China's real estate industry has been in a steep downturn since the second half of 2021, directly and negatively impacting Leju's online advertising and e-commerce businesses, and is not aware of any other significant trends or events since January 1, 2024, that are likely to materially affect its financial condition or results of operations - The company acknowledges that the steep downturn in China's real estate industry since H2 2021 has directly and negatively impacted its business[488] Critical Accounting Estimates The company's financial reporting relies on critical accounting estimates that involve significant judgment and uncertainty, particularly the allowance for current expected credit losses (CECL) on receivables and the provision for income tax, including the valuation allowance for deferred tax assets, given its cumulative losses - A key critical accounting estimate is the allowance for current expected credit losses on receivables, which requires significant judgment in assessing customer credit risk based on historical data and forward-looking economic conditions[490][703] - Another critical estimate is the provision for income tax and the valuation allowance for deferred tax assets, where the company considers cumulative losses as significant negative evidence, limiting its ability to rely on projections of future taxable income to realize these assets[491][493][834] Directors, Senior Management, and Employees This section details the company's leadership, compensation, board structure, and workforce, noting that the board consists of five directors led by Executive Chairman Xin Zhou, dissolved its audit, compensation, and corporate governance committees in May 2024, and has seen a significant decline in employee headcount to 871 by the end of 2023, with major shareholders including TM Home (55.4%), Tencent (15.4%), and SINA (12.1%) Directors and Senior Management The company is led by Executive Chairman Xin Zhou and Director & CEO Yinyu He, with a board of five directors and an executive team including COO Qiong Zuo and CFO Li Yuan, all possessing extensive experience in China's real estate, internet, and media industries Directors and Executive Officers | Name | Age | Position | |:---|:---:|:---| | Xin Zhou | 56 | Executive Chairman | | Yinyu He | 49 | Director and Chief Executive Officer | | Canhao Huang | 66 | Director | | Minyi Zhang | 47 | Director | | Haiyan Gu | 49 | Director | | Qiong Zuo | 44 | Chief Operating Officer | | Li Yuan | 43 | Chief Financial Officer | Compensation For fiscal year 2023, the company paid approximately $0.3 million in cash to executive officers and $0.1 million to directors, with its 2013 Share Incentive Plan expiring in December 2023, leaving 9,507,804 options outstanding as of March 31, 2024, and recorded $1.8 million in share-based compensation expenses in 2023 - For the year ended December 31, 2023, the company paid an aggregate of approximately $0.3 million in cash to its executive officers and $0.1 million to its directors[505] - The 2013 Share Incentive Plan (Leju Plan) expired on December 1, 2023, and as of March 31, 2024, there were 9,507,804 options outstanding under the plan[511][515] - In 2023, the company recorded share-based compensation expenses of $1.8 million, and as of December 31, 2023, there was $0.6 million of unrecognized compensation expense related to unvested awards[511] Board Practices The board of directors consists of five members, and a significant governance change occurred in May 2024 when independent directors resigned, leading the full board to assume the functions of the audit, compensation, and nominating and corporate governance committees, resulting in no independent directors on the board as of the report date - On May 6, 2024, following the resignation of its independent directors, the company's board of directors resolved to dissolve the audit, compensation, and nominating and corporate governance committees[520] - The full board of directors has assumed the functions and responsibilities of these committees, and as of the date of the report, there are no independent directors on the board[520] Employees The company has significantly reduced its workforce amidst operational challenges, with the number of employees dropping from 2,434 in 2021 to 871 at the end of 2023, with Customer Support and Sales comprising over 55% of the total staff, and the company emphasizes employee training and performance-based incentives - The number of employees decreased significantly from 2,434 in 2021 to 1,326 in 2022, and further to 871 in 2023, primarily due to operational challenges and the downturn in the real estate market[524][525] Employees by Function as of December 31, 2023 | Function | Number of Employees | Percentage of Employees | |:---|---:|---:| | Sales | 240 | 27.6% | | Software Developers & Technology | 130 | 14.9% | | Editorial | 137 | 15.7% | | Customer Support | 241 | 27.7% | | Corporate Offices | 123 | 14.1% | | Total | 871 | 100.0% | Share Ownership As of March 31, 2024, the company's ownership is concentrated among three principal shareholders: TM Home Limited (55.4%), Tencent Holdings Limited (15.4%), and SINA Corporation (12.1%), who together own approximately 82.9% of outstanding shares, while executive officers and directors as a group beneficially own approximately 1.3% Principal Shareholders as of March 31, 2024 | Shareholder | Shares Beneficially Owned | Percentage Ownership | |:---|---:|---:| | TM Home Limited | 76,401,247 | 55.4% | | Tencent Holdings Limited | 21,231,220 | 15.4% | | SINA Corporation | 16,642,623 | 12.1% | | All Directors and Executive Officers as a Group | 1,843,353 | 1.3% | - As of March 31, 2024, approximately 19.3% of ordinary shares were held by record holders in the United States, with the depositary bank, JPMorgan Chase Bank, N.A., holding most of these on behalf of ADS holders[537] Major Shareholders and Related Party Transactions This section details the company's significant transactions and extensive operational and financial interdependencies with its major shareholders and their affiliates, including E-House Enterprise, TM Home, SINA, and Tencent, highlighting key transactions in 2023 and complex historical agreements that define their operational relationship and present potential conflicts of interest - Leju has significant related party transactions with its controlling shareholder E-House Enterprise and its parent TM Home, recognizing $9.6 million in expenses for marketing services from E-House Enterprise and a $3.1 million operating loss from reimbursing TM Home for its online platform operations in 2023[539][540] - The company has historical agreements with SINA for domain name/content licensing and advertising agency services, which were set to expire in March 2024, with renewal negotiations in process as of the report date, and minimal costs for advertising resources from SINA at $35,259 in 2023[561][567] - Leju has a strategic cooperation with Tencent, acting as its real estate advertising agent in various regions of China, with the cost for advertising resources purchased from Tencent being $13.7 million in 2023[568][570] - E-House, Tencent, and SINA have demand, shelf, and piggyback registration rights for their ordinary shares under investor rights agreements, allowing them to require the company to register their shares for public sale[572][573][575] Financial Information This section contains the company's consolidated financial statements, noting no material legal proceedings, and states that the board has complete discretion regarding its dividend policy, with no present plan to pay cash dividends, intending to retain funds for business operations, and confirms no significant changes since the audited financial statements - The company is not currently involved in any material legal or arbitration proceedings[583] - The company has no present plan to pay cash dividends and intends to retain available funds to operate and expand its business, with the last dividend paid on May 15, 2015[584][585] The Offer and Listing The company's American Depositary Shares (ADSs) were listed on the New York Stock Exchange (NYSE) from April 2014 until April 2024, when they were delisted and trading was suspended, and are now quoted on the OTC Pink market under the symbol 'LEJUY', with each ADS representing ten ordinary shares following a ratio change in May 2022 - On April 29, 2024, the NYSE filed a Form 25 to delist the company's ADSs, which had been suspended from trading on April 11, 2024[589] - The company's ADSs are now quoted on the OTC Pink market under the symbol 'LEJUY'[589] Additional Information This section outlines the company's corporate governance framework as a Cayman Islands exempted company, detailing provisions of its memorandum and articles of association regarding director appointments, shareholder rights, and changes in capital, and covers key taxation considerations, including the risk of being classified as a PRC resident enterprise and its belief that it was a Passive Foreign Investment Company (PFIC) for 2023, which has significant adverse U.S. federal income tax implications - The company is a Cayman Islands exempted company, which provides certain exemptions from requirements like holding annual general meetings, though its articles allow for them[606][614] - Shareholders have the right to one vote per share, with an ordinary resolution requiring a simple majority and a special resolution (for major changes like amending articles) requiring a two-thirds majority[596][597] - PRC Taxation Risk: The company faces the risk of being classified as a PRC resident enterprise if its 'de facto management body' is deemed to be in China, which would subject its worldwide income to a 25% PRC enterprise income tax[620][622] - U.S. Taxation Risk (PFIC): The company believes it was a Passive Foreign Investment Company (PFIC) for the 2023 taxable year and likely will be for the current year, which can result in adverse U.S. federal income tax consequences for U.S. holders, including punitive tax rates on certain distributions and gains[628][638] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate risk, which is considered minimal, and foreign exchange risk, which is more significant as substantially all revenues are in Renminbi (RMB) while ADSs are traded in U.S. dollars, meaning RMB/USD exchange rate fluctuations can materially affect reported value and potential distributions, and the company does not currently use derivative instruments to hedge these risks - Interest rate risk is minimal, primarily related to interest on bank deposits, and the company repaid its short-term bank borrowings in March 2023[646] - The company faces significant foreign exchange risk as its revenues are denominated in Renminbi (RMB) while its ADSs are traded in U.S. dollars, meaning the value of an investment in ADSs is affected by the RMB/USD exchange rate[647] - As of December 31, 2023, the company held $53.9 million in RMB or HKD-denominated cash balances and $0.5 million in USD-denominated cash balances[649] Description of Securities Other Than Equity Securities This section details the fees and charges that holders of the company's American Depositary Shares (ADSs) may incur, levied by the depositary, JPMorgan Chase Bank, N.A., for services such as issuing or surrendering ADSs, processing cash distributions, and transferring ADRs, noting that the depositary may charge up to $5.00 per 100 ADSs for issuance or cancellation and up to $0.05 per ADS for cash distributions, and no reimbursement was received in 2023 - ADS holders may be charged fees by the depositary, including $5.00 per 100 ADSs for issuance or cancellation, and up to $0.05 per ADS for cash distributions[651][652] - The depositary may also charge an annual administrative fee of up to $0.05 per ADS per calendar year[653] - For the year ended December 31, 2023, the company received no reimbursement from the depositary for expenses related to the ADR program[656] PART II Controls and Procedures As of December 31, 2023, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures and internal control over financial reporting were effective, and as a 'non-accelerated filer', the company is not required to provide an auditor's attestation report on its internal controls, with no material changes reported during 2023 - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective[659] - Based on the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[661] - As a 'non-accelerated filer', the company is not required to include an attestation report on internal control over financial reporting from its external auditor[661][662] Other Information This section covers various governance and compliance topics, including the company's determination that it does not have an audit committee financial expert, with the board assuming the committee's functions, its adoption of a code of ethics, audit fees paid to Yu CPA of $580,000 for 2023, the initiation of a share repurchase program in November 2023, and its cybersecurity risk management strategy overseen by the board of directors Audit Committee Financial Expert As of the report date, Leju's board of directors has determined that it does not have an audit committee financial expert, with the board itself assuming the functions and responsibilities of the audit committee, stating that retaining an independent director qualifying as such an expert would be overly costly and burdensome given its current scale - The company's board of directors has determined that it does not have an audit committee financial expert[665] - The board has assumed the functions of the audit committee and believes retaining a qualified expert would be too costly and burdensome[665] Principal Accountant Fees and Services The company discloses the fees paid to its principal external auditor, Yu Certified Public Accountant, P.C., with audit fees of $560,000 for 2022 and $580,000 for 2023, and the audit committee's policy is to pre-approve all audit and non-audit services provided by the external auditor Principal Accountant Fees (in $) | Fee Type | 2022 | 2023 | |:---|---:|---:| | Audit fees | 560,000 | 580,000 | Purchases of Equity Securities by the Issuer and Affiliated Purchasers On November 14, 2023, the company announced a share repurchase program authorizing the buyback of up to $2 million of its ADSs over a 12-month period, and as of March 31, 2024, the company had repurchased 52,334 ADSs for a total of approximately $62,000 under this program - A share repurchase program of up to $2 million was authorized on November 14, 2023, valid for 12 months[670] Share Repurchase Activity (Nov 2023 - Dec 2023) | Period | Total ADSs Purchased | Average Price Paid per ADS (US$) | Maximum Value Remaining (US$) | |:---|---:|---:|---:| | Nov 2023 | 41,934 | 1.15 | 1,951,981.37 | | Dec 2023 | 10,400 | 1.34 | 1,938,015.21 | | Total | 52,334 | N/A | N/A | Cybersecurity The company has established processes for managing cybersecurity risks, integrated into its overall enterprise risk management, with a multi-layered defense system in place and the board of directors overseeing cybersecurity risk management through quarterly updates from designated officers, and has not experienced any material cybersecurity incidents to date - The company has implemented processes for assessing, identifying, and managing material cybersecurity risks, which are integrated into its enterprise risk management system[672] - The board of directors has ultimate oversight of cybersecurity risk management, receiving quarterly updates from management[677] - As of the report date, the company has not experienced any material cybersecurity incidents that have materially affected its business, operations, or financial condition[676] PART III Financial Statements This section includes the company's audited consolidated financial statements for 2021-2023, prepared in accordance with U.S. GAAP, with the auditor's report highlighting a significant 'Emphasis of Matter' regarding the company's ability to continue as a going concern due to accumulated losses and negative cash flows, and detailing complex accounting for its VIE structure, revenue recognition, and critical estimates Report of Independent Registered Public Accounting Firm The independent auditor, Yu Certified Public Accountant, P.C., issued an opinion stating that the consolidated financial statements present fairly the financial position of the Group, but included a critical 'Emphasis of Matter' paragraph highlighting substantial doubt about the company's ability to continue as a going concern due to significant accumulated losses and negative cash flows, and identified 'Allowance for current expected credit losses (CECL)' and the 'Going Concern Assessment' as critical audit matters - The auditor's report contains an 'Emphasis of Matter' paragraph expressing substantial doubt about the Group's ability to continue as a going concern due to significant losses and negative cash flows[697] - The audit identified two Critical Audit Matters: 1) Allowance for current expected credit losses (CECL) on various receivables, and 2) the Going Concern Assessment itself, both involving significant management judgment[701][702][707] - The audit was conducted in accordance with PCAOB standards, and as the Group is not required to have an audit of its internal control over financial reporting, no opinion on its effectiveness was expressed[699] Exhibits This section lists all exhibits filed as part of the annual report, including foundational corporate documents, the extensive contractual arrangements forming the VIE structure, key strategic agreements with major partners like SINA and E-House, CEO/CFO certifications, and consents from legal counsel and the public accounting firm - The exhibits include foundational corporate documents such as the Amended and Restated Memorandum and Articles of Association (Exhibit 1.1) and the ADS Deposit Agreement (Exhibit 2.3)[683] - A significant portion of the exhibits consists of the various contractual arrangements that establish and govern the company's VIE structure, including Exclusive Call Option, Equity Pledge, and Exclusive Business Cooperation Agreements (Exhibits 4.4 through 4.30)[683][685][686] - Key strategic agreements are filed, such as those with SINA for licensing and advertising, and with E-House and Tencent regarding investor rights and cooperation (Exhibits 4.31 through 4.44)[687][689]