UXIN Uxin Ltd

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 20-F

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(Mark One)

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☐     REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

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OR

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☐     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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OR

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☒     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the transition period from January 1, 2020 to March 31, 2020

OR

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☐     SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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Date of event requiring this shell company report

Commission file number: 001-38527

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Uxin Limited

(Exact name of Registrant as specified in its charter)

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N/A

(Translation of Registrant’s name into English)

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Cayman Islands

(Jurisdiction of incorporation or organization)

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1-3/F, No. 12 Beitucheng East Road,

Chaoyang District,

Beijing 100029,

People’s Republic of China

(Address of principal executive offices)

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Zhen Zeng, Chief Financial Officer

Telephone: +86 10 5631-2700

Email: ir@xin.com

1-3/F, No. 12 Beitucheng East Road,

Chaoyang District,

Beijing 100029,

People’s Republic of China

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

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Securities registered or to be registered pursuant to Section 12(b) of the Act:

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Securities registered or to be registered pursuant to Section 12(g) of the Act:

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None

(Title of Class)

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

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None

(Title of Class)

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Indicate the number of issued and outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the transition report.

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

◻ Yes ⌧ No

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If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

◻ Yes   ⌧ No

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Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

⌧ Yes   ◻ No

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

⌧ Yes   ◻ No

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

◻ Yes ⌧ No

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Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

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If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ◻  Item 18 ◻

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If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes   ⌧ No

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(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

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Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

◻ Yes   ◻ No

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INTRODUCTION

Unless otherwise indicated or the context otherwise requires, references in this transition report on Form 20-F, or Transition Report, to:

Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this Transition Report were made at a rate of RM7.0808 to US$1.00, the exchange rate on as of the end of March 2020 set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all.

EXPLANATORY NOTE

On April 26, 2020, the board of directors of Uxin Limited approved a change of fiscal year end from December 31 to March 31 beginning from April 1, 2020, to ensure we can allocate ample resources towards driving sales during peak season in the fourth quarter and focus on strategic planning for the new fiscal year during slow season in the first quarter, due to clear seasonal patterns of China’s used car market. As a result, we are required to file this Transition Report on Form 20-F for the three-month transition period of January 1, 2020 to March 31, 2020. After filing the Transition Report, our next fiscal year will be the fiscal year ended March 31, 2021. Unless otherwise noted, all references to “fiscal year” in this transition report on Form 20-F refer to the fiscal year which, prior to the transition period, ended on December 31. Our condensed consolidated financial statements for the transition period from January 1, 2020 to March 31, 2020 prepared in accordance with U.S. GAAP are unaudited. We note that this Transition Report on Form 20-F is filed pursuant to Rule 13a-10(g)(4) of the Securities Exchange Act of 1934, as amended, which permits us to respond to only Items 5, 8.A.7., 13, 14 and 17 or 18 of Form 20-F.

FORWARD-LOOKING INFORMATION

This Transition Report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to, among other things:

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We would like to caution you not to place undue reliance on these forward-looking statements and you should read these statements in conjunction with the risk factors disclosed in “Item 3. Key Information—D. Risk Factors” of our annual report on Form 20-F filed with the SEC on May 12, 2020, or the Annual Report. Those risks are not exhaustive. We operate in an evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law. You should read this Transition Report and the documents that we reference in this Transition Report completely and with the understanding that our actual future results may be materially different from what we expect.

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A.             Operating Results

Overview

We are a leading national online used car dealer in China. Through our 2C business — Uxin Used Car, we provide consumers with a one-stop online used-car-buying experience, including access to a nationwide selection of value-for-money used cars and various car-related value-added products and services, as well as a full suite of supporting services to fulfill these online used car transactions. Historically, we also operated 2B business — Uxin Auction, where we primarily facilitated used car transactions between business customers via online auction, which has been divested to 58.com pursuant to definitive agreements we entered into in March 2020. See “Item 4. Information on the Company—A. History and Development of the Company— Divestitures of Our Loan Facilitation, Salvage Car and 2B Businesses” of our Annual Report.

Our 2C business currently generates revenues from (i) commission fee in relation to assisting consumers buying our inspected and certified used cars directly online and providing relevant fulfillment services, such as logistics and delivery, title transfers and vehicle registration, which equals to a certain percentage of final car sales price and (ii) value-added service fee in relation to the additional services provided to consumers, for example, we help consumers select and apply for customized auto financing options that are provided by our financing partners, assist them purchasing suitable insurance policies that are provided by insurance companies, and provide well-rounded warranty programs. Prior to the divestiture of our loan facilitation related business to Golden Pacer as first announced in July 2019, our 2C business generated revenues from the transaction facilitation and loan facilitation services we provided to car buyers. See “Item 4. Information on the Company—A. History and Development of the Company— Divestitures of Our Loan Facilitation, Salvage Car and 2B Businesses” of our Annual Report. In addition, prior to the divestiture of our 2B business, we generated revenues from transaction facilitation service fee charged in relation to connecting business buyers with used car sellers and facilitating car sales through our auction service, as well as the title transfer service we provide.

Since we shifted our focus to 2C online used car transactions, we have witnessed a significant growth of our business. After taking into consideration the effect of the divestiture of loan facilitation related business described above, we facilitated 97,100 online used car transactions for our 2C business in 2019, representing a 153.8% increase from 2018; and the total GMV for our 2C business reached RMB11.3 billion in 2019, representing a 155.3% increase from 2018. We facilitated 6,584 online used car transactions for our 2C business in the three months ended March 31, 2020, representing a 68.1% decrease from the same period in 2019 as a result of the disruptions caused by the COVID-19 pandemic to our business operations during this period of time; and the total GMV for our 2C business was RMB723.3 million (US$102.2 million) in the three months ended March 31, 2020, representing a 68.1% decrease from the same period in 2019. Our total revenues increased by 140.9% to RMB1,558.0 million in 2019 from RMB659.1 million in 2018, and decreased by 69.1% to RMB103.9 million (US$14.7 million) in the three months ended March 31, 2020 from RMB335.8 million in the three months ended March 31, 2019 due to decreases in 2C transaction volume and GMV. Our net loss from continuing operations was RMB1,327.7 million in 2019, compared with a net loss of RMB1,351.8 million in 2018; and our net loss from continuing operations was RMB2,034.4 million (US287.3 million) in the three months ended March 31, 2020, compared with a net loss of RMB295.5 million in the three months ended March 31, 2019. The net loss from continuing operations in the three months ended March 31, 2020 mainly resulted from a significant provision for credit losses of RMB1,939.6 million (US$273.9 million) recorded in this period as a result of the impact of COVID-19 pandemic on the performance of our historically-facilitated loans that were not transferred to Golden Pacer.

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Unfavorable changes in any of these general industry conditions could negatively affect demand for our services and materially and adversely affect our results of operations.

While the duration of the current COVID-19 pandemic and its disruption to our business and related financial impacts cannot be accurately estimated at this time, we expect that our financial condition, results of operations, and cash flows for the first half of calendar year 2020 will be materially and adversely affected with potential continuing impacts on subsequent periods. In particular, our business operations during the three months ended March 31, 2020 have been materially and adversely affected as a result of the closure of used car markets and dealerships, the significant disruptions to the logistics and delivery of used cars, and barriers to title transfers, among others. In addition, borrowers’ ability or willingness to repay their auto loans has also been negatively affected by general economic downturns. Consumer confidence and spending power in general have also been weakened as a result of the ongoing pandemic. As the impact of the pandemic is fully considered in the credit loss assessment under the new accounting standards effective on January 1, 2020, we provided a significant provision for credit losses for the three months ended March 31, 2020 associated with our historically-facilitated loans that were not transferred to Golden Pacer.

We will continue to monitor and evaluate the impact of the COVID-19 pandemic on our financial condition, results of operations, and cash flows for the second half of calendar year 2020 and subsequent periods. The global spread of COVID-19 pandemic in a significant number of countries around the world has resulted in, and may intensify, global economic distress, and the extent to which it may affect our financial condition, results of operations, and cash flows will depend on future developments, which are highly uncertain and cannot be predicted. See “Item 3.D. Key Information—Risk Factors—Risks Relating to Our Business and Industry— The COVID-19 pandemic could have a material adverse impact on our business, operating results and financial condition” of our Annual Report.

Specific Factors Affecting Our Results of Operations

While our business is influenced by general factors affecting China’s online used car transaction industry, we believe our results of operations are more directly affected by company specific factors, including the following:

Ability to increase transaction volume on our platform

We operate our business as a leading national online used car dealer in China, which is supported by a nationwide service network and our online used car transaction fulfillment capabilities. Our ability to continue to increase our transaction volume and GMV affects the growth of our business and our revenues. As we continued to shift our focus to 2C online used car transactions since we launched this business in early 2018, the total number of online used car transactions completed through our 2C business increased by 153.8% from 38,264 in 2018 to 97,100 in 2019, but decreased by 68.1% from 20,647 in the three months ended March 31, 2019 to 6,584 in the three months ended March 31, 2020 due to the disruptions caused by the COVID-19 pandemic to our business operations. Our total 2C GMV grew by 155.3% from RMB4.4 billion in 2018 to RMB11.3 billion in 2019, but decreased by 68.1% from RMB2.3 billion in the three months ended March 31, 2019 to RMB723.3 million (US$102.2 million) in the three months ended March 31, 2020 due to a decrease in transaction volume. We anticipate that our future revenue growth will continue to depend largely on the increase of transaction volume on our platform. Our ability to increase transaction volume depends on, among other things, our ability to continually improve the service and user experience that we offer, increase brand awareness, expand our service network and enhance our online used car transaction fulfillment and technology capabilities.

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Ability to capture more service opportunities and increase take rate

Our comprehensive coverage of a customer’s entire buying journey positions us well to provide a variety of services to customers. Through our 2C business, in addition to enabling consumers buy used cars online from our platform, we also provide a comprehensive suite of other services to our customers that include various car-related value-added products and services, such as referrals of auto financing options and insurance products, as well as a full suite of supporting services to fulfill these online used car transactions. By offering these services, we generate more revenues and increase our overall take rate from the transactions. We will continue to strengthen our services and provide more value-added products and services from time to time to capture additional opportunities.

By providing a variety of services, we were able to achieve an average total 2C take rate of 8.4% in 2018, 12.0% in 2019, as measured by the total revenue from 2C business divided by our total 2C GMV. The average total 2C take rate was 12.5% and 12.2% in the three months ended March 31, 2019 and 2020, respectively. Our ability to maintain or increase fees charged for our services and provide more services affects our take rate and financial performance.

Ability to enhance operational efficiency

Our results of operations are directly affected by our scale and operational efficiency. We recently replaced our entire offline sales team by an online team, which enables us to deliver vehicle consulting services in a more timely fashion and facilitate a seamless self-service purchasing experience for our customers. We expect that as our online sales team become fully trained in the next few months, we will be able to achieve greater operating leverage and improve the efficiency and utilization of our personnel.

Marketing is critical to our business. Given the relatively low online penetration rate for the used car market in China, we need to educate the market about the benefits of buying used cars online and to raise our brand awareness. We also need to invest to acquire user traffic from different online channels. As a result, sales and marketing expenses have historically represented a substantial majority of our total operating expenses, amounting to 225.9%, 74.6%, 102.9% and 182.5% of our total revenues in 2018, 2019 and the three months ended March 31, 2019 and 2020, respectively. Our ability to lower our sales and marketing expenses as a percentage of total revenues depends on our ability to grow our business scale and improve sales and marketing efficiency, including increasing sales productivity, optimizing our traffic acquisition channels and improving traffic-to-sales conversion as well as leveraging our brand value and word-of-mouth referrals. We may also continue to increase our sales and marketing expenses in absolute amounts in order to further expand our business across China as well as acquire customers and raise our brand awareness.

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2C business

Our 2C business currently generates revenues from commission and value-added services. For each used car sold through our 2C business, we charge a commission fee equivalent to a certain percentage of final car sales price. The commission fee is for services provided through our platform in enabling consumers to buy the car of choice online from our nationwide selection of inspected and certified used cars, and fulfilling these online transactions, such as car delivery, title transfers and vehicle registration. We generate value-added service revenue from value-added service fee, which is charged for the additional services provided to consumers for their online used car purchase, for example, we help consumers select and apply for customized auto financing options, assist them purchasing suitable insurance policies, and provide well-rounded warranty programs.

Prior to the Loan Facilitation Divestiture, we also generated loan facilitation revenue from the consumer auto loans facilitated on our platform. As a result of the divestiture, we are relieved of the guarantee obligations in relation to the historically-facilitated loans associated with XW Bank. Immediately prior to the divestiture, the remaining outstanding balance of the historically-facilitated loans for XW Bank was RMB17.0 billion (US$2.4 billion). In accordance with the applicable accounting standards, net assets of RMB420.0 million (US$59.3 million) related to the historically-facilitated loans for XW Bank were reclassified as net assets transferred on our consolidated balance sheet as of March 31, 2020 as the divestiture of such assets and liabilities was a pre-condition of the transaction. Results of operations related to the divested business were reported as loss from discontinued operations in the consolidated statements of comprehensive loss.

Prior to the Loan Facilitation Divestiture, for each used car sold through our intra-regional 2C business with financing solutions and each used car sold through our cross-regional 2C business with or without financing solutions, we charged a transaction facilitation service fee to the consumer that equaled to the higher of a certain percentage of the price of the car and a minimum fee. Prior to the second half of 2018, we used to charge transaction facilitation service fees to car dealers for each used car sold through our intra-regional 2C business without financing solutions. Starting in the second half of 2018, to further facilitate our market expansion, we gradually discontinued charging car dealers transaction facilitation service fees in intra-regional transactions without financing solutions. The transaction facilitation service fee was for services provided through our platform in connecting consumers with used car sellers, facilitating car sales to consumers and providing after-sale warranty. We recognized transaction facilitation revenue when the service was rendered, except that the revenue relating to warranty services was deferred and recognized over the warranty period, which was typically one year. In 2019, we discontinued charging transaction facilitation service fees for intra-regional transactions without financing solutions. Thus, service fees have not been charged to the car dealers at all since then.

Others

Our other revenue mainly includes commission from salvage cars sales and interest income from financial leases. Prior to the divestiture of our salvage car business in January 2020, we generated revenue from our salvage car business primarily by charging the buyers a commission.

Cost of Revenues

Cost of revenues primarily consists of salaries and benefits for personnel involved in car inspection, quality control, customer service and after-sales service, fulfillment costs related to logistics and delivery as well as title transfers and vehicle registration, cost of GPS tracking devices, and cost of warranty services. We expect that our cost of revenues will increase in absolute dollar amounts as we continue to expand our business.

Operating Expenses

Our operating expenses primarily consist of (i) sales and marketing expenses, (ii) general and administrative expenses, and (iii) research and development expenses.

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Sales and marketing expenses

Sales and marketing expenses primarily consist of salaries and benefits for our sales and marketing personnel, customer acquisition expenses and branding expenses. Customer acquisition expenses primarily include online traffic acquisition costs. Branding expenses primarily include brand advertising costs. We expect that our sales and marketing expenses will increase in absolute dollar amounts in the foreseeable future as we may recruit more sales staff or engage in effective sales and marketing activities to further attract and serve more customers and grow our businesses.

General and administrative expenses

General and administrative expenses primarily consist of salaries and benefits as well as share-based compensation for our management and administration employees involved in general corporate functions, office rental expenses, and professional service fees. We expect that our general and administrative expenses will increase as we incur additional expenses relating to improving our internal controls, complying with Section 404 of the Sarbanes-Oxley Act and maintaining investor relations as a public company.

Research and development expenses

Research and development expenses primarily consist of salaries and benefits for our research and development personnel and IT infrastructure services-related expenses. We expect our research and development expenses will increase in absolute dollar amounts in the foreseeable future as we continue to invest in technology to enhance customer experience.

Fair value change of derivative liabilities

The fair value change of derivative liabilities is primarily related to bifurcated conversion features of our preferred shares, and to a lesser extent, related to the bifurcated share swap feature and redemption feature of our redeemable non-controlling interests. Upon the completion of our initial public offering, all of our preferred shares were converted into Class A ordinary shares on a one-for-one basis, and as such the derivative liabilities related to the bifurcated conversion features of our preferred shares became shareholders’ equity.

Discontinued operations

Discontinued operations relate to our historical loan facilitation related business which was divested to Golden Pacer, and 2B business which was divested to 58.com. Our salvage car related business divested to Boche was not presented as discontinued operations as it did not meet the criteria for discontinued operation under ASC205-20. See “Item 4. Information on the Company— A. History and Development of the Company— Divestitures of Our Loan Facilitation, Salvage Car and 2B Businesses" of our Annual Report.

Taxation

Cayman Islands

Under the current laws of the Cayman Islands, our company and its subsidiaries incorporated in the Cayman Islands are not subject to tax on income or capital gain. In addition, payments of dividends and capital in respect of our ordinary shares (and any consequential payments to the holders of our ADSs) will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of dividends or capital to any holder of our ordinary shares or ADSs, nor will gains derived from the disposal of our ordinary shares or ADSs be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax.

British Virgin Islands

Some of our subsidiaries are companies incorporated in the British Virgin Islands. Under the current law of the British Virgin Islands, we are not subject to income, corporation or capital gains tax in the British Virgin Islands. In addition, payment of dividends by the British Virgin Islands subsidiaries to their respective shareholders who are not resident in the British Virgin Islands, if any, is not subject to withholding tax in the British Virgin Islands.

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Hong Kong

Our subsidiaries in Hong Kong are subject to the uniform tax rate of 16.5%. Under Hong Kong tax law, our subsidiaries in Hong Kong are exempted from income tax on their foreign-derived income and there is no withholding tax in Hong Kong on remittance of dividends. No provision for Hong Kong profits tax was made as we had no estimated assessable profit that was subject to Hong Kong profits tax in 2017, 2018, 2019 and the three months ended March 31, 2020.

PRC

Generally, our PRC subsidiaries, our variable interest entities, or VIEs, and their subsidiaries are subject to enterprise income tax on their taxable income in the PRC at a rate of 25%. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. Youxinpai (Beijing) Information Technology Co., Ltd. and Youfang (Beijing) Information Technology Co., Ltd. have been qualified as High and New Technology Enterprises, or HNTE, since 2016 and 2019, respectively, and enjoy a preferential income tax rate of 15% from 2019 to 2021. Youxin Internet (Beijing) Information Technology Co., Ltd. has been qualified as “Software Enterprises” eligible for preferential tax treatments, and thus was exempted from corporate income tax in PRC in 2016 and 2017 and will be allowed a 50% tax reduction at a statutory rate of 25% in 2018, 2019 and 2020.

Our PRC subsidiaries, our VIEs and their subsidiaries are subject to VAT at a rate of 6% on the services provided and related surcharges, and 17% before April 30, 2018 and 16% since May 1, 2018 for the new cars sold.

Under the EIT Law and its Implementation Rules, subject to any applicable tax treaty or similar arrangement between the PRC and the jurisdiction where the shareholders of our PRC subsidiaries reside that provides for a different income tax arrangement, PRC withholding tax at the rate of 10% is normally applicable to dividends from PRC sources payable to the shareholders that are non-PRC resident enterprises, which do not have an establishment or place of business in the PRC, or which have such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business. Under the PRC Individual Income Tax Law and its implementation rules, dividends from sources within the PRC paid to foreign individual shareholders who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties and PRC laws. Although substantially all of our business operations are based in the PRC, it is unclear whether dividends we pay with respect to our Class A ordinary shares or ADSs would be treated as income derived from sources within the PRC and as a result be subject to PRC income tax if we were considered a PRC resident enterprise, as described below. See “Item 3. Key Information— D. Risk Factors—Risks Related to Doing Business in China—Under the EIT Law, we may be classified as a “resident enterprise” of China; such classification could result in unfavorable tax consequences to us and our non-PRC shareholders and materially and adversely affect our results of operations and financial condition" of our Annual Report.

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Three Months Ended March 31, 2020 Compared with Three Months Ended March 31, 2019

Revenues

Our revenues decreased by 69.1% from RMB335.8 million in the three months ended March 31, 2019 to RMB103.9 million (US$14.7 million) in the three months ended March 31, 2020.

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2C business. Revenues of our 2C business decreased by 68.9% from RMB284.3 million in the three months ended March 31, 2019 to RMB88.5 million (US$12.5 million) in the three months ended March 31, 2020, which was primarily due to decreases in 2C transaction volume and GMV as a result of the disruptions caused by the COVID-19 pandemic to our business operations. The take rate of our 2C business, as measured by the revenue of our 2C business divided by the GMV of our 2C business, was 12.5% and 12.2% in the three months ended March 31, 2019 and 2020, respectively.

Cost of revenues

Our cost of revenues decreased by 29.2% from RMB156.4 million in the three months ended March 31, 2019 to RMB110.7 million (US$15.6 million) in the three months ended March 31, 2020, primarily as a result of a decrease in salaries and benefits for employees engaged in car inspection, quality control, customer service and after-sales services as we adopted a flexible work-load based staffing program, as well as a decrease in fulfillment cost due to a decrease in transaction volume.

Gross loss/profit

As a result of the foregoing, we recorded a gross loss of RMB6.9 million (US$1.0 million) in the three months ended March 31, 2020, compared with a gross profit of RMB179.4 million in the three months ended March 31, 2019.

Sales and marketing expenses

Our sales and marketing expenses decreased by 45.2% from RMB345.7 million in the three months ended March 31, 2019 to RMB189.5 million (US$26.8 million) in the three months ended March 31, 2020, mainly due to a decrease in salaries and benefits expenses.

General and administrative expenses

Our general and administrative expenses decreased by 13.8% from RMB87.0 million in the three months ended March 31, 2019 to RMB74.9 million (US$10.6 million) in the three months ended March 31, 2020, primarily attributable to a decrease in salaries and benefits as well as share-based compensation expenses.

Research and development expenses

Our research and development expenses decreased by 4.5% from RMB32.6 million in the three months ended March 31, 2019 to RMB31.2 million (US$4.4 million) in the three months ended March 31, 2020, primarily attributable to a decrease in salaries and benefits expenses.

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Losses from guarantee liabilities

Our losses from guarantee liabilities was nil in the three months ended March 31, 2020, compared with RMB9.2 million in the three months ended March 31, 2019. We incurred guarantee liabilities associated with the remaining guarantee obligations from our historically-facilitated loans which were not transferred to Golden Pacer. We adopted Accounting Standards Update (ASU) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” on January 1, 2020 under a modified retrospective method. Before the adoption of ASC 326, gain or loss related to guarantee liabilities accounted for the under the greater of the amount determined based on ASC 460 and the amount determined under ASC 450 was recorded as “gain or loss from guarantee liabilities”. After the adoption of ASC 326, expected credit losses of contingent guarantee liabilities need to be accounted for in addition to and separately from the stand ready guarantee liabilities accounted for under ASC 460. The provision for contingent guarantee liabilities is currently recorded under “provision for credit losses” and the gain released from the stand ready guarantee liabilities accounted for under ASC 460 is currently recorded under “other operating income”.

Provision for credit losses

Our provision for credit losses was RMB1,939.6 million (US$273.9 million) in the three months ended March 31, 2020, compared with nil in the three months ended March 31, 2019. As COVID-19 had a material adverse impact on the performance of our historically-facilitated loans, we incurred a significant impairment primarily due to loans recognized as a result of payment under the guarantee and financial lease receivables. After the adoption of ASC 326, the provision for contingent guarantee liabilities measured under the current expected credit losses model is recorded under “provision for credit losses”.

Interest income

We had interest income of RMB2.0 million in the three months ended March 31, 2019 and RMB3.1 million (US$0.4 million) in the three months ended March 31, 2020.

Interest expenses

We had interest expense of RMB26.5 million in the three months ended March 31, 2019 and RMB29.0 million (US$4.1 million) in the three months ended March 31, 2020.

Other income

Other income decreased from RMB25.1 million in the three months ended March 31, 2019 to RMB2.4 million (US$0.3 million) in the three months ended March 31, 2020.

Other expenses

Other expenses increased from RMB4.8 million in the three months ended March 31, 2019 to RMB10.1 million (US$1.4 million) in the three months ended March 31, 2020.

Foreign exchange losses

We had foreign exchange losses of RMB0.4 million (US$55 thousand) in the three months ended March 31, 2020, compared with RMB0.8 million in the three months ended March 31, 2019.

Gain from disposal of subsidiaries

Our gain from disposal of subsidiaries was RMB179.0 million in the three months ended March 31, 2020, compared with nil in the three months ended March 31, 2019. Gain from disposal of subsidiaries in the three months ended March 31, 2020 was primarily attributable to our divestiture of the salvage car related business in January 2020.

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Income tax expense

We had income tax expense of RMB0.3 million (US$46 thousand) in the three months ended March 31, 2020, compared with RMB1.6 million in the three months ended March 31, 2019.

Equity in income of affiliates

Equity in income of affiliates increased from RMB6.0 million in the three months ended March 31, 2019 to RMB6.9 million (US$1.0 million), primarily attributable to an equity pick-up income from one of our invested companies.

Net loss from continuing operations, net of tax

As a result of the foregoing, our net loss from continuing operations increased from RMB295.5 million in the three months ended March 31, 2019 to RMB2,034.4 million (US$287.3 million) in the three months ended March 31, 2020. The net loss from continuing operations in the three months ended March 31, 2020 was primarily attributable to a significant provision for credit losses of RMB1,939.6 million (US$273.9 million) recorded in the period as a result of the impact of COVID-19 pandemic as well as the adoption of ASC326. See "—Provision for credit losses."

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018

Revenues

Our revenues increased by 140.9% from RMB659.1 million in 2018 to RMB1,588.0 million in 2019.

2C business.  Revenues of our 2C business increased significantly by 264.5% from RMB369.6 million in 2018 to RMB1,347.4 million in 2019 , which was primarily attributable to increases in 2C transaction volume, GMV and the take rate of our 2C business. The take rate of our 2C business, as measured by the revenue of our 2C business divided by the GMV of our 2C business, was 8.4% and 12.0% in 2018 and 2019, respectively.

Cost of revenues

Our cost of revenues increased by 64.6% from RMB418.9 million in 2018 to RMB689.3 million in 2019, primarily as a result of an increase from RMB71.0 million in 2018 to RMB207.8 million in 2019 in salaries and benefits of employees engaged in car inspection, quality control, customer service and after-sales service, as well as an increase in fulfilment cost driven by an increase in the transaction volume.

Gross profit

As a result of the foregoing, our gross profit increased by 274.1% from RMB240.2 million in 2018 to RM898.7 million in 2019. Our gross profit margin increased from 36.4% in 2018 to 56.6% in 2019.

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Sales and marketing expenses

Our sales and marketing expenses decreased by 20.4% from RMB1,488.7 million in 2018 to RMB1,185.0 million in 2019 as a result of our continuous efforts in enhancing operating efficiency.

Research and development expenses

Our research and development expenses increased by 12.4% from RMB124.5 million in 2018 to RMB140.0 million in 2019, primarily attributable to an increase from RMB78.6 million in 2018 to RMB105.8 million in 2019 in salaries and benefits for employees engaged in research and development as a result of our continued efforts to strengthen our AI and other technological capabilities.

General and administrative expenses

Our general and administrative expenses decreased by 62.4% from RMB1,070.4 million in 2018 to RMB402.0 million in 2019, primarily attributable to a decrease in share-based compensation expenses.

Losses from guarantee liabilities

Our losses from guarantee liabilities increased from RMB4.4 million in 2018 to RMB194.4 million in 2019, which resulted from the guarantee obligations associated with the remaining portion of our historically-facilitated loans that were not transferred to Golden Pacer, as well as the adversely-affected performance of the aforementioned loans which was impacted by a series of lending and debt collection-related regulations promulgated in the fourth quarter of 2019.

Provision for credit losses

Our provision for credit losses increased from RMB40.6 million in 2018 to RMB271.4 million in 2019 as a result of the adversely-affected performance of our financial assets and impact from a series of lending and debt collection-related regulations promulgated in the fourth quarter of 2019, mainly including loans recognized as result of payment under the guarantee and financial lease receivables.

Interest income

We had interest income of RMB24.6 million in 2018 and RMB15.0 million in 2019.

Interest expenses

We had interest expense of RMB63.9 million in 2018 and RMB112.6 million in 2019. The increase in interest expense was mainly attributable to an increase in our borrowings and convertible notes. Since we recognize the deposits of interest at present value, the gap between actual amount of disbursement and book value of deposits of interests is recognized as interest expense.

Other income

Other income increased from RMB23.7 million in 2018 to RMB71.1 million in 2019.

Other expenses

Other expenses increased from RMB25.6 million in 2018 to RMB36.6 million in 2019.

Foreign exchange gains/(losses)

We had foreign exchange gains of RMB4.2 million in 2019, compared with foreign exchange losses of RMB8.2 million in 2018.

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Fair value change of derivative liabilities

Our fair value change of derivative liabilities was nil in 2019, compared with a gain of RMB1,185.1 million in 2018. The impact of derivative liabilities is no longer exist as the preferred shares were converted into ordinary shares at the time of IPO.

Gain from disposal of investment, net

Our gain from disposal of investment was RMB28.3 million in 2019, compared with nil in 2018. Gain from disposal of investment in 2019 was primarily attributable to our disposal of our equity investments in a technology company focusing on pilotless automobile systems.

Impairment of long-term investment

Impairment of long-term investment was RMB37.8 million in 2019, compared with nil in 2018. The increase in impairment of long-term investment was primarily attributable to our equity investment in a technology company which incurred continuous losses starting from 2019 and began to liquidate its business in June 2019.

Income tax credit/expense

We had income tax credit of RMB2.6 million in 2019, compared with a tax expense of RMB1.6 million in 2018.

Equity in income of affiliates

Equity in income of affiliates increased from RMB2.6 million in 2018 to RMB30.2 million, primarily attributable to an equity pick-up income from one of our invested companies.

Net loss from continuing operations, net of tax

As a result of the foregoing, our net loss from continuing operations decreased from RMB1,351.8 million in 2018 to RMB1,327.7 million in 2019.

Year Ended December 31, 2018 Compared with Year Ended December 31, 2017

To facilitate the comparison of our operating results in 2017 and 2018, the financial results of our Divested Businesses in 2017 and 2018 are presented on the same basis as in 2019.

Revenues

Our revenues increased by 113.2% from RMB309.1 million in 2017 to RMB659.1 million in 2018.

2C business.  Revenues of our 2C business increased from nil in 2017 to RMB369.6 million in 2018. We launched our 2C online used car transaction business in early 2018, which was previously referred to as “2C cross-regional business” and is currently the sole component of our 2C business.

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Cost of revenues

Our cost of revenues increased by 351.7% from RMB92.7 million in 2017 to RMB418.9 million in 2018, primarily as a result of an increase in salaries and benefits of employees engaged in car inspection, quality control, customer service and after-sales service, an increase in fulfilment cost driven by an increase in the transaction volume.

Gross profit

As a result of the foregoing, our gross profit increased by 11.0% from RMB216.4 million in 2017 to RMB240.2 million in 2018.

Sales and marketing expenses

Our sales and marketing expenses increased by 730.2% from RMB179.3 million in 2017 to RMB1,488.7 million in 2018.

Research and development expenses

Our research and development expenses increased from nil in 2017 to RMB124.5 million in 2018.

General and administrative expenses

Our general and administrative expenses increased by 175.1% from RMB389.1 million in 2017 to RMB1,070.4 million in 2018.

Losses/gains from guarantee liabilities

We recorded losses from guarantee liabilities of RMB4.4 million in 2018, compared with gains from guarantee liabilities of RMB1.8 million in 2017. The change was primarily due to the increased delinquency rate.

Interest income

We had interest income of RMB2.2 million in 2017 and RMB24.6 million in 2018.

Interest expense

We had interest expense of RMB0.2 million in 2017 and RMB63.9 million in 2018, attributable to an increase in our borrowings and convertible notes. Since we recognize the deposits of interest at present value, the gap between actual amount of disbursement and book value of deposits of interests is recognized as interest expense.

Other income

Other income increased from RMB4.2 million in 2017 to RMB23.7 million in 2018.

Other expenses

Other expenses increased from RMB3.8 million in 2017 to RMB25.6 million in 2018.

Foreign exchange losses

We had foreign exchange losses of RMB0.6 million and RMB8.2 million in 2017 and 2018, respectively. The change was primarily attributable to the appreciation of U.S. dollars against RMB in 2018.

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Fair value change of derivative liabilities

Our fair value change of derivative liabilities was a gain of RMB1,185.1 million in 2018, compared with a loss of RMB885.8 million in 2017. The increase in value between 2017 and 2018 was primarily due to a decrease in the value of our company.

Income tax expense

We had income tax expense of RMB0.2 million and RMB1.6 million in 2017 and 2018, respectively, primarily resulting from the net taxable income position of certain operating entities in the PRC.

Equity in income of affiliates

Equity in income of affiliates decreased from RMB3.6 million in 2017 to RMB2.6 million in 2018. The balance in 2017 was primarily attributable to the investment income recognized from revaluation of the previously held equity interest in Chefang and Baogu upon our acquisitions of the two entities in 2017.

Net loss from continuing operations, net of tax

As a result of the foregoing, we had net losses from continuing operations of RMB1,268.8 million and RMB1,351.8 million in 2017 and 2018, respectively.

Critical Accounting Policies

Critical Accounting Policies, Judgments and Estimates

We prepare our financial statements in accordance with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. You should read the following description of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements and other disclosures included in this Transition Report.

Consolidation of variable interest entity (VIE)

We account for entities qualifying as VIEs in accordance with Financial Accounting Standards Boards, or FASB, Accounting Standards Codification Topic 810, Consolidation, or ASC 810. In order to comply with PRC regulatory requirements restricting foreign ownership of internet information services, value-added telecommunications, and certain other businesses in China, we have been conducting our online auction platforms through VIEs. In 2015, the restrictions on foreign-owned shareholding percentage in online data processing and transaction processing (operating E-commerce) business in China was partially removed. Therefore, certain of our eligible wholly-owned subsidiaries in China, or our WFOEs, have applied for and obtained approval from Shanghai Communications Administration to conduct value-added telecommunications services in the scope of online data processing and transaction processing (operating E-commerce). As a result, certain of our WFOEs have been operating our main online platforms instead of our VIEs since then. Our VIEs mainly conduct other online platforms to provide internet information services and they are holding some of our intellectual properties as well. Revenues from VIEs accounted for approximately 12.5%, 10.2%, 4.6% and 5.1% of our total revenues in the years ended December 31, 2017, 2018, 2019 and the three months ended March 31, 2020.

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We have entered into a series of contractual arrangements, including exclusive option agreement, equity pledge agreements and exclusive business cooperation agreements, with our VIEs and their respective shareholders. As a result of our direct ownership in our WFOEs and the contractual arrangements relating to our VIEs, we are regarded as the primary beneficiary of our VIEs In accordance with ASC 810, and we treat them and their subsidiaries as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of our VIEs and their respective subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.

Any changes in PRC laws and regulations that affect our ability to control our VIEs might preclude us from consolidating the entities in the future. We will continually evaluate whether we are the primary beneficiary of our VIEs as facts and circumstances change.

Revenue recognition

We primarily engage in used car business as a leading national online used car dealer through our mobile app — Uxin Used Car and website — www.xin.com, providing consumers with a nationwide selection of used and various car-related value-added products and services. Prior to the divestiture of our 2B business, we also operated the mobile app — Uxin Auction and website — www.youxinpai.com to facilitate transactions between business customers via online auction service. Revenue principally represents 2C commission revenue and value-added service revenue as well as other revenue. 2B transaction facilitation revenue is currently recognized as discontinued.

We adopted ASC Topic 606, “Revenue from Contracts with Customers” for all periods presented. Consistent with the criteria of Topic 606, we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services.

To achieve that core principle, an entity should apply five steps defined under Topic 606. We assess our revenue arrangements against specific criteria in order to determine if we are acting as principal or agent. Revenue arrangements with multiple performance obligations are divided into separate units of accounting. We considered appropriate method to allocate the transaction price to each performance obligation based on the relative standalone selling prices of the services being provided. In estimating the standalone selling price for the services that are not directly observable, we considered the suitable methods included in ASC 606-10-21-34, and determined the adjusted market assessment approach is the most appropriate method. When estimating the relative standalone selling prices, we consider selling prices of similar services. Revenue is recognized upon transfer of control of promised goods or services to a customer.

From time to time, we provide incentives to consumers. These incentives are given in the form of discount coupon to consumers, and are applied to the same transaction. As these incentives were provided without any distinct good or service in return, these incentives have been recorded as reduction of revenue, pursuant to the guidance under ASC 606.

Revenue is recorded net off cash incentives and value-added-tax collected from customers.

Online used car transaction services (2C Business)

Our online platform and offline infrastructure enable consumers to buy used cars online via our online used car transaction services. Our online used car transaction services help individual consumers complete their purchases of cars without having to physically inspect the cars on-site, in particular when the consumers are located in different cities from where the cars are. Our offline infrastructure provides consumers with vehicle inspection, payment and settlement, fulfilment services (including logistics and delivery, title transfers and vehicle registration), and warranty services. We have identified two types of services — commission-related services and value-added services. We recognize commission revenue and value-added service revenue upon the closing of car sales, except that the revenue relating to warranty services is deferred and recognized over the warranty period as we stand ready to perform the service during that period, which is typically 6 months or one year.

Others

Other revenue mainly comprises of revenues from commission from salvage car sales prior to our divestiture of our salvage car related business and interest income from financial leases, among others.

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Remaining performance obligations

Revenue allocated to remaining performance obligations represent deferred revenue that has not yet been recognized. As of March 31,2020, the aggregate amount of the transaction price allocated to remaining performance obligations was RMB27.4 million (US$3.9 million). We expect to recognize approximately 100% of this revenue over the next 12 months.

Financial lease receivables

Financial lease receivables include dealer inventory financing receivables and receivables generated from finance lease arrangements.

We historically provided short-term inventory financing to certain selected car dealers through our Easy Loan program. In order to fund the Easy Loan program, we and a third-party financing partner enter into a financing business cooperation agreement, which establishes that loans provided to dealers are made in direct connection to the financial lease contracts entered into between us and the dealers for the underlying cars. Accordingly, we are considered as the primary obligor in the lending relationship and therefore record the liabilities to the third-party financing partner on our consolidated balance sheets. Consequently, we consider that the financial lease receivables generated from financial lease contracts with car dealers not settled or extinguished. Therefore, we continue to account for the financial lease receivables on our consolidated balance sheets. We ceased to provide Easy Loan program to car dealers in early 2020.

Financial lease receivables are measured at amortized cost and reported on our consolidated balance sheets at outstanding principal adjusted for the allowance for doubtful accounts/provision for credit losses. Allowance for financial lease receivables is provided when we have determined the balance is impaired. On January 1, 2020, we adopted Accounting Standards Update (ASU) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and provision for credit losses was provided based on current expected credit losses impairment model.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired in a business combination.

Goodwill is not depreciated or amortized but is tested for impairment on an annual basis, and in between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. In accordance with the FASB guidance on “Testing of Goodwill for Impairment” a company first has the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we decide, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of each reporting unit with its carrying amount, including goodwill. Before the adoption of ASU No. 2017-04 Intangibles—Goodwill and Other (Topic 350), if the carrying amount of each reporting unit exceeds its fair value, an impairment loss equal to the difference between the implied fair value of the reporting unit’s goodwill and the carrying amount of goodwill will be recorded. We adopted ASU No. 2017-04 starting January 1, 2020, following the new guidance, an impairment charge shall be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit.As of March 31, 2020, there was no event or any circumstance that we identified, which indicates that the fair value of our reporting unit was substantially lower than the respective carrying value.

In 2017, we acquired Chefang and Baogu and have consolidated their financial results in our consolidated financial statements since the respective dates of acquisitions. As of March 31, 2020, we recorded goodwill in the amount of RMB4.1 million (US$0.6 million) and RMB4.2 million (US$0.6 million) for Chefang and Baogu, respectively. As there were no identifiable intangible assets from the acquisitions of Chefang and Baogu, the goodwill is not amortized but is tested for impairment in accordance with ASC350. In 2018, RMB3.7 million of goodwill impairment loss was recorded for Chefang.

In 2018, we acquired Zhejiang Dongwang Internet Technology Co., Ltd., or Dongwang, and have consolidated its financial results in our consolidated financial statements since the date of acquisition. We divested Dongwang upon the completion of the divestiture of our salvage car related business in January 2020.

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Share-based compensation

We follow ASC 718 to determine whether a share option or a restricted share unit should be classified and accounted for as a liability award or equity award. All grants of share-based awards to employees and directors classified as equity awards are recognized in the financial statements based on their grant-date fair values which are calculated using an option pricing model. We classify the share-based awards granted to employees as equity awards, and have elected to recognize compensation expense relating to the share-based awards with service condition on a graded vesting basis over the requisite service period, which is generally the vesting period.

Under ASC 718, we apply the Binomial option pricing model in determining the fair value of options granted. ASC 718 requires forfeiture rates to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those share-based awards that are expected to vest.

In February 2018, we adopted the Amended and Restated Plan, which was later amended and renamed as the 2018 Second Amended and Restated Share Incentive Plan (the “Amended and Restated Plan”). Under the Amended and Restated Plan, the maximum aggregate number of Class A ordinary shares that may be issued pursuant to all awards granted under the Amended and Restated Plan is 102,040,053.

On September 22, 2019, our board of directors approved a reduction in the exercise price for outstanding options previously granted by our company with an exercise price higher than $1.03 per ordinary share, up to US$3.00 per ordinary share, to $1.03 per share, provided that any participating option holder agrees to amendment in the number of shares subject to his or her option as determined by the plan administrator. We accounted for this reduction as a share option modification which required the remeasurement of these share options at the time of the modification. The total incremental cost as a result of the modification was US$4.1 million. The incremental cost related to vested options amounted to US$2.1 million and was recorded in the consolidated statements of comprehensive loss during the year ended December 31, 2019. The incremental cost related to unvested options amounted to US$2.0 million and will be recorded over the remaining service period.

Options

We granted 12,819,330, 25,224,000, 4,247,500 and 2,175,300 options to our employees, with a weighted average exercise price of US$2.13, US$2.90, US$1.36 and US$0.03, for the years ended December 31, 2017, 2018, 2019 and the three months ended March 31, 2020, respectively. No options granted to employees were exercisable as of December 31 2017, whereas 18,659,232, 19,698,819 and 21,373,800 options were exercisable as of December 31, 2018 and 2019 and March 31, 2020, respectively. 9,800,000, 7,300,000, 10,570,575 and 13,234,329 options granted to key management became exercisable as of December 31, 2017, 2018 and 2019 and March 31, 2020, respectively.

Under the Amended and Restated Plan, employees are generally subject to a four-year service schedule, under which an employee earns an entitlement to vest in 25% of his or her option grants at the end of each year of completed service.

As of March 31, 2020, the fair value of vested and nonvested options granted to employees and management amounted to RMB39.2 million (US$5.5 million) and RMB18.0 million (US$2.5 million), respectively, and a share-based compensation expense of RMB32.1 million (US$4.5 million) was recognized for the vested options.

Other share-based awards

For the year ended December 31, 2016, we recorded share-based compensation expense of RMB226.4 million for issuance and grant of 19,985,520 ordinary shares to our management in April 2016.

In September 2017, one of our preferred shareholders transferred 6,686,020 series A preferred shares and 10,590,390 series B preferred shares with a consideration of US$41.2 million to Gao Li Group, which is controlled by Mr. Kun Dai, the chairman of our board of directors and chief executive officer. The difference between the transfer price and the fair value of preferred shares transferred was RMB137.7 million and was recognized as compensation expense to Mr. Kun Dai in September 2017.

In June 2018, we recorded share-based compensation expense of RMB620.4 million for the issuance of 17,742,890 restricted shares to Mr. Kun Dai, which were vested immediately upon consummation of a successful initial public offering.

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On May 25, 2018, one of our executive officers exercised his vested options to acquire 3,333,330 ordinary shares. In addition, we also offered vesting acceleration to that executive officer’s 1,666,670 unvested options on May 25, 2018 and the executive officer also exercised such options to acquire 1,666,670 ordinary shares. Therefore, in May 2018, we recorded all remaining unrecognized compensation costs which were accelerated in the amount of RMB31.8 million.

On June 27, 2018, RMB5.2 million share-based compensation was recorded as the redesignation of our ordinary shares and super voting power was granted to the beneficial owner of our Class B ordinary shares, Mr. Kun Dai.

Recent Accounting Pronouncements

See Item 17 of Part III, “Financial Statements—Note 2—Summary of significant accounting policies—Recent accounting pronouncements.”

B.           Liquidity and Capital Resources

Cash flows and working capital

In addition to experiencing net losses during the periods presented, we had net cash used in operating activities of RMB1,834.2 million, RMB2,281.3 million, RMB1,194.1 million and RMB411.3 million (US$58.1 million) in 2017, 2018, 2019 and the three months ended March 31, 2020, respectively. Discussions of our cash flows and working capital in this Item 5.B. relate to both discontinued and continuing operations. Our principal sources of liquidity have been proceeds from issuances of equity and equity-linked securities.

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On July 23, 2020, we entered into agreements with PacificBridge to amend the terms of the PB Notes. Pursuant to the agreements, the parties have agreed that the conversion prices of the PB Notes will be adjusted to our volume weighted average price for the last 30 trading days prior to the signing of the agreements multiplied by 78%, and PacificBridge will convert all the PB Notes into our Class A ordinary shares upon the signing of the agreements. On the same day, PacificBridge converted all the PB Notes into 136,279,973 Class A ordinary shares of ours at the adjusted conversion price.

As of March 31, 2020, we had RMB342.5 million (US$48.4 million) in cash and cash equivalents. Our cash and cash equivalents primarily consist of cash on hand and deposits placed with financial institutions that can be added to or withdrawn without limitation. We have been incurring losses from operations since our inception. We incurred net losses from continuing operation of RMB2,034.4 million for the three months ended March 31, 2020. Accumulated deficit amounted to RMB15,488.8 million as of March 31, 2020. The COVID-19 pandemic has caused a general slowdown in economy activity, and the weakened consumer confidence and spending power resulted in a relatively slow recovery in transaction volumes. It also disputed operating environment for the used car industry in China in general. These factors have adversely affected our business, results of operations, financial condition and cash flows. Although China’s economy has been gradually recovering in the past few months, and the used car market has been slowly picking up since April 2020 as the industry’s infrastructure and supply chain started to resume operations, it may continue to bring significant challenges and uncertainties to the market given the fact that the COVID-19 pandemic is still evolving and its full impact will still depend on future developments. Therefore, the ultimate impact of COVID-19 on us cannot be precisely determined at this time. These conditions and uncertainties could cast substantial doubt on our ability to continue as a going concern.

In response to the situation, we have taken actions to improve our liquidity and cash position. We entered into a supplemental agreement with WeBank to settle our remaining guarantee liabilities associated with the historically-facilitated loans for WeBank. Pursuant to the supplemental agreement, we will pay an aggregate amount of RMB372 million to WeBank from 2020 to 2025 in installments based on an agreed upon settlement schedule, which minimizes our cash flow commitment in the next few years. Upon the signing of the supplemental agreement, we are no longer subject to guarantee obligations in relation to the historically-facilitated loans for WeBank under the condition that we make the instalment payment in accordance with the agreed schedule. In addition, we entered into agreements with PacificBridge-to adjust the repayment plan for the PB Notes. With these agreements in place, our liquidity and cash position will be significantly improved. More importantly, we have also proactively taken actions to fundamentally optimize our overall cost structure by upgrading our business and service model and implemented other cost control measures. For example, we have streamlined overall operations by better allocating inspection resources and deploying an online sales consultant team to provide services more efficiently. Considering all these actions, which have alleviated the substantial doubt of our ability to continue as a going concern, we believe that our current cash and cash equivalents, cash considerations received from recent divestiture transactions and the anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements for the next 12 months. See “Item 3.D. Key Information—Risk Factors—Risks Relating to Our Business and Industry— The COVID-19 pandemic could have a material adverse impact on our business, operating results and financial condition” of our Annual Report. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

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As of March 31, 2020, 22.8% of our cash and cash equivalents were denominated in Renminbi and held in China, and the remaining cash and cash equivalents, denominated in U.S. dollars or Hong Kong dollars, were held outside China. As of the same date, 0.001% of our cash and cash equivalents were held by our VIEs and their subsidiaries.

Although we consolidate the results of our VIEs and their subsidiaries, we only have access to the assets or earnings of our VIEs and their subsidiaries through our contractual arrangements with our VIEs and their shareholders. See “Item 4. Information on the Company—C. Organizational Structure—Contractual Agreements with the VIEs and Their Respective Shareholders” of our Annual Report. For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”

In utilizing the proceeds we expect to receive from our initial public offering, we may make additional capital contributions to our PRC subsidiaries, establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, make loans to our PRC subsidiaries or VIEs, or acquire offshore entities with business operations in China in offshore transactions. However, most of these uses are subject to PRC regulations and approvals. For example:

See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange” and “Item 4. Information on the Company—D. Risk Factors—Risks Related to Doing Business in China—PRC regulations on loans and direct investments by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC entities” of our Annual Report.

A majority of our revenues have been, and we expect they are likely to continue to be, in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade- and service-related foreign exchange transactions. Our PRC subsidiaries may convert Renminbi amounts that they generate in their own business activities, including technical consulting and related service fees pursuant to their contracts with the VIEs, as well as dividends they receive from their own subsidiaries, into foreign exchange and pay them to their non-PRC parent companies in the form of dividends. However, current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with China accounting standards and regulations. Each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits after making up previous years’ accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Due to restrictions on the distribution of share capital from our PRC subsidiaries and also as a result of these entities’ unreserved accumulated losses, total restrictions placed on the distribution of our PRC subsidiaries’ net assets was RMB286.9 million (US$40.5 million), representing 12.2% of our total consolidated net assets as of March 31, 2020. Furthermore, capital account transactions, which include loans, must be approved by and/or registered with SAFE and its local branches. We can provide funding to our PRC subsidiaries and our VIEs and the subsidiaries of the VIEs through loans as long as the loan amount does not exceed the statutory limit, which is twice the amount of the relevant entities’ respective net assets calculated in accordance with China accounting standards.

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The following table sets forth a summary of our cash flows for the periods indicated.

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Operating Activities

Net cash used in operating activities was RMB411.3 million (US$58.1 million) for the three months ended March 31, 2020. The difference between our net cash used in operating activities and our net loss RMB2,489.6 million (US$351.6 million) mainly resulted from certain non-cash expenses, including provision for credit losses of RMB1,954.5 million (US$276.0 million), impairment of net assets transferred of RMB407.7 million (US$57.6 million), and changes in certain working capital accounts. Changes in the working capital accounts mainly included an increase in loan recognized as a result of payment under the guarantee of RMB251.2 million (US$35.5 million), and a decrease in payables, accruals and other current liabilities of RMB101.8 million (US$14.4 million), partially offset by a decrease in receivables, prepaid expenses and other current assets of RMB138.6 million (US$19.6 million)and a decrease of financial lease receivables of RMB102.7 million (US$14.5 million), The increase in loan recognized as a result of payment under the guarantee was mainly due to the performance fluctuations of outstanding historically-facilitated loans which were not transferred to Golden Pacer. The decrease in payables, accruals and other current liabilities was mainly due to a decrease of accrued salaries and benefits and tax payables. The decrease in receivables, prepaid expenses and other current assets was mainly due to a decrease of deposits made to non-bank financing partners’ accounts as we are no longer working with them. As we ceased to provide Easy Loan program to car dealers, the balance of financial lease receivables decreased.

Net cash used in operating activities was RMB1,194.1 million for the year ended December 31, 2019. In 2019, the difference between our net cash used in operating activities and our net loss RMB1,990.1 million mainly resulted from certain non -cash expenses, including losses from guarantee liabilities of RMB362.6 million, provision for credit losses of RMB271.4 million, share-based compensation of RMB100.3 million, and changes in certain working capital accounts. Changes in the working capital accounts mainly included an increase in loan recognized as a result of payment under the guarantee of RMB1,533.3 million and a decrease in deposit of interests from consumers and payable to financing partners of RMB470.1 million, partially offset by an increase in payables, accruals and other current liabilities of RMB674.9 million and a decrease in advance to consumers on behalf of financing partners of RMB519.8 million. The increase in loan recognized as a result of payment under the guarantee was mainly due to the fluctuation in outstanding facilitated-loan performance. The decrease in deposit of interests from consumers and payable to financing partners was mainly because we no longer collected the upfront deposit of interests from consumers and have gradually paid the remaining interests back to the financing partners. The increase in payables, accruals and other current liabilities was primarily attributable to our expansion of 2C online used car business. The decrease in advance to consumers on behalf of financing partners was primarily because we ceased to provide loan facilitation related services and no longer advanced funds to consumers on behalf of financing partners.

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Net cash used in operating activities was RMB2,281.3 million for the year ended December 31, 2018. In 2018, the difference between our net cash used in operating activities and our net loss of RMB1,538.3 million mainly resulted from certain non-cash expenses, including fair value change of derivative liabilities of RMB1,185.1 million, share-based compensation of RMB1,052.0 million, and changes in certain working capital accounts. Changes in the working capital accounts mainly included an increase in receivables, prepaid expenses and other current assets of RMB595.3 million, a decrease in deposit of interests from consumers and payable to financing partners of RMB563.5 million and an increase in advance to sellers of RMB446.4 million, partially offset by an increase in payables, accruals and other current liabilities of RMB654.3 million and an increase in advance to consumers on behalf of financing partners of RMB305.5 million. The increase in receivables, prepaid expenses and other current assets was primarily attributable to the increase of prepaid marketing and consulting expenses. The decrease in deposit of interests from consumers and payable to financing partners was primarily because we no longer collected the deposit of interests from consumers and have paid the remaining interests back to our financing partners. The increase in advance to sellers was primarily attributable to the expansion of 2C online used car transaction business.

Net cash used in operating activities was RMB1,834.2 million for the year ended December 31, 2017. The difference between our net cash used in operating activities and our net loss of RMB2,747.8 million mainly resulted from certain non-cash expenses or gains, including shared-based compensation of RMB165.9 million, the fair value change of derivative liabilities of RMB885.8 million, and changes in certain working capital accounts. Changes in the working capital accounts mainly included an increase in payables, accruals and other current liabilities of RMB911.6 million, an increase in deposit of interests from consumers and payable to financing partners of RMB628.9 million, partially offset by an increase in advance to sellers of RMB200.5 million, and an increase in loan recognized as a result of payment under the guarantee of RMB478.5 million. The increase in payables, accruals and other current liability was primarily attributable to our increasing guarantee liabilities driven by the fast growth of our then-existing loan facilitation business. The increase in deposit of interests from consumers and payable to financing partners was primarily attributable to the upfront deposit of interests collected from consumers and payable to financing partners and was in line with the growth of our then-existing loan facilitation business. The increase in advance from buyers collected on behalf of sellers was primarily attributable to the rapid expansion of our 2B business.

Investing Activities

Net cash generated from investing activities was RMB159.9 million (US$22.6 million) for the three months ended March 31, 2020, primarily attributable to the proceeds from the divestiture of salvage car related business.

Net cash used in investing activities was RMB484.3 million for the year ended December 31, 2019, primarily attributable to the legal title of restricted cash transferred to Golden Pacer of RMB1,175.9 million in connection with the divestiture of our loan facilitation related business.

Net cash used in investing activities was RMB1,078.6 million for the year ended December 31, 2018, primarily attributable to an increase in short-term investments of RMB595.1 million.

Net cash used in investing activities was RMB586.8 million for the year ended December 31, 2017, which was primarily attributable to the loan extended to a related party of RMB451.4 million, and the cash paid for long term investments of RMB152.7 million.

Financing Activities

Net cash used in financing activities was RMB165.5 million (US$23.4 million) for the three months ended March 31, 2020, primarily attributable to the repayment of borrowings.

Net cash generated from financing activities was RMB73.6 million for the year ended December 31, 2019, primarily attributable to net proceeds of RMB1,853.4 million from issuance of convertible notes, and repayment of convertible notes of RMB1,190.2 million.

Net cash generated from financing activities was RMB4,274.1 million for the year ended December 31, 2018, primarily attributable to net proceeds of RMB2,574.0 million from initial public offering and issuance of convertible notes.

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Net cash generated from financing activities was RMB3,288.8 million for the year ended December 31, 2017, which was primarily attributable to proceeds of RMB2,721.1 million from issuance of convertible redeemable preferred shares.

Holding Company Structure

Uxin Limited is a holding company with no material operations of its own. We conduct our operations primarily through our PRC subsidiaries, our VIEs and their subsidiaries in China. As a result, Uxin Limited’s ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with China accounting standards and regulations. Under PRC law, each of our subsidiaries and our VIEs in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, each of our wholly foreign-owned subsidiaries in China may allocate a portion of its after-tax profits based on China accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and our VIEs may allocate a portion of their after-tax profits based on China accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.

The table below sets forth the respective revenues and assets contribution of Uxin Limited and our subsidiaries and our VIEs as of the dates and for the periods indicated:

Note:The percentages exclude the inter-company transactions and balances between Uxin Limited and its subsidiaries and the

VIEs.

Capital Expenditures

We made capital expenditures of RMB81.2 million, RMB133.9 million, RMB46.8 million and RMB0.3 million (US$43 thousand) in 2017, 2018, 2019 and the three months ended March 31, 2020, respectively. In these periods our capital expenditures were mainly used for the purchase of computer equipment and software and leasehold improvements. We will continue to make such capital expenditures to support the expected growth of our business.

C.           Research and Development

See “Item 4. Information on the Company—B. Business Overview—Technology” and “Item 4. Information on the Company—B. Business Overview—Intellectual Property” of our Annual Report.

D.           Trend Information

Other than as disclosed elsewhere in this Transition Report, we are not aware of any trends, uncertainties, demands, commitments or events for the three months ended March 31, 2020 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.

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E.           Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.

F.           Contractual Obligations

The following table sets forth our contractual obligations as of March 31, 2020:

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The borrowings, convertible notes and interests payable represent our borrowings from commercial banks or other financial institutions for our working capital and the corresponding interests payable, as well as the outstanding convertible notes we issued and the corresponding interests payable.

Our operating lease commitments relate to our leases of offices, including our nationwide service network which are under non-cancellable operating lease agreements.

Other than the above, we did not have any significant capital and other commitments, long-term obligations, or guarantees as of March 31,2020.

See “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources” for a detailed description of our cash flows and working capital.

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The first case, In re Uxin Limited Securities Litigation, Index No. 650427/2019 (Sup. Ct. N.Y. Cty.), consolidated six complaints filed in the Supreme Court of the State of New York in January 2019. A Consolidated Amended Complaint was filed in August 5, 2019, and on March 9, 2020, the Court granted in part and denied in part our motion to dismiss. Both Uxin and Plaintiffs appealed the Court’s decision and those appeals are in the process of being briefed. The parties also have commenced discovery. The second case, Machniewicz v. Uxin Limited et al, Case No. 1:19-cv-00822 (E.D.N.Y.), was filed in the United States District Court for the Eastern District of New York on February 11, 2019.  On April 24, 2020, we completed briefing on a motion to dismiss, which remains pending before the Court. The actions otherwise remain in their preliminary stages. For risks and uncertainties relating to the pending cases against us, please see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We have been named as a defendant in a putative shareholder class action lawsuit that could have a material adverse impact on our business, financial condition, results of operation, cash flows and reputation " of our Annual Report.

We are also subject to ongoing unfair competition, contractual disputes and other proceedings in the PRC, and may be subject to other legal or administrative claims and proceedings arising in the ordinary course of business. Litigations or any other legal or administrative proceedings, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We may be subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, it could have a material adverse effect on our business, results of operations and financial condition” of our Annual Report.

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*    Filed herewith

* * Furnished herewith

†            Certain information has been excluded from this exhibit pursuant to Rule 406 under the Securities Act.

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UXIN LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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