Business Context and Reporting Period
The source filing is TuanChe Limited’s Form 20-F annual report for the fiscal year ended December 31, 2020, not a quarterly filing. The request metadata identifies “Token Cat Ltd,” but the filing identifies the registrant as TuanChe Limited, a Cayman Islands holding company operating primarily in China through subsidiaries and variable interest entities.
TuanChe operates an omni-channel automotive marketplace comprising offline auto shows and special-promotion events, virtual dealership services, online marketing, social CRM cloud services and related offerings. The company reports under U.S. GAAP. Its ADSs trade on Nasdaq under “TC,” with each ADS representing 16 Class A ordinary shares.
Financial Performance and Position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net revenues | RMB330.2 million (US$50.6 million) | RMB644.8 million | Down 48.8% |
| Gross profit | RMB241.4 million (US$37.0 million) | RMB458.2 million | Down 47.3% |
| Gross margin | 73.1% | 71.1% | Up 2.0 percentage points |
| Operating expenses | RMB412.8 million | RMB719.3 million | Down 42.6% |
| Operating loss | RMB171.3 million | RMB261.0 million | Loss narrowed |
| Net loss | RMB163.5 million (US$25.1 million) | RMB251.3 million | Loss narrowed 34.9% |
| Adjusted EBITDA | RMB141.1 million loss (US$21.6 million) | RMB143.9 million loss | Loss narrowed 1.9% |
| Net cash used in operating activities | RMB88.9 million (US$13.6 million) | RMB161.8 million | Use of cash declined |
Revenue mix shifted materially. Auto-show revenue declined to RMB250.5 million from RMB603.4 million, while virtual dealership, online marketing services and other revenue increased to RMB74.9 million from RMB21.6 million. Special-promotion revenue declined to RMB4.9 million from RMB19.8 million.
At December 31, 2020, cash and cash equivalents were RMB109.9 million, restricted cash was RMB29.8 million and time deposits were RMB45.7 million, for total cash, restricted cash and time deposits of approximately RMB185.4 million. Net current assets were RMB135.2 million. Accounts receivable, net, was RMB66.1 million, after an allowance for doubtful accounts of RMB23.3 million.
Total assets were RMB474.4 million and total liabilities were RMB187.3 million. Shareholders’ equity was RMB287.1 million, while accumulated deficit was RMB881.7 million. The company reported no short-term or long-term borrowings outstanding at year-end; a RMB3.0 million short-term borrowing drawn in June 2020 was repaid in December 2020.
Material Changes Versus the Prior Comparable Period
- COVID-19 restrictions caused the cancellation or postponement of most offline events in early 2020. Auto shows fell from 1,055 to 449, cities covered fell from 233 to 172, and facilitated automobile transactions fell from 354,355 to 140,264.
- Gross margin improved despite lower revenue because venue, setup and security costs declined with the reduced event volume.
- Selling and marketing expense declined 51.1% to RMB279.7 million, while general and administrative expense declined only 4.9% to RMB98.8 million. General and administrative expense increased to 29.9% of revenue from 16.1%, partly because of doubtful-account allowances and the sharper revenue decline.
- The company completed its acquisition of Longye on January 13, 2020 for stated consideration of RMB200.0 million, consisting principally of cash and 8,366,444 Class A ordinary shares. The acquisition added intangible assets of RMB21.8 million, goodwill of RMB115.4 million and deferred tax liabilities of RMB5.5 million at year-end.
- Virtual dealership, online marketing and other services increased their revenue contribution from 3.3% to 22.7% of total revenue, indicating diversification away from offline events.
- Prepayments and other current assets declined from RMB193.8 million to RMB59.9 million, principally reflecting the completion of the Longye acquisition and recognition of a RMB16.6 million provision against prepayments and other current assets.
Outlook, Commentary, Risks and Unusual Items
Management stated that cash and time deposits were sufficient to fund planned operations and commitments for at least twelve months from the date of the filing, but also stated that operating losses and negative operating cash flow were expected to continue for the foreseeable future. The company plans to seek additional capital, including debt financing, but provided no committed financing amount or formal revenue or earnings guidance.
- Regional COVID-19 outbreaks could again force event cancellations, delay receivable collections and require additional furloughs or cost reductions.
- The company remains dependent on China’s automotive industry, industry customers that generally have short-term or event-based contracts, consumer demand and successful execution of offline and online services.
- The company’s auto-loan referral arrangement includes guarantees to a commercial bank. Management disclosed uncertainty over whether the arrangement could be viewed as unlicensed financing-guarantee activity. The arrangement was scheduled to expire in October 2021; no penalties had been imposed as of the filing date. Guarantee liabilities were RMB0.4 million at December 31, 2020.
- Management assessed internal control over financial reporting as ineffective because of two material weaknesses: insufficient financial reporting and U.S. GAAP personnel, and inadequate formal period-end closing policies and controls. The filing did not include an auditor attestation report because the company remained an emerging growth company.
- The independent auditor included an emphasis of matter stating that the company would require additional financing to fund future operations.
- A preliminary non-binding going-private proposal was received from Chairman and CEO Wei Wen on January 21, 2021 at US$4.25 per ADS. The proposal was subject to further review, financing and other conditions, and there was no assurance that a definitive transaction would be completed.
- The company uses a PRC variable-interest-entity structure for certain operations. Changes in PRC foreign-investment, telecommunications, data, currency-control or VIE regulations could impair control, consolidation or access to operating assets.
- The company had not declared or paid dividends and did not expect to pay cash dividends in the foreseeable future.
Facts Investors Should Verify
- Confirm the registrant identity and ticker because the provided metadata names Token Cat Ltd, while the filing names TuanChe Limited and Nasdaq ticker TC.
- Reconcile the company’s liquidity assessment with recurring operating losses, RMB88.9 million of 2020 operating cash use, restricted cash and the auditor’s additional-financing emphasis.
- Review the Longye acquisition valuation, including RMB115.4 million of goodwill and the company’s assumptions supporting recoverability.
- Assess the aging and collectability of RMB66.1 million of net receivables and the adequacy of the RMB23.3 million allowance.
- Monitor remediation of the two material weaknesses and any future restatement, reporting delay or auditor attestation implications.
- Evaluate the status and terms of the proposed going-private transaction, including financing, special-committee actions, valuation and potential Nasdaq delisting.
- Review the legal and regulatory exposure arising from the VIE structure, the commercial-bank guarantee arrangement and PRC data, foreign-investment and currency-control rules.