| ORGANIZATION AND PRINCIPAL ACTIVITIES | NOTE 1 — ORGANIZATION AND PRINCIPAL ACTIVITIES UTime Limited was incorporated as an exempted company
with limited liability under the laws of the Cayman Islands on October 9, 2018. UTime Limited does not conduct any substantive operations
on its own but instead conducts its business operations through its subsidiaries, variable interest entity (“VIE”) and subsidiaries
of the VIE. UTime Limited, its subsidiaries, VIE and subsidiaries of the VIE (together, the “Company”) is primarily engaged
in the operation of designing, manufacturing and marketing mobile communication devices, and selling a variety of related accessories. (a) History and Reorganization The Company commenced its operations in June 2008
through United Time Technology Co., Ltd. (“UTime SZ” or “VIE”), a People’s Republic of China (the “PRC”
or “China”) company established by Mr. Minfei Bao (“Mr. Bao”), Mr. Junlin Zhou (“Mr. Zhou”) and Mr.
Bo Tang (“Mr. Tang”). As of March 31, 2017, Mr. Bao, Mr. Zhou and Mr. Tang held 52%, 28% and 20% equity interests of UTime
SZ, respectively. In February 2018, Mr. Bao acquired 28% and 20% equity interests of UTime SZ from Mr. Zhou and Mr. Tang, respectively,
with the total consideration of RMB9.6 million in cash through his private fund. As of the acquisition date, such non-controlling interests
amounted to RMB17.2 million and were transferred to equity attributable to UTime Limited, of which RMB1.0 million relating to foreign
currency translation was transferred to the accumulated other comprehensive income, and remaining balance of RMB16.2 million was transferred
to additional paid-in capital. After the acquisition, Mr. Bao became the sole shareholder of UTime SZ. Prior to the reorganization, UTime
SZ’s equity interests were held by Mr. Bao. For the purpose of an initial public offering in
the United States (“IPO”), the following transactions were undertaken to reorganize the legal structure (the “Reorganization”)
of the Company. In October 2018, UTime Limited was incorporated in the Cayman Islands. In November and December 2018, UTime
International Limited (“UTime HK”) was incorporated in Hong Kong and Shenzhen UTime Technology Consulting Co., Ltd. (“UTime
WFOE”) was incorporated in China, respectively. In March 2019, UTime WFOE entered into a series
of contractual agreements with VIE and Mr. Bao, which were further amended and restated in August and September 2019, respectively, and
were entered into among UTime WFOE, VIE, Mr. Bao and Mr. Min He (“Mr. He”). Pursuant to these agreements as detailed in note
1(b), the Company believes that these contractual arrangements would enable the Company to (1) have power to direct the activities
that most significantly affect the economic performance of the VIE and its subsidiaries, and (2) receive the economic benefits of
the VIE and its subsidiaries that could be significant to the VIE and its subsidiaries. Accordingly, the Company is considered the primary
beneficiary of the VIE and is able to consolidate the VIE and its subsidiaries. Do Mobile India Private Ltd. (“Do Mobile”)
was incorporated on October 24, 2016 in New Delhi, India. It is an operating entity that sells cell phone products and provides after-sale
services for the Company’s own in-house brand products in India. Prior to the reorganization, the majority of Do Mobile’s
equity interests were held by Mr. Bao through an entrust agreement with Mr. Wukai Song through a holding company, Bridgetime Limited (“Bridgetime”).
Bridgetime was incorporated on September 5, 2016 in British Virgin Island (“BVI”) under the laws of BVI, with Mr. Wukai Song
owning 70% through an entrust agreement between him and Mr. Bao, and Mr. Yunchuan Li owning 30% of equity interest. On March 5, 2018, Bridgetime issued 100,000 shares
to Mr. Wukai Song, changing shareholders’ structure to Mr. Wukai Song owning 90% equity interest, which are controlled by Mr. Bao
through an entrust agreement between Mr. Bao and Mr. Wukai Song, and Mr. Yunchuan Li owning 10% of equity interest. On December 5, 2018,
Bridgetime approved a board resolution that appointed and registered Mr. Yihuang Chen as a new director. On March 11, 2019, Bridgetime
approved a board resolution that transferred 1 share of Do Mobile to Mr. Yihuang Chen and made him nominal shareholder of Do Mobile, removed
Mr. Yunchuan Li as the director of Bridgetime and authorized representative of Do Mobile, and appointed Mr. Wukai Song as the authorized
representative of Do Mobile. On April 4, 2019, Bridgetime approved a board resolution that forfeited 15,000 shares held by Mr. Yunchuan
Li, cancelled those shares accordingly and amended Bridgetime’s memorandum of association that changed authorized shares from 150,000
to 135,000 at a par value of US$1.00 which was accounted as a cancellation of non-controlling interest in the consolidated statements
of shareholders’ equity. After this, Mr. WuKai Song owned 100% of equity
interest of Bridgetime, which are controlled by Mr. Bao through an entrust agreement between Mr. Bao and Mr. Wukai Song. On May 23, 2019,
Bridgetime approved a board resolution that transferred 135,000 ordinary shares owning by Mr. Wukai Song to UTime Limited. Since inception,
Bridgetime has only made nominal investments into Do Mobile and no substantial business operations have occurred. On May 20, 2019, the Company approved a board resolution
that agreed to transfer 12,000,000 ordinary shares being owned by Mr. Bao to Grandsky Phoenix Limited, a company that was established
under the laws of the BVI and 100% owned by Mr. Bao. As all the entities involved in the process of the
Reorganization are under common control before and after the Reorganization, the Reorganization is accounted for in a manner similar to
a pooling-of-interest with the assets and liabilities of the parties to the Reorganization carried over at their historical amounts. On June 3, 2019, the Company entered into a share
subscription agreement with HMercury Capital Limited, a company that was incorporated under the laws of the BVI and controlled by Mr.
He. HMercury Capital Limited purchased an aggregation of 377,514 ordinary shares. On the same day, the Company approved a board resolution
for issuance of 377,514 ordinary shares at par value US$0.0001 to HMercury Capital Limited based on the share subscription agreement.
As a result, Grandsky Phoenix Limited and HMercury Capital Limited own 96.95% and 3.05% of equity interest of the Company. On April 29, 2020, the Company approved a board
resolution, which became effective immediately, that agreed to repurchase 7,620,000 and 239,721 ordinary shares, which were subsequently
cancelled, at par value (the “Repurchased Shares”) from Grandsky Phoenix Limited and HMercury Capital Limited, respectively,
in accordance with their respective share percentages based on the share repurchase agreement that the Company entered into with Grandsky
Phoenix Limited and HMercury Capital Limited on April 29, 2020. On August 13, 2020, the Company approved a board resolution and signed
capital contribution letter with Grandsky Phoenix Limited and HMercury Capital Limited, respectively. Based on the capital contribution
letter, each shareholder opted not to receive the consideration for the Repurchased Shares and made a pure capital contribution in the
sum of the purchase price in favor of the Company without the issue of additional shares of the Company. Before and after the repurchase
of ordinary shares, Mr. Bao, through Grandsky Phoenix Limited, and Mr. He, through HMercury Capital Limited, own 96.95% and 3.05% of our
issued and outstanding ordinary shares, respectively. The Company considers this repurchase of ordinary shares was part of the Company’s
recapitalization to result in 4,517,793 ordinary shares issued and outstanding prior to completion of its IPO. The Company believes it
is appropriate to reflect these nominal share repurchases to result in 4,517,793 ordinary shares being issued and outstanding or reduction
of 63.5% of total ordinary shares being issued and outstanding after the repurchase of ordinary shares similar to 0.365-for-1 reverse
stock split. As of March 31, 2023, details of the subsidiaries
and VIE of the Company are set out below:
Name Date of Place of Percentage of Principal
Subsidiaries
UTime HK November 1, 2018 Hong Kong 100% Investment Holding
UTime WFOE December 18, 2018 China 100% Investment Holding
Bridgetime September 5, 2016 British Virgin Island 100% Investment Holding
Do Mobile October 24, 2016 India 99.99% Sales of in-house brand products in India
Name Date of Place of Percentage of Principal
VIE
UTime SZ June 12, 2008 China 100% Research and development of products, and sales
Subsidiaries of the VIE
Guizhou United Time Technology Co., Ltd. (“UTime GZ”) September 23, 2016 China VIE’s subsidiary Manufacturing
UTime Technology (HK) Company Limited (“UTime Trading”) June 25, 2015 Hong Kong VIE’s subsidiary Trading
UTime India Private Limited (“UTime India”) February 7, 2019 India UTime Trading’s subsidiary Trading
Guangxi UTime Technology Co., Ltd. (“UTime Guangxi”) November 1, 2021 China UTime Trading’s subsidiary Manufacturing
Gesoper S De R.L. De C.V. (“Gesoper”) October 21, 2020 Mexico UTime Trading’s subsidiary Trading
Firts Communications And Technologies De Mexico S.A. De C.V. (“Firts”) November 12, 2021 Mexico Gesoper’s subsidiary Trading (b) VIE Arrangements between the VIE and the Company’s
PRC subsidiary The Company conducts substantial majority of business
in the PRC through a series of contractual arrangements with the VIE and its subsidiaries. The VIE and subsidiaries of the VIE hold the
requisite licenses and permits necessary to conduct the Company’s business. In addition, the VIE and subsidiaries of the VIE hold
the assets necessary to operate the Company’s business and generate substantial majority of the Company’s revenues. Our contractual arrangements with the VIE and its
respective shareholders allow us to (i) determine the most significant economic activities of the VIE; (ii) receive substantially
all of the economic benefits of the VIE; and (iii) have an exclusive option to purchase all or part of the equity interest in and/or
assets of the VIE when and to the extent permitted by PRC laws. As a result of our direct ownership in UTime WFOE and the contractual
arrangements with the VIE, we are regarded as the primary beneficiary of the VIE, and we treat the VIE and its subsidiaries as our consolidated
affiliated entities under generally accepted accounting principles in the United States of America (“US GAAP”). We have
consolidated the financial results of the VIE and its subsidiaries in our consolidated financial statements in accordance with US GAAP. The following is a summary of the contractual arrangements
by and among UTime WFOE, the VIE and the shareholders of the VIE and their spouses, as applicable. Exclusive Technical Consultation and Service
Agreement. Equity Pledge Agreement Exclusive Call Option Agreements Power of Attorney. Business Operation Agreement. Spouse Consent Letter. Risks in relation to VIE structure The Company believes that the contractual arrangements
with its VIEs and their respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However,
uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If we or the VIE
are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits
or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures,
including:
● revoke the business and operating licenses of the Company’s PRC subsidiary and VIE;
● discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and VIE;
● limit the Company’s business expansion in China by way of entering into contractual arrangements;
● imposing fines, confiscating the income from the Company’s PRC subsidiary or the VIE, or imposing other requirements with which we or the VIE may not be able to comply;
● requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with the VIE and deregistering the equity pledges of the VIE, which in turn would affect our ability to consolidate, derive economic interests from, or determine the most significant economic activities of the VIE; or
● restricting or prohibiting our use of the proceeds of its IPO to finance our business and operations in China. The Company’s ability to conduct its business
may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, the Company may not
be able to consolidate its VIE in its consolidated financial statements as it may lose the ability to determine the most significant economic
activities of the VIE and it may lose the ability to receive economic benefits from the VIE. The Company, however, does not believe such
actions would result in the liquidation or dissolution of the Company, its PRC subsidiary or VIE. Mr. Bao and Mr. He hold 96.95% and 3.05% equity
interest in the VIE, respectively. The shareholders of the VIE may have potential conflicts of interest with us. The shareholders may
breach, or cause the VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and the VIE, which would
have a material and adverse effect on our ability to determine the most significant economic activities of the VIE and receive economic
benefits from it. For example, the shareholders may be able to cause our agreements with the VIE to be performed in a manner adverse to
us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure
you that when conflicts of interest arise the shareholders will act in the best interests of our company or such conflicts will be resolved
in our favor. Currently, we do not have any arrangements to address potential conflicts of interest between the shareholders and our company.
If we cannot resolve any conflict of interest or dispute between us and the shareholders, we would have to rely on legal proceedings,
which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings. The Company has aggregated the financial information
of the VIE and subsidiaries of the VIE in the table below. The aggregate carrying value of assets and liabilities of VIE and its subsidiaries
(after elimination of intercompany transactions and balances) in the Company’s consolidated balance sheets as of March 31, 2022
and 2023 are as follows:
As of March 31,
2022 2023
RMB RMB
Assets
Current assets
Cash and cash equivalents 192 277
Restricted cash 500 500
Accounts receivable, net 22,391 52,241
Prepaid expenses and other current assets, net 42,431 70,202
Due from related parties 1,422 584
Inventories 36,018 16,169
Total current assets 102,954 139,973
Non-current assets
Property and equipment, net 38,227 61,411
Operating lease right-of-use assets, net 16,319 13,030
Equity method investment - -
Intangible assets, net 2,592 1,677
Other non-current assets 541 -
Total non-current assets 57,679 76,118
Total assets 160,633 216,091
Liabilities
Current liabilities
Accounts payable 74,497 126,683
Short-term borrowings 35,780 53,935
Current portion of long-term borrowings 800 1,080
Due to related parties 3,728 4,705
Lease liabilities 3,360 3,673
Other payables and accrued liabilities 42,423 48,941
Income tax payables 18 18
Total current liabilities 160,606 239,035
Non-current liabilities
Long-term borrowings 8,020 6,870
Government grants - 8,697
Deferred tax liabilities 466 295
Lease liabilities 14,549 10,876
Total non-current liabilities 23,035 26,738
Total liabilities 183,639 265,773 The table sets forth the revenue, net loss and
cash flows of the VIE and subsidiaries of VIE in the table below.
Year ended March 31,
2021 2022 2023
RMB RMB RMB
Revenue 240,742 273,979 200,450
Net loss (10,722 ) (29,643 ) (19,221 )
Net cash used in operating activities (3,020 ) (19,806 ) (15,269 )
Net cash used in investing activities (2,201 ) (5,830 ) (2,900 )
Net cash provided by financing activities 14,000 17,629 18,295 (c) Initial Public Offering On April 8, 2021, the Company completed its IPO
on Nasdaq Capital Market. In the offering, 3,750,000 of the Company’s ordinary shares were issued and sold to the public at a price
of US$4 per share for gross proceeds of US$15 million. The Company recorded net proceeds (after deducting underwriting discounts and commissions
and other offering fees and expenses) of approximately $13.9 million (approximately RMB88.2 million) from the offering. (d) Asset Acquisitions On December 17, 2021, the Company, through UTime
Trading, acquired a 51% of the controlling equity interest of Gesoper. Subsequently, on January 17, 2022, Gesoper acquired 85% economic
equity interest in Firts, which were determined to be variable interest entities of which the Company is considered the primary beneficiary. |
