0001104659-22-045671 | 20-F | XBRL Viewer

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Document and Entity Information	12 Months Ended
Document and Entity Information	Dec. 31, 2021 shares
Document Information [Line Items]
Document Type	20-F
Document Registration Statement	false
Document Period End Date	Dec. 31, 2021
Entity Registrant Name	Luckin Coffee Inc.
Document Annual Report	true
Document Transition Report	false
Document Shell Company Report	false
Title of 12(g) Security	American depositary shares, each ADS represents eight Class A ordinary shares, par value US$0.000002 per share
Entity Address, Postal Zip Code	361008
Entity Incorporation, State or Country Code	E9
Entity Address, Address Line One	28th Floor, Building T3, Haixi Jingu Plaza
Entity Address, Address Line Two	1-3 Taibei Road
Entity Address, Address Line Three	Siming District
Entity Address, City or Town	Xiamen City
Entity Address, Country	CN
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	No
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Auditor Name	Centurion ZD CPA & Co.
Auditor Firm ID	2769
Auditor Location	Hong Kong, China
Entity Emerging Growth Company	false
ICFR Auditor Attestation Flag	true
Entity Shell Company	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	FY
Entity Central Index Key	0001767582
Amendment Flag	false
Entity File Number	001-38896
Document Accounting Standard	U.S. GAAP
Class A ordinary shares
Document Information [Line Items]
Entity Common Stock, Shares Outstanding	1,950,457,380
Class B ordinary shares
Document Information [Line Items]
Entity Common Stock, Shares Outstanding	144,778,552
Business Contact [Member]
Document Information [Line Items]
Entity Address, Postal Zip Code	361008
Entity Address, Address Line One	28th Floor, Building T3, Haixi Jingu Plaza
Entity Address, Address Line Two	1-3 Taibei Road
Entity Address, Address Line Three	Siming District
Entity Address, City or Town	Xiamen City
Entity Address, Country	CN
Contact Personnel Name	Mr. Reinout Hendrik Schakel
Country Region	86
City Area Code	592
Local Phone Number	3386666
Contact Personnel Email Address	ir@lkcoffee.com

CONSOLIDATED BALANCE SHEETS ¥ in Thousands, $ in Thousands	Dec. 31, 2021 CNY (¥)	Dec. 31, 2021 USD ($)	Dec. 31, 2020 CNY (¥)
Current assets:
Cash and cash equivalents	¥ 6,477,636	$ 1,016,482	¥ 4,806,023
Restricted cash	58,200	9,133	110,000
Short-term investments, net			250,000
Accounts receivable, net	38,605	6,058	17,381
Receivables from online payment platforms	171,562	26,922	25,728
Inventories	593,340	93,108	275,568
Prepaid expenses and other current assets, net	1,044,007	163,828	935,497
Total current assets	8,383,350	1,315,531	6,420,197
Non-current assets:
Property and equipment, net	1,805,101	283,260	2,070,458
Restricted cash	19,438	3,050	23,022
Other non-current assets, net	163,926	25,724	170,002
Deferred tax assets, net	702,941	110,307	638,720
Operating lease right-of-use assets	1,237,734	194,227
Total non-current assets	3,929,140	616,568	2,902,202
Total assets	12,312,490	1,932,099	9,322,399
Current liabilities:
Accounts payable	293,700	46,088	209,695
Accrued expenses and other current liabilities	1,322,006	207,452	703,117
Deferred revenues	96,212	15,098	88,174
Convertible senior notes	2,931,396	460,000
Payable for equity litigants settlement	1,350,257	211,885
Operating lease liabilities	598,062	93,850
Total current liabilities	6,591,633	1,034,373	1,000,986
Non-current liabilities:
Other non-current liabilities			197,091
Convertible senior notes			3,001,500
Payable for SEC settlement			1,174,500
Payable for equity litigants settlement			1,223,438
Operating lease liabilities	575,060	90,239
Total non-current liabilities	575,060	90,239	5,596,529
Total liabilities	7,166,693	1,124,612	6,597,515
Commitments and contingencies
Mezzanine equity:
Convertible senior preferred shares (US$0.000002 par value; nil and 307,692,307 shares authorized as of December 31, 2020 and 2021, respectively; nil and 295,384,615 issued and outstanding as of December 31, 2020 and 2021, respectively)	1,514,660	237,683
Shareholders' equity:
Additional paid-in capital	15,037,992	2,359,789	14,744,569
Statutory reserves	2,617	411	603
Accumulated deficits	(11,768,626)	(1,846,754)	(12,452,882)
Accumulated other comprehensive income	359,131	56,355	364,054
Total Company's ordinary shareholders' equity	3,631,137	569,804	2,656,366
Non-controlling interests			68,518
Total shareholders' equity	3,631,137	569,804	2,724,884
Total liabilities, mezzanine equity and shareholders' equity	12,312,490	1,932,099	9,322,399
Class A ordinary shares
Shareholders' equity:
Ordinary shares	21	3	20
Class B ordinary shares
Shareholders' equity:
Ordinary shares	2		¥ 2
Convertible senior preferred shares
Mezzanine equity:
Convertible senior preferred shares (US$0.000002 par value; nil and 307,692,307 shares authorized as of December 31, 2020 and 2021, respectively; nil and 295,384,615 issued and outstanding as of December 31, 2020 and 2021, respectively)	¥ 1,514,660	$ 237,683

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2021	Dec. 31, 2020	May 17, 2019
Convertible senior preferred shares
Mezzanine equity, par value (in US dollars per share)	$ 0.000002	$ 0.000002
Mezzanine equity, shares authorized (in shares)	307,692,307	0
Mezzanine equity, shares issued (in shares)	295,384,615	0
Mezzanine equity, shares outstanding (in shares)	295,384,615	0
Class A ordinary shares
Mezzanine equity, par value (in US dollars per share)	$ 0.000002
Equity, par value (in US dollars per share)			$ 0.000002
Equity, shares authorized (in shares)	19,692,307,693	20,000,000,000
Equity, shares issued (in shares)	1,950,457,380	1,880,396,244
Equity, shares outstanding (in shares)	1,950,457,380	1,880,396,244
Class B ordinary shares
Mezzanine equity, par value (in US dollars per share)	$ 0.000002
Equity, par value (in US dollars per share)			$ 0.000002
Equity, shares authorized (in shares)	5,000,000,000	5,000,000,000
Equity, shares issued (in shares)	144,778,552	144,778,552
Equity, shares outstanding (in shares)	144,778,552	144,778,552

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
¥ in Thousands, $ in Thousands

12 Months Ended

Dec. 31, 2021

CNY (¥)

¥ / shares

Dec. 31, 2021

USD ($)

$ / shares

Dec. 31, 2020

CNY (¥)

¥ / shares

Dec. 31, 2019

CNY (¥)

¥ / shares

Net revenues:

Net revenues

¥ 7,965,323

$ 1,249,933

¥ 4,033,418

¥ 3,024,934

Cost of materials

(3,198,552)

(501,923)

(1,995,380)

(1,623,324)

Store rental and other operating costs

(2,036,772)

(319,614)

(1,726,619)

(1,597,125)

Depreciation and amortization expenses

(465,384)

(73,029)

(483,421)

(411,883)

Delivery expenses

(819,549)

(128,605)

(414,808)

(438,914)

Sales and marketing expenses

(336,855)

(52,860)

(462,112)

(812,592)

General and administrative expenses

(1,269,988)

(199,289)

(981,645)

(1,072,339)

Store preopening and other expenses

(16,352)

(2,566)

(9,982)

(71,623)

Impairment loss of long-lived assets

(21,368)

(3,353)

(71,467)

(209,249)

Losses and expenses related to Fabricated Transactions and Restructuring

(339,557)

(53,284)

(475,252)

Total operating expenses

(8,504,377)

(1,334,523)

(6,620,686)

(6,237,049)

Operating loss

(539,054)

(84,590)

(2,587,268)

(3,212,115)

Interest income

102,248

16,045

135,713

79,407

Interest and financing expenses

(35,490)

(5,569)

(116,471)

(31,629)

Foreign exchange gain/(loss), net

120,166

18,857

(70,937)

19,842

Other expenses, net

(16,513)

(2,591)

(58,635)

(6,303)

Change in the fair value of warrant liability

(8,322)

(Provision)/reversal for SEC settlement

1,146,474

179,907

(1,177,074)

Provision for equity litigants settlement

(155,314)

(24,372)

(1,226,119)

Impairment of trust investments

(1,140,000)

(Loss)/income before income taxes

622,517

97,687

(6,240,791)

(3,159,120)

Income tax (expense)/benefits

63,861

10,021

637,801

(1,387)

Net (loss)/income

686,378

107,708

(5,602,990)

(3,160,507)

Add: Accretion to redemption value of convertible redeemable preferred shares

(552,036)

Add: Deemed distribution to a certain holder of Series B convertible redeemable preferred shares

(2,127)

Less: Net (loss)/income attributable to non-controlling interests

108

(13,885)

(2,074)

Net (loss)/income attributable to the Company's ordinary shareholders

¥ 686,270

$ 107,691

¥ (5,589,105)

¥ (3,712,596)

Net (loss)/income per share:

Basic | (per share)

^[1]

¥ 0.34

$ 0.05

¥ (2.76)

¥ (2.31)

Diluted | (per share)

^[1]

¥ 0.32

$ 0.05

¥ (2.76)

¥ (2.31)

Weighted average shares outstanding used in calculating basic and diluted (loss)/income per share:

Basic | shares

^[1]

2,025,366,744

2,021,919,061

1,609,200,055

Diluted | shares

^[1]

2,135,844,257

2,021,919,061

1,609,200,055

Net (loss)/income

¥ 686,378

$ 107,708

¥ (5,602,990)

¥ (3,160,507)

Other comprehensive (loss)/income, net of tax of nil:

Foreign currency translation difference, net of tax of nil

(4,923)

(773)

286,697

79,433

Total comprehensive (loss)/income

681,455

106,935

(5,316,293)

(3,081,074)

Add: Accretion to redemption value of convertible redeemable preferred shares

(552,036)

Add: Deemed distribution to a certain holder of Series B convertible redeemable preferred shares

(2,127)

Less: total comprehensive (loss)/income attributable to non-controlling interests

108

(13,885)

(2,074)

Total comprehensive (loss)/income attributable to the Company's ordinary shareholders

681,347

106,918

(5,302,408)

(3,633,163)

Revenues from product sales

Net revenues:

Net revenues

6,659,218

1,044,977

3,716,791

3,009,590

Revenues from partnership stores

Net revenues:

Net revenues

¥ 1,306,105

$ 204,956

¥ 316,627

¥ 15,344

[1]	1-to-500 share split concurrent with the completion of IPO in May 2019 was accounted for on a retrospective basis for the calculation of basic and diluted loss per share as if it was completed at the inception of the Company.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Parenthetical) ¥ in Thousands	12 Months Ended
	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2019 CNY (¥)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
Other comprehensive (loss)/income, tax	¥ 0	¥ 0	¥ 0
Foreign currency translation difference, tax	¥ 0	¥ 0	¥ 0
Stock split			500

- Definition

Amount of tax expense (benefit) allocated to other comprehensive income (loss).

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=118261656&loc=d3e32211-110900

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
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-SubTopic 20
-Section 45
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-Subparagraph (d)
-URI http://asc.fasb.org/extlink&oid=123586238&loc=d3e38679-109324

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=124431353&loc=SL124442407-227067

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
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-Section S99
-Paragraph 1
-Subparagraph (SX 210.9-04(23))
-URI http://asc.fasb.org/extlink&oid=120399700&loc=SL114874048-224260

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=123367319&loc=SL114868664-224227

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32672-109319

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 830
-SubTopic 30
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6450520&loc=d3e32583-110901

Reference 10: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 12
-URI http://asc.fasb.org/extlink&oid=124509347&loc=d3e640-108580

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 944
-SubTopic 220
-Section S99
-Paragraph 1
-Subparagraph (SX 210.7-04(19))
-URI http://asc.fasb.org/extlink&oid=120400993&loc=SL114874131-224263

+ Details

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICITS)/EQUITY ¥ in Thousands, $ in Thousands	Ordinary shares Class A ordinary shares CNY (¥) shares	Ordinary shares Class A ordinary shares USD ($) shares	Ordinary shares Class B ordinary shares CNY (¥) shares	Ordinary shares shares	Angel shares CNY (¥) shares	Additional paid-in capital CNY (¥)	Additional paid-in capital USD ($)	Accumulated other comprehensive (loss)/income CNY (¥)	Accumulated other comprehensive (loss)/income USD ($)	Statutory reserves CNY (¥)	Statutory reserves USD ($)	Accumulated deficits CNY (¥)	Accumulated deficits USD ($)	Total Company's ordinary shareholders' (deficits)/equity CNY (¥)	Total Company's ordinary shareholders' (deficits)/equity USD ($)	Non-controlling interests CNY (¥)	CNY (¥)	USD ($)
Beginning balance at Dec. 31, 2018					¥ 1,256,188	¥ 65,000		¥ (2,076)				¥ (3,246,705)		¥ (1,927,593)			¥ (1,927,593)
Beginning balance (in shares) at Dec. 31, 2018 \| shares				750,000	1,428,750
Net (loss)/income												(3,158,433)		(3,158,433)		¥ (2,074)	(3,160,507)
Foreign currency translation difference								79,433						79,433			79,433
Issuance of shares	¥ 5					4,508,503								4,508,508			4,508,508
Issuance of shares (in shares) \| shares	327,129,412	327,129,412
Accretion to redemption value of convertible redeemable preferred shares						(94,000)						(458,036)		(552,036)			(552,036)
Deemed distribution to a certain holder of Series B convertible redeemable preferred shares						(2,127)								(2,127)			(2,127)
Conversion from Angel Shares to Class B ordinary shares			¥ 9		¥ (1,256,188)	1,256,179
Conversion from Angel Shares to Class B ordinary shares (in shares) \| shares			1,428,750		(1,428,750)
Conversion from Ordinary Shares and Preferred Shares to Class A and Class B ordinary shares			¥ 7			5,960,080								5,960,087			5,960,087
Conversion from Ordinary Shares and Preferred Shares to Class A and Class B ordinary shares (in shares) \| shares	15,211	15,211	1,747,022	(750,000)
1-to-500 share split (in shares) \| shares	7,590,289	7,590,289	1,584,710,228
Conversion from Class B ordinary shares to Class A ordinary shares	¥ 3		¥ (3)
Conversion from Class B ordinary shares to Class A ordinary shares (in shares) \| shares	310,198,928	310,198,928	(310,198,928)
Issuance of Class A ordinary shares for 2019 share option plan (in shares) \| shares	19,753,888	19,753,888
Share based compensation						152,285								152,285			152,285
Appropriation to statutory reserves										¥ 421		(421)
Contribution from non-controlling shareholder in a subsidiary																84,477	84,477
Ending balance at Dec. 31, 2019	¥ 8		¥ 13			11,845,920		77,357		421		(6,863,595)		5,060,124		82,403	5,142,527
Ending balance (in shares) at Dec. 31, 2019 \| shares	664,687,728	664,687,728	1,277,687,072
Net (loss)/income												(5,589,105)		(5,589,105)		(13,885)	(5,602,990)
Foreign currency translation difference						(190)		286,697						286,507			286,507
Issuance of shares	¥ 1					2,876,810								2,876,811			2,876,811
Issuance of shares (in shares) \| shares	82,800,000	82,800,000
Conversion from Class B ordinary shares to Class A ordinary shares	¥ 11		¥ (11)
Conversion from Class B ordinary shares to Class A ordinary shares (in shares) \| shares	1,132,908,520	1,132,908,520	(1,132,908,520)
Surrender of Class A ordinary shares (in shares) \| shares	(4)	(4)
Share based compensation						22,029								22,029			22,029
Appropriation to statutory reserves										182		(182)
Ending balance at Dec. 31, 2020	¥ 20		¥ 2			14,744,569		364,054		603		(12,452,882)		2,656,366		68,518	2,724,884
Ending balance (in shares) at Dec. 31, 2020 \| shares	1,880,396,244	1,880,396,244	144,778,552
Net (loss)/income												686,270		686,270		108	686,378	$ 107,708
Foreign currency translation difference								(4,923)						(4,923)			(4,923)
Issuance of shares	¥ 1					(1)
Issuance of shares (in shares) \| shares	70,061,136	70,061,136
Share based compensation						302,734								302,734			302,734
Purchase of non-controlling interest in a subsidiary						(9,310)								(9,310)		¥ (68,626)	(77,936)
Appropriation to statutory reserves										2,014		(2,014)
Ending balance at Dec. 31, 2021	¥ 21	$ 3	¥ 2			¥ 15,037,992	$ 2,359,789	¥ 359,131	$ 56,355	¥ 2,617	$ 411	¥ (11,768,626)	$ (1,846,754)	¥ 3,631,137	$ 569,804		¥ 3,631,137	$ 569,804
Ending balance (in shares) at Dec. 31, 2021 \| shares	1,950,457,380	1,950,457,380	144,778,552

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICITS)/EQUITY (Parenthetical)	12 Months Ended
	Dec. 31, 2019
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICITS)/EQUITY
Share split ratio	500

CONSOLIDATED STATEMENTS OF CASH FLOWS ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2021 CNY (¥)	Dec. 31, 2021 USD ($)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2019 CNY (¥)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income	¥ 686,378	$ 107,708	¥ (5,602,990)	¥ (3,160,507)
Adjustments to reconcile net loss to net cash provided by operating activities:
Foreign exchange loss/ (gain), net	(120,166)	(18,857)	70,937	(19,953)
Loss on disposal of property and equipment	4,834	759	5,648	5
Depreciation and amortization	465,384	73,029	483,421	411,883
Amortization of operating lease right-of-use assets	672,910	105,594
Change in the fair value of warrant liability				8,322
Impairment of long-lived assets	21,368	3,353	71,467	209,249
Allowance for unrecoverable payments in relation to Fabricated Transactions				49,829
Allowance for prepayments and accounts receivable	4,467	701	83,230	8,585
Loss on disposal of other non-current assets			34,709
Deferred income tax	(64,221)	(10,078)	(638,720)
Impairment of trust investments			1,140,000
Interest expenses of convertible senior notes	35,490	5,569	107,014
Share-based compensation expenses	302,734	47,505	22,029	152,285
Amortized income for the refund from shares depositary bank				3,854
Provision /(reversal) for SEC settlement	(1,146,474)	(179,907)	1,177,074
Provision for equity litigants settlement	155,314	24,372	1,226,119
Donation of inventory	3,889	610
Changes in operating assets and liabilities:
Accounts receivable	(22,431)	(3,520)	5,420	(22,801)
Inventories	(316,673)	(49,693)	109,976	(235,529)
Receivables from online payment platforms	(145,834)	(22,885)	(9,538)	(11,581)
Prepaid expenses and other current assets	(101,868)	(15,983)	(263,242)	(382,762)
Other non-current assets	(20,548)	(3,224)	20,710	(35,080)
Amount due from a related party			90	(90)
Accounts payable and notes payable	84,005	13,182	(331,848)	367,376
Accrued expenses and other liabilities	254,094	39,873	(12,414)	476,513
Amounts due to related parties			(19,174)	(5,023)
Deferred revenues	8,038	1,261	(56,750)	18,455
Operating lease liabilities	(637,243)	(99,997)
Net cash (used in)/provided by operating activities	123,447	19,372	(2,376,832)	(2,166,970)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(173,217)	(27,182)	(822,333)	(1,570,989)
Prepayment for land use right				(43,250)
Cash received from disposal of property and equipment	1,490	234		20,790
Purchase of two trust investments			(1,140,000)
Purchases of short-term investments			(455,404)	(1,030,000)
Proceeds received from maturity of short-term investments	250,000	39,230	705,404	660,000
Repayment from a related party				147,559
Cash paid to a related party and an individual on behalf of the related party				(306,319)
Cash repaid from a related party				306,319
Repayment of contribution from noncontrolling interest in a subsidiary	(77,936)	(12,230)
Net cash (used in)/provided by investing activities	337	52	(1,712,333)	(1,815,890)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Series B convertible redeemable preferred shares, net of issuance costs				33,861
Proceeds from issuance of Series B-1 preferred shares, net of issuance cost				1,065,882
Proceeds from issuance of Class A ordinary shares, net of issuance cost			2,876,811	4,508,507
Proceeds from short-term borrowings				59,582
Proceeds from capital lease				44,434
Repayments for short-term borrowings				(67,582)
Capital lease payments			(7,656)	(143,060)
Return of deposit for capital lease			642	13,050
Proceeds from long-term borrowing			69,900	349,650
Proceeds from the issuance of convertible senior notes			3,098,069
Repayments for long-term borrowing			(642,433)	(77,117)
Contribution from non-controlling shareholder in a subsidiary				84,477
Refund from shares depositary bank				52,628
Cash received in relation to Fabricated Transaction			942,844	2,309,107
Cash paid in relation to Fabricated Transaction			(2,309,107)	(992,673)
Proceeds from issuance of convertible senior preferred shares	1,514,660	237,683
Net cash provided by financing activities	1,514,660	237,683	4,029,070	7,240,746
Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash	(22,215)	(3,486)	17,711	92,560
Net increase/(decrease) in cash and cash equivalents and restricted cash	1,616,229	253,621	(42,384)	3,350,446
Cash and cash equivalents and restricted cash at beginning of years	4,939,045	775,044	4,981,429	1,630,983
Cash and cash equivalents and restricted cash at end of years	6,555,274	1,028,665	4,939,045	4,981,429
Supplemental disclosures of cash flow information:
Interests received	103,863	16,298	132,439	77,045
Interests paid, net of capitalization			¥ (15,171)	(33,040)
Supplemental disclosures of non-cash activities:
Purchase of property and equipment included in accrued expenses and other liabilities	46,659	7,322		¥ 5,131
Obtaining right-of-use assets in exchange for lease liabilities	¥ 947,853	$ 148,739

ORGANIZATION

12 Months Ended

Dec. 31, 2021

ORGANIZATION

ORGANIZATION

1. ORGANIZATION

Luckin Coffee Inc. (the “Company”) was incorporated in the Cayman Islands on June 16, 2017 under the Cayman Islands Companies Act (2021 Revision) (the “Companies Act”) as an exempted company with limited liability. The Company through its consolidated subsidiaries and variable interest entity (the “VIE”) (collectively, the “Group”) are principally engaged in the provision of retail services for high-quality and affordable freshly brewed drinks and pre-made food and beverage items in the People’s Republic of China (the “PRC” or “China”).

(a)As of the issuance of this financial statements, the details of the Company’s principal subsidiaries and VIE are as follows:

Entity	Date of incorporation	Place of incorporation	Percentage of direct or indirect ownership		Principal activities

Subsidiaries:
Luckin Coffee Investment Inc. (“Luckin BVI”)	June 16, 2017	British Virgin Islands	100	%	Investment holding
Luckin Coffee (Hong Kong) Limited (“Luckin HK”)	June 19, 2017	Hong Kong	100	%	Investment holding
Luckin Coffee Roasting (Hong Kong) Limited (“Luckin Roasting”)	April 12, 2019	Hong Kong	100	%	Investment holding
Luckin Coffee Roastery (Hong Kong) Limited (“Luckin Roastery”)	April 30, 2019	Hong Kong	100	%	Investment holding
Beijing Luckin Coffee Co., Ltd. (“Beijing WFOE”) (1) / (2)	October 31, 2017	PRC	100	%	Provision of retail services for freshly brewed drinks and pre-made food and beverage items and technical and consultation services
Luckin Investment (Tianjin) Co., Ltd. (“Luckin TJ”) (1) / (5)	December 7, 2017	PRC	100	%	Investment holding
Luckin Coffee (China) Co., Ltd. (“Luckin China”) (1) / (2) / (4)	March 28, 2018	PRC	100	%	Headquarter
Luckin Coffee Roasting (Xiamen) Co., Ltd. (1)	January 22, 2019	PRC	100	%	Investment holding
Luckin Coffee Roasting (Pingnan) Co., Ltd. (1)	April 28, 2019	PRC	100	%	Manufacture of materials for products

Variable Interest Entity:
Beijing Luckin Coffee Technology Ltd. (“VIE”) (3)	June 14, 2017	PRC	100	%	License holder

(1)

Including their subsidiaries, collectively as the “PRC subsidiaries”.

(2)

On July 27, 2018, Beijing WFOE transferred all its 100% equity interest in its subsidiaries to Luckin China.

(3)

Ms. Jenny Zhiya Qian and Mr. Min Chen are nominal shareholders of the VIE, holding 83.33% and 16.67% of the equity interest, respectively. Ms. Qian and Mr. Chen were both terminated from the Group as a result of the internal investigation and have since ceased to be involved in the management of the Group. The Group is in the process of replacing the nominal shareholders and otherwise optimizing its VIE structure.

(4)

As of the issuance of this financial statements, Luckin China had 87 direct and indirect wholly-owned subsidiaries.

(5)

As of the issuance of this financial statements, Luckin TJ had one direct wholly-owned subsidiary.

1. ORGANIZATION (CONTINUED)

(b)PRC laws and regulations prohibit foreign ownership in certain telecommunication related businesses. To comply with these foreign ownership restrictions, we rely on contractual arrangements with our VIE rather than equity ownership in it to use, or otherwise benefit from, certain foreign restricted licenses and permits that we may need in the future, such as the internet content provider license, or the ICP license held by our VIE. Despite the lack of technical majority ownership, the Company has effective control of the VIE through a series of contractual agreements (the “VIE Agreements”). The equity interest of the VIE is legally held by PRC individuals (the “Nominee Shareholders”). Through the VIE Agreements, the Nominee Shareholders of the VIE effectively assign all their voting rights underlying their equity interests in the VIE to the Company, and therefore, the Company has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. The Company also has the right to receive economic benefits and obligations to absorb losses from the VIE that potentially could be significant to the VIE. Based on the above, the Company consolidates the VIE in accordance with SEC Regulation S-X Rule 3A-02 and Accounting Standards Codification (“ASC”) 810-10 (“ASC 810-10”), Consolidation: Overall.

For the years ended December 31, 2019, 2020 and 2021, the VIE did not generate any revenue and the Group did not provide any loan to VIE. As of December 31, 2020 and 2021, total assets of the VIE excluding amounts due from other intra-group entities were RMB59,486 and RMB6,293 (US$988), respectively.

The following is a summary of the key VIE Agreements:

Exclusive Option Agreement

Pursuant to the Exclusive Option Agreement entered into amongst the VIE, the Nominee Shareholders and Beijing WFOE, the Nominee Shareholders granted Beijing WFOE or its designated party, an irrevocable and exclusive right to purchase all or part of the equity interests held by the Nominee Shareholders in the VIE at its sole discretion, to the extent permitted under the PRC laws, at an amount equal to the minimum consideration permitted under the applicable PRC law and administrative regulations. Any proceeds received by the Nominee Shareholders from the exercise of the options shall be remitted to Beijing WFOE or its designated party, to the extent permitted under PRC laws. In addition, the VIE and the Nominee Shareholders have agreed that without prior written consent of the Beijing WFOE, they will not create any pledge or encumbrance on their equity interests in the VIE, except for the pledge placed pursuant to the Share Pledge Agreement, or transfer or otherwise dispose of their equity interests in the VIE. The term of the agreement remains effective as long as each Nominee Shareholder remains as a shareholder of the VIE. Beijing WFOE may terminate the agreement at its sole discretion, whereas under no circumstances may the VIE or the Nominee Shareholders terminate the agreement.

Share Pledge Agreement

Pursuant to the Share Pledge Agreement entered into amongst Beijing WFOE, the VIE, and the Nominee Shareholders, the Nominee Shareholders pledged all of their equity interests in the VIE to Beijing WFOE as collateral to secure their obligations. Beijing WFOE shall have the right to collect dividends generated by the pledged shares during the term of the pledge. If the VIE or the Nominee Shareholders breach their respective contractual obligations under the share pledge agreement, Beijing WFOE, as pledgee, will be entitled to rights, including the right to dispose the pledged equity interests entirely or partially. The Nominee Shareholders agreed not to transfer or otherwise create any encumbrance on their equity interests in the VIE without prior consent of Beijing WFOE. The Equity Pledge Agreement will remain effective until all the obligations have been satisfied in full and the pledged equity interests have been transferred to Beijing WFOE and/or its designee. The Company completed the registration of the pledge of equity interests in the VIE with the relevant office of Administration for the Industry and Commerce in accordance with the PRC Property Rights Law.

1. ORGANIZATION (CONTINUED)

Proxy Agreement and Power of Attorney

Pursuant to the Proxy Agreement and Power of Attorney entered into amongst Beijing WFOE, the VIE, and the Nominee Shareholders, each Nominee Shareholder appointed Beijing WFOE to act on behalf of the Nominee Shareholders as exclusive agent and attorney with all respect to all matters concerning the shareholding including but not limited to (1) call and attend shareholders’ meetings of the VIE; (2) exercise all the shareholders’ rights, including voting rights; and (3) appoint at its sole discretion, a substitute or substitutes to perform any or all of its right of the VIE. The power of attorney remains irrevocable and continuously valid from the date of execution so long as each Nominee Shareholder remains as a shareholder of the VIE unless Beijing WFOE issues adverse instructions in writing. The Proxy Agreement and Power of Attorney was subsequently reassigned to the Company.

Master Exclusive Service Agreement

Pursuant to the Master Exclusive Service Agreement entered into between Beijing WFOE and the VIE, Beijing WFOE or its designated entities affiliated has the exclusive right to provide the VIE with technical support and business support services in return for fees equal to 100% of the consolidated net profits of the VIE. Beijing WFOE has sole discretion in determining the service fee charged to the VIE under this agreement. Without Beijing WFOE’s prior written consent, the VIE shall not, directly and indirectly, obtain the same or similar services as provided under this agreement from any third party, or enter into any similar agreement with any third party. Beijing WFOE will have the exclusive ownership of all intellectual property rights developed by performance of this agreement. This agreement will remain effective until it is terminated at the discretion of Beijing WFOE or upon the transfer of all the shares of the VIE to Beijing WFOE and/or a third party designated by Beijing WFOE.

The Company is obligated and hereby undertakes to provide unlimited financial support to the VIE, to the extent permissible under the applicable PRC law and regulations, whether or not any such operational loss is actually incurred. The Company will forego the right to seek repayment in the event the VIE are unable to repay such funding.

Business Cooperation Agreement

Pursuant to the Business Cooperation Agreement entered into amongst Beijing WFOE, the VIE and the Nominee Shareholders, the VIE and the Nominee Shareholders agreed and covenanted that, without obtaining Beijing WFOE’s written consent, the VIE shall not, and the Nominee Shareholders shall cause the VIE not to, engage in any transaction which may materially affect the VIE’s assets, obligations, rights or operation. The VIE shall accept, and the Nominee Shareholders shall cause the VIE to accept, suggestions raised by Beijing WFOE over the employee engagement and replacement, daily operation, dividend distribution and financial management systems of the VIE. The Business Cooperation Agreement will remain effective until it is terminated at the discretion of Beijing WFOE or upon the transfer of all the shares of the VIE to Beijing WFOE and/or its designated party.

In the opinion of the Group’s management and PRC counsel, (i) the ownership structure of the VIE is not in violation with any existing PRC laws and regulations in any material respect; and (ii) each of the VIE Agreements is valid, legally binding and enforceable to each party of such agreements and will not result in any violation of PRC laws or regulations currently in effect.

However, the Group’s PRC legal counsel has also advised that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of the Group’s PRC legal counsel.

1. ORGANIZATION (CONTINUED)

Business Cooperation Agreement (continued)

Uncertainties in the PRC legal system could cause the relevant regulatory authorities to find the current VIE Agreements and businesses to be in violation of any existing or future PRC laws or regulations. If the Company, Beijing WFOE or any of its current or future VIE are found in violation of any existing or future 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 in dealing with such violations, which may include but not limited to, confiscating the income of the primary beneficiary, and the VIE, revoking the business licenses or operating licenses of the primary beneficiary, and VIE, shutting down the Group’s servers, discontinuing or placing restrictions or onerous conditions on the Group’s operations, requiring the Group to undergo a costly and disruptive restructuring or enforcing actions that could be harmful to the Group’s business. Any of these actions could affect the legality and enforceability of the contractual arrangements with the VIE and, consequently, cause the primary beneficiary to lose the rights to direct the activities of the VIE or the right to receive their economic benefits and the ability to consolidate the financial results of the VIE. VIE was established to hold certain foreign restricted licenses and permits which we might need in the future, such as the ICP license, the financial results of the VIE have not been material to the Group and are not expected to be material in the future.

There are no assets that are pledged or collateralized for the VIE’ obligations and which can only be used to settle the VIE’s obligations, except for registered capital. Relevant PRC laws and regulations restrict the VIE from transferring a portion of their net assets, equivalent to the balance of its share capital and statutory reserve, to the Company in the form of loans and advances or cash dividends. Please refer to Note 13 for disclosure of restricted net assets. As the VIE is incorporated as limited liability company under the PRC Company Law, creditors of the VIE do not have recourse to the general credit of the Company for any of the liabilities of the VIE. There were no other pledges or collateralization of the VIE’s assets.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).

(b) Principles of consolidation

The consolidated financial statements of the Group include the financial statements of the Company, its subsidiaries and the VIE for which the Company is the primary beneficiary. All significant inter-company transactions and balances between the Company, its subsidiaries and the VIE have been eliminated upon consolidation.

For the Group’s non-wholly owned subsidiaries, a non-controlling interest is recognized to reflect the portion of equity that is not attributable, directly or indirectly, to the Group. Non-controlling interests are classified as a separate line item in the equity section of the Group’s consolidated balance sheets and have been separately disclosed in the Group’s consolidated statements of comprehensive (loss)/income to distinguish the interests from that of the Group. Cash flows related to transactions with non-controlling interests are presented under financing activities in the consolidated statements of cash flows.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(d) Use of estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and revenues and expenses during the reporting periods. Significant accounting estimates reflected in the Group’s consolidated financial statements include, but not limited to, estimates for provision of accounts receivable and other current assets, inventories and short-term investments, useful lives and impairment of long-lived assets, accounting for deferred income taxes and uncertain tax benefits, fair value of share-based payments, valuation allowance for deferred tax assets, provision of contingent liabilities, and valuations for the warrant liability, convertible senior preferred shares and convertible senior notes. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the consolidated financial statements.

(e) Foreign currency

The functional currency of the Company, Luckin BVI, Luckin HK, Luckin Roasting and Luckin Roastery is the United States dollar (“US$”) and its reporting currency is the Renminbi (the “RMB”). The functional currency of the Company’s PRC subsidiaries and the VIE is the RMB as determined based on the criteria of ASC 830, Foreign Currency Matters.

The financial statements of the Company, Luckin BVI, Luckin HK, Luckin Roasting and Luckin Roastery are translated from the functional currency to the reporting currency, the RMB. Transactions denominated in foreign currencies are re-measured into the functional currency at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are re-measured at the exchange rates prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical costs in foreign currency are re-measured using the exchange rates at the dates of the initial transactions. Exchange gains and losses are included in the consolidated statements of comprehensive (loss)/income.

The Group uses the average exchange rate for the year and the exchange rate at the balance sheet date to translate the operating results and financial position, respectively. Equity accounts other than earnings generated in current year are translated into RMB at the appropriate historical rates. Translation differences are recorded in accumulated other comprehensive income, a component of shareholders’ equity.

(f) Convenience translation

Amounts in US$ are presented for the convenience of the reader and are translated at the noon buying rate of US$1.00 to RMB6.3726 on December 31, 2021, the last business day in fiscal year 2021, representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be converted, realized or settled into US$ at such rate or at any other rate.

(g) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and demand deposits placed with banks which are unrestricted as to withdrawal or use, and have original maturities less than three months. All highly liquid investments with a stated maturity of 90 days or less from the date of purchase are classified as cash equivalents.

(h) Restricted cash

Restricted cash is reported separately on the face of the Consolidated Balance Sheets. The Group adopted Accounting Standard Update (ASU) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash from the fiscal year of 2019. As a result, restricted cash is included in the total cash and cash equivalents, and restricted cash in the Consolidated Statements of Cash Flows. The Group’s restricted cash mainly represents security deposits held in bank accounts for bank guarantee letters. Restricted cash is classified as current and non-current based on the duration of the restriction.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(i) Short-term investments

All highly liquid investments with original maturities of greater than three months but less than twelve months are classified as short-term investments. Investments that are expected to be realized in cash during the next twelve months are also included in short-term investments. The Group accounts for short-term investments in accordance with ASC 320, Investments — Debt and Equity Securities. Interest income is included in earnings. Any realized gains or losses on the sale of the short-term investments are determined on a specific identification method, and such gains and losses are reflected in earnings during the period in which gains or losses are realized. The Group does not intend to sell the investments and it is not more likely than not that the Group will be required to sell the investments before maturity.

(j) Accounts receivable

Accounts receivable represents the amounts that the Group has an unconditional right to consideration.

Since as of December 31, 2021 the Company no longer qualifies as an EGC, it adopted ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, by using the modified retrospective method, effective as of January 1, 2021, and reflected the impact in its financial statements for the year ended December 31, 2021. The Group maintains an estimated allowance for credit losses to reduce its accounts receivable to the amount that it believes will be collected. The Group uses industry trend, the age of the amounts, the payment history, creditworthiness and financial conditions of the customers as credit quality indicators to monitor the Group’s receivables within the scope of expected credit losses model and use these as a basis to develop the Group’s expected loss estimates. The Group adjusts the allowance percentage periodically when there are significant differences between estimated bad debts and actual bad debts. If there is strong evidence indicating that the accounts receivable is likely to be unrecoverable, the Group also makes specific allowance in the period in which a loss is determined to be probable. Accounts receivable balances are written off after all collection efforts have been exhausted. Please refer to Note 2(dd) for adoption of expected credit losses model. Bad debt allowance was nil and RMB765 (US$120) as of December 31, 2020 and 2021, respectively.

(k) Inventories

Inventories are stated at the lower of cost or net realizable value. Cost of inventory are determined using the moving weighted average method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to obsolete and slow-moving inventories, which is dependent upon factors such as historical and forecasted consumer demand, and application of the specific identification method. For the years ended December 31, 2019, 2020 and 2021, the Group wrote off inventory of RMB2,158, RMB26,277 and RMB5,573 (US$876) respectively. Write downs are recorded in cost of revenues in the Consolidated Statements of Operations and Comprehensive (Loss)/Income.

(l) Property and equipment

Property and equipment are stated at cost less accumulated depreciation and any recorded impairment. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, as follows:


Category		Estimated useful life
Store operating equipment		5 years
Office equipment and others		3-5 years
Leasehold improvements		Over the shorter of lease term or the estimated useful lives of the assets
Mechanical equipment		10 years
Office buildings		40-50 years

Direct costs that are related to the construction of property and equipment and incurred in connection with bringing the assets to their intended use are capitalized as construction in progress. Construction in progress is transferred to specific property and equipment items and the depreciation of these assets commences when the assets are ready for their intended use.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(l) Property and equipment (continued)

Repair and maintenance costs are charged to expense as incurred, whereas the costs of betterments that extend the useful life of property and equipment are capitalized as additions to the related assets. Retirements, sale and disposals of assets are recorded by removing the cost and accumulated depreciation with any resulting gain or loss reflected in the consolidated statements of comprehensive (loss)/income.

(m) Impairment of long-lived assets other than goodwill

The Group evaluates its long-lived assets, including property and equipment with finite lives, for impairment whenever events or changes in circumstances, such as a significant adverse change to market conditions that indicate that the carrying amount of an asset or asset group may not be fully recoverable. When these events occur, the Group evaluates the recoverability of long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows of the asset or asset group is less than the carrying amount of the assets or the asset groups, the Group recognizes an impairment loss based on the excess of the carrying amount of the assets or the asset groups over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets or asset groups based on forecasted future sales and operating costs, using internal projections, when the market prices are not readily available. The adjusted carrying amount of the assets become new cost basis and are depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

The Group estimates of future cash flows requires management to make assumptions and to apply judgment, including forecasting future sales and gross profits and estimating useful lives of the assets or asset groups. These estimates can be affected by factors such as future sales results, store closure plans, economic conditions, business interruptions, interest rates and government regulations that can be difficult to predict. If actual results and conditions are not consistent with the estimates and assumptions used in its calculations, the Group may be exposed to additional impairments of long-lived assets.

For the years ended December 31, 2019, 2020 and 2021, the Group recognized impairment of long-lived assets other than goodwill of RMB209,249, RMB71,467 and RMB21,368 (US$3,353) respectively, which consisted of:

1) RMB151,916, nil and nil for the asset group related to underperforming or planned closed self-operating stores for the years ended December 31, 2019, 2020 and 2021, respectively;

2) RMB52,058, RMB2,120 and nil for the asset group related to Luckin Coffee EXPRESS, which is an unmanned machine that prepares a selection of freshly brewed drinks for the years ended December 31, 2019, 2020 and 2021, respectively;

3) nil, RMB46,696 and nil for the asset group related to Luckin Pop Mini for the years ended December 31, 2019, 2020 and 2021, respectively;

4) nil, RMB12,817 and nil for the Linefriends food licensing for the years ended December 31, 2019, 2020 and 2021, respectively;

5) RMB5,275, nil and nil related to the cancellation of the constructing coffee bean roasting factories and return of the land use right to local government in Tongan city, Fujian province and Tianjin for the years ended December 31, 2019, 2020 and 2021, respectively; and

6) nil, RMB9,834 and RMB21,368 (US$3,353) for the asset group related to store operating equipment and others for the years ended December 31, 2019, 2020 and 2021, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(n) Fair value of financial instruments

The Group applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Other inputs that are directly or indirectly observable in the marketplace.

Level 3 — Unobservable inputs which are supported by little or no market activity.

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

The Group’s financial instruments include cash and cash equivalents, short-term investments, accounts payable, receivables from online payment platforms, accounts receivable, deposits, other receivables and payables, convertible senior notes. The carrying values of these financial instruments approximate their fair values due to their short-term maturities. The carrying amount of the long-term borrowing approximates its fair values since it bears an interest rate which approximates market interest rate.

(o) Revenue recognition

The Group adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), from January 1, 2019, using the modified retrospective transition approach.

A description of the principal revenue generating activities of Group is as follows:

Revenues from product sales

The Group offers freshly brewed drinks and other products (including pre-made food, beverage and merchandise items) mainly through its physical self-operated stores, Luckin EXPRESS and online e-commerce platforms. Customers place orders for products mainly through the Group’s self-developed APP, Weixin mini-program and other third-party platforms with different options to pay through third-party payment channels. The Group recognizes revenues at point in time when the Group satisfies its performance obligation upon customers’ in-store pickup or the delivery of promised products to customers. Delivery service is provided if it is a delivery order. Delivery service is determined as an activity to fulfill the Group’s promise to transfer the products, rather than another distinct performance obligation as it is performed before the customers obtain control of the products. Revenues represent the amount of consideration that the Group is entitled to, including products settlement price and delivery fees charged to customers, net of value-added tax (“VAT”), surcharges, discounts and returns, if any. There is no significant financing component or variable consideration in the transaction price. The Group reasonably estimates the possibility of return based on the historical experience, and there were no material returns historically.

The Group evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount. The Group is a principal for the substantial majority of product sales as the Group produces or obtains control of the specified goods before they are transferred to the customers, except for a portion of revenue from products sold on the Group’s own e-commerce platform, for which the Group’s obligation is to facilitate third-party merchants in fulfilling their performance obligation for the goods displayed on the Group’s own e-commerce platform acting as an agent. Total revenue from product sales as a principal were RMB3,009,590, RMB3,716,791 and RMB6,659,218 (US$1,044,977) for the years ended December 31, 2019, 2020 and 2021, respectively, including revenue from product sales as an agent of nil, RMB3,671 and RMB2,009 (US$315) for the years ended December 31, 2019, 2020 and 2021, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(o) Revenue recognition (continued)

Revenues from partnership stores

The Group cooperates with selective retail partners to operate the partnership stores. Under retail partnership model, the Group sells materials such as coffee beans, milk, food and related products to retail partners and shares simplified and standardized operation experience and provides use right of brand name and sales and supply chain management in exchange for a profit-sharing on retail sales. Retail partners are responsible for pre-opening capital investments and operating costs.

Revenues from partnership stores mainly consist of sales of materials and equipment to the partnership stores, profit-sharing revenue from the partnership stores for using the Luckin Coffee or Luckin Tea brand as well as integrated store operation solution, and other services including delivery services and pre-opening services.

For material sales, the Group’s performance obligation is to transfer required materials at fixed unit price to retail partners. The Group provides allowance for materials sales as consideration payable to retail partners when the products sold in partnership stores to customers at lower price than the cost of materials with certain markup to comply with the Group’s promotion strategy. Allowance for partnership stores is accounted for as a reduction of the transaction price, which is usually determined upon the completion of each order. Therefore, sales of materials are generally recognized on the partnership stores’ acceptance of materials, the settlement price is then deducted by the allowance provided to partnership stores that is determined upon the products are sold in partnership stores, if any. Revenue from material sales to partnership stores were RMB12,586, RMB227,183 and RMB834,677 (US$130,979) for the years ended December 31, 2019, 2020 and 2021, respectively.

For equipment sales, the Group’s performance obligation is to transfer equipment to retail partners at a fixed consideration with one-year warrant, which is not a distinct performance obligation as it is intended to provide an assurance that the equipment complies with agreed-upon functionality described in the contract. Revenue from sales of equipment is recognized at point in time when equipment is installed and tested to be ready to use. The Group accrues warrant as guarantee obligation according to ASC Topic 460, Guarantees. Revenue from equipment sales to partnership stores were nil, RMB43,325 and RMB178,847 (US$28,065) for the years ended December 31, 2019, 2020 and 2021, respectively, and warrant liability was immaterial.

For profit-sharing, the Group provides the integrated store operation solution, which includes the right to use brand name of Luckin Coffee or Luckin Tea, products and brand name promotion activities, unified ordering and payment collections platform, and basic operation guidance on store management and sanitary conditions, etc., in exchange for the profit-sharing based on the gross profit of retail sales. The Group recognizes the profit-sharing revenue from partnership stores at a variable consideration that is based upon partnership stores’ monthly gross profits which are determined at the end of each month. The Group offers a price concession to its retail partners to free the new stores’ profit-sharing for a period of time ranging from the first one month to three months, which is subject to the Group’s adjustment. Especially, between January to June 2020, during the outbreak of COVID-19, the Group waived substantially all the profit-sharing from partnership stores. Price concession for profit-sharing is accounted for as a reduction of the transaction price and deducts our revenue directly. Revenue from partnership stores’ profit-sharing were RMB216, RMB12,796 and RMB144,831 (US$22,727) for the years ended December 31, 2019, 2020 and 2021, respectively.

The Group also provides other services including pre-opening services such as design of store decoration and provision of decoration materials and delivery service, which have distinct value to partnership stores and are recognized upon completion of the related performance obligations. Other revenues from partnership stores were RMB2,542, RMB33,323 and RMB147,750 (US$23,185) for the years ended December 31, 2019, 2020 and 2021, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(o) Revenue recognition (continued)

Contract balance

When either party to a revenue contract has performed, the Group presents the contract in the consolidated balance sheet as a contract asset or a contract liability, depending on the relationship between the Group’s performance and the customer’s payment. The Group presents any unconditional rights to consideration separately as a receivable. The Group does not have material contract asset. The balance of accounts receivable, net of nil and RMB765 (US$120) allowance for doubtful accounts, were RMB17,381 and RMB38,605 (US$6,058) as of December 31, 2020 and 2021, respectively.

Customers that purchase prepaid coupons are issued additional coupons of the same par value for free at the time of purchase. All prepaid coupons are stored in the “Coffee Wallet” of the customers’ registered accounts for future use with a three-year validity period. Cash received from the sales of prepaid coupons are recognized as deferred revenues which are contract liabilities under ASC 606 and recognized as revenue upon the expiry of prepaid coupons. Purchase consideration is allocated to each prepaid coupon, including the coupons issued for free. The allocated considerations are recognized as revenues when the customers consume the prepaid coupons for payments of their purchase. As of December 31, 2020 and 2021, the balance of deferred revenues was RMB88,174 and RMB96,212 (US$15,098), respectively.

(p) Costs of materials, store rental and other operating costs

Costs of materials consisted primarily of cost for coffee beans and coffee condiments, pre-made food and beverage items, packaging, supplies and warehouse. Store rental and other operating costs consisted primarily of rental expense of stores, staff costs, and utilities, etc.

(q) Delivery expenses

Delivery expenses are the delivery service fee for delivery orders. The Group incurred delivery expenses of RMB438,914, RMB414,808 and RMB819,549 (US$128,605) for the years ended December 31, 2019, 2020 and 2021, respectively. Delivery expenses are separated out of sales and marketing expenses from the fiscal year 2021 to optimize the disclosure and better reflect the nature of expenses. This reclassification is retrospectively applied.

(r) Sales and marketing expenses

Sales and marketing expenses consisted primarily of advertising expenditure, costs of free vouchers promotion activity, and commission fees for third-party delivery platforms.

Advertising expenditures are expensed when incurred and are included in sales and marketing expenses, which amounted to RMB586,774, RMB354,469 and RMB243,671 (US$38,237) for the years ended December 31, 2019, 2020 and 2021, respectively.

For promotion, the Group issued free vouchers for complimentary freshly brewed drinks or pre-made food and beverage items for first time user registrations and referrals, without any future purchase requirements. This promotion activity ceased in May 2020. The Group recognizes the related costs in sales and marketing expenses of RMB206,723, RMB64,956 for the years ended December 31, 2019 and 2020, respectively, and reversed accrued related costs for expired free vouchers of RMB18,498 (US$2,903) for the year ended December 31, 2021.

Commission fees for third-party delivery platforms are expensed when incurred, which amounted to RMB4,613, RMB9,719 and RMB60,017 (US$9,418) for the years ended December 31, 2019, 2020 and 2021, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(s) General and administrative expenses

General and administrative expenses consist primarily of payroll and related expenses for employees involved in general corporate functions, research and development expenses, share-based compensation, professional fees and daily office expenses and rental fees for general corporate functions.

Research and development expenses are included in general and administrative expenses, which are mainly payroll expenses, employee benefits, and other headcount-related expenses associated with platform development and data analysis to support the Group’s business operations. The Group charged RMB219,048, RMB265,537 and RMB251,688 (US$39,494) of research and development costs to expense for the years ended December 31, 2019, 2020 and 2021, respectively.

(t) Store preopening and other expenses

Store preopening expenses mainly include store rental costs during the start-up of new stores. Other expenses include lease exit costs, such as the write offs of prepaid store rental costs, deposits and leasehold improvements. Costs incurred in connection with the start-up and closure of stores are expensed as incurred.

(u) Leases

The Group enters into lease agreements to have leasing for self-operated stores, office spaces, and other corporate assets that the Group utilizes.

Before January 1, 2021, the Group adopted ASC Topic 840 (“ASC 840”), Leases, and each lease is classified at the inception date as either a capital lease or an operating lease. The Group did not enter into any leases whereby it is the lessor for any of the periods presented.

The Group adopted the new lease accounting standard, ASC Topic 842, Leases (“ASC 842”), from January 1, 2021 since the Group ceased to act as an emerging growth company (“EGC”) as defined by the Jumpstart Our Business Startups Act (“JOBS Act”) in 2021, using the modified retrospective transition approach through a cumulative-effect adjustment in the period of adoption rather than retrospectively adjusting prior periods and the package of practical expedients. The Group categorizes leases with contractual terms longer than twelve months as either operating or finance lease. However, the Group did not enter into finance leases for any of the periods presented.

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is or contains a lease, the Group assess whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset and whether it has the right to control the use of the asset.

Right-of-use (“ROU”) assets represent the Group’s rights to use underlying assets for the lease term and lease liabilities represent the Group’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(u) Leases (continued)

Operating lease ROU assets

The right-of-use assets are initially measured at cost, which comprise the initial amounts of the lease liabilities adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received.

Operating lease liabilities

Lease liabilities are initially measured at the present value of the outstanding lease payments at the commencement date, discounted using the discount rate for the leases. As most of the Group’s leases do not provide an implicit rate, the Group uses its incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. Lease payments included in the measurement of the lease liabilities comprise fixed lease payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee and any exercise price under a purchase option that the Group is reasonably certain to exercise. The Group’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Group will exercise that option.

Lease liabilities are measured at amortized cost using the effective interest rate method. They are re-measured when there is a change in future lease payments, if there is a change in the estimate of the amount expected to be payable under a residual value guarantee, or if there is any change in the Group assessment of option purchases, contract extensions or termination options.

(v) Income taxes

The Group follows the liability method of accounting for income taxes in accordance with ASC 740 (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.

The Group accounts for uncertainties in income taxes in accordance with ASC 740. Interest and penalties related to unrecognized tax benefit recognized in accordance with ASC 740 are classified in the consolidated statements of comprehensive (loss)/income as income tax expenses. No interest and penalties related to unrecognized tax benefit were recorded for the years ended December 31, 2019, 2020 and 2021.

(w) Employee benefit expenses

As stipulated by the regulations of the PRC, full-time employees of the Group are entitled to various government statutory employee benefit plans, including medical insurance, maternity insurance, workplace injury insurance, unemployment insurance, pension benefits and housing provident fund through a PRC government-mandated multi-employer defined contribution plan. The Group is required to make contributions to the plan and accrues for these benefits based on certain percentages of the qualified employees’ salaries. The total expenses the Group incurred for the plan were RMB197,327, RMB139,621 and RMB247,315 (US$38,809) for the years ended December 31, 2019, 2020 and 2021, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(x) Comprehensive (loss)/income

Comprehensive (loss)/income is defined as the (decrease)/increase in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Amongst other disclosures, ASC 220, Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as components of comprehensive (loss)/income be reported in a financial statement that is displayed with the same prominence as other financial statements. For each of the periods presented, the Group’s comprehensive (loss)/income included net (loss)/income and foreign currency translation adjustments that are presented in the consolidated statements of comprehensive (loss)/income.

(y) Segment reporting

The Group follows ASC 280, Segment Reporting. The Group’s Chief Executive Officer as the chief operating decision-maker reviews the consolidated financial results when making decisions about allocating resources and assessing the performance of the Group as a whole and hence, the Group has only one reportable segment. The Group operates and manages its business as a single segment. As the Group’s long-lived assets are substantially all located in the PRC and substantially all the Group revenues are derived from within the PRC, no geographical segments are presented.

(z) Net (loss)/income per share

In accordance with ASC 260, Earnings per Share, basic (loss)/income per share is computed by dividing net (loss)/income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. For the calculation of diluted net (loss)/income per share, the weighted average number of ordinary shares is adjusted by the effect of dilutive potential ordinary shares, including unvested RSUs, ordinary shares issuable upon the exercise of outstanding share options using the treasury stock method and convertible senior preferred shares. The effect mentioned above is not included in the calculation of the diluted (loss)/income per share when inclusion of such effect would be anti-dilutive.

(aa) Share-based compensation

The Group applies ASC 718, Compensation-Stock Compensation (“ASC 718”), to account for its employee share-based payments. In accordance with ASC 718, the Group determines whether an award should be classified and accounted for as a liability award or equity award. All the Group’s share-based awards to employees were classified as equity awards and are recognized in the consolidated financial statements based on their grant date fair values. The Group recognizes share-based compensation cost for equity awards to employees with a performance condition based on the probable outcome of that performance condition. Compensation cost is recognized using the accelerated method if it is probable that the performance condition will be achieved. The Group accounts for forfeitures as they occur.

(bb) Comparative information

Certain items in prior years’ consolidated financial statements have been reclassified to conform to the current period’s presentation to facilitate comparison.

(cc) Emerging Growth Company Status

The Company was an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). In accordance with the JOBS Act, the Company previously elected to delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company met certain thresholds for qualification as an “accelerated filer” in the year ended December 31, 2021 as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. Therefore, the Company no longer has EGC status as of December 31, 2021.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(dd) Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Additionally, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326 in April 2019 and ASU 2019-05, Financial Instruments — Credit Losses (Topic 326) — Targeted Transition Relief in May 2019. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. In November 2019, the FASB issued ASU No. 2019-10, which defers the effective date of ASU No. 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since as of December 31, 2021 the Company no longer qualifies as an EGC, it no longer qualifies for the deferral of the effective date available for EGCs. As such the Company adopted the standard by using the modified retrospective method, effective as of January 1, 2021, and reflected the impact in its financial statements for the year ended December 31, 2021. The impact of the adoption on the consolidated balance sheets, statements of operations, and statements of cash flows was immaterial.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations related to their leasing arrangements. This comprehensive new standard amends and supersedes existing lease accounting guidance and is intended to increase transparency and comparability among organizations by recognizing right-of-use (“ROU”) lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. Lease expense continues to be recognized in a manner similar to legacy U.S. GAAP. The Company adopted the new lease standard effective as of January 1, 2021, using the optional transition method to the modified retrospective approach. Under this transition provision, results for reporting periods beginning on January 1, 2021 are presented under Topic 842, while prior period amounts continue to be reported and disclosed in accordance with the Company’s historical accounting treatment under Topic 840, and as a result, the consolidated balance sheet as of December 31, 2021 is not comparable with that of December 31, 2020 (see Note-2(u) and 19).

In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) for the fiscal year beginning January 1, 2021, that eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The guidance in ASU No. 2020-06 is required for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2021, for public business entities. Early adoption is permitted, but no earlier than annual reporting periods beginning after December 15, 2020, including interim periods within those annual reporting periods. The Company early adopted this guidance for the fiscal year beginning January 1, 2021, and did so on a modified retrospective basis, without requiring any adjustments (see Note-13).

(ff) Recent accounting pronouncements

The Company did not identify other recent accounting pronouncements that could potentially have a material impact to the Company’s consolidated results of operations or financial position.

PRINCIPAL RISKS

12 Months Ended

Dec. 31, 2021

PRINCIPAL RISKS

PRINCIPAL RISKS

3. PRINCIPAL RISKS

(a) Credit risk

Financial instruments that potentially subject the Group to significant concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, short-term investments, accounts receivable and receivables from online payment platforms. As of December 31, 2019,2020 and 2021, the aggregate amounts of cash and cash equivalents and short-term investments of RMB5,358,181, RMB4,902,826 and RMB3,402,915 (US$533,991), respectively, were held at major financial institutions located in the PRC and US$1,098, US$23,478 and US$482,491 (RMB3,074,721), respectively, were deposited with major financial institutions located outside the PRC. Management believes that these financial institutions are of high credit quality and continually monitors the credit worthiness of these financial institutions. Historically, deposits in Chinese banks are secure due to the state policy on protecting depositors’ interests. However, China promulgated a new Bankruptcy Law in August 2006 that came into effect on June 1, 2007 which contains a separate article expressly stating that the State Council may promulgate implementation measures for the bankruptcy of Chinese banks based on the Bankruptcy Law. Under the new Bankruptcy Law, a Chinese bank may go into bankruptcy. In addition, since China’s concession to the World Trade Organization, foreign banks have been gradually permitted to operate in China and have been significant competitors against Chinese banks in many aspects, especially since the opening of the Renminbi business to foreign banks in late 2006. Therefore, the risk of bankruptcy of those Chinese banks in which the Group has deposits has increased. In the event of bankruptcy of one of the banks which holds the Group’s deposits, the Group is unlikely to claim its deposits back in full since the bank is unlikely to be classified as a secured creditor based on PRC laws.

Accounts receivable and receivables from online payment platforms are unsecured and denominated in RMB. Accounts receivable are mainly derived from sales of materials to partners and sales of exchange code to corporate customers which is redeemed as coupons and had already been utilized for the purchase of products. Receivables from online payment platforms are derived when the third-party payment platforms, on behalf of the Company, collect the proceeds of sales made by the Group to its customers. They are exposed to credit risk. The risk is mitigated by credit evaluations the Group performs on the selected corporate customers and online payment platforms that are highly reputable, and the deposits from partners as guarantees. There has been no default of payments in history.

(b) Business, customer, political, social and economic risks

The Group participates in a dynamic and competitive industry and believes that changes in the following areas could have a material adverse effect on the Group’s future financial position, results of operations or cash flows:

(i)

Supplier risk — The Group’s operations rely on some suppliers for its major raw materials including coffee beans, dairy, sugar and syrup, pre-made products and coffee machine equipment. There can be no assurance that the Group will be able to secure the raw materials, pre-made products and coffee machine equipment supply from these suppliers. Any termination or suspension of the supply arrangements, any change in cooperation terms, or the deterioration of cooperation relationships with these suppliers may materially and adversely affect the Group’s results of operations.

Suppliers accounting for 10% or more of total cost of purchased materials were:


	For the year ended December 31,
Supplier	2019	2020	2021
	RMB	RMB	RMB	US$
A	265,014	196,886	*	*
B	*	*	*	*
C	*	*	*	*
D	*	194,838	*	*

* Accounts for less than 10% during the period.

(ii) Customer risk – The success of the Group’s business going forward will rely in part on the Group’s ability to continue to obtain and expand business from existing customers while also attracting new customers. No customer accounted for 10% or more of the Group’s revenues for the years ended December 31, 2019, 2020 and 2021.

3. PRINCIPAL RISKS (CONTINUED)

(b) Business, customer, political, social and economic risks (continued)

(iii) Economic risk – The Group’s operations could be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for more than 20 years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC political, economic and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective.

From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. The appreciation/ (depreciation) of the US$ against RMB was approximately 1.3%, (6.3)% and (2.3)% for the years ended December 31, 2019, 2020 and 2021, respectively. The functional currency and the reporting currency of the Company, Luckin BVI and Luckin HK, Luckin Roasting and Luckin Roastery are the US$ and the RMB, respectively. The functional currency of the PRC subsidiaries and the VIE is the RMB. All of the Group’s revenues and costs are denominated in RMB, while a portion of cash and cash equivalents are denominated in U.S. dollars. Any significant revaluation of RMB may materially and adversely affect the Group’s cash flows, revenues, earnings and financial position in U.S. dollars.

(d) Currency convertibility risk

The Group transacts all of its business in RMB, which is not freely convertible into foreign currencies. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China (the “ PBOC”). However, the unification of the exchange rates does not imply that the RMB may be readily convertible into US$ or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

(e) Interest rate risk

The Group is exposed to interest rate risk on its interest-bearing assets and liabilities. As part of its asset and liability risk management, the Group reviews and takes appropriate steps to manage its interest rate exposures on its interest-bearing assets and liabilities. The Group has not been exposed to material risks due to changes in market interest rates, and not used any derivative financial instruments to manage the interest risk exposure during the years presented.

SHORT-TERM INVESTMENTS, NET

12 Months Ended

Dec. 31, 2021

SHORT-TERM INVESTMENTS, NET

SHORT-TERM INVESTMENTS, NET

4. SHORT-TERM INVESTMENTS, NET

The Group’s short-term investments included wealth management products issued by commercial banks or other financial institutions with non-guaranteed principle within one year or more than one year but to be mature or early redeemed within the next twelve months.


	As of December 31,
	2020	2021
	RMB	RMB	US$

Wealth management products	250,000	—	—
Xiamen Trust	590,000	590,000	92,584
Yunnan Trust	550,000	542,170	85,078
Short-term investment, gross	1,390,000	1,132,170	177,662
Less: allowance for uncollectable trust investments	(1,140,000)	(1,132,170)	(177,662)
Short-term investment, net	250,000	—	—

For the years ended December 31, 2019, 2020 and 2021, the Group recognized interest income from its short-term investments of RMB22,318, RMB66,923 and RMB13,331 (US$2,092), respectively, in the consolidated statements of comprehensive (loss)/income.

For the year ended December 31, 2020, two trust investments, namely investments into Xiamen Trust-Huijin No. 2007 Trust Project (“Xiamen Trust”) and Yunnan Trust-You Xiang No. 1 Trust Project (“Yunnan Trust”), in the total amount of RMB1,140,000 were made by Luckin China under the direction of former management. The two trust investments were identified after changes to the Group’s management team and reporting lines following the suspension of Ms. Jenny Zhiya Qian, the former CEO of the Group. Full impairment of RMB1,140,000 has been provided for the two trust investments after considering all available information after the Group has used its best efforts to take actions, including legal actions.

Background of Xiamen Trust

●Xiamen Trust was established on March 12, 2020 with a term of 12 months from the establishment date and a total trust fund of RMB600,000, which includes RMB590,000 from Luckin China and RMB10,000 from another trustor/beneficiary, Meifu Jiaye (Xiamen) Automobile Service Co., Ltd. (“Meifu Jiaye”). Xiamen International Trust Co., Ltd. (“Xiamen Trustee”) is the trustee of Xiamen Trust.

●The trust instruments provide that all of the trust fund shall be used to purchase receivables from Xiamen Yishi Finance Lease Co., Ltd. (“Yishi”, which subsequently changed its name to Yishi (Xiamen) Supply Chain Management Co., Ltd.) relating to property (auto assembly line and equipment) leased to Borgward (the “Leased Property”). Borgward is controlled by UCAR Inc., an entity controlled by Mr. Charles Zhengyao Lu and persons acting in concert with him at the time of the creation of Xiamen Trust.

●In accordance with the receivables purchase agreement between Xiamen Trustee (on behalf of Xiamen Trust) and Yishi, Borgward is obligated to pay Xiamen Trust lease interest on a monthly basis. The actual annual rate of return for the trustors/beneficiaries is 6.1% (with trust management fee and other expenses deducted from the contractual annual rate of return of 7.2%). All outstanding interest payments before the termination of Xiamen Trust were received pursuant to the contractual agreement.

4. SHORT-TERM INVESTMENTS, NET (CONTINUED)

Background of Yunnan Trust

●Yunnan Trust was established on March 17, 2020 with a term of 24 months from the establishment date and a total trust fund of RMB600,000,which includes RMB550,000 from Luckin China and RMB50,000 from another trustor/beneficiary, Meifu Jiaye. Yunnan International Trust Co., Ltd. (“Yunnan Trustee”) is the trustee of Yunnan Trust.

●The trust instruments provide that all of the trust fund shall be used to purchase equity interests in Yousheng Chengyi (Tianjin) Information Technology Co., Ltd. (“Yousheng Information”).

●Under the equity investment and buyback agreement between Yunnan Trustee (on behalf of Yunnan Trust) and Yousheng (Tianjin) Technology Development Co., Ltd. (“Yousheng Development”), Yunnan Trust acquired 46.15% equity interests in Yousheng Information. Additionally, Yousheng Development, the other shareholder of Yousheng Information holding 53.85% of its equity interests, is obligated to buy back the equity interest of Yousheng Information held by Yunnan Trust at the end of the trust term of 24 months. Public record searches show that Yousheng Development has a registered capital of RMB5,000.

●Yousheng Information has also pledged to Yunnan Trustee 40.36 million shares of UCAR Inc. as guarantee. UCAR Inc.’s shares were listed on China’s National Equities Exchange and Quotations Co., Ltd. (“NEEQ”) when the trust was created and were subsequently delisted by the NEEQ on March 19, 2021. The stock price of UCAR Inc. dropped to RMB0.99 when it was suspended from trading on August 31, 2020.

●The equity investment and buyback agreement provide that Yousheng Development shall pay Yunnan Trust the premium of the principal on a quarterly basis. The actual annual rate of return for the trustors/beneficiaries is 6.5% (with trust management fee and other expenses deducted from the contractual annual rate of return of 7.1%). Previously, interest payments, including the payment due on March 20, 2021, were timely received. However, Yousheng Development had failed to make the most recent interest payment due on June 20, 2021, even after repeated demands from Yunnan Trustee on instructions from Luckin China. A default on interest payment is an event for which Yunnan Trust could be terminated early.

Actions Taken or to be Taken by the Group’s Management

After the Board and the current management of the Company identified the trust investments by Luckin China, they have been assessing the available information concerning the two trusts to manage dissipation risk. With the help of the forensic advisors of the Special Committee of the Board, the Company obtained copies of the underlying trust agreements and immediately engaged reputable PRC law firms to look into the issue and formulate an action plan to preserve the trust investments and recover the trust assets. Throughout the process, the Board has been kept updated about the progress and instructed management to explore options with respect to the trusts and take appropriate actions.

Following its review of available options with the assistance from its PRC counsel, and to safeguard the assets of the Group and mitigate dissipation risk, the Group has exercised its rights to request for early termination of Xiamen Trust and to redeem the funds invested by Luckin China on an accelerated basis. Specifically:

4. SHORT-TERM INVESTMENTS, NET (CONTINUED)

Actions Taken or to be Taken by the Group’s Management (continued)

For Xiamen Trust

●Pursuant to the trust instruments, early redemption is allowed starting six months from the date of creation of the trust. As authorized by the Board, the Group’s management issued the formal early redemption notice to Xiamen Trustee on November 4, 2020, demanding Xiamen Trustee to request Borgward to promptly pay back the principal and corresponding interests. Xiamen Trustee has since confirmed with Borgward that Borgward cannot make the payment as requested on time, and made an in-kind distribution of the trust asset to Luckin China on February 25, 2021 as demanded by Luckin China. On March 26, 2021, Luckin China obtained ownership of the Leased Property from Yishi and subsequently issued a formal letter to Borgward to announce ownership and demand to inspect the status of the Leased Property.

●Luckin China and its PRC counsel sent demand letters to Borgward to demand payments and made multiple attempts to negotiate with Borgward to secure prompt payments. The parties failed to reach a viable settlement. Hence, Luckin China filed a lawsuit against Borgward, which was accepted by the Xiamen Intermediate People’s Court (“Xiamen Court”) on March 26, 2021. In addition, Luckin China successfully obtained an asset preservation order by the Xiamen Court on April 6, 2021. The Xiamen Court had issued a formal notice (the “Notice”) to state that it completed a search of Borgward’s bank accounts and froze two bank accounts with a total of only RMB1.68 and attached by multiple court freezing orders. The Xiamen Court has held a hearing on October 26, 2021 and attempted to mediate the dispute without success.

●On March 11, 2022, Luckin China, via its PRC counsel, received a judgment rendered by the Xiamen Court. The Xiamen Court held in favor of Luckin China, finding that Borgward is liable to pay Luckin China: (i) the lease principal of RMB590,000; and (ii) the lease interest, penalty and occupancy fee. In addition, the Xiamen Court also ruled that Borgward shall bear the litigation fee in the amount of RMB3,399 while Luckin China shall bear RMB174, which will result a refund of RMB3,399 litigation fee to Luckin China after the judgment becomes effective and final. The PRC counsel confirmed with Xiamen Court that Borgward did not appeal within the statutory period and the judgment had become final and effective.

●Pursuant to the judgement rendered by the Xiamen Court, Borgward is ordered to fullfil all of its payment obligation to Luckin China within 10 days since the effective date of the judgment. Borgward had failed to make any payment within the period prescribed by the court. Therefore, Luckin China will work diligently with its PRC counsel to enforce the judgement with the court and collect the monetary awards by the court.

●It was reported that, on April 8, 2022, Borgward held a temporary shareholder meeting and resolved to file for bankruptcy with court in Beijing. The Gorup estimates that it will not be able to collect all or part of the monetary awards because Borgward’s willingness and ability to make repayment to the Group is in substantial doubt, due to the reported bankruptcy of Borgward and the numerous lawsuits against Borgward (see below “Collectability Assessment”).

For Yunnan Trust

●The right of early redemption is not provided for in the trust instruments. Therefore, Luckin China was not able to unilaterally terminate the trust by exercising such right. Under the trust instruments and at the request from Luckin China, Yunnan Trustee exercised its discretionary right to terminate Yunnan Trust upon certain circumstances provided in the agreement between the trustors/beneficiaries and Yunnan Trustee.

●The existing guarantee by Yousheng Information included the shares of UCAR Inc, which have been delisted from NEED. As a result, Luckin China has been communicating with Yunnan Trustee to request certain actions, including (i) requesting Yousheng Information to add or provide a new guarantee and (ii) requesting Yousheng Development to repurchase the equity interest of Yousheng Information purchased by Yunnan Trust.

4. SHORT-TERM INVESTMENTS, NET (CONTINUED)

Actions Taken or to be Taken by the Group’s Management (continued)

For Yunnan Trust (continued)

●As advised by its PRC counsel, in light of UCAR Inc.’s delisting and Yousheng Development’s recent failure to make the interest payment due as of June 20, 2021, Luckin China sent two formal letters on June 28, 2021 and July 23, 2021, respectively, to Yunnan Trustee to demand that, among other things, Yunnan Trustee (i) requests Yousheng Information to add or provide a new guarantee considering the significant decrease in value of the existing guarantee; (ii) requests Yousheng Development to repurchase the equity interest of Yousheng Information purchased by Yunnan Trust and take any other legal actions that are necessary; and (iii) files a lawsuit against Yousheng Development for breach of contract.

●Since the default of interest payment, Luckin China has continuously communicated with Yunnan Trustee regarding arrangement of early termination, in-kind distribution of trust asset, filing a lawsuit against the Yousheng Development and other post-termination matters. Upon Yunnan Trustee’s refusal to bring the lawsuit for the trustor/beneficiary’s benefit, and its decision to early terminate the trust, Luckin China and Meifu Jiaye, the other trustor/beneficiary of the trust, have agreed with Yunnan Trustee on in-kind distribution of trust asset, so Luckin China may sue Yousheng Development and other obligators in its own name. On December 16, 2021, Luckin China filed the lawsuit against Yousheng Development, Yousheng Information, and UCAR Inc. The case was docketed by the Kunming Intermediate People's Court in Yunnan, and the first court hearing has been scheduled on April 27, 2022 by the court.

Collectability assessment

For Xiamen Trust

As of the date of this report, the Group has not yet obtained the Leased Property. Nor has the Group been able to inspect and confirm the status of the Leased Property;

The mortgage and other titles of the Leased Property are not registered in the name of the Group. Borgward does not respond to the Group’s requests in a meaningful way. Therefore, the Group’s ownership of the Leased Property is not secured and the value of the Leased Property is uncertain;

Except for other creditors’ entitlements attached to Borgward’s assets, according to the Notice, the only realizable assets of Borgward for the Group is cash in bank amounted to RMB1.68 (which is already attached by multiple court freezing orders);

On March 11, 2022, Luckin China, via its PRC Counsel, received a judgment rendered by the Xiamen Court. The Xiamen Court held in favor of Luckin China, finding that Borgward is liable to pay Luckin China.Although the favorable judgment has become final and effective since Borgward did not appeal, it was reported that, on April 8, 2022, Borgward held a temporary shareholder meeting and resolved to file for bankruptcy with court in Beijing. The Group estimates that Borgward’s willingness and ability to make repayment to the Group is in substantial doubt, due to the reported bankruptcy of Borgward and the numerous lawsuits against Borgward.

For Yunnan Trust

As of the date of this report, a default of interest payment has occurred. The Group has not been able to engage either Yousheng Information or Yousheng Development in a meaningful way and cannot ascertain whether Yousheng Information is capable of making the interest payments;

Yousheng Development’s registered capital is only RMB5,000 with no sign of real business activities, while the total trust investment is RMB600,000, far beyond the registered capital of Yousheng Development and the market value of the pledged assets. Yunnan Trust is exposed with relatively high investment risks given the uncertainty around Yousheng Development’s ability to repurchase the equity interest of Yousheng Information purchased by the Yunnan Trust;

The current pledged UCAR Inc.’s shares are illiquid due to UCAR Inc.’s delisting from NEEQ. The stock price on the date of delisting was below RMB1.00 per share. While the pledged shares still have certain value, the Group could neither assess the risk of going concern of UCAR Inc. nor value the shares of UCAR Inc. due to limited access to information. Therefore, the value of the pledged shares is uncertain.

4. SHORT-TERM INVESTMENTS, NET (CONTINUED)

Collectability assessment (continued)

For Yunnan Trust (continued)

Although the Group filed a lawsuit against Yousheng Development, Yousheng Information and UCAR Inc., there is substantial doubt that the Group can collect all or part of the damages if awarded by the court, due to lack of willingness and ability for the defendants to make payments.

There is no assurance that the Group will be able to recover the funds invested in Xiamen Trust and Yunnan Trust in whole or in part. Further, according to the actions taken by the management and external counsel, there is evidence to suggest that the Group is likely unable to collect the underlying assets of the two trusts. The Group had provided full impairment on the two trust investments on a prudent basis since the year ended December 31, 2020.

Related party transaction assessment

The trust instruments show that the funds of Xiamen Trust and Yunnan Trust were designated to be used to purchase receivables relating to property leased to Borgward and to invest in equity interests of Yousheng Information, respectively. At the time of the creation of Xiamen Trust, Borgward was an affiliate of Mr. Charles Zhengyao Lu. Additionally, based on public records, the supervisor of Yousheng Information and the legal representative of Yousheng Development is the same person and was an employee of UCAR Inc., an affiliate of Mr. Charles Zhengyao Lu at the time of the creation of Yunnan Trust. On the basis of substance over form, even without a direct contractual relationship between Xiamen Trust and Borgward and between Yunnan Trust and UCAR Inc., management considers the two trust investments made by former management as related party transactions.

ACCOUNTS RECEIVABLE, NET

12 Months Ended

Dec. 31, 2021

ACCOUNTS RECEIVABLE, NET

ACCOUNTS RECEIVABLE, NET

5. ACCOUNTS RECEIVABLE, NET


	As of December 31,
	2020	2021
	RMB	RMB	US$

Receivables due from partners	2,364	8,688	1,363
Receivables due from corporate customers	15,017	30,682	4,815
Accounts receivable	17,381	39,370	6,178
Allowance for doubtful accounts	—	(765)	(120)
Accounts receivable, net	17,381	38,605	6,058

INVENTORIES

12 Months Ended

Dec. 31, 2021

INVENTORIES

INVENTORIES

6. INVENTORIES


	As of December 31,
	2020	2021
	RMB	RMB	US$

Raw materials	121,600	378,520	59,398
Packaging and other supplies	132,593	191,188	30,002
Pre-made food and beverage items	21,375	23,632	3,708
	275,568	593,340	93,108

PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET

12 Months Ended

Dec. 31, 2021

PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET

PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET

7. PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET


	As of December 31,
	2020	2021
	RMB	RMB	US$
Deductible input VAT	606,520	636,923	99,947
Prepaid rental and deposits	241,718	234,885	36,859
Prepayments for materials and advertising fees	19,677	79,332	12,449
Interest receivables	5,975	4,360	684
Others	61,607	88,507	13,889

	935,497	1,044,007	163,828

PROPERTY AND EQUIPMENT, NET

12 Months Ended

Dec. 31, 2021

PROPERTY AND EQUIPMENT, NET

PROPERTY AND EQUIPMENT, NET

8. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:


	As of December 31,
	2020	2021
	RMB	RMB	US$
Store operating equipment	1,287,211	1,260,623	197,819
Leasehold improvements	1,048,351	873,449	137,063
Office equipment and others	97,322	105,721	16,590
Office buildings	675,488	798,657	125,327
Mechanical equipment	—	77,072	12,094
Construction in progress	192,032	15,054	2,363
	3,300,404	3,130,576	491,256
Less: accumulated depreciation	(1,001,459)	(1,244,914)	(195,354)
Less: impairment	(228,487)	(80,561)	(12,642)

	2,070,458	1,805,101	283,260

Depreciation expense was RMB411,713, RMB483,279 and RMB465,237 (US$73,006) for the years ended December 31, 2019, 2020 and 2021, respectively.

The Group entered into a project cooperation agreement and a strategic cooperation agreement with Xiamen municipal government and UCAR Inc. (collectively as the “Tri-Party Agreement”), pursuant to which the Group acquired the new headquarters building under favorable pricing terms that came with commitments, including meeting certain requirements around tax contribution, operating performance and capital investments. As of the date of this annual report, the Group is in the process of obtaining the real property ownership certificate for its headquarters, and is currently in discussions with the Xiamen municipal government to agree on a solution, including to enter into a new cooperation agreement.

Impairment for property and equipment was RMB228,487 and RMB80,561 (US$12,642) as of December 31, 2020 and 2021, respectively. It consisted of:

(1)

RMB54,179 and RMB53,957 (US$8,467) for the asset group related to Luckin Coffee EXPRESS in connection with the first generation Luckin Coffee EXPRESS machines purchased in 2019 for trial operation and launching in early 2020 as of December 31, 2020 and 2021, respectively. (See Note 2(m));

(2)

RMB117,778 and nil for the asset group related to the underperforming or planned closed self-operating stores as of December 31, 2020 and 2021, respectively (See Note 2(m));

(3)

RMB46,696 and RMB61 (US$10) for the asset group related to Luckin POP as of December 31, 2020 and 2021, respectively (See Note 2(m)); and

(4)

RMB9,834 and RMB26,543 (US$4,165) for the asset group related to store operating equipment and others as of December 31, 2020 and 2021, respectively (See Note 2(m)).

8. PROPERTY AND EQUIPMENT, NET (CONTINUED)

During the year ended December 31, 2021, impairment provision of RMB117,778 (US$18,482) related to the asset group related to the underperforming or closed self-operating stores, RMB46,635 (US$7,318) related to Luckin POP, impairment provision of RMB707 (US$111) for the asset group related to store operating equipment and others and impairment provision of RMB222 (US$35) related to Luckin Coffee EXPRESS were written off.

OTHER NON-CURRENT ASSETS, NET

12 Months Ended

Dec. 31, 2021

OTHER NON-CURRENT ASSETS, NET

OTHER NON-CURRENT ASSETS, NET

9. OTHER NON-CURRENT ASSETS, NET


	As of December 31,
	2020	2021
	RMB	RMB	US$
Long-term deposits⁽¹⁾	96,796	117,345	18,414
Prepayments for equipment, net	25,718	16,866	2,647
Land use rights, net⁽²⁾	38,754	6,947	1,090
Prepaid Leasehold improvements	8,734	22,768	3,573

	170,002	163,926	25,724

(1)

Deposits for rental is net of impairment of RMB7,083, and nil as of December 31, 2020 and 2021, respectively, for the prepaid rental deposits in the asset group related to the underperforming or planned closed self-operating stores (See Note 2(m)).

(2)

Land use rights represent payments to the local government authorities for use of lands for 50 years from year 2019, net of accumulated amortization. The land use rights are amortized on a straight-line basis with amortization of RMB170, RMB142 and RMB147 (US$23) for the years ended December 31, 2019, 2020 and 2021, respectively. The land use rights are net of impairment of RMB4,185 as of December 31, 2020 related to land use rights in Tongan city, Fujian province and Tianjin, which were returned to local government in 2021. The land use right as of December 31, 2021 was in Pingnan used for roasting factory.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

12 Months Ended

Dec. 31, 2021

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES


	As of December 31,
	2020	2021
	RMB	RMB	US$
Payables for the purchase of property and equipment	87,766	124,456	19,530
Payroll and welfare payables	155,445	260,177	40,827
Payables for delivery costs	76,110	138,833	21,786
Payables for advertising expenditures	64,069	66,203	10,389
Payables for office supplies and utilities	111,661	149,557	23,470
Accrued liabilities for free coupons	19,743	—	—
Others	188,323	<