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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934

For the month of September 2019

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Commission File Number: 001- 38591

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Pinduoduo Inc.

28/F, No. 533 Loushanguan Road, Changning District
Shanghai, 200051
People's Republic of China
(Address of principal executive offices)

        Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

        Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

        Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

   

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Exhibit Index

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: September 23, 2019

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Exhibit Index
SIGNATURES

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Exhibit 99.1

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements for the years ended December 31, 2016, 2017 and 2018 and the notes thereto included in our Form 20-F, as well as our unaudited interim condensed consolidated financial statements for the six months ended June 30, 2018 and 2019 and the notes thereto included in our current report on Form 6-K furnished to the SEC on September 23, 2019, which are incorporated by reference in this offering memorandum. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" or in other parts of this offering memorandum. Our historical results do not necessarily indicate results expected for any future periods, and the results of operations for the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2019.

        Set below are certain consolidated statement of comprehensive loss and consolidated cash flow data for the years ended December 31, 2016, 2017 and 2018 and the six months ended June 30, 2018 and 2019. The summary consolidated statement of comprehensive loss and consolidated cash flow data for the years ended December 31, 2016, 2017 and 2018 have been derived from, and are qualified in its entirety by, our audited consolidated financial statements for the same periods incorporated in this offering memorandum by reference to our 2018 Form 20-F. The following summary consolidated results of operation and consolidated cash flow data for the six months ended June 30, 2018 and 2019 are derived from, and are qualified in its entirety by, our unaudited interim condensed consolidated

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financial statements for the same periods incorporated by reference in this offering memorandum to in our current report on Form 6-K furnished to the SEC on September 23, 2019.

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Six months ended June 30, 2019 compared to six months ended June 30, 2018

Revenues

        Our revenues, which consisted of only online marketplace services revenue from 2018 onward, increased by 189.1% from RMB4,093.7 million in the six months ended June 30, 2018 to RMB11,835.2 million (US$1,724.0 million) in the six months ended June 30, 2019. This increase was primarily attributable to increases in revenues from online marketing services.

        Revenues from online marketing services increased by 199.4% from RMB3,479.1 million in the six months ended June 30, 2018 to RMB10,415.5 million (US$1,517.2 million) in the six months ended June 30, 2019. This increase was primarily attributable to increase in advertising spending by merchants on our platform. Our merchants increased their purchase of advertising products from us because of our stronger brand and market position as a result of our branding campaigns, and the significant increase in the number of our active buyers and annual spending per active buyer. Revenues from transaction services increased by 131.0% from RMB614.6 million in the six months ended June 30, 2018 to RMB1,419.7 million (US$206.8 million) in the six months ended June 30, 2019, primarily due to the increase in GMV. Our GMV in the twelve-month period ended June 30, 2018 and 2019 was RMB262.1 billion and RMB709.1 billion (US$103.3 billion) respectively, representing an increase of 170.5%.

Costs of revenues

        Our costs of revenues, which consisted of only cost of online marketplace services from 2018 onward, increased by 249.3% from RMB706.5 million in the six months ended June 30, 2018 to RMB2,468.0 million (US$359.5 million) in the six months ended June 30, 2019. The cost of revenue increased primarily due to higher bandwidths and server cost, staff costs and other expenses directly attributable to the online marketplace services, including cost for call center and merchant support services, which is partially offset by decrease in payment processing fee.

        The decrease in payment processing fees from RMB267.8 million in the six months ended June 30, 2018 to RMB221.8 million (US$32.3 million) in the six months ended June 30, 2019 was primarily due to a payment rebate from Tencent in the first quarter of 2019. The increase in bandwidths and server costs from RMB188.6 million in the six months ended June 30, 2018 to RMB614.7 million (US$89.5 million) in the six months ended June 30, 2019 was due to the increase in server capacity to

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keep pace with the growth of our online marketplace services. The increase in staff costs was primarily due to the increase in headcount for employees dedicated to the operations of our platform. The increase in other expenses directly attributable to the online marketplace services was primarily due to the higher costs of call center and merchant support services.

Gross profit

        As a result of the foregoing, our gross profit increased to RMB9,367.2 million (US$1,364.5 million) in the six months ended June 30, 2019, from RMB3,387.1 million in the six months ended June 30, 2018. The improvement was primarily attributable to the continued growth in revenues and increased economies of scale achieved through our current marketplace model.

Operating expenses

        Our total operating expenses increased from RMB10,276.5 million in the six months ended June 30, 2018 to RMB12,978.1 million (US$1,890.5 million) in the six months ended June 30, 2019, primarily as a result of the increase in sales and marketing expenses and research and development expenses.

        Sales and marketing expenses.    Our sales and marketing expenses increased substantially from RMB4,188.2 million in the six months ended June 30, 2018 to RMB10,993.0 million (US$1,601.3 million) in the six months ended June 30, 2019, primarily attributable to an increase of RMB3,053.1 million in advertising expenses and (ii) an increase of RMB3,267.2 million in promotion and coupon expenses. The increase in advertising expenses and promotion and coupon expenses were focused on building our brand awareness and driving user growth and engagement on our platform.

        General and administrative expenses.    Our general and administrative expenses decreased substantially from RMB5,829.4 million in the six months ended June 30, 2018 to RMB514.4 million (US$74.9 million) in the six months ended June 30, 2019. The decrease was primarily attributable to a one-time share based compensation expenses recorded in April, 2018.

        Research and development expenses.    Our research and development expenses increased substantially from RMB258.8 million in the six months ended June 30, 2018 to RMB1,470.7 million (US$214.2 million) in the six months ended June 30, 2019, primarily due to an increase of RMB531.7 million in staff costs and an increase of RMB350.8 million in research and development related cloud services expenses. The increase in staff costs was primarily attributable to the increase in headcount for our research and development personnel, as we hired additional experienced research and development personnel to execute our technology-related strategies of improving our platform.

Operating loss

        As a result of the foregoing, we incurred operating loss of RMB6,889.4 million and RMB3,610.9 million (US$526.0 million) in the six months ended June 30, 2018 and 2019, respectively.

Other income/(loss)

        Interest income.    Interest income represents interest earned on cash deposits and short-term investments in financial institutions. We had interest income of RMB186.8 million and RMB654.7 million (US$95.4 million) in the six months ended June 30, 2018 and 2019, respectively. The increase was primarily attributable to the increase of our cash balance.

        Foreign exchange gain.    We had foreign exchange gain of RMB42.9 million (US$6.2 million) in the six months ended June 30, 2019, compared to foreign exchange gain of RMB1.5 million in the six

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months ended June 30, 2018, primarily due to higher cash balance held in U.S. dollar coupled with the depreciation of Renminbi against the U.S. dollar.

        Other income, net.    Other income, net primarily consists of government grants. Our other net income increased from RMB6.2 million in the six months ended June 30, 2018 to RMB32.4 million (US$4.7 million) in the six months ended June 30, 2019. The increase was primarily attributable to the increase in government grants.

Income tax expenses

        We recorded nil in income tax expenses in the six months ended June 30, 2018 and 2019.

Net loss

        As a result of the foregoing, we incurred net loss of RMB2,881.0 million (US$419.7 million) in the six months ended June 30, 2019, compared to net loss of RMB6,694.9 million in the six months ended June 30, 2018.

Cash Flows and Working Capital

        As of June 30, 2019, our cash and cash equivalents were RMB23,851.9 million (US$3,474.4 million), which primarily consist of cash at banks. As of June 30, 2019, we had restricted cash of RMB16,812.2 million (US$2,449.0 million), representing cash received from buyers and reserved in a bank supervised account for payments to merchants.

Operating activities

        Net cash generated from operating activities in the six months ended June 30, 2019 was RMB2,604.7 million (US$379.4 million), as compared to net loss of RMB2,881.0 million (US$419.7 million) in the same period. The difference was primarily due to an increase of RMB1,645.6 million (US$239.7 million) in merchant deposits, an increase of RMB1,358.3 million (US$197.9 million) in accrued expenses and other liabilities, and an increase of RMB554.8 million (US$80.8 million) in payables to merchants, partially offset by an increase of RMB226.2 million (US$32.9 million) in prepayments and other current assets and an increase of RMB204.7 million (US$29.8 million) in receivables from online payment platforms. The increases in merchant deposits and accrued expense and other liabilities were attributable to our business expansion and the increase of number of merchants on our platform. The principal non-cash items affecting the difference between our net loss and our net cash generated from operating activities in the six months ended June 30, 2019 were RMB1,090.6 million (US$158.9 million) in share-based compensation expenses.

        Net cash generated from operating activities in the six months ended June 30, 2018 was RMB404.1 million, as compared to net loss of RMB6,694.9 million in the same period. The difference was primarily due to an increase of RMB1,416.5 million in merchant deposits and an increase of 610.5 million in accrued expenses and other liabilities, partially offset by a decrease of RMB520.3 million in payable to merchants and an increase of RMB479.1 million in prepayments and other current assets. The increase in merchant deposits and accrued expenses and other liabilities were attributable to our business expansion and the increase of number of merchants on our platform. The principal non-cash items affecting the difference between our net loss and our net cash generated from operating activities in the six months ended June 30, 2018 were RMB5,834.1 million in share-based compensation expenses.

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Investing activities

        Net cash used in investing activities in the six months ended June 30, 2019 was RMB682.0 million (US$99.3 million), primarily due to purchase of short-term investments of RMB9,727.0 million (US$1,416.9 million), partially offset by proceeds from sales of short-term investments of RMB9,229.6 million (US$1,344.4 million).

        Net cash used in investing activities in the six months ended June 30, 2018 was RMB1,092.7 million, primarily due to purchase of short-term investments of RMB1,300.0 million, partially offset by repayment from a related party of RMB159.8 million.

Financing activities

        Net cash generated from financing activities in the six months ended June 30, 2019 was RMB7,993.8 million (US$1,164.4 million) due to proceeds from follow-on public offering (net of cost).

        Net cash generated from financing activities in the six months ended June 30, 2018 was RMB5,820.8 million primarily due to proceeds from issuance of convertible preferred shares.

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Exhibit 99.1

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Exhibit 99.2

PINDUODUO INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS PERIODS ENDED JUNE 30, 2018 AND 2019

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PINDUODUO INC.

Index to Condensed Consolidated Financial Statements

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PINDUODUO INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2018 AND AS OF JUNE 30, 2019

(Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$"),
except for number of shares)

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PINDUODUO INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2018 AND AS OF JUNE 30, 2019 (Continued)

(Amounts in thousands of RMB and US$, except for number of shares)

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PINDUODUO INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS

FOR THE SIX MONTHS PERIODS ENDED JUNE 30, 2018 AND 2019

(Amounts in thousands of RMB and US$, except for per share data)

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PINDUODUO INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS

FOR THE SIX MONTHS PERIODS ENDED JUNE 30, 2018 AND 2019 (CONTINUED)

(Amounts in thousands of RMB and US$, except for per share data)

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PINDUODUO INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICITS

FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2018

(Amounts in thousands of RMB and US$, except for number of shares)

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PINDUODUO INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2019

(Amounts in thousands of RMB and US$, except for number of shares)

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PINDUODUO INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS PERIODS ENDED JUNE 30, 2018 AND 2019

(Amounts in thousands of RMB and US$)

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

1. Organization

        Pinduoduo Inc. (the "Company") was incorporated in the Cayman Islands on April 20, 2015 under the Cayman Islands Companies Law as an exempted company with limited liability. The Company through its consolidated subsidiaries, variable interest entity (the "VIE") and the subsidiaries of the VIE (collectively, the "Group") are principally engaged in the provision of online marketplace to help merchants leverage the power of the internet to engage with their customers in the People's Republic of China (the "PRC" or "China"). Due to the PRC legal restrictions on foreign ownership and investment in such business, the Company conducts its primary business operations through its VIE and subsidiaries of the VIE.

        As of June 30, 2019, the details of the Company's major subsidiaries, consolidated VIE and the subsidiaries of the VIE are as follows:

The VIE agreements

        The PRC laws and regulations currently place certain restrictions on foreign ownership of companies that engage in internet content and other restricted businesses. To comply with PRC laws and regulations, the Group conducts all of its business in China through the VIE and subsidiaries of the VIE. Despite the lack of technical majority ownership, the Company has effective control of the

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

1. Organization (Continued)

VIE through a series of contractual arrangements (the "Contractual Agreements") and a parent-subsidiary relationship exists between the Company and the VIE. The equity interests of the VIE are legally held by PRC individuals and a PRC entity (the "Nominee Shareholders"). Through the Contractual Agreements, the Nominee Shareholders of the VIE effectively assigned all of their voting rights underlying their equity interests in the VIE to the Company, via the WFOE, and therefore, the Company has the power to direct the activities of the VIE that most significantly impact its economic performance. The Company also has the right to receive economic benefits and obligations to absorb losses from the VIE, via the WFOE, that potentially could be significant to the VIE. Based on the above, the Company consolidates the VIE in accordance with SEC Regulation SX-3A-02 and ASC810-10, Consolidation: Overall.

        The following is a summary of the Contractual Agreements:

        Exclusive Option Agreements    Pursuant to the Exclusive Option Agreements entered into between the Nominee Shareholders, the VIE and the WFOE, the Nominee Shareholders granted to the WFOE or its designees proxy of shareholders rights and voting rights of their respective equity interests in the VIE. The WFOE has the sole discretion as to when to exercise the options, whether in part or full. The exercise price of the options to purchase all or part of the equity interests in the VIE will be the minimum amount of consideration permitted by the applicable PRC laws. Any proceeds received by the Nominee Shareholders from the exercise of the options shall be remitted to the WFOE or its designated party, to the extent permitted under PRC laws. The Exclusive Option Agreements will remain in effect until all the equity interests in VIE held by Nominee Shareholders are transferred to the WFOE or its designated party. The WFOE may terminate the Exclusive Option Agreements at its sole discretion, whereas under no circumstances may the VIE or the Nominee Shareholders terminate the agreements.

        Equity Pledge Agreement    Pursuant to the Equity Pledge Agreement entered into among the WFOE (the "Pledge Agreement"), the Nominee Shareholders and the VIE, the Nominee Shareholders pledged all of their equity interests in the VIE to the WFOE as collateral to secure their obligations under the Contractual Agreements. The Nominee Shareholders further undertake that they will remit any distributions in connection with such shareholders' equity interests in the VIE to the WFOE, to the extent permitted by PRC laws. If the VIE or any of their Nominee Shareholders breach any of their respective contractual obligations under the above agreements, the WFOE, as the pledgee, will be entitled to certain rights, including the right to sell, transfer or dispose of the pledged equity interest. The Nominee Shareholders of the VIE agree not to create any encumbrance on or otherwise transfer or dispose of their respective equity interest in the VIE, without the prior consent of the WFOE. The Equity Pledge Agreement will be valid until the VIE and the shareholders fulfill all the contractual obligations under the Contractual Agreements in full and the pledged equity interests have been transferred to the WFOE and/or its designee.

        Shareholders' Voting Rights Proxy Agreement    Pursuant to the Shareholders' Voting Rights Proxy Agreement entered into between the Nominee Shareholders, the VIE and the WFOE (the "Proxy Agreement"), the Nominee Shareholders authorized the WFOE or its designated party 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 attend shareholders' meetings of the VIE; (2) exercise all

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

1. Organization (Continued)

the shareholders' rights, including voting rights; and (3) designate and appoint on behalf of each shareholder the senior management members of the VIE. The proxy remains irrevocable and continuously valid from the date of execution so long as each Nominee Shareholder remains as a shareholder of the VIE. The proxy agreements were subsequently reassigned to the Company.

        Exclusive Consulting and Services Agreement    Pursuant to the Exclusive Consulting and Services Agreement (the "Consulting and Services Agreement"), WFOE retains exclusive right to provide to the VIE the technical support and consulting services, including but not limited to, technology development and maintenance service, marketing consulting service and administrative consulting service. WFOE owns the intellectual property rights developed in the performance of the agreement. In exchange for these services, WFOE is entitled to charge the VIE annual service fees which typically amount to what would be substantially all of the VIE's pre-tax profits, resulting in a transfer of substantially all of the profits from the VIE to the WFOE. The term of the agreement is 10 years, expiring on June 5, 2025, which will be automatically renewed every ten-year thereafter if the WFOE does not provide notice of termination to the Nominee Shareholders three months prior to expiration.

        Financial support undertaking letter    The Company and the VIE entered into a financial support undertaking letter pursuant to which, the Company is obligated and hereby undertakes to provide unlimited financial support to the VIE, to the extent permissible under the applicable PRC laws and regulations, whether or not any such operational loss is actually incurred. The Company will not request repayment of the loans or borrowings if the VIE or its shareholders do not have sufficient funds or are unable to repay.

        In the opinion of the Company's management and PRC counsel, (i) the ownership structure of the Group, including its subsidiary, the VIE and the subsidiaries of the VIE, is not in violation with any applicable PRC laws, (ii) each of the VIE agreements is legal, valid, binding and enforceable to each party of such agreements in accordance with its terms and applicable PRC Laws; and (iii) each of the Group's PRC subsidiaries, the VIE and the subsidiaries of the VIE have the necessary corporate power and authority to conduct its business as described in its business scope under its business license, which is in full force and effect, and the Group's business operation in PRC are in compliance with existing PRC laws and regulations.

        However, uncertainties in the PRC legal system could cause the relevant regulatory authorities to find the current Contractual Agreements and businesses to be in violation of any existing or future PRC laws or regulations. If the Company, the 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, revocation of business and operating licenses, being required to discontinue or restrict its business operations, restriction of the Group's right to collect revenues, being required to restructure its operations, imposition of additional conditions or requirements with which the Group may not be able to comply, or other regulatory or enforcement actions against the Group that could be harmful to its business. The imposition of any of these or other penalties may result in a material and adverse effect on the Group's ability to conduct its business. In addition, if the imposition of any of these penalties causes the Company to lose the rights to direct the

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

1. Organization (Continued)

activities of the VIE or the right to receive their economic benefits, the Company would no longer be able to consolidate the VIE.

        In addition, if the VIE or the Nominee Shareholders fail to perform their obligations under the Contractual Agreements, the Group may have to incur substantial costs and expend resources to enforce the primary beneficiary' rights under the contracts. The Group may have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief and claiming damages, which may not be effective. All of the Contractual Agreements are governed by PRC laws and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal system in PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit the Group's ability to enforce these contractual arrangements. Under PRC laws, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would incur additional expenses and delay. In the event the Group is unable to enforce the Contractual Agreements, the primary beneficiary may not be able to exert effective control over its VIE, and the Group's ability to conduct its business may be negatively affected.

        The VIE and the subsidiaries of VIE contributed 100.0% and 61.4% of the Group's consolidated revenues for the six months periods ended June 30, 2018 and 2019 respectively. As of December 31, 2018 and June 30, 2019, the VIE accounted for an aggregate of 53.1% and 49.1%, respectively of the consolidated total assets, and 96.9% and 95.2%, respectively of the consolidated total liabilities.

        The following tables represent the financial information for the VIE as of December 31, 2018 and June 30, 2019 and for the six months periods ended June 30, 2018 and 2019 before eliminating the

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

1. Organization (Continued)

inter-company balances and transactions between the VIE, the subsidiaries of the VIE and other entities within the Group:

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

1. Organization (Continued)

2. Summary of Significant Accounting Policies

(a)    Concentration of credit risk

        Financial instruments that potentially subject the Group to significant concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, receivables from online payment platforms and short-term investments. As of December 31, 2018 and June 30, 2019, all of the Group's cash and cash equivalents, restricted cash and short-term investments were held at reputable financial institutions with high-credit ratings. In the event of bankruptcy of one of these financial institutions, the Group may not be able to claim its cash and demand deposits back in full. The Group continues to monitor the financial strength of the financial institutions and there has been no recent history of default in relation to these financial institutions. Receivables from online payment platforms including amounts due from a related party (Note 11), unsecured and denominated in RMB, are derived from merchandise sales on the Group's online marketplace to consumers, and exposed to credit risk. The risk is mitigated by credit evaluations the Group performs on the selected online payment platforms that are highly reputable and market leaders. There has been no default of payments from these online payment platforms.

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

2. Summary of Significant Accounting Policies (Continued)

(b)    Basis of presentation

        The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP") and applicable rules and regulations of the Securities and Exchange Commission regarding financial reporting and include all normal and recurring adjustments that management of the Group considers necessary for a fair presentation of its financial position and operation results. Certain information and footnote disclosures normally included in financial statements prepared in conformity with US GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these statements should be read in conjunction with the Group's audited consolidated financial statements as of and for the years ended December 31, 2017 and 2018.

(c)    Convenience translation

        Amounts in US$ are presented for the convenience of the reader and are translated at the noon buying rate of US$1.00 to RMB6.8650 on June 28, 2019, the last business day in June 2019, as published on the website of the United States Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.

(d)    Revenue recognition

        The Group through its platform primarily offers online marketplace services that enable third-party merchants to sell their products to consumers in China. Revenues from marketplace services consist of online marketing services revenue and transaction services fees. Payments for services are generally received before deliveries.

        Effective January 1, 2018, the Group adopted ASU 2014-09, Revenue from contracts with Customers (Topic 606), using the modified retrospective method applying to those contracts not yet completed as of January 1, 2018. There were no changes made to the Group's revenue recognition policy as a result of the adoption of Topic 606. Under Topic 606, revenues are recognized when control of the promised services are transferred to the Group's customers in amounts that reflect the consideration the Group expects to be entitled to in exchange for those services. The Group also evaluates whether it is appropriate to record the gross amounts of goods and services sold and the related costs, or the net amounts earned as commissions.

        The Group presents value added taxes ("VAT") as reductions of revenues.

Online marketplace services

        The Group charges fees for transaction services to merchants for sales transactions completed on the Group's online marketplace, where the Group does not take control of the products provided by the merchants at any point in the time during the transactions and does not have latitude over pricing of the merchandise. Transaction services fee is determined as a percentage based on the value of merchandise being sold by the merchants. Revenues related to transaction services are recognized in the unaudited interim condensed consolidated statements of comprehensive loss at the time when the Group's service obligations to the merchants are determined to have been completed under each sales

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

2. Summary of Significant Accounting Policies (Continued)

transaction upon the consumers confirming the receipts of goods. Fees charged for transaction services are not refundable if and when consumers return the merchandise to merchants.

        The Group also entered into contractual agreements with certain merchants to provide online marketing services on the Group's online marketplace for which the Group receives service fees from merchants. Online marketing services mainly allow merchants to bid for keywords that match product listings appearing in search or browser results on the Group's online marketplace. Merchants prepay for online marketing services that are charged on a cost-per-click basis. The Group provides the online marketing services on its own platforms without involvement of any other party. Under ASC 606, the related revenues are recognized at a point of time when consumers click the merchants' product listings when services are completed by the Group for the merchants. The positioning of such listings and the price for such positioning are determined through an online auction system, which facilitates price discovery through a market-based mechanism.

        In order to promote its online marketplace and attract more registered consumers, the Group at its own discretion offers incentives such as coupons, credits and discounts to consumers. Consumers are not customers of the Group, therefore incentives offered to consumers are not considered payments to customers. Coupons and credits redeemable for coupons can only be used in future purchases of eligible merchandise offered on the Group's online marketplace to reduce purchase price that are not specific to any merchant. As the consumers are required to make future purchases of the merchants' merchandise to redeem these coupons, the Group recognizes the amounts of redeemed coupons as marketing expenses when future purchases are made. Discounts provided to consumers are not specific to any merchant and the associated costs to the Group are recognized as marketing expenses when the related transaction services revenues are recognized.

        During the six months periods ended June 30, 2018 and 2019, the Group also issued to consumers at its discretion, cash redeemable credits upon their completion of certain actions unrelated to the purchases of merchant products on the Group's online marketplace. As the credits were redeemable for cash, the Group accrued for the related costs in marketing expenses based on the cash redemption value of each credit as it is issued, assuming all credits will be redeemed. As of December 31, 2018 and June 30, 2019, the amount of outstanding credits were immaterial.

(e)    Advertising expenditures

        Advertising expenditures are expensed when incurred and are included in sales and marketing expenses. Total amounts of advertising expenditures and incentive programs recognized in sales and marketing expenses were RMB4,094,587 and RMB10,414,890 (US$1,517,100) for the six months periods ended June 30, 2018 and 2019, respectively.

(f)    Lease

        The Group adopted ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), effective January 1, 2019 using the modified retrospective method and did not restate comparable period. The Group elected the package of practical expedients permitted under the transition guidance, which allowed the Group to carry forward the historical lease classification for any expired or existing contract and the

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

2. Summary of Significant Accounting Policies (Continued)

accounting for the initial direct costs on those leases that on the adoption date. The Group also elected the practical expedient of the short-term lease exemption for contracts with lease terms of 12 months or less.

        The Group as the lessee determines if an arrangement is a lease at inception. Leases are classified as operating or finance leases in accordance with the recognition criteria in ASC 842-20-25. The Group's lease portfolio consists entirely of operating leases as of January 1 and June 30, 2019. The Group's leases do not contain any residual value guarantees or material restrictive covenants.

        At the commencement date of an operating lease, the Group records a right-of-use ("ROU") asset and lease liability based on the present value of the lease payments over the lease term. Variable lease payments not dependent on an index or rate are excluded from the ROU asset and lease liability calculations and are recognized in expense in the period which the obligation for those payments is incurred. As the rate implicit in the Group's lease is not typically readily available, the Group uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. This incremental borrowing rate reflects the fixed rate at which the Group could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. ROU assets include any lease prepayments and are reduced by lease incentives. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease terms are based on the non-cancelable term of the lease and may contain options to extend the lease when it is reasonably certain that the Group will exercise that option.

        The cumulative effects of changes made to the Group's condensed consolidated balance sheet on January 1, 2019 for the adoption of ASU 2016-02 were as follows:

        The difference between the lease liabilities and ROU assets related to the reversal of existing deferred rent and prepaid rent balances of RMB11,108 (US$1,618) and RMB2,768 (US$403), respectively. The adoption of the standard did not impact the Company's interim condensed consolidated statements of operations and cash flows.

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

2. Summary of Significant Accounting Policies (Continued)

(g)    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 Topic 320 ("ASC 320"), Investments—Debt and Equity Securities. Interest income are recognized when earned. 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 periods in which they are realized. The carrying values of these financial instruments approximated their fair values as of December 31, 2018 and June 30, 2019 due to their short-term maturities.

(h)    Equity method investments

        The Group accounts for its investments in common stock or in-substance common stock in entities in which it can exercise significant influence but does not own a majority equity interest or control using the equity method of accounting in accordance with ASC Subtopics 323-10 ("ASC 323-10"), Investments—Equity Method and Joint Ventures: Overall. The Group applies the equity method of accounting that is consistent with ASC 323-10 in limited partnerships which the Group has significant influence. Under the equity method, the Group initially records its investment at cost and the difference between the cost of the equity investee and the fair value of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill, which is included in the equity method investment on the consolidated balance sheets. The Group subsequently adjusts the carrying amount of the investment to recognize the Group's proportionate share of each equity investee's net income or loss into earnings after the date of investment. The Group evaluates the equity method investments for impairment under ASC 323-10. An impairment loss on the equity method investments is recognized in earnings when the decline in value is determined to be other-than-temporary.

(i)    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.

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

3. Prepayments and Other Current Assets

        The components of prepayments and other current assets were as follows:

        The prepayments primarily consist of advertising fees paid in advance.

4. Property and Equipment, Net

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

4. Property and Equipment, Net (Continued)

        For the six months periods ended June 30, 2018 and 2019, the Group recorded depreciation expenses of RMB2,101 and RMB8,355 (US$1,217), respectively which were included in the following captions:

5. Intangible Asset

        Intangible asset consisted of the following:

        In February 2018, the Company entered into a strategic cooperation framework agreement (the "Agreement") with an affiliate of Tencent Group. The Company and Tencent Group agreed to cooperate in a number of areas primarily for Tencent Group to provide the Company Weixin access point and other services and to pursue additional opportunities for future potential cooperation. The Agreement is valid for five years, from March 1, 2018 to February 28, 2023. The Company recognized the Agreement as an intangible asset at the fair value of consideration paid in the form of convertible preferred shares of RMB2,852 million. The Group recognizes the related amortization expense in costs of revenues, over the period of five years using the straight-line method. No impairment charges were recognized on the intangible asset for the six months period ended June 30, 2018 and 2019.

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

5. Intangible Asset (Continued)

        The estimated annual amortization expense for each of the five succeeding fiscal years is as follows:

6. Leases

        The Company has operating leases mainly for offices in China. For the six months periods ended June 30, 2019, operating lease costs and short-term lease costs were RMB42,049 and RMB18,459, respectively. There were no leasing costs other than the operating lease costs and short-term lease costs for the six months ended June 30, 2019.

        A maturity analysis of the Company's operating lease liabilities and reconciliation of the undiscounted cash flows to the operating lease liabilities recognized on the unaudited interim condensed consolidated balance sheet was as below:

        As of June 30, 2019, the Company had no operating leases that had not yet commenced. The weighted average remaining lease terms of the right-of-use assets was 3.89 years.

        A weighted average incremental borrowing rate of 5.33% was adopted on the commencement date in determining the present value of lease payments.

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

6. Leases (Continued)

        Other supplemental information related to leases is summarized below:

7. Other Non-current Assets

        Equity method investments are included in other non-current assets on the Company's consolidated balance sheets, consisting of the Company's investments as a limited partner in the funds, including funds set up by a Company's related parties, to make strategic investments in privately-held companies. Such investments amounted in total to RMB182,667 and RMB 394,584 (US$57,478) as of December 31, 2018 and June 30, 2019, respectively. No equity method investments were considered, individually or in aggregate, material as of December 31, 2018 and June 30, 2019. As the profit or loss from the funds was immaterial for the six months ended June 30, 2019, there was no gain or loss from the equity method investments recognized during the same period. There was no impairment on these investments during the six months ended June 30, 2019.

8. Accrued Expenses and Other Liabilities

        The components of accrued expenses and other liabilities were as follows:

        Accrued expenses primarily consisted of accrued advertising and marketing expenses.

9. Ordinary Shares

        In the third quarter of 2018, the Company completed its Initial Public Offering ("IPO") on the National Association of Securities Deal Automated Quotations under the symbol of "PDD" of 91,735,827 ADSs (including 6,135,827 ADSs sold upon the exercise of the underwriters' over-allotment

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

9. Ordinary Shares (Continued)

option), representing 366,943,308 Class A Ordinary Shares for a total proceeds net of issuance costs of US$1,690,696 (RMB11,523,631).

        Upon completion of the IPO, all convertible preferred shares were converted into ordinary shares.

        In February 2019, the Company completed a follow-on public offering and issued 48,435,000 ADSs, representing 193,740,000 Class A Ordinary Shares for total proceeds net of issuance costs of US$1,181,209 (RMB7,993,828).

10. Revenue

Contract balances

        The Group's contract liabilities comprised of customer advances and portions of payables to merchants:

        Customer advances and contract liability relate to considerations received in advance for online marketing services and transaction services, respectively, for which control of the services occurs at a later point in time. Contract liability is included in Payable to merchants in the Company's unaudited interim condensed consolidated balance sheets. The significant increase in the balance of customer advances was due to the increase in advance payments from customers in line with the growth in online marketing services revenues. Revenues recognized from the carrying value of customer advances and contract liability as of January 1, 2018 during the six months ended June 30, 2018 were RMB42,871 (US$6,245) and RMB38,935 (US$5,672) respectively. Revenues recognized from the carrying value of customer advances and contract liability as of January 1, 2019 during the six months ended June 30, 2019 were RMB149,176 (US$21,730) and RMB72,939 (US$10,625), respectively.

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

11. Related Party Transactions

(a)

Major related parties:

(b)

Other than those disclosed elsewhere, the Group had the following significant related party transactions for the six months periods ended June 30, 2018 and 2019, respectively:

(c)

The Group had the following major related party balances as of December 31, 2018 and June 30, 2019, respectively:

 

        All balances with the related parties as of June 30, 2019 were unsecured, interest-free and had no fixed terms of repayment.

12. Loss Per Share

        During 2018, the Company effected a change of authorized share capital by repurchasing all of the then issued and outstanding ordinary shares at par value and reissued 42,486,360 Class A Ordinary Shares and 1,716,283,460 Class B Ordinary Shares to its existing holders of ordinary shares. The number of shares and per-share price in the unaudited interim condensed consolidated financial

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PINDUODUO INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

12. Loss Per Share (Continued)

statements were recasted on a retroactive basis to reflect the effect of these changes for the six months period ended June 30, 2018.

        Basic and diluted loss per share are not reported separately for Class A ordinary shares or Class B ordinary shares (the "Ordinary Shares") as each class of shares has the same rights to undistributed and distributed earnings.

        The following table sets forth the computation of basic and diluted net loss per share for the following periods:

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