Nevada | Nevada | | 35-2600898 | (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number)No.) |
| | | 16F, Shihao Square, Middle Jiannan Blvd., High-Tech ZoneChengdu, Sichuan, People'sPeople’s Republic of China | | 610000 | (Address of principal executive offices) | | (Zip Code) |
Registrant'sRegistrant’s telephone number: number, including area code: +86 2861554399
Securities registered pursuant to Section 12(b) of the Act: | | | Title of Each Class:each class: | Trading Symbol | Name of Each Exchangeeach exchange on Which Registered: which registered: | Common Stock, par value $0.0001 per share | AIHS | The NASDAQNasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨☐ No x☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨☐ No x☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company"company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. | | Large accelerated filer ¨☐ | Accelerated filer ¨ ☐ | Non-accelerated filer ¨ ☒ | Smaller reporting company x ☒ | | Emerging growth company x ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒ As of September 29, 2017, the last business day of the registrant's most recently completed second fiscal quarter, there was no established public market for theThe registrant’s common stock and, therefore,trades on the registrant cannot calculateNasdaq Capital Market under the aggregate market value of its voting and non-voting common stock held by non-affiliates as of such date.symbol “AIHS.” The aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the price at which theregistrant’s common stock was last sold as of June 28, 2018,September 30, 2022, was approximately $78,424,525.$5,771,347. Common stock held by each officer and director and by each person known to the registrant who owned 10% or more of the outstanding voting and non-voting common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of June 28, 2018,July 10, 2023, there were 25,879,4007,993,040 shares of common stock, par value $0.0001 per share, of the registrant issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE If the following documents are incorporated by reference, briefly describe them and identify the partNone.
Unless otherwise stated in this Annual Report on Form 10-K ("Report"(this “Report”), references to: | ● | · | "APR"“China” or "annual percentage rate"the “PRC” refers to the annual interest rate that is charged to borrowers, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. |
| · | "China" or the "PRC" refers to the People'sPeople’s Republic of China, excluding, for the purposes of this Report only, Hong Kong, Macau and Taiwan; |
| ● | ·“Corenel” refers to Chengdu Corenel Technology Limited, a PRC limited liability company and wholly owned subsidiary of Senmiao Consulting; |
| ● | "Restructuring"“Hunan Ruixi” refers to Hunan Ruixi Financial Leasing Co., Ltd., our majority owned subsidiary in China; |
| ● | “Jiekai” refers to Chengdu Jiekai Technology Ltd., a PRC limited liability company in China and a majority owned subsidiary of Corenel; |
| ● | “Jinkailong” refers to Sichuan Jinkailong Automobile Leasing Co., Ltd., our former variable interest entity, a PRC limited liability company with 35% equity interest held by Hunan Ruixi; |
| ● | “Operating Entities” refers to Corenel, Hunan Ruixi, Jiekai, Senmiao Consulting, XXTX and Yicheng; |
| ● | “Restructuring” refers to the establishment of a WFOEwholly foreign owned entity and the execution of a series of agreements among the Company, WFOE,Senmiao Consulting, Sichuan Senmiao and the equity holders of Sichuan Senmiao, pursuant to which the we have gained control of and become the primary beneficiary to Sichuan Senmiao; |
| ● | · | "RMB"“RMB” and "Renminbi"“Renminbi” refer to the legal currency of China; |
| ● | ·“Senmiao” refers to Senmiao Technology Limited; |
| ● | "“Senmiao Group,” “we,” “us,” “the Company”, “our company” and “our” refer to Senmiao Technology Limited., its subsidiaries and its former consolidated variable interest entities; |
| ● | “Senmiao Consulting” refers to Sichuan Senmiao"Senmiao Zecheng Business Consulting Co., Ltd.; |
| ● | “Sichuan Senmiao” refers to Sichuan Senmiao Ronglian Technology Co., Ltd., a PRC limited liability company, the majority owned subsidiary of Senmiao Consulting and our former variable interest entity;entity in China; |
| ● | · | "Senmiao," "we," "us," "our company"“US$,” “U.S. dollars,” “$,” and "our" refer to Senmiao Technology Limited., its subsidiary and its consolidated variable interest entity; |
| · | "Senmiao Consulting" and "WFOE" refer to Sichuan Senmiao Zecheng Business Consulting Co., Ltd., our wholly owned subsidiary in China; |
| · | "US$," "U.S. dollars," "$," and "dollars"“dollars” refer to the legal currency of the United States. States; |
| ● | “XXTX” refers to Hunan Xixingtianxia Technology Co., Ltd. and its subsidiaries, a PRC limited liability company and wholly owned subsidiary of Senmiao Consulting; |
| ● | “Yicheng” refers to Sichuan Senmiao Yicheng Assets Management Co., Ltd., formerly named Yicheng Financial Leasing Co., Ltd., a PRC limited liability company and our wholly owned subsidiary in China; and |
| ● | “Youlu” refers to Chengdu Youlu Technology Ltd. (“Youlu”), our former variable interest entity in China. |
We use U.S. dollars as reporting currency in our financial statements and in this Report. Monetary assets and liabilities denominated in Renminbi are translated into U.S. dollars at the rates of exchange as of the balance sheet date, equity accounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the period. In other parts of this Report, any Renminbi denominated amounts are accompanied by translations. With respect to amounts not recorded in our consolidated financial statements included elsewhere in this Report, all translations from Renminbi to U.S. dollars were made at RMB 6.5027 to US$1.00, the noon buying rate set forth in the H.10 statistical release of the Federal Reserve Board on June 22, 2018. We make no representation that the Renminbi or U.S. dollar amounts referred to in this Report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. The PRC government restricts or prohibits the conversion of Renminbi into foreign currency and foreign currency into Renminbi for certain types of transactions. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report, including, without limitation, statements under the heading "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations,"” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934.1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words "believes," "estimates," "anticipates," "expects," "intends," "plans," "may," "will," "potential," "projects," "predicts," "continues,"“believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continues,” or "should,"“should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current or historical facts. These statements are based on management'smanagement’s current expectations, but actual results may differ materially due to various factors, including, but not limited to: | ● | · | our goals and strategies;strategies, including our ability to expand our automobile transaction and related services business and our online ride-hailing platform services business in China; |
| ● | · | our management’s ability to properly develop and achieve any future business development,growth and any improvements in our financial condition and results of operations; |
| ● | · | the expected growthregulations and the impact by public health epidemics in China on the industries we operate in and our business, results of the credit industry,operations and marketplace lending in particular, in China;financial condition; |
| ● | ·the growth or lack of growth in China of disposable household income and the availability and cost of credit available to finance car purchases; |
| ● | the growth or lack of growth of China’s online ride-hailing, automobile financing and leasing industries; |
| ● | taxes and other incentives or disincentives related to car purchases and ownership; |
| ● | fluctuations in the sales and price of new and used cars and consumer acceptance of financing car purchases; |
| ● | changes in online ride-hailing, transportation networks, and other fundamental changes in transportation pattern in China; |
| ● | our expectations regarding demand for and market acceptance of our platform's products and services; |
| ● | · | our expectations regarding our platform's usercustomer base; |
| ● | · | our plans to invest in our platform;automobile transaction and related services business and our online ride-hailing platform services business; |
| ● | · | our ability to maintain positive relationships with our business partners; |
| ● | · | competition in our industry;the online ride-hailing, automobile financing and leasing industries in China; |
| ● | ·macro-economic and political conditions affecting the global economy generally and the market in China specifically; and |
| ● | relevant Chinese government policies and regulations relating to our industry.the industries in which we operate. |
The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated.anticipated or over which we may not have any control. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those that are expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading "Risk Factors."“Risk Factors” in this Report and our other periodic reports filed by us with the SEC. Should one or more of these risks or unanticipated risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under "Risk Factors" mayin our periodic reports are not be exhaustive. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. PART I Overview Overview
We are an online lending platform in China connectingSenmiao is not a Chinese investors with individual and small-to-medium-sized enterprise ("SME") borrowers. Through our platform, we offer quick and easy access to credit to borrowers and attractive investment returns for investors. Since the acquisition of our platform in September 2016, which is more fully described below, through March 31, 2018, we have facilitated loans (including assigned loans) with an aggregate of principal of over RMB 579 million (approximately US$89 million). As of March 31, 2018, we hadoperating company but a total of 3,372 investors, 2,558 borrowers and two creditor partners had participated in loan transactions through our platform. We currently conduct our business operations exclusively in China, and all of our investors and borrowers are located in China.
Our online platform enables us to efficiently match borrowers with investors and execute loan transactions. We seek to address an unmet investor and borrower demand in China. While presently our borrowers mainly come from referrals from financial institutions and business partners, our investors come from a variety of channels, including internet and our mobile applications, promotion through our own business development department as well as referrals from our business partners.
As of March 31, 2018, we had an aggregate of 40,044 registered users. We interact with registered users of our platform on a regular basis. We post articles of third parties related to investment and wealth management on our platform for our registered users. Information in these materials may potentially be used by registered users on our platform for their investment decisions, including investment in loans posted on our platform. All registered users of our platform have access to loans posted on our platform and can forward the loan posting to individuals in their network. Any of these users and their connections can invest in loans posted on our website if they are willing to.
Historically, we offered two types of products: standard loans and assignment of loans, providing qualified borrowers with convenient access to affordable credit at competitive prices and creditors with a fast and cost-efficient way to assign their existing loans for more liquidity. Our investors have the option to individually select specific loans to invest in or to use our automated investing tool that identifies and selects loans on the basis of an investor targeted return and risk tolerance.
All our loans currently facilitated on our platform are unsecured, feature fixed interest rate and have terms ranging from one to 36 months. We generate revenues primarily from fees charged for facilitating loan transactions on our platform. We charge borrowers transaction fees based on the loan amounts for services provided through our platform. Our current transaction fees range from 4.14% to 6.14% of the loan amount for borrowers. The transaction fees are paid (i) upon disbursement of the proceeds for loans accruing interest on a monthly basis and (ii) upon full payment of principal and interest of loans accruing interest on a daily basis. We also charge our investors a service fee of 8.00% of their actual investment return and the service fee is paid when the investors receive their interest payment.
Our Corporate History and Structure
We wereU.S. holding company incorporated in the State of Nevada on June 8, 2017. As a holding company with no material operations of its own, Senmiao conducts a substantial majority of its operations through its operating entities established in the PRC, including its subsidiaries and former variable interest entities (“VIEs”). Senmiao received the economic benefits of its former VIEs’ business operations through certain contractual arrangements. The VIE structure was used to allow non-Chinese companies to consolidate the financial statements of the China-based companies where Chinese law prohibits or restricts direct foreign investment in the operating companies, and that investors may never directly hold equity interests in the Chinese operating entities. However, Senmiao has terminated all its VIE Agreements and has no VIEs in its consolidation scope for its financial statements since March 31, 2022.
Since November 2018, we have been providing automobile transaction and related services focusing on the online ride-hailing industry in the People’s Republic of China (“PRC” or “China”) through our wholly owned subsidiaries, Yicheng, Corenel and Jiekai, and our majority owned subsidiary, Hunan Ruixi, and its equity investee company and former VIE, Jinkailong. Since October 2020, we have been operating an online ride-hailing platform through XXTX, which is a wholly owned subsidiary of Senmiao Consulting. XXTX’s platform enables qualified ride-hailing drivers to provide transportation services mainly in Chengdu, Changsha, Guangzhou and other 23 cities in China as of the date of this Report. Our business includes Automobile Transaction and Related Services (as defined hereinbelow) and Online Ride-hailing Platform Services, which constituted a series of services as follows: Automobile Transactions and Related Services Our automobile transaction and related services (the “Automobile Transaction and Related Services”) are mainly comprised of (i) automobile operating lease where we provide car rental services to individual customers to meet their personal needs with lease term no more than twelve months (the “Auto Operating Leasing”); (ii) service fees from new energy vehicles (“NEVs”) leasing, automobile purchase and management services where we charge NEVs lessees or automobile purchasers for a series of the services provided to them throughout the leasing or purchase process based on the chosen product solutions, such as ride-hailing driver training, assisting with a series of administrative procedures and other consulting services (the “Purchase and NEVs Services”); (iii) automobile sales where we sell new purchased or used cars to our customers (the “Auto Sales”); (iv) automobile financing where we provide our customers with auto finance solutions through financing leases (the “Auto Financing”); (v) auto management and guarantee services provided to online ride-hailing drivers after the delivery of automobiles (the “Auto Management and Guarantee Services”); and (vi) other supporting services provided to online ride-hailing drivers. Our Operating Entities started the Purchase and NEVs Services, Auto Management and Guarantee Services, and other supporting services in November 2018, the Auto Sales in January 2019, and Auto Operating Leasing and Auto Financing in March 2019, respectively. The following chart illustrates the constitution of our automobile transactions and related services: 
Auto Operating Leasing We, through our subsidiaries, Hunan Ruixi, Corenel, Jiekai and former VIE, Jinkailong (the “Auto Business Entities”) in China, have generated revenue since March 2019 from operating lease services, where the Auto Business Entities lease their own automobiles, sublease automobiles leased from third-parties or rendered from certain online ride-hailing drivers they served before with their authorization, to other individuals, including new online ride-hailing drivers, for a lease term of no more than twelve months. Due to the intense competition and the COVID-19 pandemic, as of March 31, 2022, approximately 1,327 historical online ride-hailing drivers have exited the online ride-hailing business and rendered their automobiles to Hunan Ruixi and Jinkailong. We have shifted our business focus to automobile leasing in accordance with the change of market condition and industry development. Hunan Ruixi is and Jinkailong was authorized to sublease or sell these drivers’ automobiles in order to offset the repayments those drivers owed to us and the financial institutions. We also purchase and lease NEVs for subleasing with rental periods of twelve months or less. Excluding Jinkailong, our other Auto Business Entities leased over 1,800 automobiles with an average monthly rental income of approximately $478 per automobile for the year ended March 31, 2023. Purchase and NEVs Services Our Auto Business Entities charge lease service fees to lessees who rent NEVs from us, in accordance with the increasing demand for NEVs in the online ride-hailing industry in Chengdu and Changsha. We also charge automobile purchasers services fees for a series of the services provided to them throughout the purchase process such as credit assessment, installment of GPS devices, ride-hailing driver qualification and other administrative procedures. The amount of services fees for NEVs leasing and purchase is based on the product solutions. Excluding Jinkailong, our other Auto Business Entities had revenue of services of $350,510 from NEVs leasing and $33,585 from automobile purchase, for the year ended March 31, 2023, respectively. Auto Management and Guarantee Services The management and guarantee services of Hunan Ruixi are provided to online ride-hailing drivers after the delivery of automobiles, covering (i) management services including, without limitation, ride-hailing driver training, assisting with purchase of insurances, insurance claims and after-sale automobile services, handling traffic violations and other consulting services; and (ii) guarantee services for the obligations of online ride-hailing drivers under their financing arrangement with financial institutions. The management and guarantee fees of Hunan Ruixi are and the management and guarantee fees of Jinkailong were based on the costs of our services and the results of our credit assessment of the automobile purchasers. Excluding Jinkailong, our other Auto Business Entities had revenue of $40,158 for the year ended March 31, 2023. As of March 31, 2023, the maximum contingent liabilities Hunan Ruixi would be exposed to, was approximately $10,000, assuming all the automobile purchasers were in default, which may cause an increase in guarantee expense and cash outflow in financing activities. Auto Sales Our Auto Business Entities are also engaged in the sales of automobiles through Hunan Ruixi and our former VIE, Jinkailong. Excluding Jinkailong, our other Auto Business Entities sold one new and 42 used automobiles, resulting in income of $243,065 during the year ended March 31, 2023. Auto Financing Hunan Ruixi began offering auto financing services in March 2019. In a self-operated financing transaction, Hunan Ruixi is a lessor and a customer (i.e., online ride-hailing driver) is a lessee. Hunan Ruixi offers to the customer a selection of automobiles that were purchased by Hunan Ruixi in advance. The customer will choose the desirable automobile to be purchased and enter into a financing lease with Hunan Ruixi. During the term of the financing lease, the customer will have use rights with respect to the automobile. Hunan Ruixi will obtain title to the automobile upfront and retain such title during the term of the financing lease, as lessor. At the end of the lease term, the customer will pay a minimal price and obtain full title of the automobile after the financing lease is repaid in full. In connection with the financing lease, the customer will enter into a service agreement with Hunan Ruixi. We recognized a total interest income of $41,738 for the year ended March 31, 2023. Since November 22, 2018, the acquisition date of Hunan Ruixi, and as of March 31, 2023, the Auto Business Entities have facilitated financing for an aggregate of 1,687 automobiles with a total value of approximately $24.4 million, sold an aggregate of 1,466 automobiles with a total value of approximately $14.1 million and delivered approximately 2,936 automobiles under operating leases (including 1,826 automobiles used to be delivered by Jinkailong before March 31, 2022) and 144 automobiles under financing leases to customers, the vast majority of whom are online ride-hailing drivers. Ride-Hailing Platform Services As part of our goal to provide an all-solution for online ride-hailing drivers as well as to increase our competitive power in an increasingly competitive online ride-hailing industry and to take advantage of the market potential, in October 2020, we, through XXTX, began operating an online ride-hailing platform (called Xixingtianxia) in Chengdu. Our ride hailing platform enables qualified ride-hailing drivers to provide application-based transportation services in China. XXTX holds a national online reservation taxi operating license. The platform is presently servicing ride-hailing drivers in 26 cities in China, including Chengdu, Changsha, Guangzhou and so on, providing them with a platform to view and take customer orders for rides. XXTX currently collaborates with Gaode Map, a well-known aggregation platform in China on our ride-hailing platform services. Under the collaboration, when a rider searches for taxi/ride-hailing services on the aggregation platform, the platform provides such rider a number of online ride-hailing platforms for selection, including ours and if our platform is selected by the rider, the order will then be distributed to registered drivers on our platform for viewing and acceptance. The rider may also simultaneously select multiple online ride-hailing platforms, in which case, the aggregation platform will distribute the requests to different online ride-hailing platforms which they cooperate with, based on the number of available drivers using the platform in a certain area and these drivers’ historical performance, among other things. XXTX generates revenue from providing services to online ride-hailing drivers to assist them in providing transportation services to the riders looking for taxi/ride-hailing services. XXTX earns commissions for each completed order as the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider (the “Online Ride-hailing Platform Services”). XXTX settles its commissions with the aggregation platforms on a weekly basis. The following chart illustrates our typical process of our ride-hailing platform services: 
The acquisition of XXTX has brought us a new stream of revenue and helped achieve our goal of providing an all-encompassing solution for online ride-hailing drivers. During the year ended March 31, 2023, approximately 6.1 million rides with gross fare of approximately $19.9 million were completed through Xixingtianxia and an average of over 5,100 ride-hailing drivers completed rides and earned income through Xixingtianxia (the “Active Drivers”) each month. During the year ended March 31, 2023, we earned online ride-hailing platform service fees of approximately $3.7 million, after netting off approximately $0.5 million incentives paid to Active Drivers. Our executive offices are located in Chengdu City, Sichuan Province, China. Substantially all of our operations are conducted in China. We plan to expand our driver base for the platform and automobile rental business while strengthening the royalty of the drivers who both lease our cars and use our platform while expanding, but our platform is available to others. We plan to launch Xixingtianxia in more cities across China in the next 12 months. Our Corporate History Senmiao Technology Limited was incorporated in the State of Nevada on June 8, 2017. It established a wholly owned subsidiary, Sichuan Senmiao Zecheng Business Consulting Co., Ltd. ("WFOE," or "Senmiao Consulting") in China. Substantially all of our business activities are undertaken by WFOE and a variable interest entity ("VIE"), Sichuan Senmiao Ronglian Technology Co., Ltd. ("Sichuan Senmiao")China in China. As of the date of this Report, the WFOE only provides services toJuly 2017. Sichuan Senmiao, our former VIE, entity, pursuant to our VIE agreements. We anticipate that the WFOE will conductnow a major portionmajority owned subsidiary of our research, development and marketing activities. Sichuan Senmiao Consulting, was established in China in June 2014. The equity interest ofSenmiao Consulting provided services to Sichuan Senmiao, is owned by 9 individuals in the PRC (see the corporate structure diagram below for details). As of February 26, 2018, purchase price for all equity transfers has been fully paid and the transfers have been completed. We have entered intopursuant to a series of contractual arrangements (the “VIE Agreements”) with Sichuan Senmiao and each of its equity holders through WFOE to obtain control and becomeholders. Senmiao Consulting became the primary beneficiary of Sichuan Senmiao. The contractual arrangements havehad been in place since the establishment of WFOESenmiao Consulting (the "Restructuring"“Restructuring”).
On March 23, 2022, shareholders with 94.5% equity interests of Sichuan Senmiao and Senmiao Consulting terminated the VIE Agreements. On March 28, 2022, these shareholders further sold a total of 94.5% equity interests of Sichuan Senmiao to Senmiao Consulting with a total consideration of zero due to continuous loss. Sichuan Senmiao became the majority owned subsidiary of Senmiao Consulting accordingly. On September 25, 2016, Sichuan Senmiao acquired a peer-to-peerP2P platform (including website, internet content provider ("ICP"(“ICP”) registration, operating systems, servers, management system, employees and users) (the “Aihongsen platform”) from Sichuan Chenghexin Investment and Asset Management Co., Ltd. ("Chenghexin"(“Chenghexin”), whowhich had established and operated the platform for two years prior to our acquisition (the "Acquisition"“Acquisition”), for an initial payment of RMB 60 million (approximately US$8.9 million) with the remaining payment to be confirmed upon completion of an appraisal of the platform. On March 26, 2017, the parties signed a supplement agreement to the purchase agreement whereby they confirmed the remaining payment based on the appraisal report. We paid a total cash consideration of RMB 69,690,000RMB69,690,000 (approximately US$10.1$10.1 million) for the platform. . Prior to the Acquisition, Sichuan Senmiao was a holding company that owned a 60% equity interest in an equity investment fund management company. Sichuan Senmiao sold its 60% equity interest for a cash consideration of RMB 60RMB60 million (approximately US$8.9$8.9 million) immediately following the Acquisition, in order to focus on the online marketplace lending business. We ceased the online lending services business in October 2019. On November 21, 2018, Senmiao entered into an Investment and Equity Transfer Agreement (the “Investment Agreement”) with Hunan Ruixi and all the shareholders of Hunan Ruixi, pursuant to which Senmiao acquired an aggregate of 60% of the equity interest of Hunan Ruixi with a consideration of zero. Senmiao closed the acquisition on November 22, 2018 and agreed to make a cash contribution of $6,000,000 to Hunan Ruixi, representing 60% of its registered capital, in accordance with the Investment Agreement. As of the date of this Report, Senmiao has made the full cash contributions (in the aggregate amount of $6,000,000) to Hunan Ruixi. Hunan Ruixi holds a business license for automobile sales and financial leasing and has been engaged in automobile financial leasing services and automobile sales since March 2019 and January 2019, respectively. Hunan Ruixi had a wholly owned subsidiary, Ruixi Leasing, a PRC limited liability company formed in April 2018 with a registered capital of RMB10 million (approximately $1.5 million). Ruixi Leasing had no operations and was dissolved in June 2022. Hunan Ruixi also owns 35% equity interest in Jinkailong and used to receive economic benefits of the remaining 65% equity interest through two voting agreements with other shareholders of Jinkailong. On March 31, 2022, the voting agreements were terminated by other shareholders of Jinkailong and Hunan Ruixi. As a result, Jinkailong ceased to be a VIE. Jinkailong is an automobile transaction and related services company in Chengdu City, Sichuan Province, China, which primarily targets drivers in the ride-hailing service sector, focus on automobile operating lease, and facilitates sales and financing transactions for its clients and provides relevant after-transaction services to them. Although Jinkailong was ceased from our consolidation scope since March 31, 2022, Huana Ruixi, Corenel and Jiekai continuously provide automobile transaction and related services similar to Jinkailong in Changsha and Chengdu. In May 2019, Senmiao formed its wholly owned subsidiary, Yicheng, with a registered capital of $50 million in Chengdu City, Sichuan Province, China. Yicheng obtained its business licenses for automobiles sale and has engaged in the sales of automobiles since June 2019. Yicheng used to have a license of financial leasing, which was terminated since June 2022. As of the date of this Report, Senmiao has made contributions in an aggregate amount of $5,750,000 to Yicheng. On September 11, 2020, Senmiao Consulting entered into an Investment Agreement relating to XXTX with all the original shareholders of XXTX, pursuant to which Senmiao Consulting would make an investment of RMB3.16 million (approximately $0.5 million) in XXTX in cash and obtain 51% equity interest accordingly. As of the date of this Report, the Company had remit approximately full amount of investment to XXTX pertained to above mentioned XXTX Investment Agreement. On October 23, 2020, the registration procedures for the change in shareholders and registered capital were completed and XXTX became a majority owned subsidiary of Senmiao Consulting. On February 5, 2021, Senmiao Consulting and all the original shareholders of XXTX entered into a supplementary agreement related to XXTX’s Investment agreement (the “XXTX Increase Investment Agreement”). Under the XXTX Increase Investment Agreement, all the shareholders of XXTX agreed to increase the total registered capital of XXTX to RMB50.8 million (approximately $7.40 million). Senmiao Consulting shall pay another investment amounted to RMB36.84 million (approximately $5.36 million) in cash in exchange of additional 27.74% of XXTX’s equity interest. As of the date of this Report, the Company had remitted approximately RMB36.60 million ($5.33 million) to XXTX pertained to above mentioned XXTX Increase Investment Agreement. On October 22, 2021, the Company, Senmiao Consulting, XXTX and its other shareholders further entered into a Share Swap Agreement (the “Share Swap Agreement”), pursuant to which the Company, through Senmiao Consulting, purchased all of the remaining equity interests the original shareholders held in XXTX at a total purchase price of $3.5 million, payable in the Company’s shares of common stock, par value $0.0001 per share at a per share price of the average closing price of a share of common stock reported on the Nasdaq Capital Market for ten (10) trading days immediately preceding the date of the Share Swap Agreement. On November 9, 2021, the issuance of 533,167 (5,331,667 pre reverse split) shares of the Company’s common stock for this transaction has been completed and on December 31, 2021, the registration procedures for the change in shareholders was completed. As a result, XXTX became a wholly-owned subsidiary of Senmiao Consulting. As of the date of this Report, Senmiao Consulting has made a cumulative capital contribution of RMB39.76 million (approximately $5.79 million) to XXTX and the remaining amount is expected to be paid before December 31, 2025. As of the date of this Report, XXTX had seven wholly owned subsidiaries and two of them have operations. In December 2020, Senmiao Consulting formed a wholly owned subsidiary, Corenel, with a registered capital of RMB10.0 million (approximately $1.6 million) in Chengdu City, Sichuan Province. Corenel is engaged in automobile operating lease since March 2021. In December 2020, Hunan Ruixi and a third party jointly formed a subsidiary, Chengdu Xichuang Technology Service Co., Ltd. (“Xichuang”), with a registered capital of RMB200,000 (approximately $32,000) in Chengdu City, Sichuan Province. Hunan Ruixi holds 70% of the equity interests of Xichuang. In August 2021, Hunan Ruixi signed an equity transfer agreement with the remaining shareholder of Xichuang. Pursuant to the equity transfer agreement, the remaining shareholder of Xichuang would transfer 30% of his shares to Hunan Ruixi for free. However, in November 2021, Xichuang was dissolved. The dissolution of Xichuang did not have a material impact to the Company’s financial results. In April 2021, Senmiao formed Senmiao Technology (Hong Kong), Ltd. (“Senmiao HK”), a limited liability company with a registered capital of $10,000 in Hong Kong. We hold 99.99% of the equity interests of Senmiao HK. As of the date of this Report, Senmiao HK has no operations. In March 2022, Corenel and another company in Chengdu formed a subsidiary, Jiekai, with a registered capital of RMB500,000 (approximately $80,000) in Chengdu City, Sichuan Province. Corenel holds 51% equity interests of Jiekai. Jiekai is engaged in automobile operating lease business since April 2022. Our Corporate Structure The following diagram illustrates ourthe Company’s corporate structure, including our subsidiaryits subsidiaries and consolidated variable interest entityequity investment as of the date of this Report: 
Former VIE Agreements with Sichuan Senmiao Due to PRC legal restrictions on foreign ownership and investment in value-added telecommunications services, and internet content provision services in particular, we currently conduct these activities throughSenmiao Consulting, Sichuan Senmiao and all the shareholders of Sichuan Senmiao (the “Sichuan Senmiao Shareholders”) entered into an Equity Interest Pledge Agreement, an Exclusive Business Cooperation Agreement, an Exclusive Option Agreement, Power of Attorneys, and Timely Report Agreements in September 2017 (collectively, the “Sichuan Senmiao VIE Agreements”). For the details of such agreements, please refer to the audited financial statements contained in the annual report on Form 10-K filed with the SEC on July 8, 2021. According to Sichuan Senmiao VIE Agreements, Senmiao Consulting was the primary beneficiary of Sichuan Senmiao, and the financial statements of Sichuan Senmiao are consolidated in the accompanying consolidated financial statements. On March 23, 2022, Senmiao Consulting and other shareholders holding 94.5% equity interests of Sichuan Senmiao terminated the Sichuan Senmiao VIE Agreements and purchased Sichuan Senmiao’s 94.5% equity interests with total consideration of zero. Sichuan Senmiao became the majority owned subsidiary of Senmiao Consulting accordingly. The termination and equity transaction had no significant impact on the consolidated financial statements.
Former Voting Agreements with Jinkailong’s Other Shareholders Hunan Ruixi entered into two voting agreements signed in August 2018 and February 2020, respectively, as amended (the “Voting Agreements”), with Jinkailong and other Jinkailong’s shareholders holding aggregate of 65% equity interest. Pursuant to the Voting Agreements, all other Jinkailong’s shareholders will vote in concert with Hunan Ruixi on all fundamental corporate transactions in the event of a disagreement for periods of 20 years and 18 years, respectively, ending on August 25, 2038. On March 31, 2022, Ruixi entered into an Agreement for the Termination of the Agreement for Concerted Action by Shareholders of Jinkailong (the “Termination Agreement”), pursuant to which the Voting Agreements mentioned above shall be terminated as of the date of the Termination Agreement. The termination will not impair the past and future legitimate rights and interests of all parties in Jinkailong. As of March 31, 2023 and 2022, the parties no longer maintained a concerted action relationship with respect to the decision required to take concerted action at its shareholders meetings as stipulated in the Voting Agreements. Each party shall independently express opinions and exercise various rights such as voting rights and perform relevant obligations in accordance with the provisions of laws, regulations, normative documents and the Jinkailong’s articles of association. As a result of the Termination Agreement, we effectively control throughno longer have a controlling financial interest in Jinkailong and have determined that Jinkailong was deconsolidated from our consolidated financial statements effective as of March 31, 2022. However, as Hunan Ruixi still holds 35% equity interests in Jinkailong, Jinkailong is our equity investee company since then. As of March 31, 2023, the paid-in capital of Jinkailong was zero. Former VIE Agreements with Youlu On December 7, 2021, XXTX entered into a series of contractual arrangements (collectively, the “Youlu VIE Agreements”) with Youlu and each of its equity holders (“Youlu Shareholders”). The term of Youlu is similar to the VIE Agreements with Sichuan Senmiao as follows: | • | Equity Interest Pledge Agreement. The WFOE, Sichuan Senmiao and all of the Sichuan Senmiao equity holders ("Sichuan Senmiao Shareholders") entered into an Equity Interest Pledge Agreement, pursuant to which Sichuan Senmiao Shareholders pledged all of their equity interest in Sichuan Senmiao to WFOE in order to guarantee the performance of Sichuan Senmiao's obligations under the Exclusive Business Cooperation Agreement as described below. During the term of the pledge, WFOE is entitled to receiving any dividends declared on the pledged equity interest of Sichuan Senmiao. The Equity Interest Pledge Agreement ends when all contractual obligations under the Exclusive Business Cooperation Agreement have been fully performed. |
| • | Exclusive Business Cooperation Agreement. Pursuant to an Exclusive Business Cooperation Agreement by and among the Company, WFOE, Sichuan Senmiao and each of the Sichuan Senmiao Shareholders, WFOE will provide Sichuan Senmiao with complete technical support, business support and related consulting services during the term of the agreement. The Sichuan Senmiao Shareholders and Sichuan Senmiao have agreed not to engage any other party for the same or similar consultation services without WFOE's prior consent. Further, Sichuan Senmiao Shareholders are entitled to receive an aggregate of 20,250,000 shares of common stock of the Company under the Exclusive Business Cooperation Agreement. The term of the Exclusive Business Cooperation Agreement is ten years from September 18, 2017. The WFOE may terminate the Exclusive Business Operation Agreement at any time upon prior written notice to Sichuan Senmiao and the Sichuan Senmiao Shareholders. |
| • | Exclusive Option Agreement. Pursuant to an Exclusive Option Agreement by and among the WFOE, Sichuan Senmiao and each of the Sichuan Senmiao Shareholders, the Sichuan Senmiao Shareholders have granted WFOE an exclusive option to purchase at any time in part or in whole their equity interests in Sichuan Senmiao for a purchase price equal to the capital paid by the Senmiao Shareholders, pro-rated for purchase of less than all the equity interest. The Exclusive Option Agreement terminates in ten years from September 18, 2017 but can be renewed by WOFE at its discretion. |
| • | Powers of Attorney. Each of the Sichuan Senmiao Shareholders has entered into a power of attorney (the "Power of Attorney") pursuant to which each of the Sichuan Senmiao Shareholders has authorized the WFOE to act on his or her behalf as the exclusive agent and attorney with respect to all rights of such individual as a shareholder, including but not limited to: (a) attending shareholders' meetings; (b) exercising all the shareholder's rights, including voting, that shareholders are entitled to under PRC law and the Articles of Association of Sichuan Senmiao, including but not limited to the sale or transfer or pledge or disposition of the equity interests of Sichuan Senmiao owned by such shareholder; and (c) designating and appointing on behalf of the shareholders the legal representative, chairperson, director, supervisor, chief executive officer and other senior management members of Sichuan Senmiao. The Power of Attorney has the same term of the Exclusive Option Agreement. |
| • | Timely Report Agreement. The Company and Sichuan Senmiao entered into a timely report agreement pursuant to which Sichuan Senmiao agrees to make its officers and directors available to the Company and promptly provide all information required by the Company so that the Company can make necessary SEC and other regulatory reports in a timely fashion. |
Our Industry
Consumption in China is growing rapidly but remains underfinanced, suggesting significant growth potential for China's consumer finance market.
Consumption in China has experienced rapid growth as a result of China's economic development and rising consumption power among Chinese consumers.described above. According to the World Bank, China's GDP increased from US$7.6 trillionVIE Agreements, Youlu was obligated to pay XXTX service fees approximately equal to its net income. Youlu’s entire operations were, in 2011 to US$10.1 trillion in 2015, while annual per capita disposable income increased from US$5,634 in 2011 to US$8,069 in 2015. Consumption has increasingly become an important driver of China's GDP growth,fact, directly controlled by XXTX. There were no unrecognized revenue-producing assets that were held by Youlu. However, on March 31, 2022, the Youlu VIE Agreements were terminated by XXTX and Youlu Shareholders. As Youlu had limited operation, the termination had no significant impact on our consolidated financial statements.
Recent Developments 1-for-10 Shares Reverse Split We implemented a 1-for-10 reverse stock split on our common stock which became effective on April 6, 2022. In connection with the reverse stock split, we filed a Certificate of Change with the State of Nevada to reduce the authorized number of shares of our common stock from 100,000,000 shares to 10,000,000 shares, the reduction at the same ratio as its issued and outstanding shares of final consumptioncommon stock. No amendment to GDP reaching 51.1%our Articles of Incorporation and no stockholder’s approval are required pursuant to Nevada Revised States 78.207 and 78.209. Actual and Potential Impact of Coronavirus (COVID-19) in 2015, according to the National Bureau of Statistics of China. "Final consumption" is the total expenditure of residentsChina on Our Business Impact on the consumption of goodsAutomobile Transactions and services in a certain period, namely the expenditure of residents for purchases of goodsRelated Services Our Automobile Transactions and servicesRelated Services have been gradually recovering from the domestic economic territory and abroadadverse impact of COVID-19 pandemic. As of March 31, 2023, 108 online ride-hailing drivers Hunan Ruixi serviced rendered their automobiles to meet the requirements of their daily life, and excludes the expenditure of non-residents on consumption in the economic territory of the country. While China's ratio of final consumption to GDP in 2015 was 51.1%, it was still relatively low compared to the corresponding figure for the U.S. in the same period, which was 82.5% according to the World Bank, suggesting tremendous future potential. We believe the United States, which is characterized by high levels of consumption and high consumption loan balance to GDP ratios, provides a good proxy for the way China may develop given the growth of China's economy, China's large and expanding consumer base and the Chinese government's policies to encourage consumption. As consumption in China continues to rise, we believe China's consumer finance market will develop to address unmet consumer demand. China's Consumer Finance Market
Despite growing consumption levels, consumption in China is underfinanced primarily because loans from traditional financial institutions are not easily accessible. For example, to obtain a bank loan, a potential borrower needs to physically go to a bank branch. However, most bank branches offering consumption loans are located only in tier 1 and tier 2 cities such as Beijing, Shanghai and Guangzhou. In addition, the application process for a bank loan is complex and time-consuming. The perceived ineffectiveness of traditional financial institutions at serving the consumer finance market potentially suggests business opportunities for alternative credit providers. According to iResearch Consulting Group, a market research and marking company in China ("iResearch"), China's consumption loan exceeded RMB 22 trillion (approximately US$3.4 trillion) in 2016 and is expected to further grow to RMB 40.1 trillion (approximately US$6.2 trillion) by 2020. The development of new financial services and products will be one of the key growth drivers.
The consumer finance market consists of secured consumption loans such as car loans and home mortgages, and unsecured consumption loans such as credit cards and other unsecured loans from banks and consumer financing companies. China's credit balance in 2015 was RMB 93.6 trillion (approximately US$14.4 trillion), representing an increase of 14.9% from the prior year. Unsecured consumption loans are expected to exhibit relatively stronger growth. According to a report issued by iResearch, China's consumption loan balance had reached RMB 19 trillion (approximately US$2.9 trillion) by the end of 2015, and is expected to reach RMB 41.1 trillion (approximately US$6.3 trillion) by the end of 2019. Key drivers behind the expected growth in China's unsecured consumer finance market include the penetration of consumer finance into more consumption categories, the continued development of a nationwide personal credit information database, which improves the ability of lenders to evaluate potential borrower risk, and credit providers' increasing awareness of the business opportunity in the sector.
Opportunities for Marketplaces Connecting Borrowers and Investors
We believe China's rapidly growing consumption levels and relatively limited consumer finance options have created opportunities for marketplaces that connect borrowers and investors. According to iResearch, transaction values for marketplaces that focus on consumption loans, or consumer finance marketplaces, are expected to grow from RMB 436.7 billion (approximately US$522.9 billion) in 2016 to RMB 3.4 trillion (approximately US$67.2 billion) in 2019, representing a compound annual growth rate of 98.2%. The primary drivers for the growth of consumer finance marketplaces include the growing consumption market and increasing demand for consumer finance. In addition, it is also driven by consumers' need for higher borrowing limits and convenient transaction processing, and improved credit assessment capabilities made possible through the application of big data analytics.
Additional drivers for the growth of online consumer finance marketplaces include increased internet and mobile penetration among consumers, the emergence of online marketplaces and ecommerce platforms that drive consumer behavior from offline to online, as well as the ability to realize comparatively lower user acquisition costs and higher operating efficiencies.
Recent Developments in the Peer-to-Peer Lending Industry
The online lending marketplace industry in China is intensely competitive and we compete with many other peer-to-peer marketplaces. According to the China Peer-to-Peer Industry Report for 2016 (the "P2P Report") issued by Lingyi Research Center, an independent research institution, there were approximately 4,856 peer-to-peer lending marketplaces in China as of December 2016. The number of platforms increased to 5,229 as of July 2017. In light of the low barriers to entry in the peer-to-peer lending industry in China, we expect more players to enter this market and increase the level of competition.
Despite the continuous increase of the number of lending platforms, the peer-to-peer lending market in China has been subject to risky lending practices (such as over-leveraging) and platform failures. According to the P2P Report, as of December 2016, 3,201 platforms (or 65.9%) had the above referenced issues, 21 of which were located in Sichuan. Among these problematic platforms, 433 platforms (or 39.2%) closed and 395 platform (or 35.7%) suspended their operations.
In response to the ongoing platform failures and continuous risky lending practices, the PRC government has increased its regulation of peer-to-peer lending since 2015. The most significant regulation is the Interim Measures for the Administration of Business Activities of Online Lending Information Intermediaries (the "Interim Measures"). The Interim Measures set forth the upper limit for borrowing amounts of individuals and entities from one platform and the upper limit for aggregate borrowing amounts of each type of these borrowers from all peer-to-peer lending platforms within one year. Recent regulatory developments have facilitated operational adjustments that we expect will improve lending practices on peer-to-peer platforms in China. In order to comply with the Interim Measures, peer-to-peer lending companies are adjusting various aspects of their operations, including loans offered on their platforms and risk management programs. One of the significant trends since the Interim Measures became effective is the transition to smaller loans. The Interim Measures also require lending platforms to use banks as custodian.Hunan Ruixi. As a result, lending platforms are switching to bank custodians. According to Lingyi Research Center, as of December 2016, 227 platforms signed depository agreements with custodian banks.
In light of the increased regulations, the number of peer-to-peer lending platforms entering the market has been decreasing since mid-2016. According to Lingyi Research Center, approximately 38 lending platforms entered into the market in July 2016 and the number decreased to 8 in December 2016. For more information on regulations on marketplace lending, see "Business – Regulations" and "Risk Factors."
Our Platform
Our platform capitalizes on opportunities presented by a financial system that leaves many creditworthy individuals and businesses underserved or even unserved. Our online business platform allows us to efficiently match borrowers with investors. We provide borrowers with convenient access to financing at competitive rates, while we offer investors attractive returns. Our platform provides the following benefits to borrowers, creditors and investors:
Benefits to Borrowers
We believe our platform provides the following benefits to our borrowers:
| • | Easy access to credit or more liquidity. We believe borrowers are significantly underserved by the current consumer finance system in China, which provides insufficient or, in some cases, no access to funds at all. We provide borrowers with access to loans based on borrower's risk profile and credit history. The principal amount of loans facilitated on our platform generally range from RMB 10,000 (approximately US$1,538) to RMB 1,000,000 (approximately US$153,782). |
| • | Quick and convenient access. We provide borrowers with an online loan application and management platform that can be accessed anytime and anywhere through our website and mobile applications. We also provide borrowers with access to live support and easy-to-use online tools throughout the application process and for the lifetime of the loan including a 24/7 customer service hotline and web chat. |
| • | Fast credit approval. We provide borrowers with faster decisioning compared to traditional sources of consumer financing in China, which may take weeks to provide a decision on a loan application. We generally notify qualified borrowers with completed documentation of our decision within a day. |
| • | Competitive rates and payments. We offer borrowers competitive interest rates as compared with the rates charged by our competitors. During the year ended March 31, 2018, qualified borrowers paid an average interest rate of approximately 7.57% on an APR basis. |
| • | Transparent marketplace. We offer borrowers a transparent application process with foreseeable turnaround times and clear documentation requirements. All of the loans facilitated through our platform feature fixed interest rates, which together with service fees and late payment penalties, are clearly disclosed to borrowers during the application process. |
Benefits to Investors
We believe our platform provides the following benefits to our investors:
| • | Access to a new asset class. We provide investors seeking funding opportunities with access to an investment opportunity that is outside the traditional and limited investment channels available to investors in China. We offer investors the ability to invest as little as RMB 100 (approximately US$15.4), allowing the investors to invest in diversified portfolio of loans. |
| • | Attractive returns. We offer investors attractive potential returns, which currently range from 7.07% to 9.94% on an annualized basis after fees, which is higher than traditional investment products such as bonds, treasurer bills, and certificates of deposit. Our risk management and credit screening capabilities help to improve the reliability of returns obtained through our platform. |
| • | Easy and quick access. We offer investors 24/7 access to all available services through our website and mobile applications. We provide investors with an online tool that automatically invests a specified amount of funds committed by the investor according to investor-specified criteria, including: investment amount, method of repayment, desired rate of return and tenure. We also provide a 24/7 customer service hotline and web chat to answer any additional questions that investors may have. |
| • | Investor protection. We focus on investor protection through all stages of a transaction including but not limited to implementing strict risk management measures to assess and verify borrowers' creditworthiness and monitoring payment status. With all these efforts, we have not had any defaulted loan or delinquencies since our inception. We also strive to follow good industry practices to protect our investors. For example, we have engaged Sichuan XW Bank Co., Ltd. ("XW Bank") for fund depository functions including settlement, accounting and safeguarding online lending capital and obtained the Level III Certification of Information System Security issued by the Ministry of Public Security (the "MPS"). |
Our Strengths
We believe the following competitive strengths contribute to our success and differentiate us from our competitors:
Fast growing online lending platform in Sichuan servicing direct selling industry
Our platform was one of the early online lending platforms in Sichuan province. From the Acquisition of our platform through March 31, 2018, our platform successfully facilitated loans (including loan assignments) between 2,089 investors, 2,406 borrowers and two creditors, representing an aggregate valuerecorded accumulated allowance for doubtful accounts of approximately RMB 579 million (approximately US$89 million). We are also leveraging our relationship with Resgreen Group, a direct selling company based in Changsha, China, with over a million members, to jointly promote our products and services to their business partners and members. We are aiming to position ourselves as a leading online consumer finance platform$378,941 for the direct selling industry in the PRC. We believe our scale, brand, risk management capabilities and technology platform allow us to effectively attract new participants, lower costs for our users, provide high-quality loan investment opportunities, create higher liquidity and thus reinforce our market position.them. As of the date of this Report, there are approximately 35 lending platforms in Sichuan province. The Company's primary competitors in Sichuan include Sichuan Jinding Wealth Information Technology Co., Ltd. ("Jinding Wealth"), Koudai Network Services Co., Ltd., Chengdu Hongxue Jinxin Business Consulting Co., Ltd. and Chengdu Zhongke E-Commerce Co., Ltd. Although some of these companies, such as Jinding Wealth, are established lending platforms with large and existing borrower and investor bases as well as substantial financial resources, compared to these lending platforms, we believe that our sophisticated custodian system and compatibility with current PRC regulations will make us more attractive to both borrowers and investors. Based on information available on the websites of our competitors as well as www.wdzj.com, an independent third party website that focuses on the P2P lending industry in China, we believe we are the first non-state owned lending platform in Sichuan that has established a custodian system with a depository bank pursuant to the requirements of applicable PRC regulations. We set up our custodian system in February of 2017 while most of our competitors were either negotiating their agreements with custodian banks or were (or remain) in the process of transitioning to the custodian system operated by their depository banks. In addition, loan transactions on our platform comply with restrictions on aggregate loan amounts for individual borrowers and entities set forth in PRC regulations while our competitors are in the process of restructuring loans on their platforms to comply with such requirement.
Low investment thresholds
We attract investors with a minimum investment amount of RMB 100 (approximately US$15.4), which is lower than most of the traditional investment products, thereby providing investors withleasing term of the flexibility to invest as much and as frequently through our platform as desired. A low minimum investment amount also enables investors to diversify their loan portfolio.
From the Acquisition to March 31, 2018, the average investment was approximately RMB 40,612 (approximately US$6,245) and the average number of loansautomobiles we delivered in an investor's loan portfolio was 7.07.
Attractive user experience
We offer a superior user experience to our platform participants. We provide borrowers and creditors with quick and convenient access to credit at affordable and competitive rates through our online platform that is accessible anytime and anywhere online and through our mobile application. For the year ended March 31, 2018, we facilitated loans to 2,369 borrowers and loan assignments to two creditors through our platform.
We offer investors easy and quick access to an alternative asset class with attractive potential returns, as well as an attractive user experience. For the year ended March 31, 2018, 1,839 investors made investments through our platform with an average investment amount of approximately RMB 45,526 (approximately US$7,001) per investor. Of these investors, 73.01% were repeat users of our platform, defined as those investors who made two or more investments through our platform during the period.
Cost efficient user acquisition
We investChangsha in developing relationships with direct selling companies because we believe that they are well positioned to introduce our platform to a very broad potential user base dueprior periods has come to the nature of their business. We have partnered with Resgreen Group. Since March 2017 through March 31, 2018, we acquired approximately 22,654 new users through referrals from Resgreen Group, of which approximately 471 had invested through our platform while none of them had borrowed. With the increase in the number of new users from our partnership with Resgreen Group, we are able to effectively lower our user acquisition costs as compared to traditional user acquisition channels because we have been able to precisely market our platform to a large number of potential users with relevant low marketing expenses. Pursuant to our strategic cooperation agreement with Resgreen Group, we have the right to participate in all meetings Resgreen Group organizes for its members, at which we can promote our brand and services and attract Resgreen members. Once these Resgreen members become registered users of our platform, they can potentially become borrowers and investors on our platform. We have agreed to provide Resgreen members access to our platform where they can view investment opportunities and information related to wealth management posted on our platform. Resgreen has also agreed to provide to us information regarding their members, including members' basic information as well as sales and financial data of each member within the Resgreen direct sale network. We plan to develop targeted marketing strategies towards Resgreen members by analyzing such data. We have agreed to provide Resgreen Group our analysis of their members' information. Our business relationship with Resgreen Group is strategic rather than economic by its nature. Resgreen Group is not entitled to any fees when any of its members becomes a borrower or investor on our platform.
Comprehensive risk management system
Our risk management system enables us to evaluate potential borrowers in a market where reliable credit scores and borrower databases are still at early stage of development. Our system is built upon data accumulated through our operations, publicly available governmental data, and third-party credit sources. We supplement these data with manual verification and fraud prevention processes. We consistently upgrade our risk management model with new credit data and technologies. We believe our risk management is prudent, as evidenced by the performance of various loan vintages facilitated through our platform.
Experienced management team
We have a strong management team with many years of experience in consumer finance in China. Our chief executive officer, Ms. Xin Chen, played a key role in the establishment and operation of another peer-to-peer lending platform prior to joining Sichuan Senmiao. She also has over 20 years' of accounting and finance experience based on her managerial and executive positions at various investment and real estate companies. Our management members also have significant experience in the consumer lending industry spanning multiple areas of expertise, including loan origination, risk management, product development, third party payment and collection in China.
Our Users
Our Borrowers
We service both individuals and SME borrowers. We acquire our borrowers mostly through referrals from financial institutions such as banks, micro-lending companies and guarantee companies due to the differences between these institutions' operation model, product offering and targeted customer and our own. These institutions refer borrowers to us if they believe that our platform and loans offered on our platform better serve the borrowers' needs for financing. For example, guaranty companies are not allowed to extend loans, so they refer borrowers to us and they may serve as guarantors in such transactions for services fees, while banks in China focus on traditional large scale standardized loan products and they do not typically serve our targeted market. The borrowers they refer to us are generally looking for short-term financings below RMB 1,000,000 (approximately US$153,782) to fund their cash flow requirement. We are not obligated to pay any fees to any of these institutions and have not paid any referral fees as of the date of this Report. We also acquire borrowers through our own marketing efforts such as event promotions, online marketing, user meetings and sales support. For the year ended March 31, 2018, we have facilitated loans to over 2,369 borrowers with an aggregate principal amount of approximately RMB 529 million (approximately US$81.4 million).
Our Creditor Partners
Prior to 2018, our platform was also accessible to creditors ("Creditor Partners") who had extended loans to borrowers outside our platform ("Outside Loans"). We provided our Creditor Partners the ability to assign their creditor's rights under the Outside Loans to obtain interim financing before loan maturities.
We would review and evaluate a Creditor Partner's financial conditions and credit profiles and make a determination if they would meet our minimum requirements for listing the Outside Loans on our platform. We would re-evaluate these partners' credit status from time to time, usually on a monthly basis. Once the Creditor Partner was approved, we would categorize the partner's credit facility into one or more of the loan products and post their loans on our platform. Investors would then have access to information regarding the original borrower, the loans being assigned, the collateral or guaranty securing the loans and other details related to the assigned loans. Our Creditor Partners were required to repurchase the Outside Loans at the end, of the assignment term.
The Creditor Partners had conducted their own due diligence on the original borrower's creditworthiness for the Outside Loans when they originally made these loans. Our risk control department also would conduct its own due diligence on the creditor's rights sought to be assigned and the original borrower's credit-worthiness, applying the same standards we use to review borrowers for direct loans. As part of this process, our risk control department would review the loan contract between the Creditor Partner and the original borrower to determine whether the original borrower had agreed to the proposed assignment of creditor's rights. We would then directly contact the original borrower to ensure that they had received notice of proposed assignment from the Creditor Partner.
When our Creditor Partners assigned Outside Loans to investors on our platform, all rights of the Creditor Partners were assigned to the investors. Borrowers under the Outside Loans would remain legally obligated to pay off the assigned Outside Loans. Existing guarantors of the Outside Loan would remain legally obligated to perform their obligations under the assigned loans. Neither we nor the Creditor Partner would have any obligation to repay the assigned loan or provide a payment guarantee.
For this service, we charged our Creditor Partners service fees ranging from 0.32%-0.94% of the assigned loan principal. For the year ended March 31, 2018, the term of assignment of the loans averaged 28 days and the size of the loans assigned on our platform during this period was $36,281 on average.
Each Creditor Partner had a maximum amount of outstanding loan assignments permitted on our platform ("Total Assignment Cap") that was approved by our loan assessment committee when we approved the Creditor Partner. The Total Assignment Cap was RMB 50 million (approximately US$7.7 million) for each of our Creditor Partners prior to our discontinuation of the assigned loan products.
We had two Creditor Partners prior to discontinuation of our loan assignment services — one is an automobile dealer that offers short-term financing to car purchasers and the other is engaged in providing loan services.
Starting in January 2018, we no longer offer the loan assignment services to our Creditor Partners in preparation for our record-filing under the newly promulgated regulations of the marketplace lending industry. For more information on these regulations, see " Regulations — Regulations Related to the Marketplace Lending Industry." All the balance of the assigned loans was paid in full during the year ended March 31, 2018 before2023, the date we applied for our record-filing.
Our Investors
We accept investments from individual investorsnumber of all income levels. This large and rapidly growing sector of the Chinese investors is currently underserved by traditional investment products in China. We seeknewly rendered automobiles decreased to attract individual investors because members of this demographic group are a significant untapped source of capital.
For8 as compared with 25 during the year ended March 31, 2018, 1,839 investors made investments totaling approximately RMB 529 million (approximately US$81.4 million) through our platform. During this period, average annual investment return for investors on our platform was 7.57%. As2022. Meanwhile, over 1,200 online ride-hailing drivers rendered their automobiles to Jinkailong as of March 31, 2018,2023. However, our daily cash flow will be adversely impacted as a result of the unsatisfied collection from the online ride-hailing drivers and our potential guarantee expenditure pursuant to the financing agreements we guaranteed. Our cash flow has been adversely impacted by local resurgences of COVID 19 in Chengdu, Changsha and Guangzhou while China kept applying the zero-COVID policy control and prevention measures especially from September to November 2022, which had negative impact on the online ride-hailing market accordingly due to travel restriction. In addition, our automobile purchasers and lessees may be unable to generate sufficient income to make their monthly installment payments, which may create a significant risk of continuing default from our automobile purchasers or lessees. As a result, we may have to repay the defaulted amount as a guarantor or lose the monthly rental revenue. If we experience a widespread default by our automobile purchasers/lessees, our cash flow and results of operations will be materially and adversely affected. As a consequence, we could face shortfalls in liquidity without extra financing resources for the foreseeable future and lose the ability to grow our business or may even be required to scale down or restructure our operations.
Impact on the Ride-Hailing Platform Services XXTX commenced the operation of its online ride-hailing platform since late October 2020 and have witnessed the decrease in online ride-hailing orders in July 2021, November 2021, February 2022, September 2022 and December 2022, when Chengdu, Changsha and Guangzhou reported several confirmed COVID-19 cases, the local government usually ensured concrete and effective measures to fight against the resurgence, including suspending some traffic activities in certain medium-risk and high-risk areas. Fewer people took ride-hailing trips as a result and the average daily rides completed through our platform decreased and our income increased accordingly. The average daily rides completed through our platform decreased by approximately 20% to 30% compared to that before the reporting of the new COVID-19 cases in these cities and recovered one to two weeks later as the new confirmed cases were fully under control. Furthermore, the online ride-hailing services in Chengdu was temporally suspended by the Municipal Communications Commission of Chengdu from September 1 to September 18, 2022, when Chengdu reported accumulated over 3,372 investors1,000 COVID-19 cases since late August 2022. We also had no income from the online ride-hailing platform services in Chengdu during those periods. The total number of rides completed through our platform in September 2022 decreased by approximately 35% compared with the prior months. Consequently, the income of our Automobile Transaction and Related Services customers who ran their business through the online ride-hailing platforms also decreased during this period. Since March 2022, major outbreaks of the Omicron variant of COVID-19 occurred in many parts of China. These outbreaks resulted in lockdowns, highway closures and other restrictive measures across China, which caused severe hardships to countless dealers and consumers. Furthermore, Chengdu suffered an infection peak in the middle of December, after China shifted the prevention and control of COVID-19 infection strategy in December 2022. Base on the surveys released from Sichuan Provincial Center for Disease Control and Prevention, the actual infection rate of the surveyed population was estimated to be over 80 percent. And the peak of positive detection in the whole province was concentrated from December 12 to 23, which caused significant decreasing orders for online ride-hailing in December. The central government of China has adjusted the prevention and control measures of COVID-19, and gradually restored the order of production and life, which would bring optimism for us to operate our online ride-hailing platform in the next 12 months. We may have a larger cash outflow in our daily operations in the next twelve months as we expand our Online Ride-hailing Platform Services in more cities in China and incur more marketing and promotion expenses. Our cash flow situation may worsen if the economy in China does not improve as expected. Any of these factors related to COVID-19 and other similar or currently unforeseen factors beyond our control could have an adverse effect on our platform.overall business environment, causing uncertainties in the regions in China where we conduct business, and causing our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations. Customers CooperationThe significant majority of our Operating Entities’ customers are online ride-hailing drivers. Due to the complexity and difficulty of obtaining registration of various licenses required for driving an online ride-hailing car, our customers choose to lease automobile from us or become affiliated with Business Partners
With an aimus who offer them a simplified and smooth process to facilitate our record-filingobtain qualified cars for online ride-hailing. The automobile lessees typically lease automobiles which meet the criteria of cars used for online ride-hailing for their own business in the industry. The automobile purchasers typically become affiliated with relevant authorities under Circular 57 (defined below)Hunan Ruixi and the Interim Measures, we discontinued our loan assignment services for our Creditor Partners in January 2018.
However, in order to continue to utilize our relationships with prior creditors, whom we referred to as business partners due to change of business model, we signed cooperationJinkailong through affiliation agreements with them pursuant to which they would refer their customers with financing needsHunan Ruixi and Jinkailong, as a qualified management company, provide them post-transaction management services during the affiliation period, which is usually the same as the term of the Financing Agreements. The users of Xixingtianxia platform typically use it to our platform. Pursuant to the cooperation agreements, we sent our employees to the office of our business partnersview and such employees would collect and review loan application materials from our business partners' customers who would like to seek financing through out platform and verify their identity, credit and financial conditions based on our standards. Our business partners would also collect, review and assess loan application materials from their customers as part of their risk management process because they will provide guarantytake customer orders for the loans their customers take through our platform.
rides. Our business partners would pay forAuto Business Entities acquire customers through the transaction fees on behalfnetwork of their customers when the loans transactions of their customers are concluded. Specifically, the transaction fees for loans accruing interest on a monthly basis are paid upon disbursement of loan proceedsthird-party sales teams, cooperated lease companies and the transaction fees for loans accruing interest on a daily basis are paid upon full payment of principalour own efforts including online advertising and interest. The transaction fees chargedbillboard advertising. Our operating entities also send out fliers and participate in trade shows to the borrowers referred by business partners varied based on the amount of businessadvertise our business partners refer to us and the default risk of borrowers referred, ranging from 0.30% to 2.98% of the loan amounts. Our business partners as well as their affiliates would guarantee the payment of the loans. They are parties to the loan transaction documents and would be jointly and severally liable for the payment of the loans, including principal, interest, penalties, and other fees associated with collection of the loans. In addition, to further secure the loan transaction, we sometimes would require a business partner to provide a security deposit for each referred loan transaction. The security deposit would be used to pay back the investors when the referred borrower failed to pay principal and interest in time and the business partner would need to deposit additional funds to ensure sufficient funds at required level.
Each business partner had a maximum amount of loans referred permitted on our platform ("Total Referral Credit") that was approved by our loan assessment committee when we approved the business partner. The Total Referral Credit ranged from RMB 50 million (approximately US$7.7 million) to RMB 200 million (approximately US$30.8 million).
In February 2018, Sichuan province issued local guidelines on the rectification and acceptance of internet lending information intermediaries which require the guarantors for the loans facilitated by lending platforms to be guaranty institutions or insurance companies that hold professional guaranty qualifications. Our business partners who guaranteed the loans do not hold the guarantor qualifications. To comply with the local guidelines and also as part of our preparation for our record –filing under the new marketplace lending regulations and as requested by the local finance bureau in connection with their inspection of our operations, we ceased our cooperation with business partners in March 2018 and began to focus on facilitating loan transactions solely between borrowers and investors on our platform.
User Acquisition
We have adopted a sales and marketing strategy aimed at enhancing our profile in the marketplace lending industry and the credit industry as a whole. Our sales and marketing efforts have included event promotions, online marketing, user meetings and sales support. In addition, in order to increase our brand recognition among potential borrowers and investors, we have participated in industry or government organized forums and summits. Our recent borrower acquisition activities have primarily comprised of developing user base through our strategic alliance with Resgreen Group as well as identifying potential borrowers through online advertisement. In connection with our online marketing efforts, we have taken search engine optimization measures to increase our search index results on third-party search engines.
Our Products and Services
Products Offered to Borrowers
We facilitate fixed-rate loans to individual and SME borrowers who are in need of capital for business operations. Currently, the loans offered on our platform have a term ranging from 1 month to 36 months and are unsecured. Historically, the loans facilitated on our platform were secured either by real property, large tangible assets such as automobiles, or guaranteed by unaffiliated third parties. As described above, we ceased to offer loans secured by guarantors who do not hold guarantor qualifications in February 2018 following the issuance of local guidelines on the rectification and acceptance of online lending information intermediaries.
Pursuant to the requirement of the Interim Measures, we do not permit individual borrowers to hold loans with aggregated outstanding principal of more than RMB 200,000 (approximately US$30,756) or SME borrowers to hold loans with aggregated outstanding principal of more than RMB 1,000,000 (approximately US$153,782). Within the maximum loan amount permitted by applicable PRC regulations and the scope of our risk management policy, we allow borrowers to hold multiple loans that are facilitated through our platform at one time.
Direct loans facilitated on our platform range in the amount of RMB 10,000 (approximately US$1,538) to RMB 200,000 (US$30,756) for individual borrowers and RMB 23,900 (approximately US$3,675) to RMB 1,000,000 (approximately US$153,782) for SMEs. Our direct loans currently outstanding include loans of three months, six months and 36 months. The annual interest rate for direct loans averaged 7.57% forservices. During the year ended March 31, 2018.
For2023, we have serviced over 7,000 customers, including approximately 4,000 customers of Jinkailong, for our Automobile Transaction and Related Services. During the year ended March 31, 2018, we facilitated loans to 2,369 borrowers2023, approximately 6.1 million rides with gross fare of approximately $19.9 million were completed through our platform and the total amount of funds loaned to borrowers through our platform was approximately RMB 529 million (approximately US$81.4 million).
The APRs for the term loans on our platform currently range from 7.68% to 10.8%. We also charge borrowers transaction fees for our services ranging from 4.14% to 6.14%. The transaction fee is charged as a percentage of the loan amount and is typically paid up-front at the time of the disbursement of loan proceeds for loans accruing interest on a monthly basis and upon full payment of principal and interest of loans accruing interest on a daily basis. We recognize revenues generated from transaction fees when the loan transactions are closed and invoices for such fees are issued. The interest rate and transaction fee represent the total cost of borrowing for borrowers. A penalty fee for late payment is imposed as a percentage of the amount past due and will be paid to the investors should a default occur. All fees are clearly disclosed to the borrowers. As of the date of this Report, we have not collected any penalty for late payment because there has not been any default or delinquencies since we acquired the Aihongsen platform.
We do not allow loan rollovers, i.e., the repayment of a loan using proceeds from a new loan. If an applicant has outstanding loans below the statutory limit, (i.e. RMB 200,000 for individuals and RMB 1,000,000 for enterprises), we would allow such applicant to borrow additional amounts provided that additional guaranty/collateral is provided and such application meets all the criteria for a new loan. The proceeds of a new loan cannot be used to pay off the prior loans of the same borrower.orders.
Risk Management Services Offered to Creditor Partners
We used to provide our Creditor Partners with a platform to assign their existing loans to meet their cash flow requirements. Starting January 2018, we discontinued the offering of assigned loan products on our platform to facilitate a smooth record-filing under Circular 57 (defined below) and the Interim Measures.
By the time we suspended our loan assignment services, an aggregate of 1,295 loans totaling approximately RMB 230 million (approximately US$35.4 million) were assigned to investors through our platform. We also charged fixed interest rate based on the term of the assignment of the loans. The APRs for the assigned loans on our platform ranged from 6.78% to 8.64%. Including interest, our total charge for Creditor Partners generally ranged from 12% to 18% of the loan amount. The interest and transaction fee were typically paid when assignment proceeds were disbursed but we sometimes allowed payment at the time the Creditor Partner repurchased the Outside Loans. We generally recognized revenues from Creditor Partners when the assignments were consummated.
Services Offered to Investors
Through our platform, investors have the opportunity to invest in a range of loan products with attractive returns. We provide our investors with an automated investing tool with which an investor can invest a specified amount of money to borrowers or previously our Creditor Partners through our platform for a specified period of time. Once an investor commits funds to invest, the funds are automatically allocated among approved borrowers. Our automated investing tool automatically reinvests investors' funds as long as there are sufficient funds in the investor's account, enabling investors to automatically reinvest without having to continually revisit our website or mobile application. Investors using our automated investing tool are allowed to withdraw their funds before a loan is fully subscribed. During the fiscal year ended March 31, 2018, over 70% of the funds invested by investors through our platform were invested utilizing this automated investing tool.
The minimum threshold for a lending commitment made through our automated investing tool is RMB 100 (approximately US$15.4). For the year ended March 31, 2018, the average amount invested through our automated investing tool by each investor was approximately RMB 24,404 (approximately US$3,753). The rate of return offered to an investor after deducting the management fee varies with the duration of the investment term. Currently, the rate ranges from 7.23% to 9.94% for loans with a term from 90 days to 36 months.
We charge investors a service fee for using our investing platform. The service fee is equal to 8.00% of the interest that investors receive, and is paid at the time of each interest payment. There is no service fee if there's no investment made from investors. We recognize revenues for services provided to investors when such fees are paid by and invoices are issued to the investors.
Our Platform and the Transaction Process
Our platform provides a streamlined application process for borrowers and investors alike. The entire process from initial application to disbursement of funds on average takes approximately 20 days for direct loans and approximately one day for loan assignments. With respect to loan assignments, the initial review and approval of our Creditor Partners would generally take one to three months but the approval of subsequent loan assignments would generally take a day as the Creditor Partners had been pre-approved and our review would involve less documents and procedures. Our initial review and approval of our business partners would generally take a month but the approval of loans to borrowers referred by our business partners would take one to five days.
The following illustrates the entire application and funding process through our platform:
Stage 1: Application
Our borrower application process begins with the submission of a loan application by a prospective borrower. Borrowers can apply through our website or mobile applications. As part of the application process, the prospective borrower is asked to provide various personal and business details. The specific personal and business details required will depend upon the borrower's desired loan product, but typically include PRC identity card information, employer information, bank account information, credit card information and a credit Report from the PBOC. For business, they will need business registration certificate, tax certificate, financial report, bank statements and credit report from the People's Bank of China (the "PBOC"). Our borrowers are also required to designate the use of loan proceeds in their loan applications. After loan proceeds are disbursed, we will follow up with telephone calls to confirm such designated use of proceeds. However, due to the lack of detailed regulations, implementation measures and guidance on regulations concerning our industry, it is unclear what measures are required to verify the use of proceeds. We believe our current practice is sufficient in light of the type of loans facilitated and our transaction volume.
Our Creditor Partners were also required to open an account with us and send us the application materials before they could list their loans on our platform. However, once we had approved the Creditor Partners, we would not conduct additional verification on the Creditor Partners for subsequent loan assignment requests. We would only review the documents and conduct procedures in relation to each loan assignment. Nonetheless, we would re-evaluate these partners' creditability from time to time, usually on a monthly basis.
We sent our employees to the office of our business partners to prepare the applications of borrowers referred to us by our business partners. Our employees would review and verify the accuracy of such information and documents. In certain cases, our employees stationed at the offices of our business partners would also assist our business partners with their review and evaluation of customers for purposes of theirTo mitigate risk management.
New investors sign up to our platform using a simple online portal in which they input their PRC identity card information and bank account information. Prior to March 2017, the funds they invested over our platform were deposited into a custody account run by established third-party online payment platforms. In March 2017, we fully migrated to a new payment system with Guangdong Huaxing Bank, which took over the investor custody accounts previously managed by the third-party payment platform. On April 8, 2018, we changed our custodian bank to XW Bank because peer-to-peer lending platforms in Sichuan province are required to have local commercial banks within the same province serve as custodians according to certain local regulations.
Stage 2: Verification and Credit Assessment
We also supplement our review of borrower's and Creditor Partner's application with data from a number of internal and external sources, including the following:
• historical credit data accumulated through our online platform;
• personal identity information maintained by an organization operated under the MPS;
• personal credit information maintained by an organization operated under the PBOC;
• online data from internet or wireless service providers, including social network information;
• third-party credit check services; and
• fraud "blacklists" and databases.
This data is then aggregated and used to verify an applicant's identity, for possible fraud detection and for assessment and determination of creditworthiness.
Stage 3: Anti-Fraud and Decisioning
In order to efficiently screen borrower applicants, we have designed an initial qualification phase to review the basic information regarding a prospective borrower that has been submitted with his application and gathered by us from available sources. After an initial check is performed, the prospective borrower's loan application either proceeds to the next phase of the application process or the prospective borrower is notified of the decision to decline the application.
As part of the initial qualification process, we also send our on-the-ground team to visit the applicant at their residence or office to verify borrower identity, credit data as well as collateral properties. If needed, we also engage appraisal firms to determine the value of collaterals. Based on initial due diligence, our business development department prepares requisite reports as well as loan requests for submission to our risk management department for further review and verification.
If a member of the credit assessment team suspects there may be fraud involved with a particular loan application or determines that additional verification is needed to complete the credit decisioning process, that team member will conduct further due diligence and verification, such as additional phone calls or onsite visits to the applicant and the applicant's employer that is identified in the application.
Following our multi-level review, the credit assessment team will either approve the loan as is, approve the loan with one or more modified sets of loan characteristics, or decline the loan application. Unqualified borrowers are notified of the decision to decline their applications for failing to meet minimum requirements. Qualified borrowers proceed directly to the approval, listing and funding stage.
Our Creditor Partners conducted their own due diligence investigation in the original borrower's credit-worthiness when they extended the Outside Loans. In addition, our risk management department would conduct its own due diligence on the creditor's rights sought to be assigned and the original borrower's credit-worthiness, using the same standards discussed above. As part of this process, our risk management department would review the loan agreement between the Creditor Partner and the original borrower to determine whether the original borrower had agreed to the proposed assignment of a Creditor Partner's rights. We would then directly contact the original borrower to ensure that they have received notice of proposed assignment from the Creditor Partner.
As part of their agreement with us, our business partners were required to conduct face-to-face interview and/or site visits of the applicants to verify the identity, credit data and collaterals of the borrowers they refer to us. Apart from this, our risk management department would also conduct our own review, evaluation and verification of the applicants.
Stage 4: Approval, Listing and Funding
Once a loan application is approved, we enter into a loan agreement with respect to borrowers or a loan assignment and repurchase agreement in the case of a loan assignment by a Creditor Partner. The loan agreements are between a borrower, investor(s) who fund the borrower's loan and our platform, or in the case of a loan assignment and repurchase agreement, among the Creditor Partner, the investor(s), guarantors and our platform, or in the case of a loan transaction through referral by our business partner, among the investor, borrower, the business partner and its affiliates and our platform. Upon a borrower's or Creditor Partner's acceptance of the loan documents, the loan or the Outside Loan is then listed on our platform for investors to view. Once a loan or an Outside Loan assignment is listed on our platform, investors may then subscribe to the loan or the Outside Loan using our automated or self-directed investing tools. We also make available a security agreement that enables our investors to take a security interest in the borrower's collateral or a guaranty whereby the guarantor will be jointly and severally liable for the payment of loans. Except in the case of referral through our business partners where we enter into a Finance Intermediary Service Contractassociate with our business partners with respect to each borrower referred, we enter into such contract directly with each borrower prior to the disbursementAutomobile Transaction and Related Services and Online Ride-hailing Platform Services, our operating entities conduct assessments and evaluations of the loan proceeds. The contract provides for the services fees we will charge the borrower to facilitate the loan transaction onprospective online ride-hailing drivers and leases separately, including identity verification and background checks. For an online ride-hailing platform driver who uses our platform as well as purchases or leases automobile from our Auto Business Entities, the rightsassessments typically involve two rounds from our subsidiaries who operate Automobile Transaction and obligationsRelated Services and Online Ride-hailing Platform Services, respectively. We believe our manual review and verification process is sufficient for the requirements of each party in the transaction.our current operations.
Once a loan orOur Operating Entities conduct an Outside Loan is fully subscribed, funds are then drawninitial screening when they receive an application from a custody accountprospective automobile buyer/lessee based on credit reports from People’s Bank of China (the “PBOC”) and disbursed tothird party credit rating companies, and personal information including residence, ethnicity group, driving history and involvement in legal proceeding. An automobile buyer/lessee must meet the borrowerfollowing preliminary criteria:
| ● | be between 18-65 years old; |
| ● | reside in the mainland of China and have the local residential identification; |
| ● | have a driving history of at least three years; |
| ● | not be subject to on-going legal proceedings or enforcement; |
| ● | not be listed on a national delinquent debtor’s list; |
| ● | the value of purchased automobile matches the income of the candidate. |
Additionally, our Operating Entities arrange a simple in-person interview with the Creditor Partner.applicant where we gather information on marital/family status, income, assets, borrowing history and default history, if any. This interview is typically conducted by our operating entities’ risk management staff who will verify the accuracy of information on the prospective driver by cross-checking information provided by the applicant with other sources. Our Operating Entities will also assess the prospective customer’s potential repayment ability. Applicants with any of the follow attributes will be rejected: | ● | engaging in illegal or criminal activities; |
| ● | involvement in pornography, gambling, drug dealing and gangster activities and experiences; |
| ● | engaging in usury lending; or |
| ● | providing fraudulent information. |
Our Operating Entities also conduct an assessment and evaluation when they receive an application from a prospective online ride-hailing driver. Under our online ride-hailing platform’s standards, a qualified driver must meet certain minimum criteria: | ● | have obtained online booking taxi driver’s license with age of 21 to 60 years old for males; 21 to 55 years old for females; |
| ● | have a driving history of at least three years with driving license of (i) A1, A2, A3, B1, B2, C1 and C2 (referring to the different classes of driver’s license in China based on vehicle types); |
| ● | must not have committed any hit-and-run accidents; |
| ● | have no record of dangerous driving, drug use, driving under alcoholic influence, and violent crime; |
| ● | have no traffic violation of 12 demerit points or more in any year of the past three years; and |
| ● | have not been investigated or disciplined for unlawfully engaging in taxi services or other passenger transportation operations within the past five years. |
XXTX’s online ride-hailing platform also sets criteria for the automobiles used for online ride-hailing business, which need to be completed before the two typesdriver commences to use the automobile for online ride-hailing business: | ● | has obtained online booking taxi transportation certificate and be registered as “reserved taxi service” with less than 7 seats and local registered number; or in accordance with the requirements by local government; |
| ● | has installed vehicle satellite positioning device and emergency alarm device with driving record function; |
| ● | motor vehicle driving permit is still in use; |
| ● | has been covered with compulsory insurance for motor vehicle traffic accident liability and compulsory insurance for third party liability of motor vehicle, and within the insurance period, or in accordance with the requirements by local government; |
| ● | vehicle miles traveled is less than 600,000 km and the service life is less than 8 years; |
| ● | other requirements by local government. |
Post-Financing Services and Collection Monitor Our Auto Business Entities’ post financing management department is in charge of collateral for loans facilitatedmonitoring and assigned through our platform. As part of our risk management program, we would first examinemanaging monthly payments by the value of the real estate to be usedpurchaser/lessee. Our Auto Business Entities send text messages and make phone calls as collateral and then record the collateralization with local real estate bureau if such registration was allowed by PRC real estate laws and regulations. If such registration was not feasible under applicable PRC laws and regulations, we would require the property owner reflected in the real estate registry to guarantee the loan. Automobiles used to be collateral for loans assigned from one of our Creditor Partners and the loans with borrowers referred by ourreminders three business partners. The Creditor Partner had completed the collateralization processdays prior to the loan assignment. When such loans were assignedpayment due date. If a purchaser/lessee fails to investorspay on the due date, our platform, these investors would haveAuto Business Entities will pay the rightfinancial institution on behalf of the Creditor Partner with regarddefaulted automobile purchaser but continue to contact the collateral.
Stage 5: Servicingautomobile purchaser and Collections
We provide payment reminder servicesrequest for payments. If the delinquency continues for more than 15 days, our Auto Business Entities then seek to repossess the car. Every car purchased or leased through text messages or phone calls one week before payment dates. For loans withus has a term of 30 days or shorter, borrowers repay interestGPS device installed, which helps us locate the car. Our Drivers & Automobile Management and principle upon maturity. For loans with a term of longer than 30 days, borrowers pay interest on a monthly basis.
We are generally not involved inServices department also monitor the collection process after a loan is delinquent or a Creditor Partner fails to repurchase its Outside Loan. Upon any of these events, the investors may sell defaulted loans to third party asset companies. They may also initiate legal action against the borrowers in default. We only become involved in the legal action when a lender engages us to assist the lender in a legal action initiated upon a default. Since there have not been any defaulted loans on our platform as of the date of this Report, our collection process has not been tested in practice.
Risk Management
Traditional risk management tools and the types of consumer finance data available in developed economies, such as widely available consumer credit reporting services, are currently at an early stage of development in China. We believe our strong risk management capabilities provide us with a competitive advantage in attracting capital to our platform by providing investors with comfort that they are investing in high quality loans through a sustainable platform.
Our Loan Assessment Committee and Risk Management Division
We have a loan assessment committee, comprised of five individuals: director of operation, director of risk management, chief compliance officer, chief executive officer and independent review officer. Based on the recommendationdaily gross income of our operation and risk management teams, each application receivedserved online ride-hailing drivers through our platformcooperated online ride-hailing platforms as well as trace the location of each car at least once a week. If there is submitted to our loan assessment committee for final review and decision.
We did not submit each loan assignment to our loan assessment committee. Instead, they would assess the qualifications of our Creditor Partners and approve them along with a Total Assignment Cap and specific guidelines on the review and approval of subsequent loan assignments. Our risk management team followed these guidelines when they reviewed and approved the loan assignments. Our loan assessment committee reevaluated our Creditor Partners and adjusted the assignment cap periodically based on the performance of the Creditor Partner on existing assignments and their current and future financial conditions.
To approve a loan or a Creditor Partner or business partner, our loan assessment committee must reach a consensus and the independent review officer has the authority to veto the decision of other committee members. In the year ended March 31, 2018, approximately 99.26% of the loan applications submitted to our loan assessment committee were approved, 100% of Creditor Partners and 75% of business partners were approved.
We also have an independent risk management division, responsible for establishment and maintenance of risk management systems, evaluation and assessment of risks in operation, documentation, and completion of risk analysis reports etc.
Fraud Detection
Our fraud detection system is part of our larger risk management system. The system identifies and rejects potential borrower applications. Our system combines offline verification and the use of third-party credit services. Our offline verification activities involve members of our credit assessment team speaking with potential borrowers and their third-party references to inquire after any inconsistencies in a loan application. We also utilize government agency's open database to check their identity card numbers against known criminals and third party companies' credit information on potential borrowers. We maintain a blacklist of applicants after detecting any fraudulent borrowers.
Investor Protection
We emphasize investor protection through all stages of a transaction including but not limited to implementing strict risk management measures to assess and verify borrowers' or Creditor Partners' creditworthiness, requiring collateral or guaranties for our loans, monitoring borrowers' or Creditor Partners' payment status, and employing professional collection team to collect late payments or defaulted loans. With all these efforts, we have not had any defaulted loan since the launch of our platform.
We also strike to follow the best industry practice to protect our investors. For example, we have engaged XW Bank to provide fund depository services for our platform and assume fund depository functions including settlement, accounting and safeguarding online lending capital. In addition, we have obtained the Level III Certification of Information System Security issued by the MPS.
Depository Banks and Third-Party Payment Agents
Through March 2017, we used third-party online payment platforms to administer payments between borrowers, investors and ourselves and perform the related clearing and fund settlement actions associated with these payments. Our third-party payment agents transferred funds to and from borrowers' and investors' payment accounts as payment channels. We established checks and balances to ensure that all payments, transfers and made by the third-party payment agents were checked multiple times prior to the transmission of any funds to avoid errors.
In the spring of 2017, as required by law and with an aim to implement better risk management for our users, we engaged Guangdong Huaxing Bank to provide fund depository services for our platform in March 2017, pursuant to which Guangdong Huaxing Bank sets up separate accounts for borrowers and investors, and assumes fund depository functions including settlement, accounting and safeguarding online lending capital. We changed our custodian bank to XW Bank on April 8, 2018 because peer-to-peer lending platforms in Sichuan Province are required to have local commercial banks within the same province serve as custodians according to certain local regulations. We are one of the first few online lending platforms in Sichuan Province that have been accepted into the bank payment system.
Third-party payment agent operates as the payment channels and only transfer funds to and from fund depository accounts. Applicable Chinese regulations require us to centralize our depository business to one commercial bank, and sign or amend implementation agreements to the extent necessary. As a result, we ceased our business relationships with third party payment agents and engaged Guangdong Huaxing Bank, which was replaced by XW Bank as our sole custodian service provider. Other than XW Bank, none of our current service providers is critical to our business operations. If we discontinue our business relationship with XW Bank, we do not anticipate any material challenges finding another bank as our alternative custodian service provider.
Our Technology
We believe our technology platform is a competitive advantage and an important reason that borrowers and investors utilize our platform. Key features of our technology platform include:
| • | Mobile applications. We have developed different user-friendly mobile applications for borrowers and investors, which enable borrowers, Creditor Partners and investors to access our platform at any time or location. We launched our first mobile application in February 2017, and approximately 94.26% of investments were facilitated through our mobile application during the year ended March 31, 2018. |
| • | Fraud detection. We use a combination of current and historical data obtained during the application process, third-party data and sophisticated analytical tools to help determine an application's fraud risk. High risk applications are subject to further investigation. In case where fraud is confirmed, the application is cancelled, and we identify and flag characteristics of the loan to help refine our fraud detection efforts. |
| • | Scalable platform. Our platform is built on a distributed, load-balanced computing infrastructure, which is both highly scalable and reliable. The infrastructure can be expanded easily as data storage requirements and user visits increase. We utilize a unified platform, which administrates all systems and servers and can reconfigure or redeploy systems or servers automatically whenever needed. |
| • | Data security. Our network is configured with multiple layers of security to isolate our databases from unauthorized access and we use sophisticated security protocols for communication among applications. To prevent unauthorized access to our system we utilize a system of firewalls and also maintain a perimeter network, or a demilitarized zone, to separate our external-facing services from our internal systems. Our entire website and public and private application programming interfaces use the Secure Sockets Layer networking protocol. |
| • | Stability. Our systems infrastructure is hosted in cloud based data centers in Hangzhou and Shenzhen. We have multiple layers of redundancy to ensure the reliability of our network. We also have a working data redundancy model with comprehensive backups of our databases and our development environment conducted every day. |
Product Development
We had a dedicated product development team. This team is responsible for developing and implementing new consumer finance products to introduce on to our platform.
We constantly evaluate the popularity of our existing product offerings and develop new products and services that can cater to the ever-evolving needs of our borrowers and investors. From the borrower perspective, we will continue to develop tailored credit products to meet the specific needs of our target prime borrowers. We will leverage the success of our existing vertical loan products,indicator such as the supply chain loans for automobile distributors, to expanddriver’s daily income is far behind the average level or the trajectory is unusual, our customized loan productsDrivers & Automobile Management and Services department shall contact the driver immediately and repose the car if necessary. After a car is repossessed, our Auto Business Entities store it in a warehouse and later re-lease it to new industry verticals.
From the investor perspective, we continue to develop new investment products, such as diversified term investment products and products with lower investment thresholds that appeal to different investor appetites and demands. In the future, we plan to segment our loan products into more precise and specific return categories, and seek to offer investors a more diverse array of investment products that better meet their risk-adjusted return targets. We also intend to provide investors with enhanced tools and offer more valued-added services, such as investment portfolio services, enabling them to better monitor and manage their investments on our online platform.
Our Strategy
Our mission is to provide individuals and small-to-middle size businesses in China with easy access to affordable credit and investors with attractive investment opportunities through our online platform. We intend to achieve this goal by pursing the following strategies:
Follow good industry practices in China
By focusing on the long-term sustainable growth of our platform, we seek to mitigate the risks inherent in expanding credit markets. To this end, we strive to follow industry best practices for all aspects of our business, including credit risk management and analysis, operational transparency, and data security. In March 2017, we partnered with Guangdong Huaxing Bank to provide fund depository services for our platform, pursuant to which Guangdong Huaxing Bank set up separate accounts for our borrowers and investors, and assumed fund depository functions including settlement, accounting and safeguard of online lending capital. Through this arrangement, Guangdong Huaxing Bank acted as a third-party custody and settlement arrangement to better protect our users. The custodian bank was changed from Guangdong Huaxing Bank to XW Bank on April 8, 2018. In addition, we have been issued the Level III Certification of Information System Security issued by MPS in March 2017.
Expand cooperation with direct selling companies
Direct selling companies typically have a large number of loyal members. Our partnership with direct selling companies enable us to conduct accurate direct marketing and effectively reduce our user acquisition costs. We have partnered with Resgreen Group, which has over a million members, to jointly promote our products and services to their business partners and members. Ascustomers or dispose of the date of this Report, Resgreen Group is the only direct selling company we have an agreementautomobile in accordance with although we planlaw and relevant financing documents. If our Auto Business Entities are unable to develop partnerships with other direct selling companies in the future. For the year ended March 31, 2018, we acquired approximately 22,654 new users through our partnership with Resgreen Group, of which users approximately 471 had invested through our platform. For year ended March 31, 2018, 56.57% of our new users are members of Resgreen Group. We anticipate that our reliance on Resgreen Group will decrease as we continue to expand our borrower and investor base.
We will continue to explore our partnership with Resgreen Group and duplicate the same business model with other direct selling companies. To this end, we will develop products and services to the specific needs of borrowers and investors in the direct selling industry as well as participate in direct selling industry conferences and forums to further increase the industry's awareness of our platform.repossess collateral from a delinquent automobile purchaser/lessee, they may commence a lawsuit against such purchaser/lessee.
Competition Broaden our user base
We seek to grow the number of borrowers on our online platform through the introduction of new credit products and services. By tailoring products to specific borrower needs, we continually seek to attract new and repeat borrowers to our platform. We plan to leverage our relationship with prior creditors such as automobile distributors, to expand our cooperation with more similar businesses or in new industries. By targeting specific borrower segments with specialized loan products, we intend to increase the conversion rate of interested individuals into successfully qualified borrowers. In the future, we expect repeat borrowers to become an increasingly important source of our borrower base and we will design specific products and services to cater to this group. In addition, we will continue to leverage new technologies, such as mobile applications, to make the borrower loan application and investor matching process more efficient and transparent, attracting more borrowers to our platform. As consumers in China become increasingly receptive to utilizing online consumer financial services in general, we believe the improvements to our platform will enable us to increase our user base.
As our platform continues to grow, we plan to expand our ability to offer risk-based loan pricing. For example, we may adopt risk-based pricing for borrowers based on individual credit criteria so that borrowers will be able to receive customized loans tailored to their own credit profile. In addition, we intend to introduce market-based pricing of loans based on macroeconomic factors and we believe such ability to continually adjust the pricing of the loans on our platform will allow us to better meet the needs of our borrowers.
We strive to increase the overall number of investors and the amounts they invest through our platform by facilitating investments in a diversified portfolio of high-quality loan products. We will continue to develop new loan products and services, such as diversified term loans to satisfy different investor requirements. For our existing investors, we will seek to implement strategies to increase the share of their assets invested through our platform over time. To this end, we intend to provide investors with enhanced tools to better monitor and manage their investments on our online platform.
Further enhance our risk management capabilities
As loan volumes on our platform grow, we will seek to use the data generated from these transactions to further enhance our risk management systems. We are in the process of developing our online risk management systems that will integrate our own transaction data as well as data from government and third-party credit sources to allow us to evaluate and facilitate lending to more borrowers and increase the automation and predictive capabilities of our credit and risk management systems. We expect the online system to be implemented by the third quarter of 2018. In addition, we will continue to strengthen our off-line risk management team which verify borrowers' risk profile on the ground. We believe these offline operations combined with the new online risk management system will enable us to further increase the efficiency of our platform while maintaining sophisticated risk management capabilities.
Continue to execute our mobile strategy
We have made and will continue to make significant investments in pursuing our mobile strategy. As we expect customers will increasingly submit loan applications or make investments from their mobile devices, we plan to further strengthen our mobile internet presence to seize promising market opportunities by improving mobile user experience and developing targeted marketing programs directed at mobile users. From the launch of our mobile application in February 2017 to March 31, 2018, approximately 94.26 of investment made through our platform were facilitated through our mobile applications. We will continue to improve the functionality of our mobile applications in order to improve mobile user experience, make our more convenient and accessible to users in China and enhance user royalty of our platform. We also plan to develop and introduce more mobile related products that serve the borrowers' financing needs in their daily life. As we continue to execute our mobile strategy, we will utilize the additional information available from mobile users, such as location data, to further enhance our risk management capabilities.
Continue to invest in our technology platform
We will continue to make significant investments in our technologies in the areas of data collection and processing algorithms to increase the precision, speed and scale at which we match the demand and supply of loans. Enhanced data analytics will also improve our conversion of online leads into successful borrowers and investors. With the further application of big data, we will seek to acquire members of our target borrower and investor groups in a more focused and cost efficient way. Furthermore, we will continue to leverage technology to further automate our processes and improve efficiency. At the same time, we will also benefit from our scalable platform as our scale grows. We believe these investments will facilitate the long-term growth of our platform.
Competition
The online finance marketplaceride-hailing industry in China is intensely competitivelarge and we competeevolving. There were approximately 300 automobile financing and leasing companies that provide automobile purchasing and leasing services to online ride-hailing drivers in Chengdu and Changsha City as of June 2023. We face significant competition primarily from companies that operate in Chengdu City, such as Sichuan Hengchuang Times Automobile Serving Co., Ltd., and Changsha Huolongguo Automobile Leasing Co., Ltd. Meanwhile, Didi Chuxing Technology Co., Ltd. (“Didi”) takes over 80% market share of the online ride-hailing platforms in China according to the public information. We choose to cooperate with well-known aggregation platforms to commence our online ride-hailing platform business rather than competing with Didi directly. As of June 2023, there were over 110 companies who operate their own online ride-hailing platforms and have established business relationships with Gaode in Chengdu, Changsha and Guangzhou, our major operation cities and are engaged in the same business as ours. We face significant competition primarily from platforms that have operation in Chengdu and Changsha City, such as Caocao, Robotaxi and Feima Chuxing. We expect to have more cooperation with other finance marketplaces. While there are over 1,700 other operating marketplace lendingaggregation platforms and peer-to-peer lenders in China, we believe we do not directly compete with most of these marketplaces and peer-to-peer lenders because, unlike these other marketplaces and peer-to-peer lenders, our market segment is different as we target the direct selling industry and we believe we are currently the only peer-to-peer lending platform servicing direct selling companies. Additionally, we anticipate that more established internet, technology and financial services companies that possess large, existing user bases, substantial financial resources and established distribution channels may enter the market in the future. We believe that our unique industry focus, diversified loan product offerings, lower investment thresholds and marketplace dynamics make us more attractive and efficient to both borrowers and investors, providing us with a competitive advantage. In light of the low barriers to entry in the online finance industry,ride-hailing industries to have more players may enter this market and increasecompetitive advantage in the level of competition.industry. We also compete with other financial products and companies that attract borrowers, investors or both. With respect to borrowers, we compete with other finance marketplaces and traditional financial institutions, such as consumer finance business units in commercial banks, credit card issuers and other finance companies. We believe our innovative marketplace model and online platform enable us to operate more efficiently and with higher levels of borrower satisfaction than these competitors. With respect to investors, we primarily compete with other investment products and asset classes, such as equities, bonds, investment trust products, bank savings accounts and real estate. We believe that we are able to offer attractive returns with low investment thresholds that are uncorrelated with other asset classes.
We also face competition within Sichuan Province, which is where we conduct the bulkMany of our operations. As of the date of this Report, therecompetitors are approximately 35 lending platforms in Sichuan province. The Company's primary competitors in Sichuan include Jinding Wealth, Koudai Network Services Co., Ltd., Chengdu Hongxue Jinxin Business Consulting Co., Ltd.well-capitalized and Chengdu Zhongke E-Commerce Co., Ltd. Although some of these companies, such as Jinding Wealth, are established lending platforms with largeoffer discounted services, driver incentives, consumer discounts and existing borrowerpromotions, innovative service and investor bases as well as substantial financial resources.
Compared to these lending platforms, we believe that our sophisticated custodian systemproduct offerings, and compatibility with current PRC regulations will make usalternative pricing models, which may be more attractive to both borrowers and investors. Based on information available on our competitors' websites as well as third party sources,consumers than those that we believe we were the first non-state owned lending platform in Sichuan that has established a custodian system with a depository bank pursuant to the requirements of applicable PRC regulations. We set up our custodian system in February of 2017 while mostoffer. Further, some of our current or potential competitors were either negotiating their agreements with custodian banks or arehave, and may in the process of transitioningfuture continue to the custodian system operated by their depository banks.have, greater resources and access to larger driver and consumer bases in a particular geographic market. In addition, loan transactions on our platform comply with restrictions on aggregate loan amounts for individual borrowers and businesses set forth in PRC regulations while our competitors arein certain geographic markets enjoy substantial competitive advantages such as greater brand recognition, longer operating histories, better localized knowledge, and more supportive regulatory regimes. As a result, such competitors may be able to respond more quickly and effectively than us in such markets to new or changing opportunities, technologies, consumer preferences, regulations, or standards, which may render our products or offerings less attractive. In addition, future competitors may share in the processeffective benefit of restructuring loans on their platformsany regulatory or governmental approvals and litigation victories we may achieve, without having to comply withincur the costs we have incurred to obtain such requirement.benefits.
Regulations Regulations
OurThis section sets forth a summary of the most significant rules and regulations that affect our business activities in China is subjector the rights of our stockholders to laws, regulationsreceive dividends and judicial interpretations concerning online lending intermediary, illegal fundraising and Internet content providers, as well as those concerning doing business in China generally.other distributions from us.
Regulations Related to the Marketplace Lending Industry In July 2015, ten PRC central government ministries and regulators, including the PBOC, China Banking Regulatory Commission (the "CBRC"), the Ministry of Finance, the MPS and the Cyberspace Administration of China, together released the Guidelines on Promoting Healthy Growth of Internet Finance (the "Guidelines"), which identified the CBRC as the supervisory regulator for the online lending industry. According to the Guidelines, online marketplace lending platforms shall only serve as intermediaries to provide information services to borrowers and investors, and shall not provide credit enhancement services or illegally conduct fundraising. The Guidelines also outlined certain regulatory propositions, which would require Internet finance companies, including marketplace lending platforms, to (i) complete website registration procedures with the administrative departments overseeing telecommunications; (ii) use banking financial institutions' depository accounts to hold lending capital, and engage an independent auditor to audit such accounts and publish audit results to customers; (iii) improve the disclosure of operational and financial information, provide sufficient risk disclosure, and set up thresholds for qualified investors to provide better protections to investors; (iv) enhance online security management to protect customers' personal and transactional information; and (v) take measures against anti-money laundering and other financial crimes.
Effective as of September 1, 2015, the Provisions of the Supreme People's Court on Application of Laws to the Hearing of Private Lending Cases (the "Provisions on Private Lending Cases") define private lending as financings between natural persons, legal persons or other organizations. The Provisions set forth that private lending contracts will be upheld as invalid under the circumstance that (i) relending of funds to a borrower that knew or should have known that the funds were fraudulently obtained from a financial institution; (ii) relending of funds to a borrower that knew or should have known that the funds were borrowed from other enterprises or raised by the company's employees; (iii) lending of funds to a borrower wherein the investor knew or should have known that the borrower intended to use the borrowed funds for illegal or criminal purposes; (iv) violations of public orders or good morals; or (v) violations of mandatory provisions of laws or administrative regulations.
According to the Provisions on Private Lending Cases (i) when the interest rate agreed between the borrower and investor does not exceed an annual interest rate of 24%, the People's Court will uphold the interest rate charged by the investor, and (ii) when the interest rate agreed between the borrower and investor exceeds an annual interest rate of 36%, the portion in excess of 36% is void and the People's Court will uphold the borrower's claim for return of the excess portion to the borrower. For loans with interest rates per annum between 24% and 36%, if the interest on the loans has already been paid to the investor, and so long as such payment has not damaged the interest of the state, the community or any third parties, the courts will likely not enforce the borrower's demand for the return of such interest payment. If an interest rate for overdue payments is not agreed to before lending, the interest rate on overdue payments is permitted up to the interest rate for the loan. If neither the interest rate for the loan nor the interest rate for overdue payments have been agreed to, overdue payments are permitted to have an interest rate of 6%.
In August 2016, the CBRC, the Ministry of Industry and Information Technology (the "MIIT"), the MPS and the State Internet Information Office jointly promulgated the Interim Measures for the Administration of Business Activities of Online Lending Information Intermediaries. Apart from what had already been emphasized in the Guidelines and other previously released guidance, the Interim Measures include (i) general principles; (ii) filing administration; (iii) business rules and risk management guidelines; (iv) protection measures for investors and borrowers; (v) rules on information disclosure; (vi) supervision and administrative mechanisms; and (vii) legal liabilities.
Under the general principles and filing administration sections, the Interim Measures provide that online lending intermediaries shall not engage in credit enhancement services, direct or indirect cash concentration or illegal fundraising. The sections also stipulate a supervisory system and list the administrative responsibilities of different supervisory authorities, including the CBRC and its local counterpart and local financial regulators. Furthermore, these sections require online lending intermediaries to file with the local financial regulators, to apply for relevant telecommunications business licenses thereafter in accordance with the provisions of the relevant telecommunications authorities and to include serving as an Internet lending information intermediary in its business scope.
Under the business rules and risk management guidelines section, the Interim Measures stipulate that online lending intermediaries shall not engage in or be commissioned to engage in thirteen prohibited activities, including: (i) directly or indirectly financing its own projects; (ii) directly or indirectly receiving or collecting lenders' funds; (iii) directly or indirectly offering guarantees to lenders or guaranteeing principal and interest payments; (iv) commissioning or authorizing a third party to advertise or promote financing projects at any physical locations other than through electronic channels such as the Internet and mobile phones; (v) providing loans (unless otherwise permitted by laws and regulations); (vi) dividing the term of financing projects; (vii) offering its own wealth management products or other financial products to raise funds or act as a proxy in the selling of banks' wealth management products, brokers' asset management products, funds, insurance or trust products; (viii) providing services similar to asset-based securitization services or conducting credit assignment activities in the form of asset packaging, asset securitization, asset trusts or fund shares; (ix) mixing with, bundling with or acting as a proxy in relation to investment, sales agent and brokerage services of other businesses (unless permitted by laws and regulations); (x) fabricating or exaggerating the authenticity or earnings outlook of a financing project, concealing its flaws and risks, falsely advertising or promoting a project with intentional ambiguity or other deceptive means, or spreading false or incomplete information to damage the commercial reputation of others, or to mislead lenders or borrowers; (xi) providing intermediary services for loans used to invest in high-risk financing projects such as stocks, over-the-counter margin financing, futures contracts, structured products and other derivatives; (xii) operating equity-based crowd-funding; and (xiii) other activities prohibited by laws and regulations. The Interim Measures, under the business rules and risk management section, also stipulate specific obligations or business principles of online lending intermediaries, including but not limited to online dispute resolution services, examination and verification functions, anti-fraud measures, risk education and training, information reporting, anti-money laundering, anti-terrorist financing, systems, facilities and technologies, service fees, electronic signatures and loan management. In addition, the Interim Measures stipulate that online lending intermediaries shall not operate businesses other than risk management and necessary business processes such as information collection and confirmation, post-loan tracking and pledge management in accordance with online-lending regulations, via offline physical locations. Furthermore, the Interim Measures provide that online lending intermediaries shall, based on their risk management capabilities, set upper limits on the loan balance of a single borrower borrowing both from one online lending intermediary and from all online lending intermediaries. In the case of natural persons, this limit shall not be more than RMB 200,000 (US$30,756) for one online lending intermediary and not more than RMB 1 million (US$153,782) in total from all platforms, while the limit for a legal person or organization shall not be more than RMB 1 million for one online lending intermediary and not more than RMB 5 million (US$768,911) in total from all platforms.
In the protection for investors and borrowers section, the Interim Measures require that online lending intermediaries (i) separate their own capital from funds received from lenders and borrowers and (ii) select a qualified banking financial institution as their funding depository institution, which shall perform depository and administration responsibilities as required. In the remaining sections, the Interim Measures provide for other miscellaneous requirements for online lending intermediaries, including but not limited to, risk assessment and disclosure, auditing and authentication, industry association, reporting obligations, information security and disclosure and legal liabilities. Online lending intermediaries established prior to the effectiveness of the Interim Measures have a transition period of twelve months to rectify any activities that are non-compliant with the Interim Measures, except with respect to criminal activity, which must be terminated immediately.
In October 2016, several regulations on Internet finance were publicly announced, including but not limited to, the Notice of the General Office of the State Council on the Issuance of Special Rectification Implementation Plan regarding Internet Finance , Special Rectification Implementation Plan regarding Online Lending Risks, Special Rectification Implementation Plan for Risks of Asset Management Business through the Internet and Trans-subject Business, Special Rectification Implementation Plan for Risks regarding Non-Bank Payment Institutions, Special Rectification Implementation Plan for Risks of Internet Financing Advertising and Financial Activities in the form of financial investment (together the "Special Rectification Implementation Plans"). The Special Rectification Implementation Plans emphasize principles and rules in related to Internet financial regulations, and stipulate that (i) "look-through" supervision method shall be adopted, and (ii) companies in the same group that hold a number of financial business qualifications shall not violate rules of related party transactions and other related business regulations.
In November 2016, the CBRC, the MIIT and the Industry and Commerce Administration Department, jointly issued the Guidance to the Administration of Filling and Registration of Online Lending Information Intermediaries (the "Guidance of Administration"), which provides the general filing rules for online lending intermediaries, and delegates the filing authority to local financial authorities. The Guidance of Administration sets forth that online lending intermediaries are filed locally. Under the general filing procedures for online lending intermediaries which had already been established and operated prior to the promulgation of the Guidance of Administration, before an filing application is submitted to local financial regulators, the online lending intermediaries may be required to: (i) rectify any breach of applicable regulations as required by local financial regulators; and (ii) apply to the Industry and Commerce Administration Department to amend or register such entity's the business scope.
The CBRC also authorizes local financial regulators to make detailed implementation rules regarding filing procedures. However, relevant local financial regulators are also in the process of making such implementation rules, which may require us to complete filing records under such future requirements within a grace period.
In February 2017, the CBRC released the Guidance to Regulate Funds Depositories for Online Lending Intermediaries (the "Depository Guidance"). The Depository Guidance defines depositories as commercial banks that provide online lending fund depository services, and stipulates that the depositories shall not be engaged in offering any guarantee, including: (i) offering guarantees for lending transaction activities conducted by online lending intermediaries, or undertaking any liability for breach of contract related to such activities; (ii) offering guarantees to lenders, guarantying principal and earnings or bearing the risks associated with fund lending operations for lenders.
Apart from the requirements set forth in the Interim Measures and the Guidance of Administration, the Depository Guidance imposes certain responsibilities on online lending intermediaries, including requiring them to enter into fund depository agreements with only one commercial bank to provide fund depository services, organize independent auditing on funds depository accounts of borrowers and investors and various other services. The Depository Guidance also provides that online lending intermediaries permitted to develop an online lending fund depository business shall satisfy certain conditions, including: (i) completing registration, filing records and obtaining a business license from the Industry and Commerce Administration Department; (ii) filing records with the local financial regulator; and (iii) applying for a corresponding value-added telecommunications business license pursuant to the relevant telecommunication authorities. The Depository Guidance also requires online lending intermediaries to perform various obligations, and prohibits them advertising their services with the information of their depository except for in accordance with necessary exposure requirements, the interpretation and applicability of which is unclear, as well as oversight requirements. The Depository Guidance also raises other business standards and miscellaneous requirements for depositories and online lending intermediaries as well. Online lending intermediaries and commercial banks conducting the online depository services prior to the effectiveness of the Depository Guidance have a six-month grace period to rectify any activities not in compliance with the Depository Guidance.
Some elements of our platform may not currently be operating in full compliance with the Depository Guidelines, the rules proposed by the Interim Measures and other principles that have been announced in recent years. Moreover, the Interim Measures also stipulated a 12-month transition period from the time of its effectiveness for online lending intermediaries to adjust their business models. See "Risk Factors — Risks Related to the PRC Laws Regulating Our Business and Industry — Our operations may need to be modified to comply with existing and future requirements set forth by the CBRC or laws or regulations promulgated by other PRC authorities regulating the marketplace lending industry in China."
In addition, on April 7, 2017, the CBRC issued the Guideline of Risk Prevention and Control of Banking Industry, which prohibits online lending intermediaries from (i) approaching potential borrowers that are incapable of repaying or (ii) offering online lending services to college students under the age of 18.
In December 2017, the National Online Lending Rectification Office issued the Notice on the Rectification and Inspection Acceptance of Risk of Online Lending Intermediaries ("Circular 57"), providing further clarification on several matters in connection with the rectification and record-filing of online lending information intermediaries, including, among other things:
| • | Requirements relating to risk reserve funds. The online lending information intermediaries shall discontinue setting aside additional funds as risk reserve funds or originating new risk reserve funds. In addition, the existing balance of risk reserve funds shall be gradually reduced. Moreover, online lending information intermediaries are prohibited from promoting their services by publicizing the risk reserve funds, and authorities shall actively encourage the online lending information intermediaries to seek third parties to provide lenders with alternate means of investors' protection, including third-party guarantee arrangements. |
| • | Requirements relating to assignment of debt. Low frequency assignment of debts between lenders shall be deemed as compliance. However, providing services similar to asset-based securitization services or conducting credit assignment activities in the form of asset packaging, asset securitization, asset trusts or fund shares shall be deemed as incompliance; "super lender" mode, which the senior manager or affiliated person of online lending information intermediaries, under the authorization of the platform, concluding loan agreements with the borrower and extending loans directly to the borrower and then release a product equaling to the amount of the loan on the platform, transferring the creditor's right to the actual lender, will be deemed as incompliance. |
| • | Requirements to qualify for record-filing. Circular 57 sets forth certain requirements which an online lending intermediary shall not be in breach before it can qualify for the record-filing, including: (i) an online lending intermediary may not conduct the "thirteen prohibited actions" or exceed the individual lending amount limit after August 24, 2016, and shall gradually reduce the balance; (ii) an online lending intermediary which has participated in businesses of the real estate mortgage, campus loan or "cash loan," is required to suspend the new loan origination and the outstanding balance of the abovementioned loans shall be gradually reduced within a certain timetable as required under the CBRC Circular 26 and Circular 141 (as defined below); and (iii) the online lending intermediaries are required to set up custody accounts with qualified banks that have passed certain testing and evaluation procedures run by the National Online Lending Rectification Office to hold customer funds. For the online lending intermediaries that are unable to accomplish the rectification and record-filing but are continuing to participate in the online lending business, the relevant authorities shall subject online lending intermediaries to administrative sanctions, including but not limited to revoking their telecommunicating business operation license, shutting down their business websites and requesting financial institutions not to provide any financial services to such online lending intermediaries. |
| • | Requirements relating to the timing of record-filing. The local governmental authorities shall conduct and complete acceptance inspection of the rectification with the following timetable: (i) completion of record-filing for major online lending information intermediaries by the end of April 2018; (ii) with respect to online lending information intermediaries with substantial outstanding balance of those loans prohibited under the relevant laws and regulations and timely reduction of those balance is difficult, the relevant business and outstanding balance shall be disposed and/or carved out, and record-filing shall be completed by the end of May 2018; (iii) with respect to those online lending information intermediaries with complex and extraordinary circumstances and substantial difficulties exist to complete rectification, the "relevant work" shall be completed by the end of June 2018. |
In December 2017, the Internet Finance Rectification Office and the Online Lending Rectification Office jointly issued the Notice on Regulating and Rectifying "Cash Loan" Business (the "Circular 141"), outlining general requirements on the "cash loan" business conducted by network microcredit companies, banking financial institutions and online lending information intermediaries. Circular 141 specifies the features of "cash loans" as not relying on consumption scenarios, with no specified use of loan proceeds, no qualification requirement on customers and unsecured etc. Circular 141 sets forth several general requirements with respect to "cash loan" business, including, without limitation: (i) no organizations or individuals may conduct the lending business without obtaining approvals for the lending business; (ii) the aggregated borrowing costs of borrowers charged by institutions in the forms of interest and various fees should be annualized and subject to the limit on interest rate of private lending set forth in the Private Lending Judicial Interpretations issued by the Supreme People's Court; (iii) all relevant institutions shall follow the "know-your-customer" principle and prudentially assess and determine the borrower's eligibility, credit limit and cooling-off period, etc. Loans to any borrower without income sources are prohibited; and (iv) all relevant institutions shall enhance the internal risk control and prudentially use the "data-driven" risk management model.
In additions, Circular 141 emphasizes several requirements on the online lending information intermediaries. For instance, such intermediaries are prohibited from facilitating any loans to students or other persons without repayment source or repayment capacity, or loans with no designated use of proceeds. Also, such intermediaries are not permitted to deduct interest, handling fee, management fee or deposit from the principal of loans provided to the borrowers in advance.
Any violation of Circular 141 may result in penalties, including but not limited to suspension of operation, orders to make rectification, condemnation, revocation of license, order to cease business operation, and criminal liabilities.
Regulations Related to Illegal Fundraising
PRC laws and regulations prohibit persons and companies from raising funds through advertising to the public a promise to repay premium or interest payments over time through payments in cash or in kind except with the prior approval of the applicable government authorities. Failure to comply with these laws and regulations may result in penalties imposed by the PBOC, the Administration for Industry and Commerce ("AIC") and other governmental authorities and can lead to civil or criminal lawsuits.
Our platform only acts as an information service provider in the facilitation of loans between borrowers and investors, our platform has not been subject to any fines or other penalties under any PRC laws and regulations that prohibit illegal fundraising. In this regard, as advised by our PRC counsel, the business operation of our platform does not violate the current existing PRC laws and regulations prohibiting illegal fundraising. Nevertheless, uncertainties exist with respect to the PBOC, AIC and other governmental authorities' interpretations of the fundraising-related laws and regulations. While our agreements with investors require investors to guarantee the legality of all funds investors put on our platform, we do not verify the source of investors' funds separately, and therefore, to the extent that investors' funds are obtained through illegal fundraising, we may be negligently liable as a facilitator of illegal fundraising. In addition, while our loan agreements contain provisions that require borrowers to use the proceeds for purposes listed in their loan applications, we do not monitor the borrowers' use of funds on an on-going basis, and therefore, to the extent that borrowers use proceeds from the loans for illegal activities, we may be negligently liable as a facilitator of an illegal use. Although we have designed and implemented procedures to identify and eliminate instances of fraudulent conduct on our platform, as the number of borrowers and investors on our platform increases, we may not be able to identify all fraudulent conduct that may violate illegal fundraising laws and regulations.
Regulations Related to Value-Added Telecommunication Business Certificates and Foreign Investment Restrictions
PRC regulations impose sanctions for engaging in Internet information services of a commercial nature without having obtained an ICP certificate or engaging in the operation of online data processing and transaction processing without having obtained an ODPTP certificate. These sanctions include corrective orders and warnings from the PRC communication administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites may be ordered to close. Nevertheless, the PRC regulatory authorities' enforcement of such regulations in the context of online lending platforms remains unclear.
According to the Provisions on the Administration of Foreign-invested Telecommunication Enterprises, the ratio of investment by foreign investors in a foreign-invested telecommunication enterprise that engages in the operation of a value-added telecommunication business shall not exceed 50%. The Circular of Ministry of Industry and Information Technology Concerning Lifting Restrictions on the Proportion of Foreign Equity in Online Data Processing and Transaction Processing Business (E-commerce) (the "Circular 196"), which was promulgated on June 19, 2015, provides that foreign investors are permitted to invest up to 100% of the registered capital in a foreign-invested telecommunication enterprise engaging in the operation of online data processing and transaction processing (E-commerce). However, foreign investors are only permitted to invest up to 50% of the registered capital in a foreign-invested telecommunication enterprise that engages in the operation of Internet information services. Under either circumstance, the largest foreign investor will be required to have a satisfactory business track record and operational experience in the value-added telecommunications business.
While Circular 196 permits foreign ownership, in whole or in part, of online data and deal processing businesses (E-commerce), a sub-set of value-added telecommunications services, it is not clear whether our online lending platform will be deemed as online data and deal processing. See "Risk Factors — Risks Related to the PRC Laws Regulating Our Business and Industry — We may be required to obtain a value-added telecommunication business certificate and be subject to foreign investment restrictions."
Regulations Related to Internet Advertising
The Interim Measures for Administration of Internet Advertising (the "Internet Advertising Measures"), were adopted by the State Administration for Industry and Commerce and became effective on September 1, 2016. The Internet Advertising Measures regulate Internet advertising activities. According to the Internet Advertising Measures, Internet advertisers are responsible for the authenticity of the content of advertisements. The identity, administrative license, cited information and other certificates that advertisers are required to obtain in publishing Internet advertisements shall be true and valid. Internet advertisements shall be distinguishable and prominently marked as "advertisements" in order to enable consumers to identify them as advertisements. Publishing and circulating advertisements through the Internet shall not affect the normal use of the Internet by users. It is not allowed to induce users to click on the content of advertisements by any fraudulent means, or to attach advertisements or advertising links in the emails without permission. The Internet Advertising Measures also impose several restrictions on the forms of advertisements and activities used in advertising. "Internet advertising" as defined in the Internet Advertising Measures refers to commercial advertisements that directly or indirectly promote goods or services through websites, web pages, Internet applications or other Internet media in various forms, including texts, pictures, audio clips and videos. Where Internet advertisements are not identifiable and marked as "advertisements", a fine of not more than RMB 100,000 (US$15,378) may be imposed in accordance with Advertising Law. A fine ranging from RMB 5,000 (US$769) to RMB 30,000 (US$4,613) may be imposed for any failure to provide a prominently marked "CLOSE" button to ensure "one-click closure". Advertisers who induce users to click on the content of advertisements by fraudulent means or without permission, attach advertisements or advertising links in the emails shall be imposed a fine ranging from RMB 10,000 (US$1,538) to RMB 30,000 (US$4,613). Our marketplace is in the process of complying with the new Internet Advertising Measures during our advertising activities.
Regulations Related toCybersecurity, Information Security and Confidentiality of User Information
PRC government authorities have enacted laws and regulations with respect to Internet activitiesinformation security and protection of personal information from any abuse or unauthorized disclosure. Internet information in China areis regulated and restricted by the PRC government and are subject to criminal penalties under the Decision Regarding the Protection of Internet Security. from a national security standpoint. The MPSMinistry of Public Security of the People’s Republic of China (the “MPS”) has promulgated measures that prohibit use of the Internet in ways that, among other things, result in leaks of government secrets or the spread of socially destabilizing content. The MPS and its local counterparts have authority to supervise and inspect domestic websites to carry out its measures. Internet information service providers that violate these measures may have their licenses revoked and their websites shut down. Cybersecurity and Information Security On June 22, 2007, the MPS, the State Secrecy Administration and other relevant authorities jointly issued the Administrative Measures for the Hierarchical Protection of Information Security, which divides information systems into five categories and requires the operators of information systems ranking above Grade II to file an application with the local Bureau of Public Security within 30 days of the date of its security protection grade determination or since its operation. The Company completed its registration with the local Bureau of Public Security in April, 2017. The PRC government regulates the security and confidentiality of Internet users'users’ information. The Administrative Measures on Internet Information Service),Service, the Regulations on Technical Measures of Internet Security Protection and the Provisions on Protecting Personal Information of Telecommunication and Internet Users, which were issued on July 16, 2013 by the MIIT,General Office of the Ministry of Transport (the “MIIT”), set forth strict requirements to protect personal information of Internet users and require Internet information service providers to maintain adequate systems to protect the security of such information. Personal information collected must be used only in connection with the services provided by the Internet information service provider. Moreover, the Rules for Regulating the Order in the Market for Internet Information Service also protect Internet users'users’ personal information by (i) prohibiting Internet information service providers from unauthorized collection, disclosure or use of their users'users’ personal information and (ii) requiring Internet information service providers to take measures to safeguard their users'users’ personal information. In December 2012, the Standing Committee of the National People'sPeople’s Congress (the “SCNPC”) passed the Decision on Strengthening Internet Information Protection, which provides that all Internet service providers in China, including Internet information service providers, must require that their users provide identification information before entering into service agreements or providing services. On November 7, 2016, the Standing Committee of the National People's CongressSCNPC released the Cyber Security Law, which came into effect on June 1, 2017.2017 (“Cyber Security Law”). The Cyber Security Law requires network operators to perform certain functions related to cyber security protection and the strengthening of network information management. For instance, under the Cyber Security Law, network operators of key information infrastructure generally shall, during their operations in the PRC, store the personal information and important data collected and produced within the territory of PRC. Besides, mobile internet applications and the internet application store are specifically regulated by the Administrative Provisions on Mobile Internet Application Information Services (the “Mobile Application Administrative Provisions”) which were promulgated by the Cyberspace Administration of China (the “CAC”) on June 28, 2016 and effective on August 1, 2016 and amended on August 1, 2022. Pursuant to the Mobile Application Administrative Provisions, application information service providers shall obtain the relevant qualifications prescribed by laws and regulations, strictly implement their information security management responsibilities and carry out certain duties, including user real name authentication, establish and complete user information security protection mechanism and information content inspection and management mechanisms, protect users’ right to know and right to choose in the process of usage. Furthermore, internet application store service providers and internet application information service providers shall sign service agreements to determinate both sides’ rights and obligations. Furthermore, on December 16, 2016, MIIT promulgated the Interim Measures on the Administration of Pre-Installation and Distribution of Applications for Mobile Smart Terminals (the “Mobile Application Interim Measures”), effective on July 1, 2017. The Mobile Application Interim Measures requires, among others, that internet information service providers must ensure that a mobile application, as well as its ancillary resource files, configuration files and user data can be uninstalled by a user on a convenient basis, unless it is a basic function software, which refers to a software that supports the normal functioning of hardware and operating system of a mobile smart device. On April 11, 2017, the Cyberspace Administration of ChinaCAC announced the Measures for the Security Assessment of Personal Information and Important Data to be Transmitted Abroad (consultation draft) (the "Consultation“Consultation Draft of Security Assessment Measures"Measures”). The Consultation Draft of Security Assessment Measures requires network operators to conduct security assessments and obtain consents from owners of personal information prior to transmitting personal information and other important data abroad. Moreover, under the Consultation Draft of Security Assessment Measures, the network operators are required to apply to the relevant regulatory authorities for security assessments under several circumstances. On November 28, 2019, the Secretary Bureau of the CAC, the General Office of the MIIT, the General Office of the MPS and the General Office of the State Market Supervision and Administration (the “MSA”) jointly issued the Notice on Measures for Determining the Illegal Collection and Use of Personal Information through Mobile Applications, which aims to provide reference for supervision and administration departments of the PRC government and provide guidance for mobile applications operators’ self-examination and self-correction and social supervision by avid internet users (so called “netizens”), and further elaborates the forms of behavior constituting the illegal collection and use of personal information through mobile applications including: (i) failing to publish the rules on the collection and use of personal information; (ii) failing to explicitly explain the purposes, methods and scope of the collection and use of personal information; (iii) collecting and using personal information without the users’ consent; (iv) collecting personal information unrelated to the services the collector of the information provided and beyond the necessary principle of such services; (v) providing personal information to others without the users’ consent; (vi) failing to provide the function of deleting or correcting personal information according to PRC laws or failing to publish information such as ways for internet users to file complaints and reports. On June 10, 2021, the SCNPC promulgated the Data Security Law, which took effect in September 2021. The Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities. The Data Security Law also introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. The appropriate level of protection measures is required to be taken for each respective category of data. For example, a processor of important data shall have designated personnel and management body in responsible for data security, conduct risk assessments for its data processing activities and file risk assessment reports with the competent authorities. In addition, the Data Security Law provides a national security review procedure for those data activities which may affect national security and imposes export restrictions on certain data and information. We may be required to make further adjustments to our business practices to comply with this law. On July 30, 2021, the State Council promulgated the Regulations on Security Protection of Critical Information Infrastructure, effective on September 1, 2021. According to the Regulations on Security Protection of Critical Information Infrastructure, a “critical information infrastructure” refers to an important network facility and information system in important industries such as, among others, public communications and information services, as well as other important network facilities and information systems that may severely endanger national security, economy, people’s livelihood, or the public interests in the event of damage, loss of function, or data leakage. The competent governmental authorities and supervision and management authorities of the aforementioned important industries will be responsible for (i) organizing the identification of critical information infrastructures in their respective industries in accordance with certain identification rules, and (ii) promptly notifying the identified operators and the public security department of the State Council of the identification results. On November 14, 2021, the CAC promulgated the draft Regulations on the Administration of Cyber Data Security for public comment, pursuant to which data processors conducting the following activities must apply for cybersecurity review: (i) merger, reorganization or division of internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security; (ii) listing abroad of data processors processing over one million users’ personal information; (iii) listing in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. The draft regulations also provide that operators of large internet platforms that set up headquarters, operation centers or R&D centers overseas shall report to the CAC and competent authorities. The draft regulations also require that data processors processing important data or going public overseas shall conduct an annual data security self-assessment or entrust a data security service institution to do so, and submit the data security assessment report of the previous year to the local branch of the CAC before January 31 each year. Further, the draft regulations would require internet platform operators to establish platform rules, privacy policies and algorithm strategies related to data, and solicit public comments on their official websites and personal information protection related sections for no less than 30 working days when they formulate platform rules or privacy policies or makes any amendments that may have a significant impact on users’ rights and interests. In addition, platform rules and privacy policies formulated by operators of large internet platforms with more than 100 million daily active users, or amendments to such rules or policies by operators of large internet platforms with more than 100 million daily active users that may have significant impacts on users’ rights and interests shall be evaluated by a third-party organization designated by the CAC and reported to local branch of the CAC for approval. The CAC has solicited comments on this draft until December 13, 2021, but there is no definite timetable as to when the draft regulations will be enacted. As such, substantial uncertainties exist with respect to the enactment timetable, final content, interpretation and implementation of such regulations. On December 28, 2021, the CAC, together with certain other PRC governmental authorities, promulgated the Cybersecurity Review Measures that replaced the previous version and took effect from February 15, 2022. Pursuant to these measures, the purchase of network products and services by an operator of critical information infrastructure or the data processing activities of a network platform operator that affect or may affect national security will be subject to a cybersecurity review. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures require that an online platform operator which possesses the personal information of at least one million users must apply for a cybersecurity review by the CAC if it intends to be listed in foreign countries. Article 10 of the Cybersecurity Review Measures also set out certain general factors which would be the focus in assessing the national security risk during a cybersecurity review, including (i) risks of critical information infrastructure being illegally controlled or subject to interference or destruction; (ii) the harm caused by the disruption of the supply of the product or service to the business continuity of critical information infrastructure; (iii) the security, openness, transparency and diversity of sources of the product or service, the reliability of supply channels, and risks of supply disruption due to political, diplomatic, trade and other factors; (iv) compliance with PRC laws, administrative regulations and departmental rules by the provider of the product or service; (v) the risk of core data, important data or a large amount of personal information being stolen, leaked, damaged, illegally used, or illegally transmitted overseas; (vi) the risk that critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, and maliciously used by foreign governments for a listing, as well as network information security risks; and (viii) other factors that may endanger the security of critical information infrastructure, cybersecurity and data security. Personal Information Protection The Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT on December 29, 2011 and effective on March 15, 2012, stipulate that internet information service providers may not collect any user personal information or provide any such information to third parties without the consent of a user, unless otherwise stipulated by laws and administrative regulations. “User Personal information” is defined as information relevant to the users that can lead to the recognition of the identity of the users independently or in combination with other information. An internet information service provider must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information as necessary for the provision of its services. An internet information service provider is also required to properly store user personal information, and in case of any leak or likely leak of the user personal information, the internet information service provider must take immediate remedial measures and, in severe circumstances, including butmake an immediate report to the telecommunications regulatory authority. The Decision on Strengthening the Protection of Online Information, issued by the SCNPC on December 28, 2012, and the Order for the Protection of Telecommunication and Internet User Personal Information, issued by the MIIT on July 16, 2013, stipulate that any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scope. An internet information service provider must also keep such information strictly confidential, and is further prohibited from divulging, tampering with or destroying any such information, or selling or proving such information to other parties. An internet information service provider is required to take technical and other measures to prevent the collected personal information from any unauthorized disclosure, damage or loss. Any violation of the above decision or order may subject the internet information service provider to warnings, fines, confiscation of illegal gains, revocation of licenses, cancelation of filings, closedown of websites or even criminal liabilities. With respect to the security of information collected and used by mobile apps, pursuant to the Announcement of Conducting Special Supervision against the Illegal Collection and Use of Personal Information by Apps, which was issued by the CAC, the MIIT, the Ministry of Public Security, and the State Administration for Market Regulation on January 23, 2019, app operators shall collect and use personal information in compliance with the Cybersecurity Law and shall be responsible for the security of personal information obtained from users and take effective measures to strengthen personal information protection. Furthermore, app operators shall not limited to:force their users to make authorization by means of default settings, bundling, suspending installation or use of the app or other similar means and shall not collect personal information in violation of laws, regulations or breach of user agreements. Such regulatory requirements were emphasized by the Notice on the Special Rectification of Apps Infringing upon User’s Personal Rights and Interests, which was issued by MIIT on October 31, 2019. On November 28, 2019, the CAC, the MIIT, the Ministry of Public Security and the State Administration for Market Regulation jointly issued the Methods of Identifying Illegal Acts of Apps to Collect and Use Personal Information. This regulation further illustrates certain commonly seen illegal practices of app operators in terms of personal information protection. On March 12, 2021, the Secretary Bureau of the CAC, the General Office of the MIIT, the General Office of the MPS and the General Office of the MSA jointly issued the Provision on Scope of Necessary Personal Information for Common Types of Mobile Internet Applications, which prescribed the scope of necessary personal information that may be collected by common applications, include map navigation applications, online car booking applications and other 37 common applications. For online car booking applications, the necessary personal information includes cell phone numbers of registered users; rider’s departure place, arrival place, location information, travel track and payment information such as payment time, payment amount and payment channel. Applications shall not deny users’ access to the basic functional services if the users do not agree to provide personal information outside those necessary ones. On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, which took effect on November 1, 2021. Pursuant to the Personal Information Protection Law, “personal information” refers to any kind of information related to an identified or identifiable individual as electronically or otherwise recorded and exclude anonymized information. The processing of personal information includes the collection, storage, use, processing, transmission, provision, disclosure and deletion of personal information. The Personal Information Protection Law applies to the processing of personal information of individuals within the territory of the PRC, as well as personal information processing activities outside the territory of PRC, for the purpose of providing products or services to natural persons located within PRC, for analyzing or evaluating the behaviors of natural persons located within PRC, or for other circumstances as prescribed by laws and administrative regulations. A personal information processor may process the personal information of this individual only under the following circumstances: (i) ifwhere consent is obtained from the individual; (ii) where it is necessary for the execution or performance of a contract to which the individual is a party, or where it is necessary for carrying out human resource management pursuant to employment rules or collective contracts made and executed in accordance with laws; (iii) where it is necessary for performing a statutory responsibility or statutory obligation; (iv) where it is necessary in response to a public health emergency, or for protecting the life, health or property of a natural person in the case of an emergency; (v) where the personal information is processed within a reasonable scope to carry out news reporting, supervision by public opinions or any other activity for public interest purposes; (vi) where the personal information, which has already been disclosed by the individual or otherwise legally disclosed, is processed within a reasonable scope; or (vii) any other circumstance as provided by laws or administrative regulations. In principle, the consent of an individual must be obtained for the processing of his or her personal information, except under the circumstances of the aforementioned items (ii) to (vii). Where personal information is to be processed based on the consent of an individual, such consent shall be a voluntary and explicit indication of intent given by such individual on a fully informed basis. If laws or administrative regulations provide that the processing of personal information shall be subject to a separate consent or written consent of the individual concerned, such provisions shall prevail. In addition, the processing of the personal information of a minor under 14 years old must obtain the consent by a parent or a guardian of such minor and the personal information processors must adopt special rules for processing personal information of minors under 14 years old. In the meantime, the PRC regulatory authorities have also enhanced the supervision and regulation on cross-border data transmission. For example, on October 29, 2021, the Measures for the Security Assessment of Cross-border Data Transmission (Draft for Comment) were proposed by the CAC for public comments, which require that any data processor providing important data collected and generated during operations within the PRC or personal information that should be subject to security assessment according to law to an overseas recipient shall conduct security assessment. The final Measures was promulgated on July 7, 2022 and shall take effective from September 1, 2022. The measures provide five circumstances, under any of which data processors shall, through the local cyberspace administration at the provincial level, apply to the CAC for security assessment of data cross-border transfer. These circumstances include: (i) where the data to be transmitted abroad containstransferred to an overseas recipient are personal information or important data collected and generated by operators of critical information infrastructure; (ii) where the data to be transferred to an overseas recipient contain important data; (iii) where a personal information processor that has processed personal information of more than 500,000 users in aggregate; (ii) ifone million people provides personal information overseas; (iv) where the quantitypersonal information of more than 100,000 people or sensitive personal information of more than 10,000 people are transferred overseas accumulatively; or (v) other circumstances under which security assessment of data cross-border transfer is required as prescribed by the CAC. As of the datadate of this Report, the above measures have not been formally adopted, and substantial uncertainties still exist with respect to be transmitted abroad is more than 1,000 gigabytes; (iii) if datathe enactment timetable, final content, interpretation and implementation of these measures and how they will affect our business operation. Our Chinese subsidiaries and affiliates have incurred, and will continue to be transmitted abroad containsincur, significant expenses in an effort to comply with cybersecurity and information regarding nuclear facilities, chemical biology, national defensesecurity standards and protocols imposed by law, regulation, industry standards or military projects, populationcontractual obligations to the date of this Report in all material respects. However, changes in existing laws or regulations or adoption of new laws and health,regulations relating to cybersecurity and information security, particularly any new or relates to large-scale engineering activities, marine environment issuesmodified laws or sensitive geographic information; (iv) if data to be transmitted abroad contains network security information regarding system vulnerabilities or securityregulations that require enhanced protection of critical information infrastructure; (v) if key information infrastructure network operators transmit personal informationcertain types of data or new obligations with regard to data retention, transfer or disclosure, could greatly increase the cost to us of providing our service offerings, require significant changes to our operations or even prevent us from providing certain service offerings in jurisdictions in which we currently operate or in which we may operate in the future. Regulations Related to Online Ride-Hailing Services Our ride hailing business is regulated by certain laws and important data abroad; or (vi) if any other dataregulations relating to be transmitted abroad contains information that might affect national security or public interest andonline ride hailing services. As a ride hailing platform, we are required to be assessedobtain permits for an online ride hailing business in the cities in China where we operate such a business, and specific licenses and permits are also required for the drivers and vehicles on our platform engaged in our ride hailing business. In order to manage the rapidly growing online ride-hailing service market and control relevant risks, on July 27, 2016, seven ministries and commissions, including the Ministry of Transport (the “MOT”), jointly promulgated the Interim Measures for the Administration of Online Taxi Booking Business Operations and Services , which was amended on December 28, 2019 and November 30, 2022, which legalizes online ride-hailing services such as determinedXXTX and requires the online ride-hailing services to meet the requirements set out by the relevant regulatory authorities.Interim Measures and obtain requisite service licenses and take full responsibility of the ride services to ensure the safety of riders. According to the Interim Measures, (i) the competent transport department of the State Council shall be responsible for guiding the administration of online ride hailing services nationwide, (ii) the competent transport department of the government of a province or an autonomous region shall be responsible for guiding the administration of online ride hailing services within its respective administrative region, and (iii) the competent transport department of a municipality directly under the central government, a city divided into districts, a county, or other competent administrative department designated by the government shall be responsible for the specific administration of online ride hailing service. Before carrying out online ride hailing services, an online ride
hailing service platform must obtain a permit for the online ride hailing business and complete the record filing of internet information services with the provincial communications administration in the place of its enterprise registration. Such platform must be capable of exchanging and processing the relevant information and data with its servers located within the PRC, establish a sound operational management system, work safety management system and service quality assurance system, and fulfill other conditions as prescribed. Platforms that conduct the online ride hailing business without obtaining the necessary permit may be subject to an order of correction, a warning by the local authority, a fine of RMB10,000 (approximately US$1,456) to RMB30,000 (approximately US$4,370), or even criminal liabilities if a violation constitutes a crime. Vehicles used for online ride hailing services must also satisfy certain conditions in order to obtain the transportation permit for vehicles used for online ride hailing services, including, among others, installation of satellite navigation system and emergency alarm devices, and meeting certain operational safety criteria. The Interim Measures also impose certain requirements on drivers engaged in online ride hailing services, including, among others, a driving experience of more than three years and no transport or driving related or violent criminal offense or violent crime record. Drivers must meet the prescribed conditions and pass the relevant exams before they can obtain the driver’s license for online ride hailing services. Platforms may be subject to an order of correction and a fine of RMB5,000 (approximately US$728) to RMB10,000 (approximately US$1,456), and in severe cases a fine of RMB10,000 (approximately US$1,456) to RMB30,000 (approximately US$4,370), if the relevant vehicle or driver providing the online ride hailing services has not obtained the applicable permit. Furthermore, the Interim Measures also provide that competent local governmental authorities may formulate detailed implementing rules for their respective regions in accordance with the Interim Measures and in light of local conditions. Following the promulgation of the Interim Measures, various local governmental authorities have promulgated implementing rules to further stipulate the detailed requirements for online ride hailing service platforms, vehicles and drivers, including the major cities of our operations. On November 5, 2016, the Municipal Communications Commission of Chengdu City and a number of municipal departments jointly issued the Implementation Rules for the Administration of Taxi Management Services for Chengdu Network, which was replace by the one promulgated on July 26, 2021. On August 10, 2017, the Transportation Commission of Chengdu further issued guidelines on compliance requirements for online ride-hailing businesses, including Working Process for the Online Appointment of Taxi Drivers Qualification Examination and Issuance and Online Appointment Taxi Transportation Certificate Issuance Process. On November 28, 2016, Guangzhou Municipal People’s Government promulgated Interim Measures for the Management of Online Ride Hailing Operation and Service in Guangzhou, as amended on November 14, 2019. On July 23, 2018, the General Office of Changsha Municipal People’s Government issued the “Detailed Rules for the Administration of Online Booking Taxi Management Services for Changsha”. On June 12, 2019, the Municipal Communications Commission of Changsha City further issued “Transfer and Registration Procedures of Changsha Online Booking of Taxi”. According to these regulations and guidelines, three licenses or certificates are required for operating the online ride-hailing business: (1) online ride-hailing service platforms such as XXTX is required to obtain the online reservation taxi operating license; (2) automobiles used for online ride-hailing are required to obtain the online reservation taxi transport certificate (the “automobile certificate”); (3) online ride-hailing drivers are required obtain the online reservation taxi driver’s license (the “driver’s license”). Those regulations also stipulate a series of detailed requirements for the online ride-hailing platforms, drivers and automobiles in different cities. In addition to the national online reservation taxi operating license, XXTX and its subsidiaries also obtained the local online reservation taxi operating license in Chengdu, Changsha, and Guangzhou, the three major cities, and other 25 cities from April 2020 to June 2023, issued by local authorities, to operate the online ride-hailing platform services. Without a requisite automobile certificate or driver’s license, ride-hailing drivers may be suspended from providing online ride-hailing services, their illegal income may be confiscated and they may be subject to fines amounting to RMB200 (approximately US$29) to RMB2,000 (approximately US$291) for each offense. However, approximately 57% of our online ride-hailing drivers had not obtained the driver’s license as of March 31, 2023 while all of the cars used for online ride-hailing services which we provided management services to have the automobile certificate. Without requisite automobile certificate or driver’s license, these drivers may be suspended from providing online ride-hailing services, confiscated their illegal income and subject to fines of up to 10 times of their illegal income. Furthermore, according to the Interim Measures, no enterprise or individual is allowed to provide information form online ride-hailing services to unqualified vehicles and drivers. During the year ended March 31, 2023, we have been fined by approximately $19,000 by Traffic Management Bureaus in Chengdu and Changsha, of which, approximately $4,000 was further compensated by drivers or cooperated third parties. If we are deemed in serious violation of the Interim Measures, our Online Ride-hailing Platform Services may be suspended and the relevant licenses may be revoked by certain government authorities. We are in the process of assisting the drivers to obtain the required certificate and license, such as providing registered and training services. However, there is no guarantee that all of the drivers who run their online ride-hailing business through our platform would be able to obtain all the certificates and licenses. On February 7, 2022, the MIIT, the MPS and several other governmental authorities jointly promulgated the Notice on Strengthening the Joint Supervision of the Entire Chain of Online Ride Hailing Industry, which provides that the departments of transportation, telecommunications, public security, human resources and social security, the People’s Bank of China, taxation, market regulation and internet information shall accelerate the establishment of a collaborative supervision mechanism led by the transportation department for new forms of transportation at the provincial and municipal levels, or the joint supervision mechanism. This notice requires relevant governmental authorities to optimize service processes, strictly control industry access, and urge online ride hailing platforms not to grant access to drivers and vehicles with no valid licenses. In case certain violations by online ride hailing platforms trigger the supervisions of various governmental authorities or different provinces and have serious adverse impacts, the relevant authorities of the State Council may organize joint regulatory talks and urge the online ride hailing platforms to rectify. If the online ride hailing platforms commit serious violations but refuse to rectify, the relevant governmental authorities of the municipal level or above may initiate joint supervision and report such violations to the inter-ministerial joint meeting mechanism, and the Ministry of Transport shall take the lead and work together with the CAC, the MIIT, the MPS and other governmental authorities, or instruct their relevant local counterparts, to take measures in accordance with laws, including ordering online ride hailing platforms to suspend services in the region, suspend the release of apps or take down the apps, etc. According to this notice, the joint supervision mechanism shall apply to certain violations of laws and regulations by online ride hailing platforms, which include (i) engaging in online ride hailing business or in a disguised form without obtaining the permit for online ride hailing business; (ii) failing to secure that the vehicles and drivers providing services have relevant licenses and professional qualifications, dispatching orders to drivers and vehicles that have not obtained the corresponding licenses, failing to transmit relevant data information to online ride hailing supervision information exchange platform as required or other serious violations of laws and regulations occurring in the process of operating online ride hailing business; (iii) low-price dumping, fraud, and unreasonably differential treatment of individuals in terms of transaction conditions; (iv) endangering network security, data security, or infringing on the rights and interests of users’ personal information; (v) illegal operation of payment and settlement business; (vi) serious infringement of the labor security rights and interests of the drivers; (vii) failure to pay taxes in accordance with the law; and (viii) other serious violations that endanger public interests, disrupt social order, and affect social security and stability. Regulations Related to Financial Leasing In September 2013, the Ministry of Commerce of the People’s Republic of China (the “MOFCOM”) issued the Administration Measures of Supervision on Financing Lease Enterprises (the “Leasing Measures”), to regulate and administer the business operations of financial leasing enterprises. According to the Leasing Measures, financial leasing enterprises are allowed to carry out financial leasing businesses in such forms as direct lease, sublease, sale-and-lease-back, leveraged lease, entrusted lease and joint lease in accordance with the provisions of relevant laws, regulations and rules. However, the Leasing Measures prohibit financial leasing enterprises from engaging in financial businesses such as accepting deposits, and providing loans or entrusted loans. Without the approval from relevant authorities, financial leasing enterprises may not engage in inter-bank borrowing and other businesses. In addition, financial leasing enterprises are prohibited from carrying out illegal fund-raising activities in the name of financial leases. The Leasing Measures require financial leasing enterprises to establish and improve their financial and internal risk control systems, and a financial leasing enterprise’s risk assets may not exceed ten times that of its total net assets. In April 2018, China Banking and Insurance Regulatory Commission, currently known as the National Financial Regulatory Administration of China (the “NFRAC”) took over the authority over supervision of financing lease companies from MOFCOM. On May 26, 2020, NFRAC issued the Interim Measures for Supervision and Administration of Financial Leasing Companies (the “Financial Leasing Measures”), which clarified the business scope, the scope of the leased property and the prohibited business or activity of the financial leasing company, as well as other business-related definitions, such as purchase, registration, retrieval and value management of financial leasing products. Financial leasing companies may conduct some or all of the following businesses: (1) financial leasing business; (2) leasing business; (3) purchase, disposal of residual value and repair of leased assets related to financial leasing and leasing business, consulting of the leasing transaction, receipt of leasing deposit; (4) transfer of financial leases or leased assets or acceptance of financial leases or leased assets transferred; (5) fixed income securities investment business. The measures have also discussed certain regulatory standards, including the proportion of financial leasing assets, the proportion of fixed income securities investment business, business concentration and so on. Financial leasing companies shall not conduct the following businesses or activities: (1) illegal fund-raising, acceptance or disguised acceptance of deposits; (2) extension of loans or entrusted loans; (3) placements with or from other financial leasing companies or in disguise; (4) financing or transferring assets through Internet Lending Information Intermediaries, private equity funds; (5) other businesses or activities prohibited by laws and regulations, the NFRAC and local financial regulatory authorities in provinces, autonomous regions and municipalities. The Financial Leasing Measures clarify and enumerate the scopes of the financing lease business activities, the leased properties and the activities prohibited to be conducted by the financing lease companies, and set forth the regulatory indexes applicable to financing lease companies including, among others, (i) the assets for financial leasing and other lease arrangements accounting for not less than 60% of the total assets of a financial leasing company; (ii) the risk assets of a financing lease company not exceeding eight times of its total net assets, and the term “risk assets” of a financing lease company refers to its total assets, net of cash, bank deposits, Chinese treasury bonds; (iii) the fixed-income securities investment business carried out by a financial leasing company not exceeding 20% of its net assets. The Financial Leasing Measures also requires financial leasing companies should comply with the following regulatory indicators: (1) degree of concentration of single client financing, meaning the balance of all financial leasing business of a financial leasing company to a single lessee shall not exceed 30% of its net assets; (2) degree of concentration of single group client financing, meaning the balance of all financial leasing business of a financial leasing company to a single group shall not exceed 50% of its net assets; (3) ratio of a single related client, meaning the balance of all financial leasing business of a financial leasing company to a related party shall not exceed 30% of its net assets; (4) ratio of all related parties, meaning the balance of all financial leasing business of a financial leasing company to all related parties shall not exceed 50% of its net assets, and (5) ratio of a single related shareholder, meaning the financing balance to a single shareholder and all its related parties shall not exceed the shareholder’s capital contribution in the financial leasing company, and at the same time meet the provisions of the measures on the ratio of a single related client. The NFRAC may make adjustments to the above indicators according to regulatory needs. Financial leasing companies that were established before the implementation of the Interim Measures for the Supervision and Administration of Financial Leasing Companies are required meet the requirements stipulated in the Measures within the transition period prescribed by the provincial local financial supervision department. In principle, the transition period shall not exceed three years. Provincial local financial supervision departments can appropriately extend the transition period arrangement according to the actual situation of specific industries. The PRC Civil Code promulgated by the National People’s Congress effective from January 1, 2021 regulates the civil contractual relationship among natural persons, legal persons and other organizations. Chapter 15 of the PRC Civil Code sets forth related rules about financing lease contracts including that financing lease contracts shall be in written form and normally include terms such as the name, quantity, specifications, technical performance and inspection method of the leased property, the lease term, the composition, payment term, payment method and currency of the rent and the ownership of the leased property upon expiration of the lease. The PRC Civil Code further provides that the lessor and the lessee may agree on the ownership of the leased property upon expiry of the lease term. If the ownership of the leased property is not or is not clearly agreed between the parties, and is still cannot be determined pursuant to the PRC Civil Code, the leased property shall be owned by the lessor. As of the date of this Report, Hunan Ruixi, our proprietary financing lease subsidiary, has utilized our own capital to fund financing leases to automobile purchasers. Hunan Ruixi has not complied with all the requirements stipulated under the Financial Leasing Measures and intends to rectify and to comply with all the requirements stipulated under the Financial Leasing Measure during the transition period, failing which, Hunan Ruixi cannot carry out financial leasing business. Regulation Related to Financing Guarantee Companies The State Council of China promulgated the Regulations on the Administration of Financing Guarantee Companies on August 2, 2017, and on April 2, 2018, the NFRAC, together with several other governmental authorities, jointly adopted four supplemental rules over the Administration of Financing Guarantee Companies: (i) the Administrative Measures for the Financing Guarantee Business Permit, (ii) Measures for Measuring the Outstanding Amount of Financing Guarantee Liabilities, (iii) Administrative Measures for the Asset Percentages of Financing Guarantee Companies and (iv) Guidelines on Business Cooperation between Banking Financial Institutions and Financing Guarantee Companies, or the Four Supporting Measures of the Financing Guarantee Rules. In addition, the NFRAC, together with several other governmental authorities, jointly issued the Supplementary Provisions on the Supervision and Administration of Financing Guarantee Companies on October 9, 2019. According to the above rules on financing guarantee companies, or the Financing Guarantee Rules, “financing guarantee” refers to the activities that guarantors provide guarantee to the guaranteed parties as to loans, bonds or other types of debt financing, including, among other things, the activities whereby a guarantor provides guarantee for loans, online lending, financial leasing, commercial factoring, bill acceptance, letters of credit or other forms of debt financing. “Financing guarantees companies” refer to companies legally established and engaged in financing guarantee business. According to those rules, the establishment of a financing guarantee company is subject to the approval by the competent government authority, and unless otherwise stipulated, no entity may operate financing guarantee business without such approval. If any entity violates these regulations and operates financing guarantee business without approval, the entity may be subject to penalties including ban or suspension of business, fines of RMB500,000 to RMB1,000,000, and confiscation of illegal gains, if any. If the violation constitutes a criminal offense, criminal liability will be imposed in accordance with the law. In connection with our historical automotive financing facilitation business, Hunan Ruixi provides and Jinkailong provided guarantees to our financing partners in connection with the financing of the purchase of automobiles and such guarantee business is not our principal business, which had no significant impact on our operation result. It is uncertain whether this practice would be deemed as operations in financing guarantee business. See “Risk—Risks Relating to Our Industry and Business—We are required to obtain certain licenses and permits for our business operations, and we may not be able to obtain or maintain such licenses or permits.” Regulations Related to Value-Added Telecommunication Business Certificates and Foreign Investment Restrictions Among all of the applicable laws and regulations, the Telecommunications Regulations of the People’s Republic of China, or the Telecom Regulations, promulgated by the PRC State Council in September 25, 2000 and amended on July 29, 2014 and February 6, 2016, respectively, is the primary governing law, and sets out the general framework for the provision of telecommunications services by domestic PRC companies. Under the Telecom Regulations, telecommunications service providers are required to procure operating licenses prior to their commencement of operations. The Telecom Regulations distinguish “basic telecommunications services” from “value-added telecommunications services”, or “VATS”. VATS are defined as telecommunications and information services provided through public networks, and are further divided into Class I VATS and Class II VATS. The Telecom Catalogue was issued as an attachment to the Telecom Regulations to categorize telecommunications services as either basic or value-added. The Telecom Catalogue was most recently updated in June 2019, categorizing online data and transaction processing, information services, among others, as Class II VATS. The Administrative Measures on Telecommunications Business Operating Licenses, promulgated by the MIIT in 2009 and most recently amended in July 2017, which set forth more specific provisions regarding the types of licenses required to operate VATS, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses. Under these regulations, a commercial operator of VATS must first obtain a VATS License, from the MIIT or its provincial level counterparts, otherwise such operator might be subject to sanctions including corrective orders and warnings from the competent administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites may be ordered to close. According to the Special Entry Management Measures (Negative List) for the Access of Foreign Investment (2021 version) and the Administrative Regulations on Foreign-Invested Telecommunications Enterprises, which were most recently amended by the State Council on April 7, 2022 and took effect on May 1, 2022, the equity interest of foreign investors in value-added telecommunications enterprises that are open for foreign investment according to China’s WTO commitment may not exceed 50%, except as otherwise stipulated by the state. Foreign investment in entities holding VATS Licenses for internet data center services, content delivery network services, domestic internet protocol virtual private network services and internet access services, which are not open for foreign investment according to China’s WTO commitment, are generally prohibited, except that qualified telecommunication service providers incorporated in Hong Kong or Macau may hold up to 50% equity interest in such entities according to the Mainland and Hong Kong Closer Economic Partnership Agreement or the Mainland and Macao Closer Economic Partnership Agreement, respectively. From May 1, 2022, the amended Administrative Regulations on Foreign-Invested Telecommunications Enterprises canceled the qualification requirement on the primary foreign investor in a foreign invested value-added telecommunications enterprise for having a good track record and operational experience in the value-added telecommunications industry as stipulated in the previous version. Meanwhile, the Circular of Ministry of Industry and Information Technology Concerning Lifting Restrictions on the Proportion of Foreign Equity in Online Data Processing and Transaction Processing Business (E-commerce) (the “Circular 196”), which was promulgated on June 19, 2015, provides that foreign investors are permitted to invest up to 100% of the registered capital in a foreign-invested telecommunication enterprise engaging in the operation of online data processing and transaction processing (E-commerce). However, foreign investors are only permitted to invest up to 50% of the registered capital in a foreign-invested telecommunication enterprise that engages in the operation of Internet information services. While Circular 196 permits foreign ownership, in whole or in part, of online data and deal processing businesses (E-commerce), a sub-set of value-added telecommunications services, it is not clear whether our online ride-hailing platform would be deemed as online data and deal processing. See “Risk Factors — Risks Related to Doing Business in China — We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet- related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.” Regulations Related to Internet Advertising The Measures for Administration of Internet Advertising (the “Internet Advertising Measures”), were adopted by the MSA and became effective on May 1, 2023. The Internet Advertising Measures regulate Internet advertising activities. According to the Internet Advertising Measures, Internet advertisers are responsible for the authenticity of the content of advertisements. The identity, administrative license, cited information and other certificates that advertisers are required to obtain in publishing Internet advertisements shall be true and valid. Internet advertisements shall be distinguishable and prominently marked as “advertisements” in order to enable consumers to identify them as advertisements. Publishing and circulating advertisements through the Internet shall not affect the normal use of the Internet by users. It is not allowed to induce users to click on the content of advertisements by any fraudulent means, or to attach advertisements or advertising links in the emails without permission. The Internet Advertising Measures also impose several restrictions on the forms of advertisements and activities used in advertising. “Internet advertising” as defined in the Internet Advertising Measures refers to commercial advertisements that directly or indirectly promote goods or services through websites, web pages, Internet applications or other Internet media in various forms, including texts, pictures, audio clips and videos. Where Internet advertisements are not identifiable and marked as “advertisements”, a fine of not more than RMB100,000 (approximately US$14,560) may be imposed in accordance with Advertising Law. A fine ranging from RMB5,000 (approximately US$728) to RMB30,000 (approximately US$4,370) may be imposed for any failure to provide a prominently marked “CLOSE” button to ensure “one-click closure”. Advertisers who induce users to click on the content of advertisements by fraudulent means or without permission, attach advertisements or advertising links in the emails shall be imposed a fine ranging from RMB5,000 (approximately US$728) to RMB30,000 (approximately US$4,370). Our marketplace is in the process of complying with the new Internet Advertising Measures during our advertising activities. Regulations Related to Company Establishment, Dividend Distribution and Foreign Investment The establishment, operation and management of corporate entities in China is governed by the Company Law of the PRC (the "Company Law"“Company Law”)., which was issued by the SCNPC and was last amended in October 2018. The Company Law applies to both PRC domestic companies and foreign-invested companies. All of our subsidiaries in China are subject to the Company Law. According to the Company Law, companies established in the PRC are either limited liability companies or joint stock limited liability companies. The Company Law applies to both PRC domestic companies and foreign-invested companies. The establishment procedures, approval procedures, registered capital requirements, foreign exchange matters, accounting practices, taxation and labor matters of a wholly foreign-owned enterprise are regulated by the Foreign Investment Law and the Implementing Rules to Further Clarify and Elaborate the Relevant Provisions of the PRC Foreign Investment Law (the “Implementing Rules”), which was approved by the National People’s Congress of China in March 2019 and December 2019, respectively. The PRC Foreign Investment Law and the Implementing Rules both took effect on January 1, 2020 and replaced three major previous laws on foreign investments in China, namely, the Sino-foreign Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, of the PRC and the Implementation Regulation of the Wholly Foreign-owned Enterprise Law.their respective implementing rules. According to these regulations, foreign-invested enterprises in the PRC may only pay dividends out of their accumulated profit, if any, determined in accordance with PRC accounting standards and regulations. However, relevant PRC laws and regulations permit payments of dividends by the Group’s entities incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. A PRC company is required to set aside general reserves of at least 10% of its after-tax profit, until the cumulative amount of such reserves reaches 50% of its registered capital unless the provisions of laws regarding foreign investment provide otherwise. As of March 31, 2023, the total respective registered capital of all the Company’s direct subsidiaries was approximately RMB492 million (approximately $71.6 million). In addition, PRC companies may allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves and employee welfare and bonus funds are not distributable as cash dividends. A PRC company may not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. In September 2016, As of March 31, 2023, all the National People's Congress Standing Committee published its decisionCompany’s subsidiaries incorporated in the PRC have suffered accumulated loss and the Company concluded those subsidiaries did not have abilities to revisetransfer a portion of their net assets to the laws relating to wholly foreign-owned enterprisesCompany either in the form of dividends, loans or advances. Furthermore, even though the Company currently does not require any such dividends, loans or advances from the PRC entities for working capital and other foreign-invested enterprises. Such decision, which became effectivefunding purposes, the Company may in the future require additional cash resources from them due to changes in business conditions, to fund future acquisitions and development, or merely to declare and pay dividends or distributions to its shareholders Except for the above, there is no other restriction under PRC laws and regulations for PRC companies on October 1, 2016, changesuse of proceeds generated by the "filing or approval" procedure for foreign investmentsGroup’s subsidiaries to satisfy any obligations of the Company, as long as the PRC companies completed all required procedures, including the tax payment certification and tax declaration. The investment activities in China suchof foreign investors are also governed by the Foreign Investment Law and the Implementing Rules. Pursuant to the Foreign Investment Law, “foreign investments” refer to investment activities conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State Council. The Implementing Rules introduce a see-through principle and further provide that foreign-invested enterprises that invest in the PRC are also governed by the PRC Foreign Investment Law and the Implementing Rules. The Foreign Investment Law and the Implementing Rules provide that a system of pre-entry national treatment and negative list shall be applied for the administration of foreign investment, where “pre-entry national treatment” means that the treatment given to foreign investors and their investments in business sectors not subjectat market entry stage is no less favorable than that given to domestic investors and their investments, and “negative list” means the special administrative measures for foreign investment’s entry to specific fields or industries, which will only be required to complete a filing insteadproposed by the competent investment department of the existing requirementsState Council in conjunction with the competent commerce department of the State Council and other relevant departments, and be reported to applythe State Council for approval. The special entry management measures shall be promulgatedpromulgation, or approved to be promulgated by the competent investment department or competent commerce department of the State Council. PursuantCouncil after being reported to the State Council for approval. Foreign investments beyond the negative list will be granted national treatment. Foreign investors shall not invest in the prohibited fields as specified in the negative list, and foreign investors who invest in the restricted fields shall comply with the special requirements on the shareholding, senior management personnel, etc. In the meantime, relevant competent government departments will formulate a notice issuedcatalogue of industries for which foreign investments are encouraged according to the needs for national economic and social development, to list the specific industries, fields and regions in which foreign investors are encouraged and guided to invest. The current industry entry clearance requirements governing investment activities in the PRC by foreign investors are set out in two categories, namely the Special Entry Management Measures (Negative List) for the Access of Foreign Investment (2021 version), or the 2021 Negative List, as promulgated by the National Development and Reform Commission ("NDRC"(the “NDRC”) and the Ministry of Commerce ofMOFCOM on December 27, 2021 and taking effect on January 1, 2022, and the People's Republic of China ("MOFCOM") on October 8, 2016, the special entry management measures shall be implemented with reference to the relevant regulations as stipulated in theEncouraged Industry Catalogue of Industries for Guiding Foreign Investment in relation to the restricted foreign investment industries, prohibited foreign investment industries and encouraged foreign investment industries. Pursuant to the Provisional Administrative Measures on Establishment and Modifications Filing for Foreign Investment Enterprises(2022 version) as promulgated by the NDRC and the MOFCOM on October 8, 2016, establishment26, 2022 and changes oftaking effect on January 1, 2023. Industries not listed in these two catalogues are generally deemed “permitted” for foreign investment enterprises not subject tounless specifically restricted by other PRC laws. Neither our Automobile Transaction and Related Services nor our Online Ride-hailing Platform Services is listed in 2021 Negative List. Meanwhile, the approval under the special entry management measures shall be filed with the relevant commerce authorities. The Provisions on Guiding the Orientation of Foreign Investment and the 2015 revision of the Catalogue of Industries for Guiding Foreign Investment classify foreign investment projects into four categories: encouraged projects, permitted projects, restricted projects and prohibited projects. The purpose of these regulations is to direct foreign investment into certain priority industry sectors and restrict or prohibit investment in other sectors. If the industry sector in which the investment is to occur falls into the encouraged category, foreign investment can be conducted through the establishment of a wholly foreign-owned enterprise. If a restricted category, foreign investment may be conducted through the establishment of a wholly foreign-owned enterprise, provided certain requirements are met, and, in some cases, the establishment of a joint venture enterprise is required with varying minimum shareholdings for the Chinese party depending on the particular industry. If a prohibited category, foreign investment of any kind is not allowed. Any industry not falling into any of the encouraged, restricted or prohibited categories is classified as a permitted industry for foreign investment. Our online lending and risk management consulting businesses are classified as permitted foreign investment projects. However, if our online lending platform is required to obtain an ICP certificate (see "Risk Factors — Risks Related to the PRC Laws Regulating Our Business and Industry — We may be required to obtain a value-added telecommunication business certificate and be subject to foreign investment restrictions."), our online lending business will be classified as a restricted foreign investment project, whereupon foreign investment will not be permitted to exceed 50% and the main foreign investor will be required to have a good track record and operational experience in value-added telecommunications businesses.
In January 2015, MOFCOM published the Draft Foreign Investment Law soliciting the public's comments. Among other things, the Draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company is considered a foreign-invested enterprise. "Control" is broadly defined in the Draft Foreign Investment Law to cover the following summarized categories: (i) holding 50% or more of the voting rights of the subject entity; (ii) holding less than 50% of the voting rights of the subject entity, but having the power to secure at least 50% of the seats on the board of directors or other equivalent decision-making bodies, or having the voting power to exert material influence over the board of directors, at the shareholders' meeting or over other equivalent decision-making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity's operations, financial matters or other key aspects of business operations. The Draft Foreign Investment Law specifically provides that entities established in China, but ultimately "controlled" by foreign investors, will be treated as foreign-invested enterprises. If a foreign-invested enterprise proposes to conduct business in an industry subject to foreign investment restrictions, the foreign-invested enterprise must go through a market entry clearance by MOFCOM before being established. According to the Draft Foreign Investment Law, VIEs would also be deemed as foreign-invested enterprises if they are ultimately "controlled" by foreign investors, and accordingly would be subjectestablished according to restrictions on foreign investments. However, the Draft Foreign Investment Law does not address what actions will be taken with respect to the existing companies with a VIE structure. As of the date hereof, it is uncertain when the Draft Foreign Investment Law will become a law, to what extent the final version will differ from the Draft Foreign Investment Law and the potential impact on companies employing a VIE structure in the PRC. When the Draft Foreign Investment Law becomes effective, the trio of existing laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law. Furthermore, the PRC Foreign Investment Law provides several protective rules and principles for foreign investors and their investments in the PRC, namely,including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments to the Sino-foreign Equity Joint Venture Enterpriseforeign investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto foreign-invested enterprises, set market access restrictions and exit conditions, or intervene with the normal production and operation activities of foreign-invested enterprises; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.
In addition, Pursuant to the Foreign Investment Law, the Sino-foreign Cooperative Joint Venture Enterprise LawImplementing Rules, and the Wholly Foreign-invested Enterprise Law, togetherInformation Reporting Measures for Foreign Investment jointly promulgated by the MOFCOM and the MSA, which took effect on January 1, 2020, a foreign investment information reporting system was established and foreign investors or foreign-invested enterprises must report investment information to competent commerce departments of the PRC government through the enterprise registration system, the enterprise credit information publicity system and the foreign investment information reporting system, and the relevant government authorities shall share such investment information to the competent commerce departments in a timely manner. We are subject to these regulatory requirements. Regulations Relating to Vehicle Rental Services Pursuant to the Administration Measures for Operations and Services of Small and Micro Passenger Vehicles issued by the Ministry of Transport on December 20, 2020 and last amended on August 11, 2021, rental business operators of small and micro passenger vehicles shall carry out record-filing procedures with their implementation rulesthe city or county level counterparts of the Ministry of Transport where the business operations are conducted, within 60 days after completing the relevant registration formalities with the local counterparts of the State Administration for Market Regulation, or within 60 days after establishing new service agencies to carry out relevant business activities. To qualify for the record filing procedures, an applicant entity shall satisfy, among others, the following requirements: (i) being an independent legal person registered under the PRC law; (ii) the vehicles used for rental business operations passing quality inspections, and ancillary regulations, will be abolished.the registered nature of these vehicles being “rental”; (iii) having the business premises and management personnel eligible for the rental business; (iv) establishing corresponding service institutions and having corresponding service capabilities locally; (v) developing comprehensive operation and management systems, service procedures, safety management systems, and emergency response plans. Failure to complete the record-filing procedures may subject the rental business operators of small and micro passenger vehicles to orders to rectify and fines ranging from RMB3,000 (approximately US$437) to RMB10,000 (approximately US$1,456). All vehicles used for our Auto Operating Leasing have obtained the required licenses and completed the registration. Regulations Related to Labor and Social Security Pursuant to the PRC Labor Law, the PRC Labor Contract Law and the Implementing Regulations of the Employment Contracts Law, labor relationships between employers and employees must be executed in written form. Wages may not be lower than the local minimum wage. Employers must establish a system for labor safety and sanitation, strictly abide by state standards and provide relevant education to its employees. Employees are also required to work in safe and sanitary conditions. On December 28, 2012, the PRC Labor Contract Law was amended with effect on July 1, 2013 to impose more stringent requirements on labor dispatch. Under such law, dispatched workers are entitled to pay equal to that of full-time employees for equal work, but the number of dispatched workers that an employer hires may not exceed a certain percentage of its total number of employees as determined by the Ministry of Human Resources and Social Security. Additionally, dispatched workers are only permitted to engage in temporary, auxiliary or substitute work. According to the Interim Provisions on Labor Dispatch promulgated by the Ministry of Human Resources and Social Security on January 24, 2014, which became effective on March 1, 2014, the number of dispatched workers hired by an employer shall not exceed 10% of the total number of its employees (including both directly hired employees and dispatched workers). The Interim Provisions on Labor Dispatch require employers not in compliance with the PRC Labor Contract Law in this regard to reduce the number of its dispatched workers to below 10% of the total number of its employees prior to March 1, 2016. In addition, an employer is not permitted to hire any new dispatched worker until the number of its dispatched workers has been reduced to below 10% of the total number of its employees.
Under PRC laws, rules and regulations, including the Social Insurance Law, , the Interim Regulations on the Collection and Payment of Social Security Funds and the Regulations on the Administration of Housing Accumulation Funds, employers are required to contribute, on behalf of their employees, to a number of social security funds, including funds for basic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, maternity leave insurance and housing accumulation funds. These payments are made to local administrative authorities and any employer who fails to contribute may be fined and ordered to pay the deficit amount. See "Risk“Risk Factors — Risks Related to Doing Business in China — WeFailure to make adequate contributions to various employee benefit plans as required by PRC regulations may besubject us to penalties.” Anti-money Laundering Regulation The PRC Anti-money Laundering Law, which became effective in January 2007, sets forth the principal anti-money laundering requirements applicable to financial institutions, as well as non-financial institutions with anti-money laundering obligations, including the adoption of precautionary and supervisory measures, establishment of various systems for client identification, retention of clients’ identification information and transactions records, and reports on large transactions and suspicious transactions. According to the PRC Anti-money Laundering Law, financial institutions subject to penalties under relevantthe PRC lawsAnti-money Laundering Law include banks, credit unions, trust investment companies, stock brokerage companies, futures brokerage companies, insurance companies and other financial institutions as listed and published by the State Council, while the list of the non-financial institutions with anti-money laundering obligations will be published by the State Council. The PBOC and other governmental authorities issued a series of administrative rules and regulations due to failurespecify the anti-money laundering obligations of financial institutions and certain non-financial institutions, such as payment institutions. However, the State Council has not promulgated the list of the non-financial institutions with anti-money laundering obligations. Regulation Related to make full social securitythe Payment Services of Non-financial Institutions According to Measures for the Administration of Payment Services of Non-Financial Institutions which were promulgated by PBOC on June 14, 2010, effective on September 1, 2010 and housing fund contributionsamended on April 29, 2020, and Implementing Rules for the Measures for the Administration of Payment Services of Non-Financial Institution which were promulgated by the PBOC, effective on December 1, 2010 and amended on June 2, 2020, the payment services provided by non-financial institutions refer to some or all of our employees."the following monetary capital transfer services provided by the non-financial institutions as intermediary agencies between payers and payees: (1) payment through the internet; (2) issuance and acceptance of prepaid cards; (3) bankcard acquiring; and (4) other payment services as determined by the PBOC. Non-financial institutions which provide payment services shall obtain a “Payment Business License” and become a “payment institution.” Payment Business License is valid for five years from the date of issuance. Payment institutions shall carry out business activities in compliance with the scope of business approved by the Payment Business License, and shall not outsource any business, transfer, lease, or lend its Payment Business License. Any non-financial institution or individual shall not directly or indirectly engage in payment business without the approval of the PBOC. On May 9, 2019, the MOT, the PBOC, the NDRC, the MPS, the State Administration of Market Regulation (the “SAMR”) and NFRAC, jointly issued the Measures for the Administration of User Funds in New Forms of Transport Business (Trial) (the “Trial Measures on Administration of User Funds”) which became effective on June 1, 2019. According to the Trial Measures on Administration of User Funds, an operating enterprise shall open a special deposit account for user deposits and a special deposit account for prepayments, respectively, as are nationwide unique at the bank in the place of its registration in mainland China, and the bank where the special deposit accounts are opened shall be the depository bank to preserve user funds. Regulations on Intellectual Property The PRC has adopted legislation governing intellectual property rights, including copyrights, trademarks and patents. The PRC is a signatory to major international conventions on intellectual property rights and is subject to the Agreement on Trade Related Aspects of Intellectual Property Rights as a result of its accession to the World Trade Organization in December 2001. The National People's CongressSCNPC amended the Copyright Law in 2001, 2010 and 20102020 to widen the scope of works and rights that are eligible for copyright protection. The amended, the Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, there is a voluntary registration system administered by the China Copyright Protection Center. To address copyright infringement related to content posted or transmitted over the Internet, the National Copyright Administration and former Ministry of Information Industry jointly promulgated the Administrative Measures for Copyright Protection Related to the Internet in April 2005. These measures became effective in May 2005. On December 20, 2001, the State CouncilSCNPC promulgated the new Regulations on Computer Software Protection, effective from January 1, 2002, and revised in 2013, which are intended to protect the rights and interests of the computer software copyright holders and encourage the development of software industry and information economy. In the PRC, software developed by PRC citizens, legal persons or other organizations is automatically protected immediately after its development, without an application or approval. Software copyrights may be registered with the designated agency and if registered, the certificate of registration issued by the software registration agency will be the primary evidence of the ownership of the copyright and other registered matters. On February 20, 2002, the National Copyright Administration of the PRC introduced the Measures on Computer Software Copyright Registration, which outline the operational procedures for registration of software copyright, as well as registration of software copyright license and transfer contracts. The Copyright Protection Center of China is mandated as the software registration agency. The PRC Trademark Law, adopted in 1982 and revised in 1993, 2001, 2013 and 20132019, respectively, protects the proprietary rights to registered trademarks. The Trademark Office under the State Administration for Industry and CommerceSAIC handles trademark registrations and may grant a term of ten years for registered trademarks, which may be extended for another ten years upon request. Trademark license agreements shall be filed with the Trademark Office for record. In addition, if a registered trademark is recognized as a well-known trademark, the protection of the proprietary right of the trademark holder may reach beyond the specific class of the relevant products or services. The Patent Law of the PRC and its Implementation Rules provide for three types of patents: invention, utility model and design. The duration of a patent right is either 10 years or 20 years from the date of application, depending on the type of patent right. Domain names are protected under the Administrative Measures on Internet Domain Names promulgated by the MIIT on August 24, 2017 and effective as of November 1, 2017. Our domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration. Regulations Related to Foreign Exchange The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, which were most recently amended in August 2008. Payments of current account items, such as profit distributions and trade and service-relatedservice- related foreign exchange transactions, can usually be made in foreign currencies without prior approval from the State Administration of Foreign Exchange ("SAFE"(“SAFE”) by complying with certain procedural requirements. By contrast, approval from or registration with appropriate PRC authorities or banks authorized by appropriate PRC authorities is required where RMB capital is to be converted into foreign currency and remitted out of China to pay capital expenses. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises ("(“Circular 19"19”), effective on June 1, 2015, in replacement of SAFE Circular 142 (the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans or the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in the PRC in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account (the "Circular 16"“Circular 16”), effective on June 9, 2016, which reiterates some of the rules set forth in Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 or Circular 16 could result in administrative penalties. From 2012, SAFE has promulgated several circulars to substantially amend and simplify the current foreign exchange procedure. Pursuant to these circulars, the opening of various special purpose foreign exchange accounts, the reinvestment of RMB proceeds by foreign investors in the PRC and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE. In addition, domestic companies are no longer limited to extend cross-border loans to their offshore subsidiaries but are also allowed to provide loans to their offshore parents and affiliates and multiple capital accounts for the same entity may be opened in different provinces. SAFE also promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. In February 2015, SAFE promulgated SAFE Circular 13, which took effect on June 1, 2015. SAFE Circular 13 delegates the power to enforce the foreign exchange registration in connection with inbound and outbound direct investments under relevant SAFE rules from local branches of SAFE to banks, thereby further simplifying the foreign exchange registration procedures for inbound and outbound direct investments. On January 26, 2017, SAFE issued the Notice of State Administration of Foreign Exchange on Improving the Check of Authenticity and Compliance to Further Promote Foreign Exchange Control (the "SAFE“SAFE Circular 3"3”), which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years'years’ losses before remitting the profits. Moreover, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment. On October 23, 2019, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or Circular 28, which permits non-investment foreign-invested enterprises to use their capital funds to make equity investments in China, with genuine investment projects and in compliance with effective foreign investment restrictions and other applicable laws. However, as the Circular 28 was newly issued, there are still substantial uncertainties as to its interpretation and implementations in practice. Regulations Relating to Offshore Special Purpose Companies Held by PRC Residents SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident'sResident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles (the "SAFE“SAFE Circular 37"37”) in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 was issued to replace SAFE Circular 75 (the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles.Vehicles). SAFE further enacted the Notice on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment (the "SAFE“SAFE Circular 13"13”) effective from June 1, 2015, , which allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. However, remedial registration applications made by PRC residents that previously failed to comply with the SAFE Circular 37 continue to fall under the jurisdiction of the relevant local branch of SAFE. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from distributing profits to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary.subsidiaries. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. See "Risk“Risk Factors — Risks Related to Doing Business in China — PRC regulations relating to offshore investment activities by PRC residents and PRC entities may limit our PRC subsidiaries'subsidiaries’ ability to increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law."law.”
SAFE Regulations Relating to Employee Stock Incentive Plans On February 15, 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies (the "Stock“Stock Option Rules"Rules”), which replaced the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plans or Stock Option Plans of Overseas Publicly-Listed Companies issued by SAFE on March 28, 2007. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in a stock incentive plan in an overseas publicly listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly listed company or another qualified institution selected by such PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding shares or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to our share incentive plans if there are any material changes to the share incentive plans, the PRC agent or the overseas entrusted institution or other material changes. In addition, SAFE Circular 37 provides that PRC residents who participate in a share incentive plan of an overseas unlisted special purpose company may register with SAFE or its local branches before exercising rights. See "Risk“Risk Factors — Risks Related to Doing Business in China — Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions."sanctions.”
Regulations Related to Enterprise Income Tax Under the PRC Enterprise Income Tax Law (the "EIT Law"“EIT Law”), which became effective on January 1, 2008, an enterprise established outside the PRC with "de“de facto management bodies"bodies” within the PRC is considered a "resident enterprise"“resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. In 2009, the SATState Administration of Taxation (the “SAT”) issued the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies (the "SAT“SAT Circular 82"82”), which provides certain specific criteria for determining whether the "de“de facto management body"body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, in 2011, the SAT issued the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial) (the "SAT“SAT Bulletin 45"45”) to provide more guidance on the implementation of SAT Circular 82. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered a PRC resident enterprise by virtue of having its "de“de facto management body"body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its board of directors and shareholders'shareholders’ meetings are located or kept in the PRC; and (d) more than half of the enterprise'senterprise’s directors or senior management with voting rights habitually reside in the PRC. Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore-incorporated enterprises controlled by PRC enterprises or PRC enterprise groups and not those controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect the SAT'sSAT’s general position on how the term "de“de facto management body"body” could be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners. The State Administration of Taxation has promulgated several rules and notices to tighten the scrutiny over acquisition transactions in recent years, including the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises (the "SAT“SAT Circular 698"698”), the Notice on Several Issues Regarding the Income Tax of Non-PRC Resident Enterprises (the "SAT“SAT Circular 24"24”) and the NoticeBulletin on Certain CorporateIssues of Enterprise Income Tax Matters on Indirect TransferTransfers of PropertiesAssets by Non-PRC Resident Enterprises (the "SAT Circular 7"“SAT Bulletin 7”). Pursuant to these rules and notices, if a non-PRC resident enterprise transfers its equity interests in a PRC tax resident enterprise, such non-PRC resident transferor must report to the tax authorities at the place where the PRC tax resident enterprise is located and is subject to a PRC withholding tax of up to 10%. In addition, if a non-PRC resident enterprise indirectly transfers so-called PRC Taxable Properties, referring to properties of an establishment or a place of business in China, real estate properties in China and equity investments in a PRC tax resident enterprise, by disposition of the equity interests in an overseas non-public holding company without a reasonable commercial purpose and resulting in the avoidance of PRC enterprise income tax, the transfer will be re-characterized as a direct transfer of the PRC Taxable Properties and gains derived from the transfer may be subject to a PRC withholding tax of up to 10%. SAT CircularBulletin 7 has listed several factors to be taken into consideration by the tax authorities in determining if an indirect transfer has a reasonable commercial purpose. However, regardless of these factors, an indirect transfer satisfying all the following criteria will be deemed to lack a reasonable commercial purpose and be taxable in the PRC: (i) 75% or more of the equity value of the intermediary enterprise being transferred is derived directly or indirectly from PRC Taxable Properties; (ii) at any time during the one year period before the indirect transfer, 90% or more of the asset value of the intermediary enterprise (excluding cash) is comprised directly or indirectly of investments in the PRC, or 90% or more of its income is derived directly or indirectly from the PRC; (iii) the functions performed and risks assumed by the intermediary enterprise and any of its subsidiaries that directly or indirectly hold the PRC Taxable Properties are limited and are insufficient to prove their economic substance; and (iv) the foreign tax payable on the gain derived from the indirect transfer of the PRC Taxable Properties is lower than the potential PRC tax on the direct transfer of those assets. On the other hand, indirect transfers falling into the scope of the safe harbors under SAT CircularBulletin 7 may not be subject to PRC tax. The safe harbors include qualified group restructurings, public market trades and exemptions under tax treaties. Under SAT CircularBulletin 7 and other PRC tax regulations, in the case of an indirect transfer, entities or individuals obligated to pay the transfer price to the transferor must act as withholding agents and are required to withhold the PRC tax from the transfer price. If they fail to do so, the seller is required to report and pay the PRC tax to the PRC tax authorities. If neither party complies with the tax payment or withholding obligations under SAT CircularBulletin 7, the tax authority may impose penalties such as late payment interest on the seller. In addition, the tax authority may also hold the withholding agents liable and impose a penalty of 50% to 300% of the unpaid tax on them. The penalty imposed on the purchasers may be reduced or waived if the withholding agents have submitted the relevant materials in connection with the indirect transfer to the PRC tax authorities in accordance with SAT CircularBulletin 7. In January 2019, the SAT issued Announcement on the Implementation of the Preferential Income Tax Reduction Policy for Small and Low Profit Enterprises (the “SAT 2019 Circular 2”). Pursuant to SAT 2019 Circular 2, from January 1, 2019 to December 31, 2021, for small low profit enterprises, (i) the tax rate for the first RMB1 million the annual income does not exceed RMB1 million is 20% and the taxable income is 25% of the annual taxable income; (ii) the tax rate for the portion of annual income that exceeds RMB1 million but does not exceed RMB3 million is 20% and the taxable income is 50% of the annual income. SAT 2019 Circular 2 also defines “small low profit enterprises” as enterprises who are engaged in industries not restricted or prohibited and meet the three conditions of (i) annual taxable income of RMB3 million or lower, (ii) employees’ number of 300 or lower; and (iii) total assets of RMB50 million or lower. On March 18, 2022, the SAT issued Announcement on the Further Implementation of the Preferential Income Tax Reduction Policy for Small and Low Profit Enterprises (the “SAT 2022 Circular 13”). Pursuant to SAT 2022 Circular 13, the preferential income tax reduction policy for small low profit enterprise shall be expanded from January 1, 2022 to December 31, 2024. During the calendar years ended December 31, 2021 and 2022, all our subsidiaries in China met the three criteria and enjoyed the preferential tax rates. Regulations Related to PRC Value-Added Tax In March 2016, the Ministry of Finance and the State Administration of Taxation further promulgated the Notice on Fully Promoting the Pilot Plan for Replacing Business Tax by Value-Added Tax (“VAT”), which became effective on May 1, 2016. Pursuant to the pilot plan and relevant notices, VAT is generally imposed in lieu of business tax in the modern service industries, including the value-added telecommunication services, on a nationwide basis. VAT of a rate of 6% applies to revenue derived from the provision of some modern services. Certain small taxpayers under PRC law are subject to reduced value-added tax at a rate of 3%. Unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the modern services provided. On April 4, 2018, the Ministry of Finance and the State Administration of Taxation issued the Notice on Adjustment of VAT Rates, which came into effect on May 1, 2018. According to the abovementioned notice, the taxable goods previously subject to VAT rates of 17% and 11% respectively become subject to lower VAT rates of 16% and 10% respectively starting from May 1, 2018. Furthermore, according to the Announcement on Relevant Policies for Deepening Value-added Tax Reform jointly promulgated by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs, which became effective on April 1, 2019, the taxable goods previously subject to VAT rates of 16% and 10% respectively become subject to lower VAT rates of 13% and 9% respectively starting from April 1, 2019. Pursuant to applicable PRC regulations promulgated by the Ministry of Finance of China and the SAT, we are required to pay a VAT at a rate of 6% for our services and 13% for our automobile sales, operating lease and financial leasing, with respect to revenues derived from the provision of Automobile Transaction and Related Services. In addition, as part of the Chinese government’s effort to ease the burden of businesses affected by COVID-19, the Ministry of Finance and the State Administration of Taxation temporarily reduced or exempted VAT on revenues derived from the provision of certain transportation services from January 2020 to March 2021 and from January 1, 2022 to December 31, 2022. Accordingly, during the year ended March 31, 2022, our revenues generated from our Online Ride-hailing Platform Services was exempted from duty since January 1, 2022 to March 31, 2022. And during the year ended March 31, 2023, our revenues generated from our Online Ride-hailing Platform Services was exempted from duty since April 1, 2022 to December 31, 2022. A taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the revenue from services provided. Regulations Related to Mergers and Acquisitions On August 8, 2006, six PRC regulatory agencies, including China Securities Regulatory Commission (the "CSRC"“CSRC”), promulgated the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the "M“M&A Rules"Rules”), which became effective on September 8, 2006 and were amended on June 22, 2009. The M&A Rules, among other things, require offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC domestic enterprises or individuals to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC published a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval. The M&A Rules, and other recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the National People's CongressSCNPC on August 30, 2007 and effective as of August 1, 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by MOFCOM before they can be completed. In addition, on February 3, 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the "Circular 6"“Circular 6”), which officially established a security review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, on August 25, 2011, MOFCOM promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors (the "MOFCOM“MOFCOM Security Review Regulations"Regulations”), which became effective on September 1, 2011, to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having "national“national defense and security"security” concerns and mergers and acquisitions by which foreign investorsInvestors may acquire the "de“de facto control"control” of domestic enterprises with "national security"“national security” concerns. Under the MOFCOM Security Review Regulations, MOFCOM will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to security review. If MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit it to the Inter-Ministerial Panel, an authority established under Circular 6 led by the NDRC and MOFCOM under the leadership of the State Council, to carry out the security review. The regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that the merger or acquisition of a company engaged in the marketplace lending business requires security review. Regulations Related to Overseas Listings On February 17, 2023, the CSRC promulgated the Overseas Listing Trial Measures (the “Trial Measures”), and relevant five guidelines on the application of regulatory rules, which took effect from March 31, 2023, requiring Chinese domestic companies’ overseas offerings and listings of equity securities be filed with the CSRC. On the same date, the CSRC circulated Supporting Guidance Rules No. 1 through No. 5, Notes on the Trial Measures, Notice on Administration Arrangements for the Filing of Overseas Listings by Domestic Enterprises and relevant CSRC Answers to Reporter Questions, or collectively, the Guidance Rules and Notice, on CSRC’s official website. The Trial Measures clarify the scope of overseas offerings and listings by Chinese domestic companies which are subject to the filing and reporting requirements thereunder, and provide, among others, that Chinese domestic companies that have already directly or indirectly offered and listed securities in overseas markets prior to the effectiveness of the Overseas Listing Trial Measures shall fulfil their filing obligations and report relevant information to the CSRC within three working days after conducting a follow-on offering of equity securities on the same overseas market, and follow the relevant reporting requirements within three working days upon the occurrence and public disclosure of any specified circumstances provided thereunder, including (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities; (iii) change of listing status or transfer of listing segment and (iv) voluntary or mandatory delisting. In addition, where the main business of an issuer undergoes material change after overseas offering and listing, and is therefore beyond the scope of business stated in the filing documents, such issuer shall follow the relevant reporting requirements within three working days after occurrence of the changes. Any future securities offerings and listings outside mainland China by Chinese domestic companies, including but not limited to follow-on offerings, secondary listings and going private transactions, will be subject to the filing with the CSRC under the Overseas Listing Trial Measures. For violations of these provisions or measures, the competent Chinese authorities may impose administrative regulatory measures, such as orders for correction, warnings, fines, and may pursue legal liability in accordance with law. The Trial Measures, together with the Guidance Rules and Notice reiterate the basic principles of the Draft Administrative Provisions and Draft Filing Measures and impose substantially the same requirements for the overseas securities offering and listing by domestic enterprises, and clarified and emphasized several aspects, which include but are not limited to: (1) criteria to determine whether an issuer will be required to go through the filing procedures under the Trial Measures; (2) exemptions from immediate filing requirements for issuers including those that have already been listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial Measures, but these issuers shall still be subject to filing procedures if they conduct refinancing or are involved in other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, such as issuers whose affiliates have been recently convicted of bribery and corruption; (4) issuers’ compliance with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, such as obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and obligation after offering or listing overseas to file with the CSRC after it completes subsequent offerings and to report to the CSRC material events including change of control or voluntary or forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their relevant shareholders for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation. The Overseas Listing Trial Measures provide that if an issuer meets both of the following criteria, the overseas securities offering and listing conducted by such issuer will be deemed as an indirect overseas offering and listing by PRC domestic companies: (i) 50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are conducted in mainland China, or its main place(s) of business are located in mainland China, or the majority of senior management staff in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in mainland China. Where an issuer submits an application for initial public offering to competent overseas regulators, such issuer must file with the CSRC within three business days after such application is submitted. The Trial Measures provide the CSRC with power to warn, fine, and issue injunctions against both PRC domestic companies, their controlling shareholders, and their advisors in listing or offering securities (collectively, the “Subject Entities”), as well as individuals directly responsible for these Subject Entities (the “Subject Individuals”). For failure to comply with the Trial Measures Negative List or the Trial Measures Filing Obligations, or materially false or misleading statements in the filing and reporting required by the Trial Measures: (1) PRC domestic companies, and their controlling shareholders if the controlling shareholders induced the PRC domestic companies’ failure to comply, severally, may face warnings, injunctions to comply, and fines between RMB1 million and RMB10 million (approximately $145,647 and $1,456,473); the Subject Individuals in these entities may severally, face warnings and fines between RMB0.5 million and RMB5 million (approximately $72,824 and $728,237). (2) Advisors in listing or offering securities that failed to dutifully advise the PRC domestic companies and their controlling shareholders in complying with the Trial Measures and caused such failures to comply can face warnings and fines between RMB0.5 million and 5 million (approximately $72,824 and $728,237); the Subject Individuals in these advisor entities may, severally, face warnings and fines between RMB0.2 million and RMB2 million (approximately $29,129 and $291,295). Furthermore, on February 24, 2023, the CSRC, together with certain other PRC governmental authorities, promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Revised Confidentiality and Archives Administration Provisions, which took effect on March 31, 2023. According to the Revised Confidentiality and Archives Administration Provisions, Chinese companies that directly or indirectly conduct overseas offerings and listings, shall strictly abide by the relevant laws and regulations on confidentiality when providing or publicly disclosing, either directly or through their overseas listed entities, documents and materials to securities services providers such as securities companies and accounting firms or overseas regulators in the process of their overseas offering and listing. In the event such documents or materials contain state secrets or working secrets of government agencies, the Chinese companies shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level with the approving authority. In the event that such documents or materials, if divulged, will jeopardize national security or public interest, the Chinese companies shall strictly fulfill relevant procedures stipulated by applicable national regulations. The Chinese companies shall also provide a written statement of the specific state secrets and sensitive information provided when providing documents and materials to securities companies and securities service providers, and the securities companies and securities service providers shall properly retain such written statements for inspection. According to the Revised Confidentiality and Archives Administration Provisions, where overseas securities regulators or relevant competent authorities request to inspect, investigate or collect evidence from Chinese domestic companies concerning their overseas offering and listing or their securities firms and securities service providers that undertake securities business for such Chinese domestic companies, such inspection, investigation and evidence collection must be conducted under the cross-border regulatory cooperation mechanism, and the CSRC or competent authorities of the Chinese government will provide necessary assistance pursuant to bilateral and multilateral cooperation mechanism. Employees
Human Capital As of the date of this Report, we had a total of 5197 full-time employees. employees including three executive officers, 63 employees in our Automobile Transaction and Related Services segment and 31 employees in our Online Ride-hailing Platform Services segment. Meanwhile, there were 102 full-time employees in our equity investee company, Jinkailong. The following table sets forth the breakdown of our employees by function: function in our Automobile Transaction and Related Services segment: Function | | | Number of
Employees | | ManagementFunction |
| | 2 | Number of Employees | TechnologyManagement | | | 18 | 2 | Legal & Risk Management | | | 7 | 11 | Operations | | | 11 | 7 | Human ResourcesMarketing | | | 4 | 9 | Business DevelopmentDrivers & Automobile Management and Services | | | 4 | 13 | Technology | | 2 | Human Resources & Administration | | 9 | Finance and Accounting | | | 5 | 9 | TotalInternal Control and Audit | | 1 | Total | 51
| 63 |
The following table sets forth the breakdown of our employees by function in our Online Ride-hailing Platform Services segment: | | | Function |
| Number of Employees | Management | | 2 | Operations | | 16 | Drivers & Risk Management and Services | | 6 | Technology | | 2 | Human Resources & Administration | | 1 | Finance and Accounting | | 4 | Total |
| 31 |
All of our employees are based in the cities of Chengdu, Changsha and Guangzhou, where our principal executive officesmain operations are located. We believe we offer our employees competitive compensation packages and a work environment that encourages initiative and is based on merit, and as a result, we have generally been able to attractdevelop and retainmaintain our human capital, including attracting and retaining qualified personnel and maintain a stable core management team. We plan to continue developing our human capital and hire additional employees as we expand our business. As required by PRC regulations, we participate in various government statutory employee benefit plans, including social insurance funds, namely a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan and a housing provident fund. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. We have not made adequate employee benefit payments, and may be required to make up the contributions for these plans as well as to pay late fees and fines. See "Risk“Risk Factors — Risks Related to Doing Business in China — Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties." ” We are subject to and comply with PRC regulations regarding labor and social security. See “Regulations – Regulations Related to Labor and Social Security.” We enter into standard labor and confidentiality agreements with each of our employees. We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes. Seasonality We have observed seasonal trends or patterns in revenues related to our Automobile Transaction and Related Services. Because of the PRC National Holiday in October, New Year’s Day, and the traditional Lunar New Year in January or February, there is a seasonal decrease in the demand of automobile purchase/leasing in certain months during the six months ended March 31 (our third and fourth fiscal quarter). We also expect to experience seasonality in our Online Ride-hailing Platform Services, which may differ from the one in our Automobile Transaction and Related Services. For example, we expect to experience higher user traffic during the Chinese National holiday due to the strong demand in the tourism. Other seasonal trends that may affect us or China’s online ride-hailing industry generally may develop, and current seasonal trends may become more extreme, all of which would contribute to fluctuations in our results of operations. Our results of operations in future quarters or years may fluctuate and deviate from the expectations of our investors, and any occurrence that disrupts our business during any particular quarters could have a disproportionately material adverse effect on our liquidity and results of operations. Research and Development With an aim to standardize our transaction process and achieve higher operating efficiency, we are developing an integrated information system for our Automobile Transaction and Related Services. The system comprises modules for procurement, qualification assessment, delivery and post-transaction management which covers the whole transaction process. We have completed the development of certain functions such as information entry and delivery which are being tested by us. We launched the system in March 2020 and keep upgrading the system to support our business expansion. We are also in the progress of developing the managing system for online ride-hailing platform, and the comprehensive management system which could link all key information between Automobile Transaction and Related Services and Online Ride-hailing Platform Services for our internal manage purpose. Intellectual Property We regard our trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on PRC trademark and trade secret law and confidentiality, invention assignment and non-compete agreements with our employees and others to protect our proprietary rights. We own 12 trademarks19 software copyrights and also acquired one52 trademarks. We have two trademark from a third party and are inapplications pending at the process of registering the transfer with thePRC Trademark Office of PRC.Office. We have also registered numerous domain names, including www.ihongsen.com. www.51ruixi.com, www.91xixing.com/, 91xixingcd.com, www.coreneltech.com, www.senmiaotech.com and senmiaotechir.com. The information on our websites is not part of, or incorporated in, this Report. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology. Monitoring unauthorized use of our technology is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources. In addition, third parties may initiate litigationlitigations against us alleging infringement of their proprietary rights or respond to our litigations declaring their non-infringement of our intellectual property rights. In the event of a successful claim of infringement and our failure or inability to develop non-infringing technology or license the infringed or similar technology on a timely basis, our business could be harmed. Moreover, even if we are able to license the infringed or similar technology, license fees could be substantial and may adversely affect our results of operations. See "Risk“Risk Factors — Risks Related to Our Business — We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position."” and "Risk Factors —“— We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations."operations.” Data Policy
Insurance We consider our insurance coverage to be adequate as we have adopted a strict internal data policy relatingin place all the mandatory insurance policies required by Chinese laws and regulations and in accordance with the commercial practices in our industry. The Auto Business Entities have obtained accident insurance and commercial liability insurance, which are mandatory, on all the automobiles they purchased for sales, leasing or financing and pass on the costs of such insurance to their customers in the confidential information ofsale/leasing/financing transaction. We also maintain the mandatory insurance with respect to carrier’s liability in connection with our borrowers, investors and partners, as well as our own confidential information. This policy establishes day-to-day data use requirements, data and information classifications, data encryption requirements, back-up requirements, approval procedures and user rights for confidential information and data. This policy also specifies the manner in which data must be stored. We require each of our employees to agree in writing to abide by the data policy and protect the confidentiality of our data. Insurance
Online Ride-hailing services. We provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurance for our employees. We do no maintain any property insurance policies, business interruption insurance or general third-party liability insurance, nor do we maintain product liability insurance or key-man insurance. We consider our insurance coverage to be sufficient for our business operations in China. Recent Developments
On January 29, 2018, our board of directors and stockholders approved a one-for-two reverse stock split of our issued and outstanding shares of common stock (the "Reverse Stock Split"), which became effective on January 29, 2018. All share and per share value of the Company's common stock for all periods presented in this Report are retroactively restated for the effect of the Reverse Stock Split.
OnApril 8, 2018, we entered into a Fund Deposit Service Agreement ("Fund Deposit Service Agreement") with XW Bank. The Company entered into the Fund Deposit Service Agreement in connection with our decision to change our custodian bank from Guangdong Huaxing Bank to XW Bank because peer-to-peer lending platforms in Sichuan Province are required to have local commercial banks within the same province serve as custodians according to certain local regulations.
Pursuant to the terms of the Fund Deposit Service Agreement, XW Bank will serve as the sole custodian bank of the money from our clients to escrow the funds and facilitate our business. In consideration of its services to us, XW Bank will charge (a) a service fee of (i) 0.06% of the amount of money deposited into XW Bank, with a limit of RMB 1.2 million (approximately US$184,539) annually or (ii) RMB 300,000 (approximately US$46,135) annually, whichever is greater; (b) a transaction fee of RMB 1.50 (approximately US$0.23) for each withdrawal by a platform client; (c) a verification fee of RMB 0.50 (approximately US$0.08) for each verification for the platform client's bank account information and (d) a nonrecurring, one-time system access fee of RMB 200,000 (approximately US$30,756).
The Fund Deposit Service Agreement has a term of one year and will be automatically extended one more year if neither party terminates the Fund Deposit Service Agreement within the last 30 days of the one-year term. Either party may also terminatethe Fund Deposit Service Agreement on 90 days' notice to the other party, but such termination requires the consent of the non-terminating party.
An investment in our company is subject to a high degree of risk. The following discussion of risk factors contains forward-looking statements. Thesedescribed below and similar risk factors we may beface are important to understanding other statements in this Report.Report and should be reviewed carefully. The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.Report.
TheOur business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’sour actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’sour business, financial condition, operating results and stock price.
Because of the following factors, as well as other factors affecting the Company’sour financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. Risk Factors Summary Risks Related to Our Business and Industry | ● | We have limited experience in the operation of our own online ride-hailing platform, which makes it difficult for investors to evaluate the success of this business to date and to assess the future viability of this business. |
| ● | Relationship between us, our affiliates and Gaode Maps and other cooperated partners is crucial to our ability to grow our business, results of operations and financial condition. |
| ● | Our customers’ failure to fully comply with PRC online ride-hailing-related laws may expose us to potential penalties and negatively affect our operations. |
| ● | If we are unable to repossess the car collateral for delinquent financing payments of the automobile purchasers referred by us or do so in a cost-effective manner or if our ability to collect delinquent financing payments is impaired, our business and results of operations would be materially and adversely affected. We may also be subject to risks relating to third-party debt collection service providers whom we engage for the recovery and collection of loans. |
| ● | We are exposed to credit risk in our auto financing and prior auto financing facilitation businesses. |
| ● | Our failure to lease cars that we purchased from dealers or leased from other automobile rental companies with a satisfied utilization may have a material and adverse effect on our business, financial condition and results of operations. |
| ● | If data provided by automobile lessees and other third-party sources or collected by us are inaccurate, customer trust in us could decline. |
| ● | We may be subject to product liability claims if people or property are harmed by vehicles purchased through us. |
| ● | If our safety system fails to ensure user safety while using our online ride-hailing platform, our business, results of operations and financial condition could be materially and adversely affected. |
| ● | If we fail to cost-effectively attract and retain online ride-hailing drivers, or to increase utilization of our platform by existing users, our business, results of operations and financial condition could be materially and adversely affected. |
| ● | Any significant disruption in our IT systems could materially and adversely affect our business. |
| ● | If we fail to obtain and maintain the requisite licenses and approvals required for our online ride-hailing business, our business may be materially and adversely affected. |
| ● | We rely primarily on a third-party insurance policy to insure our auto-related risks. |
| ● | We rely on third-party payment processors to process payments made by our business partners. |
| ● | Government policies on automobile purchases and usage in the online ride-hailing industry may materially affect our results of operations. |
| ● | Our business is subject to laws, regulations and regulatory policies that are being continuously amended and improved, and the interpretation and implementation of newly established policies may remain uncertain, which could have an adverse impact on our business and future prospects. |
| ● | We have identified material weaknesses in our internal control over financial reporting. |
| ● | Our common stock will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCA Act, in the future if the PCAOB is unable to inspect or investigate completely our auditors. The delisting of our common stock, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections of our auditors would deprive our investors of the benefits of such inspections. |
| ● | We face risks related to natural disasters, health epidemics and other outbreaks, such as COVID-19, which could significantly disrupt our operations. |
Risks Related to Doing Business in China | ● | Our current corporate structure and business operations may be affected by the Foreign Investment Law. |
| ● | Our previous contractual arrangements in relation to Sichuan Senmiao may be subject to scrutiny by the PRC tax authorities and they may determine that we or Sichuan Senmiao owe additional taxes, which could negatively affect our financial condition and the value of your investment. |
| ● | If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC stockholders. |
| ● | Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future. |
| ● | We are required to obtain a value-added telecommunication business certificate and be subject to foreign investment restrictions. |
| ● | Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition. |
| ● | Adverse regulatory developments in China may subject us to additional regulatory review, and additional disclosure requirements and regulatory scrutiny to be adopted by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies like us with significant China-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements. |
| ● | Compliance with China’s new Data Security Law, Measures on Cybersecurity Review, Personal Information Protection Law, regulations and guidelines relating to the multi-level protection scheme and any other future laws and regulations may entail significant expenses and could materially affect our business. |
| ● | Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering. |
| ● | We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations. |
| ● | PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of from our public offerings to make loans to or make additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business. |
| ● | We rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business. |
| ● | Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment. |
| ● | Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment. |
| ● | Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties. |
| ● | The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. |
| ● | PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law. |
Risks Related to Our Securities | ● | Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock. |
| ● | The market price for our common stock may be volatile. |
| ● | A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. |
| ● | We have a significant number of outstanding warrants. |
Other General Risk Factors | ● | We may need additional capital, and financing may not be available on terms acceptable to us. |
| ● | Any harm to our brands or reputation may materially and adversely affect our business. |
| ● | A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition. |
| ● | From time to time, we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant management attention, disrupt our business and adversely affect our financial results. |
| ● | Our ability to protect the confidential information of our customers may be adversely affected by cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. |
Risks Related to Our Business and Industry We have a limited operating historyexperience in a new and evolving market,the operation of our own online ride-hailing platform, which makes it difficult for investors to evaluate the success of this business to date and to assess the future viability of this business. We launched our online ride-hailing platform in late October 2020. This short operating history may make it difficult for investors to evaluate our future prospects. The marketprospects for China's online marketplace lending is new andsuccess for this business. We may not develop as expected. The regulatory framework for this markethave sufficient experience to address the risks to which our operation in new or rapidly evolving markets may be exposed. There can be no assurances that we will be able to do so.
As a relatively new business, our online ride-hailing platform may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors that may alter or delay our plans. Before the year ended March 31, 2022, we used to pay a large number of driver incentives to acquire and maintain the large customer base. However, we shifted the expansion strategy of our online ride-hailing platform to launch our platform in more cities, rather than maintaining the customer base when the industry condition changed, especially the cyber security investigation on Didi performed by PRC authorities in July 2021. There is also evolving and may remain uncertain for the foreseeable future. Potential borrowers and investors may notno assurance that we will continue to be familiarsuccessful with this marketbusiness and may have difficulty distinguishing our services from thosethe likelihood of our competitors. Convincing potential new users of the value of our services is critical to increasing the volume of loan transactions facilitated through our platform and to the success of our business. Our online ride-hailing platform (or the Aihongsen platform) was launched in May 2014 by its former owner and acquired by us in September 2016. Our platform has a limited operating history. As our business develops or in response to competition, we may introduce new products or make adjustments to our existing products, or make adjustments to our business model. In connection with the introduction of new products or in response to general economic conditions, we may impose more stringent borrower qualifications to ensure the quality of loans on our platform, which may negatively affect the growth of our business. Any significant change to our business model may not achieve expected results and may have a material and adverse impact on our financial conditions and results of operations. It is therefore difficult to effectively assess our future prospects. You should consider our business and prospectsmust be considered in light of the risks and challenges we encounter or may encounterour relatively early stage of operations. Any growth in this developingbusiness will put significant demands on our processes, systems and rapidly evolving market. These risks and challenges include our ability to, among other things:
| · | navigate an evolving regulatory environment; |
| · | expand the base of users served on our platform; |
| · | broaden our loan product offerings; |
| · | enhance our risk management capabilities; |
| · | improve our operational efficiency; |
| · | cultivate a vibrant marketplace lending ecosystem; |
| · | maintain the security of our platform and the confidentiality of the information provided and utilized across our platform; |
| · | attract, retain and motivate talented employees; and |
| · | defend ourselves against litigation, regulatory, intellectual property, privacy or other claims. |
If we fail to educate potential users about the value of our platform and services, if the market for our platform does not develop as we expect, or if we fail to address the needs of our target market, or other risks and challenges, our business and results of operations will be harmed.
personnel. If we are unable to maintain or increase the volume of loans throughsuccessfully manage and support our platform or if we are unable to retain existing borrowers or investors or attract new borrowers or investors, our business and results of operations will be adversely affected. The volume of loans facilitated and assigned through our platform has grown since our acquisition of the platform. The total amount of loans facilitated or assigned through our platform was approximately RMB 579 million (approximately US$89 million) from September 2016 to March 31, 2018. To achieve and maintain the growth of our platform, we must continuously increase the volume of loan transactions by retaining current participants and attracting more users. We intend to continue to dedicate significant resources to our user acquisition efforts, including establishing new acquisition channels, particularly as we continue to grow our platform and introduce new loan products. We utilize online channels, such as search engine marketing, search engine optimization and partnerships with internet companies, as well as our on-the-ground sales network for user acquisition. If there are insufficient qualified loan requests, investors may be unable to deploy their capital in a timely or efficient manner and may seek other investment opportunities. If there are insufficient investor commitments, borrowers may be unable to obtain capital through our platform and may turn to other sources for their financing needs.
The overall transaction volume through our platform may be affected by several factors, including, without limitation, our brand recognition and reputation, the interest rates offered to users relative to market rates, the effectiveness of our risk control, the repayment rate on our platform, the efficiency of our platform, the PRC macroeconomic environment and other factors. In connection with the introduction of new products or in response to general economic conditions, we may also impose more stringent borrower qualifications to ensure the quality of loans on our platform, which may negatively affect the growth of loan volume. In addition, although we have entered into a Cooperation Framework Agreement with Resgreen Group, pursuant to which Resgreen Group introduces our products and services to its members and business partners, we cannot assure you that we will receive sufficient referrals from Resgreen Group. If any of our current user acquisition channels become less effective, if we are unable to continue to use any of these channels or if we are not successful in using new channels, we may not be able to attract new investors in a cost-effective manner or convert potential borrowers and investors into active borrowers and users, and may even lose our existing users to our competitors. If we are unable to attract qualified borrowers and sufficient investor commitments or if our users do not continue to participate in our platform at the current rates, we might be unable to increase our loan transaction volume and revenues as we expect, and our business and results of operations may be adversely affected.
If we are unable to maintain low default rates for loans facilitated by our platform, our business and results of operations may be materially and adversely affected.
Investments in loans on our platform involve inherent risks as the return of the principal on a loan investment made through our platform is not guaranteed, although we aim to limit investor losses due to borrower defaults through various preventive measures we have taken or will take. Our ability to attract borrowers and investors to, and build trust in, our platform is significantly dependent on our ability to effectively evaluate a borrower's credit profile and maintain low default rates. If we are unable to effectively and accurately assess the credit profiles of borrowers, we may either be unable to offer attractive fee rates to borrowers and returns to investors, or unable to maintain low default rates of loans facilitated by our platform. In addition, once a loan application is approved, we do not further monitor certain aspects of the borrower's credit profile, such as changes in the borrower's credit report and the borrower's actual use of proceeds. If the borrower's financial condition deteriorates, we may not be able to take measures to prevent default on the part of the borrowerchallenges and thereby maintain low default rates for loans facilitated bydifficulties associated with managing our platform. As of the date ofride-hailing platform as a larger, more complex business, this Report, there have not been any default or delinquencies. Since we started to offer unsecured loans, we may find it difficult or unable to maintain low default rates of loans facilitated through our platform. Although we implement various investor protection measures, if widespread defaults were to occur, investors may still incur losses and lose confidence in our platform and our business and results of operations may be materially and adversely affected.
If our loan products do not achieve sufficient market acceptance, our financial results and competitive position will be harmed.
We incur expenses and consume resources upfront to develop, acquire and market new loan products. New loan products must achieve high levels of market acceptance in order for us to recoup our investment in developing, acquiring and bringing them to market.
Our existing or new loan products and changes to our platform could fail to attain sufficient market acceptance for many reasons, including but not limited to:
| · | our failure to predict market demand accurately and supply loan products that meet this demand in a timely fashion; |
| · | users of our platform may not like, find useful or agree with any changes; |
| · | our failure to properly price new loan products; |
| · | defects, errors or failures on our platform; |
| · | negative publicity about our loan products or our platform's performance or effectiveness; |
| · | views taken by regulatory authorities that the new products or platform changes do not comply with PRC laws, rules or regulations applicable to us; and |
| · | the introduction or anticipated introduction of competing products by our competitors. |
If our new loan products do not achieve adequate acceptance in the market, our competitive position, results of operations and financial condition could be harmed.
Failure to maintain relationships with our partners or implement our strategy to develop new relationships with other potential partners could havecause a material adverse effect on our business, and results of operations.
Our relationships with our partners are important to our future success. However, our partners could choose to terminate their relationships with us or propose terms that we cannot accept.
One of our strategies is to continue to enter into new relationships with business partners, direct selling companies or financial services companies. We intend to explore additional forms of relationships with our existing partners and pursue additional relationships with other potential strategic partners, such as consumer transaction companies, banks, asset managers and insurance companies. Identifying, negotiating and maintaining relationships with our partners requires significant time and resources as does integrating third-party data and services. Our current agreements with our partners also do not prohibit them from working with our competitors or from offering competing services. Our competitors may be effective in providing incentives to our partners to favor their products or services over ours, which could have the effect of reducing the volume of loans facilitated through our platform if our partners were to direct potential borrowers to other platforms or otherwise endorse our competitors' products over ours. Also, our partners may choose to offer a competing lending platform and become a competitor themselves. In addition, these partners may not perform as expected under our agreements with them, the benefits to us may not be as favorable as we expect and we may have disagreements or disputes with such partners, any of which could adversely affect our brand and reputation as well as our business operations. If we cannot successfully enter into and maintain effective relationships with partners, our businessposition and results of operations, may be adversely affected.and the market value of our securities could decline.
We are dependent upon Resgreen Groupface intense competition, which could lead to acquire new users and further expand our borrower and investor base. Any interruption ininability to secure market share or cause us to lose market share to our partnership with Resgreen Groupcompetitors, any of which could materially and adversely affect our growth and financial condition. We currently rely on our partnership with Resgreen Group to acquire a significant percentagebusiness, results of users for our platform. For the year ended March 31, 2018, 56.57% of new users of our platform are members of Resgreen Group. Through interaction with us via our platform, these users would likely become borrowers and investors in loan transactions facilitated through our platform. As of the date of this Report, Resgreen Group is the only direct selling company we have an agreement with.Although we plan to develop partnerships with other direct selling companies, we anticipate that our reliance on Resgreen Group for user acquisition and borrower base expansion will continue in the near future. An interruption in our business relationship or termination of our partnership with Resgreen Group could materially and adversely affect our growth and financial condition. We would also have to adjust our marketing and borrower acquisition strategies upon the occurrence of events that negatively affect Regreen Group's operations and financial condition.
If we are unable to maintain relationships with our third-party service providers, our business will suffer.
We rely on third-party service providers to operate various aspects of our business and platform. For instance, we rely on our depository bank to provide fund depository services and third-party payment companies to serve as payment channels to ensure compliance with various laws and regulations. Most of our agreements with third-party service providers are non-exclusive and do not prohibit the third-party service provider from working with our competitors or from offering competing services. Our third-party service providers could decide that working with us is not in their interests, could decide to enter into exclusive or more favorable relationships with our competitors or could themselves become our competitor. Although we have changed third-party service providers in the past without difficulty, switching to new third-party service providers could cause temporary disruptions to our business. In addition, our third-party service providers may not perform as expected under our agreements or we could in the future have disagreements or disputes with our third-party service providers, which could negatively impact our operations or threaten our relationships with our third-party service providers.
Third-party payment companies and depository banks in China, including a depository bank that takes deposits and transfers funds on our platform and the third-party payment company with which it works, are subject to oversight by the PBOC and must comply with complex rules and regulations, licensing and examination requirements, including, but not limited to, minimum registered capital, maintenance of payment business licenses, anti-money laundering regulations and management personnel requirements. Some third-party payment companies have been required by the PBOC to suspend their credit card pre-authorization and payment services in certain areas of China. If the third-party service providers that serve as payment channels for our platform were to suspend, limit or cease their operations, or if our relationships with our third-party service providers were to otherwise terminate, we would need to implement substantially similar arrangements with other third-party service providers. Negative publicity about our or other third-party service providers or the industry in general may also adversely affect our users' confidence and trust in the use of third-party payment companies and depository banks to carry out the payment and depository functions in connection with the origination of loans on our platform. If any of these were to happen, the operation of our platform could be materially impaired and our results of operations would suffer.
The recently published Guidelines on Promoting Healthy Growth of Internet Finance, or the Guidelines, which were released by ten PRC central government ministries and regulators, including the PBOC, the CBRC, the Ministry of Finance, the MPS and the Cyberspace Administration of China, require market lending platforms to use bank depository accounts to hold lending capital, which is further emphasized in the Interim Measures for the Administration of Business Activities of Online Lending Information Intermediaries, or the Interim Measures. In addition, the Administrative Measures of Non-Bank Payments Institutions Network Payment Service, or the Administrative Measures, which became effective from July 1, 2016, prohibit payment institutions from opening payment accounts for institutions engaging in the lending business and also set ceilings for the maximum deposits permitted into an account opened with a third-party payment company. In February 2017, the CBRC released the Guidance to the Operation of Depositing Online Lending Funds, or the Guidance. The Guidance further specifies that qualified commercial banks may act as depositories to hold online lending funds, and that other banking financial institutions are not qualified to set up individual accounts or provide settlement and payment functions. The Guidance also sets forth basic requirements for commercial banks, including maintaining separate accounts to hold online lending funds and private funds owned by online lending platforms and prohibits outsourcing or assigning such entities' responsibilities for setting up capital accounts, dealing with transaction information, verifying trading passwords and various other services to third parties, provided, however, that certain cooperation regarding payment services with third-party payment companies is permitted in accordance with clarifications by the CBRC. However, CBRC's remarks regarding the Guidance are not entirely clear regarding the definition and scope of the term "certain cooperation regarding payment services." In addition, the Guidance imposes certain responsibilities on online lending intermediaries such as us, including requiring them to organize independent auditing on funds depository accounts of borrowers and investors. The Guidance stipulated a 6-month grace period from the time of its announcement for online lending intermediaries to adjust their business models. See "Business — Regulations—Regulations Related to the Marketplace Lending Industry."
If we do not compete effectively, our results of operations could be harmed.
The online marketplace lending industryride-hailing market in China, especially in our key target markets of Chengdu, Changsha and Guangzhou, is intensely competitive and evolving.characterized by rapid changes in technology, shifting user preferences, and frequent introductions of new services and offerings. We compete with a large number of online finance marketplaces.face intense competition in the Automobile Transaction and Financing Services, as well as the Online Ride-hailing Platform Services. We also compete with financial productsface significant competition from existing, well-established, and companies that attract borrowers, investors or both. With respectlow-cost alternatives, and in the future we expect to borrowers, we primarily compete with other lending platforms and traditional financial institutions, such as consumer finance business units in commercial banks, credit card issuers and other consumer finance companies. With respect to investors, we primarily compete with other investment products and asset classes, such as equities, bonds, investment trust products, bank savings accounts and real estate. Some of ourface competition from new market entrants. Our competitors operate with different business models, have different cost structures or participate selectively in different market segments. They may ultimately prove more successful or more adaptable to new regulatory, technological and other developments. Some of our current and potential competitors have significantly more financial, technical, marketing and other resources than we do, including financial, technological, marketing and others and may be able to devote greater resources to the development promotion, sale and supportpromotion of their platforms. Our competitorsservices. As a result, they may have deeper relationships with online ride-hailing drivers, automobile dealers, automobile leasing companies and other third-party service providers than we do. This could allow them to develop new services, adapt more quickly to changes in technology and to undertake more extensive marketing campaigns, which allow them to derive greater revenue and profits from their existing user bases, enlarge their user base at lower costs, or respond more quickly to new and emerging technologies and trends. As a consequence, our services may be less attractive to consumers and cause us to lose market share.
Furthermore, they may be able to devote greater resources to the development, promotion and sale of offerings and offer lower prices than we do, which could further adversely affect our results of operations. Moreover, intense competition in the markets we operate in may reduce our service fees and revenue, increase our operating expenses and capital expenditures, and lead to departures of our qualified employees. We may also have longer operating histories, more extensive user bases,be harmed by negative publicity instigated by our competitors, regardless of its validity. We may in the future continue to encounter disputes with our competitors, including lawsuits involving claims asserted under unfair competition laws and defamation which may adversely affect our business and reputation. Failure to compete with current and potential competitors could materially harm our business, financial condition and our results of operations. We expect competition to continue, both from current competitors and new entrants in the market that may be well-established and enjoy greater brand recognitionresources or other strategic advantages. If we are unable to anticipate or react to these competitive challenges, our competitive position could weaken, or fail to improve, and brand loyaltywe could experience growth stagnation or even a decline in revenue that could materially and broader partner relationships than us. Additionally, a currentadversely affect our business, results of operations and financial condition. The relationship between us, our affiliates and Gaode Maps, the leading aggregation platform in China, and other cooperated partners is crucial to our ability to grow our business, results of operations and financial condition. The strategic relationship between us, our affiliates and Gaode Maps, the leading aggregation platform, and other local online ride-hailing platforms is crucial to our business as most of customers we provide services to are online ride-hailing drivers. Those drivers earn income on our platform from the trip orders distributed from Gaode Maps, or potential competitordirectly from other platforms. If our collaboration with these platforms was terminated, we may acquire one or more ofnot be able to maintain our existing competitorscustomers or form a strategic alliance with one or more of our competitors. Our competitors mayattract new customers who are and will be better at developing new products, offering more attractive investment returns or lower fees, responding faster to new technologies and undertaking more extensive and effective marketing campaigns. In response to competition and in order to grow or maintain the volume of loan transactions through our platform, we may have to offer higher investment return to investors or charge lower transaction fees,online ride-hailing drivers, which could materially and adversely affect our business and results ofimpede our ability to continue our operations. Our annual cooperative arrangements with Didi on Automobile Transaction and Related Services are non-exclusive basis, and Didi may have cooperative arrangements with our competitors. We also face competition within Sichuan Province, which is where we conduct the bulk of our operations. As of the date of this Report, there are approximately 35 lending platforms in Sichuan province. The Company's primary competitors in Sichuan include Jinding Wealth, Koudai Network Servicescooperate with automobile dealers like BYD Auto Sales Co., Ltd. (“BYD”), Chengdu Hongxue Jinxin Business Consulting Co., Ltd.automobile leasing companies, financial institutions and Chengdu Zhongke E-Commerce Co., Ltd. Although some of these companies, such as Jinding Wealth, are established lending platforms with largeothers to attract online ride-hailing drivers to run their business through our platform and existing borrowerprovide automobile transaction and investor basesfinancing services. Our ability to acquire customers depends on our own marketing efforts through online advertising and billboard advertising, as well as substantial financial resources. Compared to these lending platforms, we believe that our sophisticated custodian system and compatibility with current PRC regulations will make us more attractive to both borrowers and investors. Based on information available on our competitors' websites as well asthe network of different third party sources, we believe we were the first non-state owned lending platform in Sichuan that has established a custodian systemsales teams. We intend to strengthen relationships with a depository bank pursuant to the requirements of applicable PRC regulations. We set upexisting financing partners and develop new relationships for our custodian system with Guangdong Huaxing Bank in February of 2017 while most of our competitors were either negotiating their agreements with custodian banks or were (or currently remain) in the process of transitioning to the custodian system operated by their depository banks. In addition, loan transactions on our platform comply with restrictions on aggregate loan amounts for individual borrowersautomobile transaction and businesses set forth in PRC regulations while our competitors are in the process of restructuring loans on their platforms to comply with such requirement.
financing business. If we are unablenot able to competeattract or retain cooperative automobile dealers, automobile leasing companies with such companies and meet the need for innovation in our industry, the demand for our platform could stagnate or substantially decline, we could experience reduced revenues or our platform could fail to achieve or maintain more widespread market acceptance, any of which could harmfavorable term as new business partners on acceptable terms, our business and results of operations.
If we fail to promote and maintain our brand in an effective and cost-efficient way, our business and results of operations maygrowth will be harmed.
We believe that developinghindered and maintaining awareness of our brand effectively is critical to attracting new and retaining existing borrowers and investors to our platform. Successful promotion of our brand and our ability to attract users depend largely on the effectiveness of our marketing efforts and the success of the channels we use to promote our platform. Our efforts to build our brand have caused us to incur expenses, and it is likely that our future marketing efforts will require us to incur additional expenses. These efforts may not result in increased revenues in the immediate future or at all and, even if they do, any increases in revenues may not offset the expenses incurred. If we fail to successfully promote and maintain our brand while incurring substantial expenses, our results of operations and financial condition would be adversely affected, which may impairwill suffer.
Illegal, improper or otherwise inappropriate activities of customers while utilizing our abilityonline ride-hailing platform or receiving our services could expose us to growliabilities and harm our business.reputation, business, results of operations and financial condition. CreditIllegal, improper or otherwise inappropriate activities by customers while utilizing our online ride-hailing platform or receiving our services could expose us to liabilities and other information that we receive from third parties about a borrower may be inaccurate or may not accurately reflect the borrower's creditworthiness, which may compromise the accuracy of our credit assessment.
For the purpose of credit assessment, we obtain borrower credit information from third parties, such as financial institutions and e-commerce providers, and assess applicants' credit and assign credit scores to borrowers based on such credit information. A credit score assigned to a borrower may not reflect that particular borrower's actual creditworthiness because the credit score may be based on outdated, incomplete or inaccurate consumer reporting data. We currently do not have a comprehensive way to determine whether borrowers have obtained loans through other online finance marketplaces, creating the risk whereby a borrower may borrow money through our platform in order to pay off loans to investors on other platforms. Additionally, there is a risk that, following our obtaining a borrower's credit information, the borrower may have:
| · | become delinquent in the payment of an outstanding obligation; |
| · | defaulted on a pre-existing debt obligation; |
| · | taken on additional debt; or |
| · | sustained other adverse financial events. |
Such inaccurate or incomplete borrower credit information could compromise the accuracy of our credit assessmentmaterially and adversely affect our reputation, business, results of operations and financial condition. These activities may include abuse, assault, theft, false imprisonment, sexual harassment, identity theft, unauthorized use of credit and debit cards or bank accounts, and other misconduct. The relevant regulations also require the effectivenesslicensed online ride-hailing platforms to ensure that the drivers and cars engaged in providing ride services meet the requirements stipulated by the regulations. We
are not able to fully control or predict the actions of our control overcustomers and third parties, either during the process of providing services or otherwise. While we have implemented various measures to anticipate, identify and address risks associated with these activities, we may not adequately address or prevent all illegal, improper or otherwise inappropriate activities by our default rates,users, which could damage our brand and the viability of this business. At the same time, if the measures we have taken to guard against these illegal, improper or otherwise inappropriate activities are too restrictive and inadvertently prevent qualified online ride-hailing drivers otherwise in turngood standing from using our platform and services, or if we are unable to implement and communicate these measures fairly and transparently or are perceived to have failed to do so, the growth and retention of our users and their utilization of our online ride-hailing platform could be negatively impacted. For example, if we cannot complete background checks of potential online ride-hailing drivers who apply to utilize our platform on a timely basis, we may not be able to onboard potential online ride-hailing drivers in time and, as a result, our platform may be less attractive to qualified online ride-hailing drivers. Further, we may be subject to claims of significant liability based on traffic accidents, deaths, injuries, or other incidents that are caused by ride-hailing drivers, consumers, or third parties. Our auto liability and general liability insurance policies may not cover all potential claims to which we are exposed, and may not be adequate to indemnify us for all liabilities. These incidents may subject us to liability and negative publicity, which would increase our operating costs and adversely affect our business, operating results, and future prospects. Even if these claims do not result in liability, we will incur significant costs in investigating and defending against them. And any negative publicity related to the foregoing, whether such incident occurred on our platform or on our competitors’ platforms, could materially and adversely affect our reputation and brand and more importantly, public perception of the online ride-hailing industry as a whole, which could negatively affect the demand for platforms like ours, and potentially lead to increased regulatory or litigation exposure. Any of the foregoing risks could harm our reputationbusiness, results of operations and financial condition. Our customers’ failure to fully comply with PRC online ride-hailing-related laws may expose us to potential penalties and negatively affect our operations. The online ride-hailing industry is highly regulated in China. According to the guidelines issued by the different local authorities in China, including our major operations, Chengdu, Changsha and Guangzhou, online reservation taxi operating license, automobile certificate and online reservation taxi driver’s license are required for a driver to operate the online ride-hailing business. Approximately 57% of our served online ride-hailing drivers have not obtained the online reservation taxi driver’s certificates as of March 31, 2023. During the year ended March 31, 2023, we have been fined by approximately $19,000 by Traffic Management Bureaus in Chengdu and Changsha for the non-compliance on taxi driver’s certificates, of which, approximately $4,000 was further compensated by drivers or cooperated third parties. We cannot assure you that we will not be subject to further fines, penalties or more severe administrative actions or proceedings in the future. If we or drivers or vehicles on our platform fail to obtain or maintain any required licenses, permits or approvals or make any necessary filings in a timely matter or at all, we may be subject to a variety of penalties, including fines or potentially being forced to suspend, terminate or significantly reduce our operations in the city or jurisdiction. Our business and results of operations will be materially affected if our affiliated drivers are suspended from providing ride-hailing services or receive substantial fines. We are in the process of assisting the drivers to obtain the required certificates and licenses. However, there is no guarantee that all of the drivers affiliated with us would be able to obtain all the certificates and licenses. Our ability and method to provide the automobile transaction related services might be affected or restricted if our affiliated drivers or automobiles do not possess the requisite licenses. Further, there is no assurance that each of the drivers who use our platform or the cars used by such drivers in providing ride-hailing services possesses the requisite license or certificate. Our business and results of operations will be materially and adversely affected if our affiliated drivers are suspended from providing ride-hailing services or imposed substantial fines or if we are found to be in serious violation of the Interim Measures due to the drivers’ failure to obtain requite licenses and/or automobile certificates in connection with providing services through our platform. If we fail to effectively manage the behaviors of order skipping, disintermediation and other misconduct and fraud by our users, our business, results of operations and financial condition could be materially and adversely affected. Online ride-hailing drivers on our platform may skip orders and fail to pick up riders, or circumvent our platform and complete the transaction offline and in private. Our users may also maliciously misappropriate subsidies provided on our platform. For example, if we detect users engaging in cheating behaviors to earn incentives we have offered, we may be required to disqualify them from using such incentives. We have also implemented various measures to prevent order skipping. For example, we monitor the order completion rate for our online ride-hailing drivers, and those with low credit scores based on riders’ feedback or behavior scores will be less likely to receive orders on our platform. If we detect a persistent skipping pattern, we will permanently close their user accounts on our platform. In addition, we may incur losses from various types of fraud by our users, including use of stolen or fraudulent credit card data, attempted payments by riders with insufficient funds and fraud committed by riders in concert with online ride-hailing drivers. Bad actors use increasingly sophisticated methods to engage in illegal activities involving personal information, such as unauthorized use of another person’s identity, account information or payment information and unauthorized acquisition or use of credit or debit card details, bank account information and mobile phone numbers and accounts. Under current credit card practices, we may be liable for rides facilitated on our online ride-hailing platform with fraudulent credit card data, even if the associated financial institution approved the credit card transaction. We are in the process of taking measures to detect and prevent fraudulent transactions by our users, such as cross-checking a driver’s travel path against the proposed itinerary to verify the authenticity of an order. Despite our efforts, our measures may not eliminate order skipping, disintermediation, and other user misconducts and fraud. Our failure to adequately detect and prevent such user behaviors could materially and adversely affect our business, results of operations and financial condition. Our affiliate or equity investee company did not have written agreements in place with certain financing partners and adverse change in our relationship with such financing partners may materially and adversely impact our business and results of operations. Hunan Ruixi and Jinkailong relied on a limited number of financing partners to fund automobile transactions for automobile purchasers. However, we did not have written agreements in place with these financing partners obligating them to provide financing. Because such financing partners are not contractually bound by any specific commitment to provide financing, they may determine not to collaborate with Hunan Ruixi and Jinkailong or limit the funding that was available for financing transactions we facilitated, which will materially and adversely affect our business, financial condition and results of operations. Prior consent from financial institutions which provided financing to our online ride-hailing driver customers for the purchase of automobiles has not been obtained for us to sublease or sell the drivers’ automobiles. In addition,As described in the section titled “Business” above, as of March 31, 2023, approximately 108 online ride-hailing drivers in Changsha and over 1,200 online ride-hailing drivers in Chengdu exited the online ride-hailing business and rendered their purchased automobile to Hunan Ruixi and Jinkailong for sublease or sales in order to offset monthly payment owed to Hunan Ruixi and Jinkailong and the financial institutions. Their Financing Agreements with the financial institutions are still valid and in effect. Pursuant to the Financing Agreements, the right of the automobile collateral to the financial institution belongs to the financial institution and without their consent, we may not dispose of, use, or take possession of those automobiles. To prevent the default in payments to the financial institutions and us, the drivers authorized us orally or in writing to sublease or sell the automobiles to other parties, and use the cash generated from the sublease or sales to cover the monthly installment payments to the financial institution and the monthly installment service fees as well as the automobile registration related fees that we previously advanced during the remaining original lease terms to us. As prior consent from the financial institutions have not been obtained, the financial institutions may require us to stop sublease and return the automobiles immediately. We may also be required to pay penalties to the financial institutions. Although we have not received any demand from any financial institution to stop the sublease practice, there is no assurance that future demand to stop such practice may not come along; if so, we may experience economic loss and reputation damage as a result.
If we are unable to repossess the car collateral for delinquent financing payments of the automobile purchasers referred by us or do so in a cost-effective manner or if our ability to collect delinquent financing payments is impaired, our business and results of connecting investorsoperations would be materially and adversely affected. We may also be subject to risks relating to third-party debt collection service providers whom we engage for the recovery and collection of loans. Under most of the Financing Agreements between the automobile purchasers and third-party financing partners, Hunan Ruixi and Jinkailong guarantee the lease/loan payments including principal and the accrued and unpaid interest for the automobile purchase funded by these financing partners. Therefore, failure to collect lease/loan payments or to repossess the collateral may have a material adverse effect on our business operations and financial positions. Although the lease/loan payments are secured by the cars, we may not be able to repossess the car collateral when our customers default. Our measures to track the cars include installing GPS trackers on cars. We cannot assure you that we will be able to successfully locate and recover the car collateral. We have in the past failed to repossess one car as the GPS trackers failed to function properly or had been disabled, and we cannot assure you that this incident will not happen again the future. We also cannot assure you that there will not be regulatory changes that prohibit the installation of GPS trackers, or the realized value of the repossessed cars will be sufficient to cover our customers’ payment obligations. If we cannot repossess some of these cars or the residual values of the repossessed cars are lower than we expected and not sufficient to cover the automobile purchaser’ payment obligation, our business, results of operations and financial condition may be materially and adversely affected. Moreover, the current regulatory regime for debt collection in the PRC remains unclear. We aim to ensure our collection efforts carried out by our asset management department comply with the relevant laws and regulations in the PRC. However, if our collection methods are viewed by the automobile purchasers or regulatory authorities as harassments, threats or other illegal means, we may be subject to risks relating to our collection practice, including lawsuits initiated by the borrowers or prohibition from using certain collection methods by the regulatory authorities. Any perception that our collection practices are aggressive and not compliant with the relevant laws and regulations in the PRC may constitute an intermediaryresult in harm to our reputation and business, decrease in the willingness of prospective customers to apply for and utilize our service, or fines and penalties imposed by the relevant regulatory authorities, any of which may have a material adverse effect on our business, financial condition and results of operations. We are exposed to credit risk in our auto financing and prior auto financing facilitation businesses. Our current risk management system may not be able to accurately assess and mitigate all risks to which we are exposed, including credit risk. We are exposed to credit risk as Hunan Ruixi and Jinkailong provide automobile financing to automobile purchasers and are required to provide guarantees to most of their financing partners on the financing for automobile purchases facilitated by them in prior years. As of March 31, 2023, the maximum contingent liabilities we and our contractsequity investee company, Jinkailong would be exposed to was approximately $10,000 and $3.9 million, respectively, assuming all the automobile purchasers were in default. As Hunan Ruixi holds 35% of equity interest of Jinkailong and has not made any consideration towards to the investment, Hunan Ruixi will subject to the maximum amount of RMB3.5 million (approximately $570,000) of which is equivalent to 35% of liabilities in case Jinkailong is liquidated in accordance with these investorsPRC’s company registry compliance. For the year ended March 31, 2023, we recognized estimated provisions loss of approximately $7,000 for the guarantee services as a result of default by the automobile purchasers. Customers may default on their lease/loan payments for a number of reasons including those outside of their or our control. The credit risk may be exacerbated in automobile financing due to the relatively limited credit history and borrowersother available information of many consumers in China. If we experience a widespread default by our automobile purchasers/lessees, our cash flow and results of operations will be materially and adversely affected. As a consequence, we could face shortfalls in liquidity without extra financing resources for the foreseeable future and lose the ability to grow our business or may even be required to scale down or restructure our operations. We are required to obtain licenses and permits related to financing and lending in China for our business operations, and we may not be able to obtain or maintain such licenses or permits. We may be deemed as intermediation contracts, underto operate financing guarantee business by the PRC Contract Law.regulatory authorities. Under certain arrangements in the services, Hunan Ruixi and Jinkailong provide guarantees to their customers who applied for financing in prior years with certain of their financing partners. In August 2017, the PRC Contract Law, an intermediaryState Council promulgated the Regulations on the Administration of Financing Guarantee Companies (the “Financing Guarantee Rules”), which became effective on October 1, 2017. Pursuant to the Financing Guarantee Rules, “financing guarantee” refers to the activities in which guarantors provide guarantee to the guaranteed parties as to loans, bonds or other types of debt financing, and “financing guarantee companies” refer to companies legally established and operating financing guarantee business. According to the Financing Guarantee Rules, the establishment of financing guarantee companies are subject to the approval by the relevant governmental authority, and unless otherwise stipulated, no entity may operate financing guarantee business without such approval. We do not claim for service fee and is liable for damages if it conceals any material fact intentionally or provides false informationbelieve that the Financing Guarantee Rules apply to our prior car financing facilitation business as we provide guarantees to our financing partners in connection with the conclusionfinancing of the purchase of automobiles and such guarantees are not provided independently as our principal business. However, due to the lack of further interpretations, the exact definition and scope of “operating financing guarantee business” under the Financing Guarantee Rules is unclear. It is uncertain whether we would be deemed to operate financing guarantee business in violation of relevant PRC laws or regulations because of our current arrangements with certain financial institutions. If the relevant regulatory authorities determine that we are operating financing guarantee business, we may be required to obtain approval or license for financing guarantee business to continue our collaboration arrangement with certain financial institutions. In addition, based on our business model, we prepaid the purchase price of automobiles and all service related expenses and collect the advance payment (without any interest) through monthly installment payments from the automobile purchaser. Pursuant to Provisions on Several Questions Concerning the Application of Law in the Trial of Private Lending Cases released by the Supreme People’s Court in June 2015, private lending refers to the act of financing between natural persons, legal persons and other organizations and among them. According to the Approval on How to Confirm the Effectiveness of Lending Behavior between Citizens and Enterprises issued by the PRC Supreme People’s Court in 1999, the private lending refers to the lending between citizens and non-financial enterprises (hereinafter referred to as enterprises). As long as all parties’ declaration of intention is true, it can be recognized as valid (the “Private Lending Rules”). We do not believe that the Private Lending Rules apply to our automobile purchase services business as we need to pay in advance to different suppliers to complete our services such as preparation of financing application materials, assistance with closing of financing transactions, license and plate registration, payment of taxes and fees, purchase of insurance, installment of GPS devices, ride-hailing driver qualification and other administrative procedures. We have no intention to lend money to and gain interest from automobile purchasers. We collect payments in a period longer than 12 months based on current product designs. However, it is uncertain whether we would be deemed to operate private lending business in violation of relevant PRC laws or regulations because we prepay on behalf of automobile purchasers and collect payments over a period of more than 12 months. If the relevant regulatory authorities determine that we are operating private lending business, we may be penalized for engaging in businesses out of the scope of our business license. Pursuant to the Regulations on the Registration of Enterprise Legal Persons, we may be given warnings, fined, confiscated of illegal income, required to suspension and rectification, or our business license might be withheld and revoked by relevant regulatory authorities. Consequently, we may be required to obtain approval or license for financing business to continue our current collection method of payments. If we are no longer able to maintain our current collection method of payments, or become subject to penalties, our business, financial condition, results of operations and prospects could be materially and adversely affected. Our failure to lease cars that we purchased from dealers or leased from other automobile rental companies with a satisfied utilization may have a material and adverse effect on our business, financial condition and results of operations. In January 2019, we started to purchase automobiles from automotive dealers for sales. As we shifted our business focus to automobile rental since March 2020, we purchase and lease automobiles mainly for operating lease during the year ended March 31, 2023. We primarily purchase or lease automobile models that are reliable, affordable and based on the local regulation requirement of the automobiles used for online ride-hailing, feedback from and market analysis as to perception and demand for such models, and that will appeal to lessees in lower-tier cities. We adopt a stable pricing formula, considering the historical and future expenditure, remaining available leasing months and market price to determine our rental price for various rental solutions. During the year ended March 31, 2023, our average utilization of the automobiles for operating lease, including the ones operated by Jinkailong, was approximately 64.9%, as compared with 56.3% in the year ended March 31, 2022. However, we have limited experience in the operating lease of automobiles, and there is no assurance that we will be able to do so effectively and the utilization of automobiles held for operating lease is satisfied to generate sufficient profit and cash. Demand for the automobiles that we purchase or lease can change significantly between the time the automobiles are purchased and the date of sale or lease. Demand may be affected by new automobile launches, changes in the pricing of such automobiles, market conditions for the online ride-hailing, defects, changes in consumer preference and other factors, and dealers may not purchase them in the quantities that we expect. We may also need to adopt more aggressive pricing strategies for these cars than originally anticipated. We also face inventory risk in connection with the automobiles purchased, including the risk of inventory obsolescence, a decline in values, and significant inventory write-downs or write-offs. If we were to adopt more aggressive pricing strategies, our profit margin may be negatively affected as well. We may also face increasing costs associated with the storage of these automobiles. Any of the above may materially and adversely affect our financial condition and results of operations. If data provided by automobile lessees and other third-party sources or collected by us are inaccurate, incomplete or fraudulent, the accuracy of our credit assessment could be compromised, customer trust in us could decline, and our business, financial position and results of operations would be harmed. China’s credit infrastructure is still at an early stage of development. The Credit Reference Center established by the PBOC in 2002 has been the only credit reporting system in China. This centrally managed nationwide credit database operated by the Credit Reference Center only records limited credit information, such as tax payments, civil lawsuits, foreclosures and bankruptcies. Moreover, this credit database is only accessible to banks and a limited number of market players authorized by the Credit Reference Center and does not support sophisticated credit scoring and assessment. In 2015, the PBOC announced that it would open the credit reporting market to private sectors with a view to spurring competition and innovation, but it may be a long-term process to establish a widely-applicable, reliable and sophisticated credit infrastructure in the market we operate. For the purpose of credit assessment, we obtain credit information from prospective customers, including online ride-hailing drivers, automobile lessees, and with their authorization, obtain credit data from external parties to assess applicants’ creditworthiness. We may not be able to source credit data from such external parties at a reasonable cost or at all. Such credit data may have limitations in measuring prospective automobile purchasers’ creditworthiness. If there is an adverse change in the economic condition, credit data provided by external parties may no longer be a reliable reference to assess an applicant’s creditworthiness, which may compromise our risk management capabilities. As a result, our assessment of an intermediation contract, whichautomobile purchaser’s credit profile may not reflect that particular car buyer’s actual creditworthiness because assessment may be based on outdated, incomplete or inaccurate information. To the extent that our customers provide inaccurate or fraudulent information to us, or the data provided by third-party sources is outdated, inaccurate or incomplete, our credit evaluation may not accurately reflect the associated credit risks of automobile purchasers. Among other things, we rely on data from external sources, such as the personal credit report from PBOC. These checks may fail and fraud may occur as we may fail to discover or reveal fake documents or identities used by fraudulent automobile purchasers. Additionally, once we have obtained an automobile purchaser’s information, the automobile purchaser may subsequently (i) become delinquent in the payment of an outstanding obligation; (ii) default on a pre-existing debt obligation; (iii) take on additional debt; or (iv) experience other adverse financial events, making the information we previously obtained inaccurate. We also collect car collateral location data by installing GPS trackers for lease/loan payment monitoring purposes. The location data we collected may not be accurate. As a result, our ability to repossess the car collateral could be severely impaired. If we are unable to collect the lease/loan payments we facilitated or repossess the car collateral due to inaccurate or fraudulent information, our results of operations and profitability would be harmed. We may be subject to product liability claims if people or property are harmed by vehicles purchased through us. Vehicles purchased through us may be defectively designed or manufactured. As a result, we may be exposed to product liability claims relating to personal injury or property damage. Third parties subject to such injury or damage may bring claims or legal proceedings against us because we facilitate the financing/purchase of the product. Although we would have legal recourse against the automobile manufacturers or dealers under PRC law, attempting to enforce our rights against the automobile manufacturers or dealers may be expensive, time-consuming and ultimately futile. We currently maintain valid third-party liability insurance and product liability insurance in harmrelation to vehicles purchased through us, and also ensure that appropriate insurances have covered automobiles leased from rental companies. As a result, any material product liability claim or litigation could have a material and adverse effect on our business, financial condition and results of operations. Even unsuccessful claims could result in the expenditure of funds and managerial efforts in defending them and could have a negative impact on our reputation. If our safety system fails to ensure user safety while using our online ride-hailing platform, our business, results of operations and financial condition could be materially and adversely affected. According to the client's interests. See "Business — Regulations — Regulations RelatedEmergency Notice on Further Strengthening the Safety Management of Online Reservation of Taxis and Carpooling of Private Vehicles jointly promulgated by the General Office of the MOT and the General Office of the PRC Ministry of Public Security on September 10, 2018, online ride-hailing platforms shall carry out background checks on all online ride-hailing drivers according to relevant requirements of taxi driver background check and supervision. We are in the process of improving a safety system to build up trust among our users and ensure the safety level, including conducting background checks to screen our potential online ride-hailing drivers and their vehicles to identify those that are not qualified to utilize our platform pursuant to applicable laws and regulations or our internal standards. We have also established a 24/7 emergency response mechanism to deal with emergency safety issues. Gaode Maps, Meituan and other online ride-hailing platforms also have various safety measures through mobile apps, such as one-button emergency calls, to protect riders during the trips. We cannot assure you, however, that our own safety system and the safety measures of our cooperated platforms will always meet our expectations or the requirements under applicable laws and regulations, and that we will always be able to filter out unqualified online ride-hailing drivers or timely respond to and deal with emergency matters. We may also fail to effectively control the behaviors of these drivers, or cause them to fully comply with our platform policies and standards. Any negative publicity resulting from any failures, mistakes or omissions of our safety system, including any safety incidents or data security breaches, could materially and adversely affect our reputation and brand, and could potentially lead to increased regulatory or litigation exposure. We also take measures to help increase safety, prevent privacy and security breaches, and protect against fraud which may make our platform less convenient or accessible for some drivers and discourage or diminish their use of our platform. Any reduction in the number or availability of drivers would likely lead to a reduction in platform usage by consumers, which in turn would make our platform less attractive to drivers. Any decline in the number of drivers or consumers using our platform would reduce the value of our network and would harm our future results of operations. If our safety system fails to ensure user safety while using our platform, our business, results of operations and financial condition could be materially and adversely affected. We may be considered as conducting payment services as a non-financial institution without a Payment Business Permit. Gaode Maps settles payments to XXTX’s accounts in Alipay once a week. Meituan and other online ride-hailing platforms settles payments to accounts of Auto Business Entities in Alipay or Qiandaibao once a week or a month. In general, after deducting service fees of these platforms, the remaining amounts, including the earnings of the drivers and our service fees, are transferred to those accounts in Alipay, Qiandaibao or other banks. Then we settle the payments with the online ride-hailing drivers we served. According to the Marketplace Lending Industry."Measures for the Administration of Payment Services of Non-Financial Institutions which were promulgated by the PRC government on June 14, 2010, effective on September 1, 2010 and amended on April 29, 2020, non-financial institutions are required to obtain a payment business permit (the “Payment Business Permit”) to provide payment services. Neither non-financial institutions nor individuals is permitted to engage in any form of payment business without the approval of the Chines government, including payment through the Internet. The relevant PRC rules and regulations lack clear guidance as to what practice or process constitutes payment or settlement services without a Payment Business Permit. Therefore, ifthere is a risk that our settlement practice may cause us to be deemed as engaging in payment and settlement services without a license. As of the date of this Report, to our knowledge, we were not required by the relevant regulatory authorities to obtain the Payment Business Permit for our past settlement practice, nor have we received any penalty in connection with any purported operations of payment and settlement services without a Payment Business Permit or otherwise in violation of the above-described rules and regulations. If we encounter issues in this regard, we will consider engaging a licensed commercial bank to escrow our bank account and manage the prepayments received from our enterprise users and refund balances attributable to our individual users. However, we cannot assure you that our cooperation with a commercial bank in this regard would completely address the payment-related risk or such cooperation would suffice for all of our present or future businesses. In addition, the settlement services provided by licensed third-parties and financial institutions are subject to various rules and regulations, which may be amended or reinterpreted to encompass additional requirements. In response to that, we may have to adjust our cooperation with such licensed commercial bank or any other financial institutions and may thus incur higher transaction and compliance costs. Any of the circumstances would have a material and adverse effect on our business, results of operations and financial condition. If we fail to provide material informationcost-effectively attract and retain online ride-hailing drivers, or to investors,increase utilization of our platform by existing users, our business, results of operations and financial condition could be materially and adversely affected. The growth of our online ride-hailing platform depends in part on our ability to cost-effectively attract and retain online ride-hailing drivers who satisfy our screening criteria and procedures, and to increase their utilization of our platform. To attract and retain qualified drivers, we have, among other things, offered incentives for drivers. We have experienced and expect to continue to experience ride-hailing drivers shortage in certain geographic markets in which we operate. To the extent that we experience ride-hailing drivers shortage in a given market, we may need to increase or ifmay not be able to reduce the driver incentives that we offer without adversely affecting the liquidity network effect that we experience in that market, which would have adverse impact on our financial performance. We believe that our sales and marketing initiatives is promoting awareness of our offerings, which in turn drives the growth of our driver pool and the utilization rate of our marketplace. However, we may fail to identify false information received from borrowersretain and attract qualified online ride-hailing drivers due to a number of reasons, such as our lack of brand recognition and reputation or othersour failure to provide subsidies that are comparable or superior to those of our competitors. Other factors beyond of our control, such as laws and regulations limiting in the markets in which we operate, vehicles or insurance, and the vehicle quantity control of PRC government, may also reduce the number of Active Drivers on our platform or their utilization of our online ride-hailing platform. However, the increasing number of online ride-hailing drivers in the market may cause the decrease of average income of each driver, which, in return would make our platform, or the whole industry less attractive to drivers. For example, according to the MOT of the People’s Republic of China, the total volume of online ride-hailing orders was approximately 735 million in May 2023 as compared with 706 in April 2023 and 527 million in May 2022. Considering the number of online ride-hailing drivers are keep increasing while the consumer demand has no significant increase in current months in China, the MOT of certain cities, such as Changsha, Sanya has suspended issuing new online booking taxi transportation certificates and transport certificates since April and May 2023 accordingly. In addition, changes in driver qualification and background check requirements may increase our costs and reduce our ability to onboard additional drivers to our platform. Our driver qualification and background check procedure varies by jurisdiction. Any changes in the legal requirements for the qualification, screening, and background check procedure could reduce the number of drivers in those markets or extend the time required to recruit new drivers to our platform, which would adversely impact our business and growth. Our failure to continuously attract and retain Active Drives and to increase utilization of our online ride-hailing platform in a cost-effective way would impair the network effect of our platform, which would in turn providematerially and adversely affect our business, results of operations and financial condition. Changes to pricing for our online ride-hailing services could materially and adversely affect our ability to attract or retain riders and qualified drivers. Demand for our online ride-hailing services is sensitive to ride fares, which takes into consideration, among other things, incentives paid to online ride-hailing drivers and our service fees. Our pricing strategies could be affected by a number of factors, including operating costs, legal and regulatory requirements or constraints, our current and future competitors’ pricing and marketing strategies, the principal requirement of pricing model of our cooperated platforms, and the perception of ride fares as a non-compensatory sharing of travel cost by online ride-hailing drivers. Some competitors offer, or may in the future offer, lower-priced services. Similarly, some competitors may use marketing strategies to attract or retain riders and qualified online ride-hailing drivers at lower costs than us. Certain competitors may also attract and retain riders and qualified online ride-hailing drivers with significant subsidies. As such, we may be forced by competition, regulation or other reasons to reduce ride fares and service fees, increase incentives we pay to online ride-hailing drivers on our platform, reduce our service fees, or to increase our marketing and other expenses. Furthermore, our users’ price sensitivity may vary by geographic locations, and as we expand, our pricing methodologies may not enable us to compete effectively in these locations. We may launch new pricing strategies and initiatives, or modify existing pricing methodologies, any of which may not ultimately be successful in attracting and retaining riders and qualified online ride-hailing drivers. Any significant disruption in our IT systems, including service on our online ride-hailing platform, malfunctions of our technology systems, errors and quality issues in our software, hardware and systems, or human errors in operating these systems, could materially and adversely affect our business, results of operation and financial condition. Our businesses are dependent on the ability of our information technology systems to investors,process massive amounts of information and transactions in either case if wea consistently stable and timely manner. Our information technology infrastructure for our online ride-hailing business in Hangzhou is hosted by third-party service providers. Our IT systems infrastructure is currently deployed, and our data is currently maintained through a customized cloud computing system. Our servers are housed at third-party data centers, and our operations depend on the service providers’ ability to protect our systems in their facilities as well as their own systems against damage or interruption from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm our systems, criminal acts and similar events, many of which may be beyond our control. Many of our mobile applications are also foundprovided through third-party app stores and any disruptions to be at fault, duethe services of these app stores may negatively affect the delivery of our mobile applications to failureusers. If our arrangement with the current host is terminated, or deemed failurethere is a lapse of service or damage to exercise proper care, such as to conduct adequate information verification or employee supervision,the host’s facilities, we could experience interruptions in our service as well as delays and incur additional expenses in arranging new facilities. In the event of a system outage, malfunction or data loss, our ability to provide services would be held liablematerially and adversely affected. In addition, a prolonged failure of our information technology system could damage our reputation and materially and adversely affect our prospects and profitability. We may continue to experience, system failures and other events or conditions from time to time that interrupt the availability or reduce or affect the speed or functionality of our offerings. These events could result in material losses of revenue. A prolonged interruption in the availability or reduction in the availability, speed or other functionality of our services could adversely affect our business and reputation and could result in the loss of users. Also, our software, hardware and systems may contain undetected errors, which could have a material adverse impact on our online ride-hailing business, particularly where such errors are not timely detected and remedied. In addition, our platform and services use complex software, and may have coding defects or errors that may impair our users’ ability to use our platform and services. The models and algorithms that we use for damages causedour platform and services may also contain design or performance defects that are not detectable even after extensive internal testing. We cannot assure you that we would be able to investorsdetect and resolve all such defects and issues through our quality control measures. The satisfactory performance, reliability and availability of our technology and our underlying network infrastructure are critical to our operations, user service, reputation and our ability to attract new and retain existing car buyers and financial institutions. Any errors, defects and disruptions in services, or other performance problems with our online ride-hailing platform and other services, whether as a result of third-party error, our error, natural disasters or security breaches, whether accidental or willful, could hurt our reputation, affect user experience or cause economic loss or other types of damage to our users. Software and system errors or human errors could delay or inhibit order dispatching, matching of users, route calculation, settlement of payments, and reporting of errors, or prevent us from collecting service fees or providing services. We may not have sufficient capacity to recover all data and services lost in the event of an intermediary pursuantoutage. These factors could prevent us from processing information and other business operations, damage our brands and reputation, divert our employees’ attention, reduce our revenue, subject us to the PRC Contract Law.liability and cause car buyers and financial institutions to abandon our solutions and services, any of which could adversely affect our business, financial condition and results of operations. In addition, if we fail to completeadopt new technologies or adapt our obligations undermobile apps, websites and systems to changing user preferences or emerging industry standards, our business and prospects may be materially and adversely affected. If we fail to obtain and maintain the agreements entered into with investorsrequisite licenses and borrowers,approvals required for our online ride-hailing business, or if we could alsoare required to take compliance actions that are time-consuming or costly, our business, results of operations and financial condition may be held liable for damages caused to borrowers or investors pursuantmaterially and adversely affected. As of the date of this Report, we believe we have obtained all licenses and permits and made all necessary filings that are essential to the operation of our online ride-hailing platform, many of which are generally subject to regular PRC Contract Law. Ongovernment review or renewal. However, we cannot assure you that we can successfully update or renew the other hand, we dolicenses required for our business in a timely manner or that these licenses are sufficient to conduct all of our present or future business. If the relevant authorities determine that our platform has not assume any liability solely onobtained the basis of failure to correctly assess the creditworthiness of a particular borrower in the process of facilitating a loan transaction, as long as we do not conceal any material fact intentionallyrequisite licenses or provide false information, andour operations are not foundin compliance with the relevant regulations, we may be required to be at fault otherwise. However, due to the lacksuspend our operations, which may cause significant loss of detailed regulationsour users and guidance in the area of peer-to-peer lending services and the possibility that the PRC government authority may promulgate new laws and regulations regulating peer-to-peer lending services in the future, there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations for the peer-to-peer lending service industry, and there can be no assurance that the PRC government authority will ultimately take a view that is consistent with us.
Any harm to our brand or reputation or any damage to the reputation of the online marketplace lending industry may materially and adversely affect our business, and results of operations.
Maintainingoperations and enhancingfinancial condition. If we fail to complete, obtain or maintain any of the recognitionrequired licenses or approvals or make the necessary filings, we may be subject to various activities, including the imposition of fines and reputationthe discontinuation or restriction of our brand is critical tooperations. Any such penalties may disrupt our business operations and competitiveness. Factors that are vital to this objective include but are not limited to our ability to:
| · | maintain the qualitymaterially and reliability of our platform; |
| · | provide users with a superior experience in our platform; |
| · | enhance and improve our credit assessment and decision-making models; |
| · | effectively manage and resolve user complaints; and |
| · | effectively protect personal information and privacy of users. |
Any malicious or innocent negative allegation made by the media or other parties about the foregoing or other aspects of our company, including but not limited to our management, business, compliance with law, financial conditions or prospects, whether with merit or not, could severely hurt our reputation and harm our business and operating results. As the market for China's online marketplace lending is new and the regulatory framework for this market is also evolving, negative publicity about this industry may arise from time to time. Negative publicity about China's online finance marketplace industry in general may also have a negative impact on our reputation, regardless of whether we have engaged in any inappropriate activities.
In addition, certain factors that may adversely affect our reputationbusiness, results of operations and financial condition.
We rely primarily on a third-party insurance policy to insure our auto-related risks relating to our online ride-hailing platform services. If our insurance coverage is insufficient for the needs of our business or our insurance providers are beyondunable to meet their obligations, we may not be able to mitigate the risks facing our control. Negative publicity aboutbusiness, which could adversely affect our business, results of operations and financial condition. We may become subject to claims arising primarily from our online ride-hailing platform services and automobile operating leasing for automobile-related incidents, including bodily injury, property damage and uninsured and underinsured liability. If we are held liable to these automobile-related claims under court orders and the amounts exceed our applicable aggregate coverage limits, we would bear the excess, in addition to amounts already incurred in connection with deductibles or otherwise paid by our insurance provider. Insurance providers may continue to raise premiums and deductibles in the future. As a result, our insurance and claims expenses could increase, or we may decide to raise our deductibles when our policies are renewed or replaced. Our business, results of operations and financial condition could be adversely affected if cost per claim, premiums or the number of claims significantly exceeds our historical experience and coverage limits, we experience a claim in excess of our coverage limits, our insurance providers fail to pay on our insurance claims, we experience a claim for which coverage is not provided, or the number of claims under our deductibles differs from historic averages. Our business would be adversely affected if drivers were classified as employees, workers or quasi-employees. The classification of drivers is currently being challenged in courts, by legislators and by government agencies in a number of jurisdictions. We may become involved in legal proceedings, including lawsuits, demands for arbitration, charges and claims before administrative agencies, and investigations or audits by labor, social security, and tax authorities that claim that drivers should be treated as our employees (or as workers or quasi-employees where those statuses exist), rather than as independent contractors. We generally treat drivers as independent contractors. However, we may not be successful in defending the classification of drivers in some or all jurisdictions where it is challenged. Furthermore, the costs associated with defending, settling, or resolving pending and future lawsuits (including demands for arbitration) relating to the classification of drivers have been and may continue to be material to our business. In addition, even if we prevail under current law, the process can be time-consuming and cost-inefficient. The law may also be changed in the future in ways that are unfavorable to us. Reclassification of drivers as employees, workers or quasi-employees where those statuses exist could require us to fundamentally change our business model, with repercussions that are difficult to anticipate. Among other things, reclassification could subject us to vicarious liability for any misconduct of drivers, require us to pay them wages, make social insurance contributions or provide other benefits, or reduce our attractiveness to drivers given the loss of flexibility under an employee model. In December 2021, media reported that China plans to amend laws to allow ride-hailing drivers and food delivery workers to form unions. Unions of ride-hailing drivers and food delivery worker in China may complicate our relationship with them and our supply of drivers may be affected adversely. Reclassification could also impact our current financial statement presentation, including the calculation of our revenues, cost of revenues and expenses, as further described in our significant and critical accounting policies in Note 3 to our consolidated financial statements. We rely on third-party payment processors to process payments made by our business partners outsourced service providersand payments made to private car owners and taxi drivers on our platform, and if we cannot manage our relationships with such third parties and other payment-related risks, our business, results of operations and financial condition could be adversely affected. We rely on third-party payment processors, such as Alipay and Qiandaibao, and rarely, commercial banks, to process payments made by our business partners and payments made to online ride-hailing drivers on our platform. If any of our third-party payment processors terminates its relationship with us or refuses to renew its agreement with us on commercially reasonable terms, we would need to find an alternative payment processor, and may not be able to secure similar terms or replace such payment processor in an agreeable timeframe. Further, the software and services provided by our third-party payment processors may fail to meet our expectations, contain errors or vulnerabilities, encounter disruption or compromise, or experience outages. Our third-party payment processors may also be penalized or suspended if they fail to protect personal information in compliance with relevant laws and regulations. Any of these risks could cause us to lose our ability to accept online payments or other counterparties, such as negative publicity about their debt collection practicespayment transactions or make timely payments to private car owners and taxi drivers on our platform, any failure by themof which could make our platform less convenient and attractive to adequately protectusers and adversely affect our ability to attract and retain users. We may in the future offer new payment options to users that may be subject to additional regulations and risks. We are also subject to a number of other laws and regulations relating to the payments we accept from our business partners, including with respect to money laundering, money transfers, privacy and information of users,security. If we fail to comply with applicable lawsrules and regulations, we may be subject to civil or criminal penalties, fines or higher transaction fees and may lose our ability to otherwise meet required qualityaccept online payments or other payment card transactions, which could make our services less convenient and attractive to our users. If any of these events occurs, our business, results of operations and financial condition could be adversely affected. We depend on the ability of our online ride-hailing platform to operate across third-party applications and platforms that we do not control. In connection with our online ride-hailing business, we have integrations with Gaode Maps, Meituan, Alipay, Qiandaibao and other third-party service standards could harmproviders. As our reputation. Furthermore, any negative development in the online marketplace lending industry, such as bankruptcies or failures of other finance marketplaces,ride-hailing services expand and especially a largeevolve, we may have an increasing number of integrations with third-party applications, products and services. Third party applications, products and services are constantly evolving, and we may not be able to maintain or modify our platform to ensure its compatibility with third-party offerings following such bankruptcieschanges. In addition, some of our competitors or failures,technology partners may take actions which disrupt the interoperability of our platform with their own products or negative perception of the industry as a whole, such as that arises from any failure of other finance marketplaces to detectservices, or prevent money laundering or other illegal activities, even if factually incorrect or based on isolated incidents, could compromise our image, undermine the trust and credibility we have established and impose a negative impactexert strong business influence on our ability to attract new borrowers and investors. Negative developments in the terms on which we operate and distribute our platform. As our online marketplace lending industry, such as widespread borrower defaults, fraudulent behavior and/orride-hailing services continue to evolve, we expect the closuretypes and levels of other online finance marketplaces, may also leadcompetition to tightened regulatory scrutiny of the sector and limit the scope of permissible business activities that may be conducted by online finance marketplaces like us. Ifincrease. Should any of our competitors or technology partners modify their products, standards or terms of use in a manner that degrades the foregoing takes place,functionality or performance of our platform or gives preferential treatment to competitive products or services or is otherwise disadvantageous to us, our business, and results of operations and financial condition could be materially and adversely affected. Government policies on automobile purchases and usage in the online ride-hailing industry may materially affect our results of operations. Government policies on automobile purchases and ownership may have a material effect on our business due to their influence on consumer behaviors. Since 2009, the PRC government has changed the purchase tax on automobiles with 1.6 liter or smaller engines several times. In addition, in August 2014, several PRC governmental authorities jointly announced that from September 2014 to December 2017, purchases of NEVs designated on certain catalogs will be exempted from the purchase taxes. In April 2015, several PRC governmental authorities also jointly announced that from 2016 to 2020, NEV purchasers designated on certain catalogs will enjoy subsidies. In December 2016, relevant PRC governmental authorities further adjusted the subsidy policy for NEVs. On March 26, 2019, the PRC governmental authorities updated government subsidy policy for NEVs which raises the threshold for the subsidy and reduces the amount of subsidies. On April 23, 2020, relevant PRC governmental authorities issue a notice, amongst others, that the subsidy policy for NEVs will be extended to the end of 2022, while the amount of subsidies will be reduced year by year. According to a notice effective from January 1, 2021, the subsidies will be declined by 20% on 2020’s basis. On March 24, 2021, Chengdu Ecological Environment Bureau issued the Action Plan for Prevention and Control of Air Pollution in Chengdu in 2021, pursuant to which, all the new cars (including the replaced ones) used for online ride-hailing should be NEVs or hydrogen fuel cell vehicles. Pursuant to the Action Plan for Prevention and Control of Air Pollution in Chengdu in 2022 issued on March 23, 2022, the whole city shall strive to ensure bus and cars used for online ride-hailing be NEVs. On August 21, 2018, General Office of Changsha Municipal People’s Government issued the Provisional Detailed Rules of the Implementation Rules for the Administration of Online Booking Taxi Management Services for Changsha, pursuant to which, the company who operates online ride-hailing platform shall give priority to the use of NEVs, and the number of NEVs put into operation shall not be less than 30%. On April 7, 2021, General Office of Changsha Municipal People’s Government issued the Three-year Action Plan of Blue Sky Defense for Changsha, pursuant to which, at least 50% of the new cars used for online ride-hailing should be NEVs or hydrogen fuel cell vehicles at the end of calendar year 2023. We have been developing strategic collaboration with BYD, a leading NEV manufacturer in China, and other automobile rental companies who are able to lease us qualified NEVs. As we witness the emergence of NEVs in the automotive industry, as well as the online ride-hailing industry, as the next-generation trend, we have consistently focused on strengthening our cooperation with leading NEV manufacturers to obtain sufficient NEVs with favorable terms for our businesses. However, we cannot ensure we are able to retain long-term stable cooperative relationships with these NEVs companies. Our business growth will be hindered and our results of operations and financial condition will suffer if we could not obtain considerable resources for our business expansions. Besides, we cannot predict whether government subsidies will remain in the future or whether similar incentives will be introduced, and if they are, their impact on automobile retail transactions in China. It is possible that automobile retail transactions may decline significantly upon expiration of the existing government subsidies if consumers have become used to such incentives and delay purchase decisions in the absence of new incentives. If automobile retail transactions indeed decline, our revenues may fluctuate and our results of operations may be materially and adversely affected. Our business is subject to laws, regulations and regulatory policies that are being continuously amended and improved, and the interpretation and implementation of newly established policies may remain uncertain, which could have an adverse impact on our business and future prospects. As of March 31, 2023, our business are available in 26 cities in China. As the online ride-hailing industry is still at a relatively early stage of development, new laws and regulations may be adopted from time to time to address new issues that come to the authorities’ attention. In addition, considerable uncertainties still exist with respect to the interpretation and implementation of existing laws and regulations governing our business activities. For example, we generally treat drivers as independent contractors, but that determination may be challenged. See “Risks—Our business would be adversely affected if drivers were classified as employees, workers or quasi-employees”. A large number of proposals are before various regional, and local legislative bodies and regulatory entities regarding issues related to our industry or our business model. As of March 31, 2023, we had not been subject to any material fines or other penalties under any PRC laws or regulations as to our business operations. As we expand into new cities or as we add new products and services to our platform, we may become subject to additional laws and regulations that we are not subject to now. However, if the PRC government tightens regulatory for industries our business been involved in the future, and subject industry participants to new or specific requirements (including without limitation, capital requirements and licensing requirements), our business, financial condition and prospects would be materially and adversely affected. Meanwhile, compliance with existing and future rules, laws and regulations can be costly and if our practice is deemed to violate any existing or future rules, laws and regulations, it may face injunctions, including orders to cease non-compliant activities, and may be exposed to other penalties as determined by the relevant government authorities as well. Our business is subject to risks related to China’s automobile leasing and financing industry, including industry-wide and macroeconomic risks. We operate in China’s automobile leasing and financing industry. We cannot assure you that this market will continue to grow rapidly in the future. Further, the growth of China’s automobile leasing and financing industry could be affected by many factors, including: | ● | 42 | general economic conditions in China and around the world; |
| ● | the impact by public health epidemics, including epidemic prevention policies in China on the industries we operate in and our business, results of operations and financial condition |
| ● | the growth of disposable household income and the availability and cost of credit available to finance car purchases and lease; |
| ● | the growth of China’s automobile industry; |
| ● | taxes and other incentives or disincentives related to NEV purchases and ownership; |
| ● | environmental concerns and measures taken to address these concerns; |
| ● | the cost of energy, including gasoline prices, and the cost of car license plates in various cities with license plate lottery or auction systems in China; |
| ● | the improvement of the highway system and availability of parking facilities; |
| ● | other government policies relating to automobile leasing and financing in China; |
| ● | fluctuations in the sales and price of new and used cars; |
| ● | consumer acceptance of financing car purchases; |
| ● | changes in demographics and preferences of car purchasers; |
| ● | ride sharing, transportation networks, and other fundamental changes in transportation pattern; and |
| ● | other industry-wide issues, including supply and demand for cars and supply chain challenges. |
Any adverse change to these factors could reduce demand for used cars and hence demand for our services, and our results of operations and financial condition could be materially and adversely affected. We have incurred net losses and may continue to incur net losses in the future. We had net losses from our continuing operations of US$9,858,972$3,790,693 and US$596,645$5,606,145 in the years ended March 31, 20182023 and 2017, respectively, and2022, respectively. We had net loss from our discontinued operations of $2,747,209 for the year ended March 31, 2022. We may continue to incur losses in the future. We anticipate that our operating expenses will increase in the foreseeable future as we seek to continue to grow our business, attract borrowers, investors and partnersmore customers and further enhance and develop our loan products and platform.businesses. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. There are other factors that could negatively affect our financial conditions. For example, the default rates of the loans facilitated through our platform may be higher than expected, which may lead to lower than expected net revenues. As a result of the foregoing and other factors, ourOur net revenue growth may slow, our net income margins may decline or we may incur additional net losses in the future and may not be able to achieve and maintain profitability on a quarterly or annual basis. In addition, our net revenue growth rate will likely decline as our net revenue grows to higher levels.
We will likely need additional capital, and financing may not be available on terms acceptable to us, or at all.
In the fiscal years ended March 31, 2017 and 2018, our principal sources of liquidity were capital contribution and advances from our stockholders representing operating costs and expenses paid or borne by the stockholders on our behalf. As of March 31, 2018, we had cash and cash equivalents of US$11,141,566, compared with cash and cash equivalents of approximately US$161,292 as of March 31, 2017. Although we anticipate that, with the proceeds from our initial public offering and anticipated cash flows from operating activities, we will be able to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for the next 12 months. If we fail to do so due to unexpected situations, we anticipate to receive loans from our stockholders to fund our operations. However, we cannot assure you this will be the case. We may need additional cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly results of operations, including the levels of our net revenues, expenses, net (loss)/income and other key metrics, may vary significantly in the future due to a variety of factors, some of which are outside of our control, and period-to-period comparisons of our operating results may not be meaningful, especially given our limited operating history. Accordingly, the results for any one quarter are not necessarily an indication of future performance. Fluctuations in quarterly results may adversely affect the price of our common stock. Factors that may cause fluctuations in our quarterly financial results include:
| · | our ability to attract new users and maintain relationships with existing users; |
| · | loan volumes and the channels through which users are sourced, including the relative mix of online and offline channels; |
| · | changes in our product mix and introduction of new loan products; |
| · | the amount and timing of operating expenses related to acquiring users and the maintenance and expansion of our business, operations and infrastructure; |
| · | our decision to manage loan volume growth during the period; |
| · | network outages or security breaches; |
| · | general economic, industry and market conditions; |
| · | our emphasis on user experience instead of near-term growth; and |
| · | the timing of expenses related to the development or acquisition of technologies or businesses. |
In addition, we experience seasonality in our business, reflecting seasonal fluctuations in internet usage and traditional personal consumption patterns. For example, we generally experience lower transaction value on our online finance marketplace during national holidays in China, particularly during the Chinese New Year holiday season in the first quarter of each year. Our results of operations may continue to be affected by such seasonality in the future.
Our reputation may be harmed if information supplied by borrowers is inaccurate, misleading or incomplete, including if the borrowers use the loan proceeds for purposes other than as originally provided.
Borrowers supply a variety of information that is included in the loan listings on our platform. We do not verify all the information we receive from borrowers, and such information may be inaccurate or incomplete. For example, we often do not verify a borrower's intended use of loan proceeds after disbursement of loan proceeds, and the borrower may use loan proceeds for other purposes with increased risk than as originally provided. If investors invest in loans through our platform based on information supplied by borrowers that is inaccurate, misleading or incomplete, those investors may not receive their expected returns and our reputation may be harmed. Moreover, inaccurate, misleading or incomplete borrower information could also potentially subject us to liability as an intermediary under the PRC Contract Law. See "Business — Regulations — Regulations Related to the Marketplace Lending Industry."
Fraudulent activity on our platform could negatively impact our operating results, brand and reputation and cause the use of our loan products and services to decrease.
We are subject to the risk of fraudulent activity both on our platform and associated with users and third parties handling user information. Our resources, technologies and fraud detection tools may be insufficient to accurately detect and prevent fraud. Significant increases in fraudulent activity could negatively impact our brand and reputation, reduce the volume of loan transactions facilitated through our platform and lead us to take additional steps to reduce fraud risk, which could increase our costs. High profile fraudulent activity could even lead to regulatory intervention, and may divert our management's attention and cause us to incur additional expenses and costs. Although we have not experienced any material business or reputational harm as a result of fraudulent activities in the past, we cannot rule out the possibility that any of the foregoing may occur causing harm to our business or reputation in the future. If any of the foregoing were to occur, our results of operations and financial conditions could be materially and adversely affected.
Misconduct, errors and failure to function by our employees and third-party service providers could harm our business and reputation.
We are exposed to many types of operational risks, including the risk of misconduct and errors by our employees and third-party service providers. Our business depends on our employees and third-party service providers to interact with potential users, process large numbers of transactions and support the loan collection process, all of which involve the use and disclosure of personal information. We could be materially adversely affected if transactions were redirected, misappropriated or otherwise improperly executed, if personal information was disclosed to unintended recipients or if an operational breakdown or failure in the processing of transactions occurred, whether as a result of human error, purposeful sabotage or fraudulent manipulation of our operations or systems. In addition, the manner in which we store and use certain personal information and interact with users through our platform is governed by various PRC laws. It is not always possible to identify and deter misconduct or errors by employees or third-party service providers, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses. If any of our employees or third-party service providers take, convert or misuse funds, documents or data or fail to follow protocol when interacting with users, we could be liable for damages and subject to regulatory actions and penalties. We could also be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, or the failure to follow protocol, and therefore be subject to civil or criminal liability. Aggressive practices or misconduct by any of our third-party service providers in the course of collecting loans could damage our reputation.
Furthermore, as we rely on certain third-party service providers, such as third-party payment platforms and custody and settlement service providers, to conduct our business, if these third-party service providers failed to function properly, we cannot assure you that we would be able to find an alternative in a timely and cost-efficient manner or at all. Any of these occurrences could result in our diminished ability to operate our business, potential liability to borrowers and investors, inability to attract borrowers and investors, reputational damage, regulatory intervention and financial harm, which could negatively impact our business, financial condition and results of operations.
Fluctuations in interest rates could negatively affect transaction volume.
All loans facilitated or previously assigned through our platform have fixed interest rates. If interest rates rise, investors who have already committed capital may lose the opportunity to take advantage of the higher rates. If interest rates decrease after a loan is made, borrowers through our platform may prepay their loans to take advantage of the lower rates. Investors through our platform would lose the opportunity to collect the above-market interest rates payable on the prepaid loans and might delay or reduce future loan investments. As a result, fluctuations in the interest rate environment may discourage users from participating in our platform, which may adversely affect our business.
A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.
Any prolonged slowdown in the Chinese or global economy may have a negative impact on our business, results of operations and financial condition. In particular, general economic factors and conditions in China or worldwide, including the general interest rate environment and unemployment rates, may affect borrower willingness to seek loans and investor ability and desire to invest in loans. Economic conditions in China are sensitive to global economic conditions. The global financial markets have experienced significant disruptions since 2008 and the United States, Europe and other economies have experienced periods of recession. The recovery from the lows of 2008 and 2009 has been uneven and there are new challenges, including the escalation of the European sovereign debt crisis from 2011 and the slowdown of China's economic growth since 2012 which may continue. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world's leading economies, including the United States and China. There have also been concerns over unrest in Ukraine, the Middle East and Africa, which have resulted in volatility in financial and other markets. There have also been concerns about the economic effect of the tensions in the relationship between China and surrounding Asian countries. If present Chinese and global economic uncertainties persist, many of our investors may delay or reduce their investment in the loans facilitated through our platform. Adverse economic conditions could also reduce the number of qualified borrowers seeking loans on our platform, as well as their ability to make payments. Should any of these situations occur, the amount of loans facilitated through our platform and our net revenues will decline, and our business and financial conditions will be negatively impacted. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.
Our ability to protect the confidential information of our users may be adversely affected by cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions.
Our platform collects, stores and processes certain personal and other sensitive data from our users, which makes it an attractive target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. While we have taken steps to protect the confidential information that we have access to, our security measures could be breached. Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or other unauthorized access to our platform could cause confidential user information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships with borrowers and investors could be severely damaged, we could incur significant liability and our business and operations could be adversely affected.
We have identified material weaknesses in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.
Prior to the public offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. We have identified "material weaknesses" and other control deficiencies including significant deficiencies in our internal control over financial reporting. As defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB, a "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
One material weakness that has been identified related to our lack of sufficient financial reporting and accounting personnel (including a qualified Chief Financial Officer) with appropriate knowledge of U.S. GAAP and SEC reporting requirements to properly address complex U.S. generally accepted accounting principles ("U.S. GAAP") accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfill U.S. GAAP and SEC financial reporting requirements. The other material weaknesses are lack of comprehensive accounting policies and procedures manual in accordance with U.S. GAAP, failure to record impairments for intangible assets and goodwill and failure to have effective entity level controls. We plan to engage a qualified Chief Financial Officer with comprehensive knowledge of U.S. GAAP and SEC reporting requirements. We also plan to adopt accounting policies and procedures manual in accordance with U.S. GAAP. As our operations continue to expand, we plan to hire additional accounting and finance staff to increase segregation of duties and also invest in technology infrastructure to support our financial reporting function. Despite these remedial measures, we might not be able to adequately address the weaknesses we have identified.
Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control for purposes of identifying and reporting material weaknesses and other control deficiencies in our internal control over financial reporting as we and they will be required to do after we become a public company. Had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional deficiencies may have been identified.
We are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 10-K beginning with our Annual Report for the fiscal year ending March 31, 2019. In addition, once we cease to be an "emerging growth company" as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our securities. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.
Our operations depend on the performance of the internet infrastructure and fixed telecommunications networks in China. Almost all access to the internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the MIIT. We primarily rely on a limited number of telecommunication service providers to provide us with data communications capacity through local telecommunications lines and internet data centers to host our servers. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with China'sChina’s internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic onrequirements of our platform.operations. We cannot assure you that the internet infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth in internet usage. In addition, we have no control over the costs of the services provided by telecommunication service providers. If the prices we pay for telecommunications and internet services rise significantly, our results of operations may be adversely affected. Furthermore, if internet access fees or other charges to internet users increase, our user traffic may decline and our business may be harmed.
High interest rates could negatively affect our ability to attract investors and borrowers to our platform.
A high interest rate environment may discourage investors and borrowers from participatingWe have identified material weaknesses in our platform and may reduce the number of loans facilitated on our platform, which may adversely affect our business. Therefore, our business could be adversely affected by potential interest rate increases in China.
Any significant disruption in service on our platform or in our computer systems, including events beyond ourinternal control could prevent us from processing or posting loans on our platform, reduce the attractiveness of our platform and result in a loss of borrowers or investors.
In the event of a platform outage and physical data loss, our ability to perform our servicing obligations, process applications or make loans available on our platform would be materially and adversely affected. The satisfactory performance, reliability and availability of our platform and our underlying network infrastructure are critical to our operations, customer service, reputation and our ability to retain existing and attract new borrowers and investors. Much of our system hardware is hosted in cloud data center located in Hangzhou. We also maintain a real-time backup system at facilities located in Shenzhen. Our operations depend on our ability to protect our systems against damage or interruption from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm our systems, criminal acts and similar events. If there is a lapse in service or damage to our leased Beijing facilities, we could experience interruptions in our service as well as delays and additional expense in arranging new facilities.
Any interruptions or delays in our service, whether as a result of third-party error, our error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with our borrowers and investors and our reputation. Additionally, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage. These factors could prevent us from processing or posting payments on loans, damage our brand and reputation, divert our employees' attention, subject us to liability and cause borrowers and investors to abandon our platform, any of which could adversely affect our business,over financial condition and results of operations.
Our platform and internal systems rely on software that is highly technical, and if it contains undetected errors, our business could be adversely affected.
Our platform and internal systems rely on software that is highly technical and complex. In addition, our platform and internal systems depend on the ability of such software to store, retrieve, process and manage immense amounts of data. The software on which we rely has contained, and may now or in the future contain, undetected errors or bugs. Some errors may only be discovered after the code has been released for external or internal use. Errors or other design defects within the software on which we rely may result in a negative experience for our users, delay introductions of new features or enhancements, result in errors or compromise our ability to protect user data or our intellectual property. Any errors, bugs or defects discovered in the software on which we rely could result in harm to our reputation, loss of user or liability for damages, any of which could adversely affect our business, results of operations and financial conditions.
We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
We regard our trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality and non-compete agreements with our employees and others to protect our proprietary rights. We have made twelve trade applications, both of which are pending with the Trademark Office under the State Administration for Industry and Commerce. See "Business — Intellectual Property" and "Business — Regulations — Regulations on Intellectual Property Rights." Thus, we cannot assure you that any of our intellectual property rights would not be challenged, invalidated, circumvented or misappropriated, or such intellectual property will be sufficient to provide us with competitive advantages. In addition, because of the rapid pace of technological change in our industry, parts of our business rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms, or at all.
It is often difficult to register, maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. To the extent that our employees or consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related know-how and inventions. Any failure in protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may be from time to time in the future subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our products, services or other aspects of our business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against us in China, the United States or other jurisdictions. If any third-party infringement claims are brought against us, we may be forced to divert management's time and other resources from our business and operations to defend against these claims, regardless of their merits.
Additionally, the application and interpretation of China's intellectual property right laws and the procedures and standards for granting trademarks, patents, copyrights, know-how or other intellectual property rights in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis.reporting. If we were found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forcedfail to develop alternativesand maintain an effective system of our own. As a result, our business and results of operations may be materially and adversely affected.
Some aspects of our digital operations include open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
Some aspects of our digital operations include software covered by open source licenses. The terms of various open source licenses have not been interpreted by PRC courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our online and mobile-based channels. If portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies if required so by the license, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and loan products. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with use of open source software cannot be eliminated, and could adversely affect our business.
From time to time we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant management attention, disrupt our business and adversely affect ourinternal control over financial results.
Although we do not currently have any plans to consummate any acquisitions, we may in the future evaluate and consider strategic investments, combinations, acquisitions or alliances in connection with our business expansion to further increase the value of our platform and better serve borrowers and investors. These transactions could be material to our financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate such a transaction,reporting, we may be unable to obtainaccurately report our financial results or prevent fraud.
In connection with the benefitsaudit of our consolidated financial statements for the year ended March 31, 2023, we have identified “material weaknesses” and other control deficiencies including significant deficiencies in our internal control over financial reporting. As defined in the standards established by the Public Company Accounting Oversight Board of the United States (the “PCAOB”), a “material weakness” is a deficiency, or avoidcombination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the difficultiesannual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses that have been identified include: (i) insufficient personnel with appropriate levels of accounting knowledge and risksexperience to address complex U.S. GAAP accounting issues and to prepare and review financial statements and related disclosures under U.S. GAAP; (ii) be lacking adequate policies and procedures in internal audit function to ensure that our policies and procedures have been carried out as planned; and (iii) had deficiencies in our IT general control regarding to the Logical Access Security, Change Management, IT Operations and Cybersecurity of such transaction. Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including:
| · | difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business; |
| · | inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; |
| · | difficulties in retaining, training, motivating and integrating key personnel; |
| · | diversion of management's time and resources from our normal daily operations; |
| · | difficulties in successfully incorporating licensed or acquired technology and rights into our platform and loan products; |
| · | difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations; |
| · | difficulties in retaining relationships with customers, employees and suppliers of the acquired business; |
| · | risks of entering markets in which we have limited or no prior experience; |
| · | regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; |
| · | assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; |
| · | failure to successfully further develop the acquired technology; |
| · | liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; |
| · | potential disruptions to our ongoing businesses; and |
| · | unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions. |
our financial system and key application system. We may not make any investments or acquisitions, or any future investments or acquisitions may not be successful, may not benefithave implemented, and will continue to implement, measures designed to improve our business strategy, may not generate sufficient revenuesinternal control over financial reporting and remediate the control deficiencies that led to offset the associated acquisition costs or may not otherwise result in the intended benefits. In addition, wethese material weaknesses. We plan to (i) continuously hire additional accounting staffs with comprehensive knowledge of U.S. GAAP and SEC reporting requirements; (ii) ameliorate our internal audit to assist with assessment of Sarbanes-Oxley compliance requirements and improvement of internal controls related to financial reporting; and (iii) improving our IT environment and daily management. We cannot assure you that the measures we have taken to date, and actions we intend to take in the future, will be sufficient to remediate material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. In addition, neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required. Had we or our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified. If we are unable to successfully remediate our existing or any future investmentmaterial weaknesses in our internal control over financial reporting, or acquisition of new businesses or technology will lead toidentify any additional material weaknesses, the successful development of new or enhanced loan productsaccuracy and services or that any new or enhanced loan products and services, if developed, will achieve market acceptance or prove to be profitable.
Because some users may come to our platform from referrals of third parties, it is possible that an unsatisfied user could make a claim against us based on the content of any information provided by these third parties that could result in claims that are costly to defend and distracting to management.
Some users may come to our platform after reviewing information provided by a third party. We do not review, approve or adopt any information provided by third parties website and, while we do not believe we would have liability for such information, it is possible that an unsatisfied user could bring claims against us based on such information. Such claims could be costly and time-consuming to defend and would distract management's attention from the operationtiming of our business and create negative publicity, which could affect our reputation.
Our business depends on the continued effortsfinancial reporting may be adversely affected, potentially resulting in restatements of our senior management. If one or more of our key executives were unable or unwilling to continue in their present positions, our business may be severely disrupted.
Our business operations depend on the continued services of our senior management, particularly the executive officers named in this Report. While we have provided different incentives to our management, we cannot assure you that we can continue to retain their services. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, our future growth may be constrained, our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member of our management team will not join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China orstatements, we may be unable to enforce them at all.
Competition for employees is intense,maintain compliance with securities law requirements regarding timely filing of periodic reports and weapplicable Nasdaq listing requirements, investors may not be able to attract and retain the qualified and skilled employees needed to supportlose confidence in our business.
We believe our success depends on the efforts and talent of our employees, including risk management, software engineering, financial and marketing personnel. Our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for highly skilled technical, risk management and financial personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
In addition, we invest significant time and expenses in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our servicesreporting, and our ability to serve borrowers and investors could diminish, resulting inshare price may decline as a material adverse effect to our business.result.
Increases in labor costs in the PRC may adversely affect our business and results of operations.
The economy in China has experienced increases in inflation and labor costs in recent years. As a result, average wages in the PRC are expected to continue to increase. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee benefits, and those employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to control our labor costs or pass on these increased labor costs to our users by increasing the fees of our services, our financial condition and results of operations may be adversely affected.
Certain data and information in this Report were obtained from third-party sources and were not independently verified by us.
This Report contains certain data and information that we obtained from various government and private entity publications. Statistical data in these publications also include projections based on a number of assumptions. The Chinese credit industry, and marketplace lending in particular, may not grow at the rate projected by market data, or at all. Failure of this industry to grow at the projected rate may have a material adverse effect on our business and the market price of our common stock. In addition, the new and rapidly changing nature of the credit and marketplace lending industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our industry. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions.
We have not independently verified the data and information contained in such third-party publications and reports. Data and information contained in such third-party publications and reports may be collected using third-party methodologies, which may differ from the data collection methods used by us. In addition, these industry publications and reports generally indicate that the information contained therein was believed to be reliable, but do not guarantee the accuracy and completeness of such information. If we cannot maintain our corporate culture as we grow, we could lose the innovation, collaboration and focus that contribute to our business.
We believe that a critical component of our success is our corporate culture, which we believe fosters innovation, encourages teamwork and cultivates creativity. As we develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.
We do not have anylimited business insurance coverage.
Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. Currently, we do not have any business liability or disruption insurance to cover our operations.operations other than the accident insurance and commercial liability insurance, which are mandatory, on all the automobiles we purchase for sales or financing. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition. Our common stock will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCA Act, in the future if the PCAOB is unable to inspect or investigate completely our auditors. The delisting of our common stock, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections of our auditors would deprive our investors of the benefits of such inspections. The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded on a national securities exchange or in the over-the-counter trading market in the United States. Our current auditor, Marcum Asia CPAs LLP, or Marcum Asia, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Marcum Asia is headquartered in New York, New York, and was not included in the list of PCAOB Identified Firms in the PCAOB Determination Report issued in December 2021. We are required by the HFCAA to have an auditor that is subject to the inspection by the PCAOB. While our present auditor is located in the United States and the PCAOB is able to conduct inspections on such auditor, to the extent this status changes in the future and our auditor’s audit documentation related to their audit reports for our company becomes outside of the inspection by the PCAOB or if the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction, trading in our common stock could be prohibited under the HFCAA, and as a result our common stock could be delisted from Nasdaq. On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA, which became effective on May 5, 2021. We will be required to comply with these rules if the SEC identifies our auditors as having a “non-inspection” year under a process to be subsequently established by the SEC. On May 13, 2021, the PCAOB proposed a new rule for implementing the HFCAA. Among other things, the proposed rule provides a framework for the PCAOB to use when determining, under the HFCAA, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The proposed rule would also establish the manner of the PCAOB’s determinations; the factors the PCAOB will evaluate and the documents and information it will consider when assessing whether a determination is warranted; the form, public availability, effective date, and duration of such determinations; and the process by which the board of the PCAOB can modify or vacate its determinations. The proposed rule was adopted by the PCAOB on September 22, 2021 and approved by the SEC on November 5, 2021. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act which proposed to reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, thus reducing the time period before the securities of such foreign companies may be prohibited from trading or delisted. On December 29, 2022, the Accelerating Holding Foreign Companies Accountable Act was signed into law by the U.S. House of Representatives, which officially reduce the number of years that the auditor is not subject to inspection to two consecutive years. On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong because of positions taken by mainland China and Hong Kong authorities in those jurisdictions. The PCAOB has made such designations as mandated under the HFCA Act. Pursuant to each annual determination by the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions in the future. As of the date of this annual report, our auditor is not subject to the determinations announced by the PCAOB on December 16, 2021. The SEC is assessing how to implement other requirements of the HFCAA, including the listing and trading prohibition requirements described above. The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to the PCAOB inspection. For example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States. This report recommended the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfill its statutory mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCAA. However, some of the recommendations were more stringent than the HFCAA. For example, if a company was not subject to the PCAOB inspection, the report recommended that the transition period before a company would be delisted would end on January 1, 2022. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the PRC (the “Statement of Protocol”), which is intended to enable the PCAOB to inspect and investigate completely registered public accounting firms in mainland China and Hong Kong. According to a statement released by the PCAOB, the Statement of Protocol (i) provides the PCAOB with sole discretion to select the firms, audit engagements and potential violations it inspects and investigates without consultation with, nor input from, Chinese authorities, (ii) puts procedures in place for PCAOB inspectors and investigators to view complete audit work papers with all information included and for the PCAOB to retain information as needed and (iii) provides the PCAOB with direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates. While the Chairs of both the PCAOB and the SEC made statements supporting the Statement of Protocol, both emphasized that this is only the first step in the process. As such, uncertainties remain regarding how the Statement of Protocol will be implemented and how it will impact China-based issuers and there is no assurance that the PCAOB will be able to execute, in a timely manner, its future inspections and investigations in a manner that satisfies the Statement of Protocol. While the Statement of Protocol may lead to resolution of the previously identified issues, there can be no assurance that this will be the case. On December 15, 2022, the PCAOB issued a new Determination Report which: (1) vacated the December 16, 2021 Determination Report; and (2) concluded that the PCAOB has been able to conduct inspections and investigations completely in the PRC in 2022. The December 15, 2022 Determination Report cautions, however, that authorities in the PRC might take positions at any time that would prevent the PCAOB from continuing to inspect or investigate completely. As required by the HFCAA, if in the future the PCAOB determines it no longer can inspect or investigate completely because of a position taken by an authority in the PRC, the PCAOB will act expeditiously to consider whether it should issue a new determination. While the HFCAA is not currently applicable to the Company because the Company’s current auditors are subject to PCAOB review, if this changes in the future for any reason, the Company may be subject to the HFCAA. The implications of this regulation if the Company were to become subject to it are uncertain. Such uncertainty could cause the market price of our common stock to be materially and adversely affected, and our securities could be delisted or prohibited from being traded on Nasdaq earlier than would be required by the HFCAA. If our common stock is unable to be listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase the common stock when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of the common stock. We face risks related to natural disasters, health epidemics and other outbreaks, such as COVID-19, which could significantly disrupt our operations. We are vulnerable to other natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide products and services onservices. The COVID-19 pandemic has materially and adversely affected the global economy, our platform. markets in China and our business. Our business was adversely affected by the effects of COVID-19 coronavirus, the prevention and control policies, including the zero-COVID policy in China. Although China has adjusted the prevention and control policies against COVID-19 and the market has been gradually recovering from the COVID-19 pandemic, we could not forecast whether the prevention and control policies shall be similar if other epidemics incur in the future. Upon such occurrence, our operation may be materially and adversely impacted. Our business could also be adversely affected by the effects of Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, or other epidemics. Our business operations could be disrupted if any of our employees is suspected of having Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, SARS or other epidemic,infected, since it could require our employees to be quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that any of these epidemics harms the Chinese economy in general. Risks Related to Doing Business in China Our Corporate Structure
current corporate structure and business operations may be affected by the Foreign Investment Law. If the PRC government deems that the contractual arrangements in relationour business falls within certain relevant industries that are subject to our consolidated variable interest entity do not comply with PRC regulatory restrictions on foreign investment in the relevant industries,restriction or limitation, or if these regulations or the interpretation of existing regulations change in the future, we could be subjectmay have to severe penaltiesadjust our corporate structure, switch our business focus, or even be forced to relinquish our interests in those operations. The PRC Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified as either “restricted” or “prohibited” from foreign investment in a “Negative List”. Foreign ownership of internet-based businesses, such as distribution of online information, is subject to restrictions under current PRC laws and regulations. For example, foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider (except e-commerce)e-commerce, domestic multiparty communication, store-and-forward and any such foreign investor must have experience in providing value-added telecommunications services overseas and maintain a good track recordcall center) in accordance with the Guidance CatalogProvisions on the Administration of IndustriesForeign-invested Telecommunication Enterprises and the Special Administrative Measures for Entrance of Foreign Investment promulgated in 2007, as amended in 2011(Negative List) (2021 Version) (which came into force and in 2015, respectively, and other applicable laws and regulations. We are a Nevada corporation and our PRC subsidiary is considered a foreign invested enterprise. To comply with PRC laws and regulations, we conduct our operations in China through a series of contractual arrangements entered into among Senmiao Consulting, Sichuan Senmiao andreplaced the equity holders of Sichuan Senmiao. As a result of these contractual arrangements, we exert control over Sichuan Senmiao and consolidate its operating results in our financial statements under U.S. GAAP. For a detailed description of these contractual arrangements, see "Business — Our Corporate History and Structure."
In the opinion of our PRC counsel, Yuan Tai Law Offices, our current ownership structure, the ownership structure of our PRC subsidiary and our consolidated variable interest entity, and the contractual arrangements among Senmiao Consulting, Sichuan Senmiao and the equity holders of Sichuan Senmiao are not in violation of existing PRC laws, rules and regulations; and these contractual arrangements are valid, binding and enforceable in accordance with their terms and applicable PRC laws and regulations currently in effect. However, Yuan Tai Law Offices has also advised us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations and there can be no assurance that the PRC government will ultimately take a view that is consistent with the opinion of our PRC counsel.
It is uncertain whether any new PRC laws, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. In particular, in2020 Version on January 2015, the Ministry of Commerce ("MOC"), published a discussion draft of the proposed Foreign Investment Law for public review and comments. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company is considered a foreign-invested enterprise, or an FIE. Under the draft Foreign Investment Law, variable interest entities would also be deemed as FIEs, if they are ultimately "controlled" by foreign investors, and be subject to restrictions on foreign investments. However, the draft law has not taken a position on what actions will be taken with respect to the existing companies with the "variable interest entity" structure, whether or not these companies are controlled by Chinese parties. It is uncertain when the draft would be signed into law and whether the final version would have any substantial changes from the draft. See "Business — Regulations — Regulations Related to Company Establishment and Foreign Investment" and "Risk Factors — Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft1, 2022). The PRC Foreign Investment Law provides that foreign-invested entities operating in “restricted” or “prohibited” industries will require market entry clearance and how it may impact the viabilityother approvals from relevant PRC government authorities. If any of our current corporate structure, corporate governance and business operations." Ifis “restricted” or “prohibited” from foreign investment under the ownership structure, contractual arrangements and business of our company, our PRC subsidiary or our consolidated variable interest entity are found“Negative List” effective at the time, we may be deemed to be in violation of any existingthe Foreign Investment Law, and we may be required to unwind or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits or approvals, the relevant governmental authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income or the income of our PRC subsidiary or consolidated variable interest entity, revoking the business licenses or operating licenses of our PRC subsidiary or consolidated variable interest entity, shutting down our servers or blocking our online platform, discontinuing or placing restrictions or onerous conditions on our operations, requiring us to undergo a costly and disruptive restructuring, restricting or prohibiting our use of proceeds from our initial public offering to finance our business and operations in China, and taking other regulatory or enforcement actions that could be harmful to our business. Any of these actions could cause significant disruption torestructure our business operations, and severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and results of operations. If any of these occurrences results in our inability to direct the activities of our consolidated variable interest entity, and/or our failure to receive economic benefits from our consolidated variable interest entity, we may not be able to consolidate its results into our consolidated financial statements in accordance with U.S. GAAP. Furthermore, since we conduct the bulk of our operations through our VIE entity, invalidity of the VIE arrangements could cause the market price of our common stock to substantially decline.
We rely on contractual arrangements with our consolidated variable interest entity and its equity holders for our business operations, which may not be as effective as direct ownership in providing operational control.
We have relied and expect to continue to rely on contractual arrangements with Sichuan Senmiao and its equity holders to operate our www.ihongsen.com website. For a description of these contractual arrangements, see "Business — Our Corporate History and Structure." These contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated variable interest entity. For example, our consolidated variable interest entity and its equity holders could breach their contractual arrangements with us by, among other things, failing to conduct its operations, including maintaining our website and using the domain names and trademarks, in an acceptable manner or taking other actions that are detrimental to our interests.
If we had direct ownership of Sichuan Senmiao, we would be able to exercise our rights as an equity holder to effect changes in the board of directors of Sichuan Senmiao, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by our consolidated variable interest entity and its equity holders of their obligations under the contracts to exercise control over our consolidated variable interest entity. The equity holders of our consolidated variable interest entity may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate our business through the contractual arrangements with our consolidated variable interest entity. Although we have the right to replace any equity holder of our consolidated variable interest entity under the contractual arrangement, if any equity holder of our consolidated variable interest entity is uncooperative or any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC laws and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. See "Risk Factors — Any failure by our consolidated variable interest entity or its equity holders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business." Therefore, our contractual arrangementsbusiness operation.
Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with our consolidated variable interest entity may not be as effective in ensuring our control over the relevant portion ofrespect to our business operations as direct ownership would be. Any failure by our consolidated variable interest entity or its equity holders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business.
If our consolidated variable interest entity or its equity holders fail to perform their respective obligations under the contractual arrangements,operation, we may haveface substantial uncertainties as to incur substantial costs and expend additional resources to enforcewhether we can complete such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performanceactions in a timely manner, or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the equity holders of Sichuan Senmiao were to refuse to transfer their equity interest in Sichuan Senmiao to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may haveat all. Failure to take legal actionstimely and appropriate measures to compel them to perform their contractual obligations.
All the agreements under our contractual arrangements are governed by PRC laws and provide for the resolutioncope with any of disputes through arbitration in China. 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 the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal systemor similar regulatory compliance challenges could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by a competent court. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our consolidated variable interest entity, and our ability to conduct our business may be negatively affected. See "Risk Factors — Risks Related to Doing Business in China — Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us."
The equity holders of our consolidated variable interest entity may have potential conflicts of interest with us, which may materially and adversely affect our current corporate structure and business and financial condition.operations.
The equity interests of Sichuan Senmiao are held by Xiang Hu, our director, and a few other Chinese nationals. Their interests in Sichuan Senmiao may differ from the interests of our company as a whole. These equity holders may breach, or cause our consolidated variable interest entity to breach, the existing contractual arrangements we have with them and our consolidated variable interest entity, which would have a material adverse effect on our ability to effectively control our consolidated variable interest entity and receive economic benefits from it. For example, the equity holders may be able to cause our agreements with Sichuan Senmiao to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these equity holders will act in the best interests of our company or such conflicts will be resolved in our favor.
Currently, we do not have any arrangements to address potential conflicts of interest between these equity holders and our company, except that we could exercise our purchase option under the exclusive option agreement with these equity holders to request them to transfer all of their equity interests in Sichuan Senmiao to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve any conflict of interest or dispute between us and the equity holders of Sichuan Senmiao, we would have to rely on legal proceedings, which could result in the disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Our Previous Contractual arrangements in relation to our consolidated variable interest entitySichuan Senmiao may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC consolidated variable interest entitySichuan Senmiao owe additional taxes, which could negatively affect our financial condition and the value of your investment. Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. The PRC enterprise income tax lawEIT Law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm'sarm’s length principles. We may face material and adverse tax consequences if the PRC tax authorities determine that theour previous contractual arrangements betweenamong Senmiao Consulting, our wholly-owned subsidiary in China, Sichuan Senmiao, our consolidated variable interest entity in China, and the equity holders of Sichuan Senmiao Shareholders were not entered into on an arm'sarm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust Sichuan Senmiao'sSenmiao’s income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Sichuan Senmiao for PRC tax purposes, which could in turn increase its tax liabilities without reducing Senmiao Consulting'sConsulting’s tax expenses. In addition, if the equity interest transfer between Senmiao Consulting requests the equity holdersand certain shareholders of Sichuan Senmiao to transfer their equity interestsShareholders in Sichuan Senmiao at nominal or no value pursuant to these contractual arrangements, such transfer could beMarch 2022 was viewed as a gift and subject Senmiao Consulting to PRC income tax. Furthermore,tax, the PRC tax authorities may impose late payment fees and other penalties on Sichuan Senmiao for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if our consolidated variable interest entity'sSichuan Senmiao’s tax liabilities increase or if it is required to pay late payment fees and other penalties. If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC stockholders. We may loseUnder the ability to useEIT Law and enjoy assets held by our consolidated variable interest entity that are materialits implementation rules, an enterprise established outside of the PRC with a “de facto management body” within the PRC is considered a resident enterprise and will be subject to the operationenterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular
only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners like us, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC. We believe none of our businessentities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” As substantially all of our management members are based in China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that the Company or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then the Company or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the entity goes bankruptPRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or becomesother disposition of our securities may be subject to PRC tax, at a dissolutionrate of 10% in the case of non-PRC enterprises or liquidation proceeding. Our consolidated variable interest entity holds certain assets that are material20% in the case of non-PRC individuals (in each case, subject to the operationprovisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC stockholders of our business. Undercompany would be able to claim the contractual arrangements, our consolidated variable interest entity may notbenefits of any tax treaties between their country of tax residence and its equity holders may not cause it to, in any manner, sell, transfer, mortgage or dispose of its assets or its legal or beneficial interests in the business without our prior consent. However,PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our consolidated variable interest entity'ssecurities.
Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future. The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity holders breachinterests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59 and Circular 698, which became effective in January 2008, and a SAT Bulletin 7 in replacement of some of the these contractual arrangements and voluntarily liquidate our consolidated variable interest entity, or our consolidated variable interest entity declares bankruptcy and all or partexisting rules in Circular 698, which became effective in February 2015. Under Circular 698, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of its assets becomea PRC “resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to liens or rightsPRC enterprise income tax, if the indirect transfer is considered to be an abusive use of third-party creditors, or are otherwise disposed ofcompany structure without our consent, wereasonable commercial purposes. As a result, gains derived from such indirect transfer may be unablesubject to continue somePRC tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction. In February 2015, the SAT issued SAT Bulletin 7 to replace the rules relating to indirect transfers in Circular 698. SAT Bulletin 7 has introduced a new tax regime that is significantly different from that under Circular 698. SAT Bulletin 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or allthe transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. On October 17, 2017, the SAT issued the Public Notice on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or the SAT Notice 37, which came into effect on December 1, 2017. According to SAT Notice 37, where the non-resident enterprise fails to declare its tax payable pursuant to Article 39 of the EIT Law, the tax authority may order it to pay its tax due within required time limits, and the non-resident enterprise shall declare and pay its tax payable within such time limits specified by the tax authority. If the non-resident enterprise voluntarily declares and pays its tax payable before the tax authority orders it to do so, it shall be deemed that such enterprise has paid its tax payable in time. We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our business activities,company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under Circular 59, SAT Bulletin 7 or SAT Notice 37, and may be required to expend valuable resources to comply with Circular 59, SAT Bulletin 7 and SAT Notice 37 or to establish that we and our non-resident enterprises should not be taxed under these circulars, which could materially and adversely affectmay have a material adverse effect on our business, financial condition and results of operations. If our consolidated variable interest entity undergoes a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
IfThe PRC tax authorities have the chops of our PRC subsidiarydiscretion under SAT Circular 59, SAT Bulletin 7 and consolidated variable interest entity are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes,SAT Notice 37 to make adjustments to the corporate governance of these entities could be severely and adversely compromised.
In China, a company chop or seal serves astaxable capital gains based on the legal representationdifference between the fair value of the company towards third parties even when unaccompanied by a signature. Each legally registered companytaxable assets transferred and the cost of investment. Although we currently have no plans to pursue any acquisitions in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiary and consolidated variable interest entity are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so. In addition, if the chops are misused by unauthorized persons, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management from our operations.
Risks Related to Doing Business in China
Our operations may need to be modified to comply with existing and future requirements set forth by the CBRC or laws or regulations promulgated by other PRC authorities regulating the marketplace lending industry in China.
In April 2014, the CBRC announced four principles regarding the marketplace lending industry in China: (i) marketplace lending platforms shall be treated as agencies, (ii) marketplace lending platforms shall not provide guarantee services, (iii) marketplace lending platforms shall not maintain a fund pool, and (iv) marketplace lending platforms shall not illegally conduct fundraising.
In July 2015, ten PRC central government ministries and regulators, including the PBOC, the CBRC, the Ministry of Finance, the MPS and the Cyberspace Administration of China, together released the Guidelines, which identified the CBRC as the supervisory regulator for the online lending industry. According to the Guidelines, online marketplace lending platforms may only serve as intermediaries to provide information services to borrowers and investors, and may not provide credit enhancement services or illegally conduct fundraising. The Guidelines also outlined certain regulatory propositions, which would require Internet finance companies, including online marketplace lending platforms, to (i) complete website filing procedures with the administrative departments overseeing telecommunications; (ii) use banking financial institutions' depository accounts to hold lending capital, and engage an independent auditor to audit such accounts and publish audit results to customers; (iii) improve the disclosure of operational and financial information, provide sufficient risk disclosure, and set up thresholds for qualified investors to provide better protections to investors; (iv) enhance online security management to protect customers' personal and transactional information; and (v) take measures against anti-money laundering and other financial crimes.
In August 2016, the CBRC and other regulators collectively announced the publication of the Interim Measures. The Interim Measures also stipulated a twelve-month transition period from the time of their effectiveness for online lending intermediaries to make necessary adjustments. Apart from what had already been emphasizedelsewhere in the Guidelines and other previously released principles, the Interim Measures also include: (i) general principles; (ii) filing administration; (iii) business rules and risk management guidelines; (iv) protection measures for investors and borrowers; (v) rules on information disclosure; (vi) supervision and administrative mechanisms; and (vii) legal liabilities. See "Business — Regulations — Regulations Related to the Marketplace Lending Industry."
In November 2016, the CBRC, the MIIT and the Industry and Commerce Administration Department, jointly issued the Guidance of Administration, which provides the general filing rules for online lending intermediaries and delegates the filing authority to the local financial authorities. See "Business — Regulations — Regulations Related to the Marketplace Lending Industry." Since 2017, local financial regulators have been conducting investigations on the online lending intermediaries, and if we failed to be in full compliance with any regulations,world, we may be required to rectify mistakes within a certain period as stipulatedpursue acquisitions in the rectification order of local financial regulators. After local financing regulators have completed their investigation and examination, wefuture that may be permitted to submit a filing application.
In February 2017, the CBRC released the Guidance to regulate funds depositories for online lending intermediaries, which defines several obligations and responsibilities of online lending intermediaries and commercial banks involved in the online funds depository business. See "Business — Regulations — Regulations Related to the Marketplace Lending Industry." To the extent our current arrangements with commercial banks are deemed to be not-compliant with any of the Guidance's requirements, we may need to adjust our operations within the six-month grace period, and as a result, our business may be materially and adversely impacted. See "Risk Factors — Risks Related to Our Business and Industry —involve complex corporate structures. If we are unable to maintain relationships with our third-party service providers, our business will suffer."
Some elements of our platform may not currently be operating in full compliance withconsidered a non-resident enterprise under the Guidelines,EIT Law and if the Interim Measures, the Guidance and the other principles that have been announced in recent years. For example, the Guidelines, the Interim Measures, the Guidance and other regulations are not clear about the definition of "credit enhancement service," nor do they address whether a marketplace lending platform's affiliated enterprises could provide a "credit enhancement service." Additionally, the Interim Measures provide upper limits on the loan balance of a single borrower. While our business mainly involves lending small amounts to a large number of borrowers, we still may not be in full compliance with the upper limits set forth in the Interim Measures. We have adjusted the upper limits of our loans as necessary. We may need to rely on the information provided by borrowers to determine whether their lending amounts from all intermediaries have reached the upper limits, and the information they provide us may contain misrepresentation or omission or otherwise be unreliable. Moreover, the Interim Measures require online lending intermediaries to file with the local financial regulators and to include serving as an Internet lending information intermediary in their business scope. We plan toPRC tax authorities make all requisite filings and changes to our business scopeadjustments to the extent necessary when such filing procedures are clarified by the relevant authorities. Although we do not anticipate any material difficulties in making the requisite filings or changing our business scope, any failure to do so within the specified twelve-month transition period may result in the violationtaxable income of the Interim Measures. In addition, the Interim Measures stipulate that online lending intermediaries shall not operate businesses other than risk managementtransactions under SAT Circular 59, SAT Bulletin 7 and necessary business processesSAT Notice 37, our income tax costs associated with such as information collection and confirmation, post-loan tracking and pledge management in accordance with online-lending regulations, via offline physical locations. However, the Interim Measures do not clearly set forth the types of business process that are not permitted to operate through offline physical locations.
Furthermore, the Interim Measures proposed requirements including with respect to certain prohibited activities, risk disclosure, borrower information disclosure and online dispute resolution, examination and verification functions, anti-fraud measures, risk education and training, information reporting, anti-money laundering, anti-terrorist financing, systems, facilities and technologies, service fees, electronic signatures, loan management, risk assessment, auditing and authentication, reporting obligations and information security. To the extent that our business is deemed to be non-compliant with any of these requirements of the Interim Measures, we may need to make necessary adjustments to comply within the specified twelve-month transition period and, as a result, our business may be materially and adversely affected. If we fail to rectify the non-compliance within the specified twelve-month transition period or the period set forth by relevant regulatory authorities, the relevant governmental authorities would have broad authorities in dealing with our failure of compliance, the business license or operating licenses of our PRC subsidiary or affiliated entity may be revoked, our online platform may be ordered to close and if a crime constitutes, criminal responsibilitypotential acquisitions will be investigated as well.
In May 2017, the CBRC, the Ministry of Education and Ministry of Human Resources and Social Security issued the Noticeincreased, which may have an adverse effect on Further Strengthening the Regulation and Management Work of Campus Online Lending Business, or the CBRC Circular 26. The CBRC Circular 26 provides that all campus online lending business conducted by the online lending information intermediaries shall be suspended and the outstanding balance of online campus lending loans shall be gradually reduced until reaching a zero balance.
On December 1, 2017, the Internet Finance Rectification Office and the Online Lending Rectification Office jointly issued Circular 141, which reiterates requirements of the Interim Measures and further imposes measures to strengthen the regulation of online lending information intermediary platform.
Circular 141 provides, with respect to online lending information intermediary platforms:
| · | Loan business not in compliance with the provisions of the law on interest rates shall not be matched directly or in a disguised manner; and it is forbidden to deduct interests, commission fees, management fees, and deposit from the loan principal in advance, set high overdue interest, late fee and interest penalty and the like. |
| · | Comprehensive capital costs collected from borrowers in the form of interest rates and various fees shall be in compliance with the provisions on interests of private lending (i.e. the sum of interest rate and various fees cannot exceed the annual interest rate at 36%). |
| · | Various loan conditions, overdue information and other information shall be disclosed comprehensively and publicly, and risks shall be pointed out to borrowers. |
| · | Clients' information collection, selection, credit rating, account opening and other core work shall not be outsourced. |
| · | Participation in P2P online lending with the funds from banking financial institutions shall not be matched. |
| · | Loan matching services shall not be provided to any students at school or any borrower without source of repayment or repayment capacity. "Down payment loans", real estate off-floor financing and other house purchasing financing loans matching services shall not be provided. |
| · | Loan matching services without designated use shall not be provided. |
We believe we are currently in compliance with the requirements Circular 141. However, there is a risk that relevant PRC authorities will take a view contrary to ours, which could create regulatory challenges for our business and impact our results of operations. Any violation of Circular 141 may result in penalties, including but not limited to, suspension of operation, orders to make rectification, condemnation, revocation of license, order to cease business operation and criminal liabilities.
Additionally, if the regulatory authorities in the PRC adopt new regulations and rules applicable to online lending platforms such as further requirements on disclosure of designated use of loan proceeds or other aspects of our business operations in future, or interpret or apply existing rules and regulations differently in the future, we may need to amend our business practices which could cause us to incur additional expenses or could impair our ability to operate. If we were unable to effectively implement or comply with new measures to comply with new regulations, our business, financial condition and results of operations would be materially and adversely affected.operations.
Further, in December 2017, the National Online Lending Rectification Office issued Circular 57, providing further clarification on several matters in connection with the rectification and record-filing of online lending information intermediaries. The local governmental authorities shall conduct and complete acceptance inspection of the rectification with the following timetable: (i) completion of record-filing for major online lending information intermediaries by the end of April 2018; (ii) with respect to online lending information intermediaries with substantial outstanding balance of those loans prohibited under the relevant laws and regulations and timely reduction of those balance is difficult, the relevant business and outstanding balance shall be disposed and/or carved out, and record-filing shall be completed by the end of May 2018; (iii) with respect to those online lending information intermediaries with complex and extraordinary circumstances and substantial difficulties exist to complete rectification, the "relevant work" shall be completed by the end of June 2018. Online lending information intermediaries that fail to complete the record-filing within the prescribed time shall not carry out online lending information intermediary business.
Assignment of loan products on P2P platform is subject to regulation under Circular 57. As our cooperation with certain prior creditor partners involved high frequency assignment of loans, to fully comply with Circular 57, we have discontinued our cooperation with prior creditors, reduced the balance of relevant products and expect to all existing assigned loan products to mature within the required timetable.
Despite our efforts to comply with the newly promulgated regulations on peer-to-peer lending companies, there is a risk that we may be unable to complete the record-filing for our platform in time as prescribed under relevant regulations. If there is a delay in completing our record-filing or if we fail to complete the record- filing, our operations may be suspended or even ceased. Our business, financial condition and results of operations may be materially and adversely affected.
Moreover, to the extent that we are not able to fully comply with any existing or new regulations when they are promulgated, our business, financial condition and results of operations may be materially and adversely affected. We are unable to predict with certainty the impact, if any, that future legislation, judicial precedents or regulations relating to the online consumer finance industry will have on our business, financial condition and results of operations. Furthermore, the growth in the popularity of online consumer finance increases the likelihood that the PRC government will seek to further regulate our industry.
For a further description of the laws and regulations applicable to us, see "Business — Regulations."
As the regulatory framework for our business evolves, domestic and foreign governments may draft and propose new laws, regulations, notices or interpretive releases to regulate marketplace lending, including our online and mobile-based channels, which may negatively affect our business.
The marketplace lending industry in China has historically been largely unregulated. In July 2015, ten PRC central government ministries and regulators, including the PBOC, the CBRC, the Ministry of Finance, the MPS and the Cyberspace Administration of China, together released the Guidelines, which provide regulatory principles for Internet financing businesses, including those in the online marketplace lending industry. In August 2016, the CBRC and other regulators collectively announced the Interim Measures, which proposed the implementation of new requirements including, among others, filing, reporting, fund depository, risk and information disclosure, loan management and the permitted business scope for participants in the online marketplace lending industry. In November 2016, the CBRC, the MIIT and the Industry and Commerce Administration Department, jointly issued the Guidance to the Administration of Filling and Registration of Online Lending Information Intermediaries, or the Guidance of Administration, which provides general filing rules for online lending intermediaries, and authorizes local financial regulators to make detailed implementation rules regarding filing procedures according to their local practices. See "Business — Regulations — Regulations Related to the Marketplace Lending Industry." Since 2017, local financial regulators have been conducting thorough investigations and inspections of online lending intermediaries and require a rectification if any illegality is discovered. After local financing regulators have completed their investigation and examination, we may be permitted to submit a filing application. In February 2017, the CBRC released the Guidance to regulate funds depositories for online lending intermediaries, which defines several obligations and responsibilities of online lending intermediaries and commercial banks involved in the online funds depository business. See "Business — Regulations — Regulations Related to the Marketplace Lending Industry." Nevertheless, it is uncertain as to how the Interim Measures will be further interpreted and implemented. The relevant local authorities are also in the process of making detailed implementation rules regarding filing procedures. However, the final content and timing of the final implementation rules and other related new rules are uncertain. To the extent that we are not able to fully comply with the new regulations in the grace period of twelve months or any new regulations differ from our expectations, we may be materially and adversely affected. The relevant governmental authorities would have broad authorities in dealing with our failure of compliance, including levying fines, confiscating our income or the income of our PRC subsidiary or affiliated entity, revoking the business license or operating licenses of our PRC subsidiary or affiliated entity, shutting down our servers or blocking our online platform, discontinuing or placing restrictions or onerous conditions on our operation, requiring us to undergo a costly and disruptive restructuring, and taking other regulatory or enforcement actions that could be harmful to our business. Any of these actions could cause significant disruption to our business operations and severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and results of operations. We are unable to predict with certainty the impact, if any, that future legislation, judicial precedents, or regulations relating to the marketplace lending industry will have on our business, financial condition and results of operations. Furthermore, the increasing growth in popularity of marketplace lending and borrowing increases the likelihood that the PRC government will seek to further regulate the marketplace lending industry.
In addition, the regulatory framework for Internet commerce, including online marketplaces such as our platform, with respect to our platform's online and mobile-based channels, is evolving, and it is possible that new laws and regulations will be adopted domestically and internationally, or existing laws and regulations may be interpreted in new ways, which, along with possible changes needed to fully comply with any newly released regulation, could affect the operation of our platform and the way in which we interact with borrowers and investors. The cost to comply with such laws or regulations would increase our operating expenses, and we may be unable to pass those costs on to borrowers and investors in the form of increased fees. In addition, governmental or regulatory agencies may decide to impose taxes on services provided over the Internet or by online marketplaces. These taxes could discourage the use of our platform, which would adversely affect the viability of our business.
The facilitation of loans through our platform could give rise to liabilities under PRC laws and regulations that prohibit illegal fundraising.
PRC laws and regulations prohibit persons and companies from raising funds through advertising to the public a promise to repay premium or interest payments over time through payments in cash or in kind except with the prior approval of the applicable government authorities. Failure to comply with these laws and regulations may result in penalties imposed by the PBOC or AIC, and other governmental authorities, and can lead to civil or criminal lawsuits.
To date, our platform has not been subject to any fines or other penalties under any PRC laws and regulations that prohibit illegal fundraising. Our platform only acts as an information service provider in the facilitation of loans between borrowers and investors, our platform has not been subject to any fines or other penalties under any PRC laws and regulations that prohibit illegal fundraising. In this regard, as advised by our PRC counsel, the business operation of our platform does not violate the current existing PRC laws and regulations prohibiting illegal fundraising Nevertheless, considerable uncertainties exist with respect to the PBOC, AIC and other governmental authorities' interpretations of the fundraising-related laws and regulations. While our agreements with investors require investors to guarantee the legality of all funds investors put on our platform, we do not verify the source of investors' funds separately, and therefore, to the extent that investors' funds are obtained through illegal fundraising, we may be negligently liable as a facilitator of illegal fundraising. In addition, we do not monitor the borrowers' use of funds on an on-going basis, and therefore, to the extent that borrowers use proceeds from the loans for illegal activities, we may be negligently liable as a facilitator of an illegal use. Although we have designed and implemented procedures to identify and eliminate instances of fraudulent conduct on our platform, as the number of borrowers and investors on our platform increases, we may not be able to identify all fraudulent conduct that may violate illegal fundraising laws and regulations.
The facilitation of loans through our platform could give rise to liabilities under PRC laws and regulations that prohibit unauthorized public offerings.
The PRC Securities Law stipulates that no organization or individual is permitted to issue securities for public offering without obtaining prior approval in accordance with the provisions of the law. The following offerings are deemed the be public offerings under the PRC Securities Law: (i) offering of securities to non-specific targets; (ii) offering of securities to more than 200 specific targets; and (iii) other offerings provided by the laws and administrative regulations. Additionally, private offerings of securities shall not be carried out through advertising, open solicitation and disguised publicity campaigns. If any transaction between one borrower and multiple investors on our platform is identified as a public offering by PRC government authorities, we may be subject to sanctions under PRC laws and our business may be adversely affected.
We may be required to obtain a value-added telecommunication business certificate and be subject to foreign investment restrictions.
PRC regulations impose sanctions for engaging in Internet information services of a commercial nature without having obtained an Internet content provider, or ICP certificate. PRC regulations also impose sanctions for engaging in the operation of online data processing and transaction processing without having obtained an online data processing and transaction processing, or ODPTP, certificate (ICP and ODPTP are both sub-sets of value-added telecommunication business certificates). These sanctions include corrective orders and warnings from the PRC communication administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites may be ordered to cease operation. Nevertheless, the PRC regulatory authorities' enforcement of such regulations in the context of marketplace lending platforms remains unclear. The Interim Measures provide that online lending information intermediaries must apply for value-added telecommunications business licenses in accordance with the relevant provisions of telecommunications authorities after filing with a local financial regulator. However, PRC regulatory authorities to date have not explicitly stipulated whether the operator of a marketplace lending platform (including in the form of a website or mobile Internet application) is engaging in Internet information services requiring an ICP certificate or an ODPTP certificate. If we could not obtain such value-added telecommunication certificates pursuant to the relevant regulations, we may not be able to conduct online lending intermediaries' services, but it is unclear whether online lending intermediaries would be deemed to be engaged in a commercial information provider business or online data processing and transaction processing business or whether an ICP certificate or an ODPTP certificate is required. To the extent that the PRC regulatory authorities require such value-added telecommunication certificate to be obtained or set forth rules that impose additional requirements,requirements. As of the date of this Report, none of our subsidiaries have been authorized VATS licenses as we are do not operate the value-added telecommunications services as defined by the regulations. However, it is uncertain whether any of our business are defined as the operation of a value-added telecommunication business in the future and we do not obtain such certificate, we may be subject to the sanctions described above. We plan to apply for filing immediately after the filing procedures are clarified by the relevant authorities, and apply for the corresponding value-added telecommunication business certificates after completing the filing, provided that the relevant telecommunication authority clarify which sub-set of telecommunication business certificates need to be obtained by market lending platforms and how to apply for such certificate. According to the Provisions on the Administration of Foreign-investedForeign-Invested Telecommunication Enterprises, the ratio of investment by foreign investors in a foreign-invested telecommunication enterprise that engages in the operation of a value-added telecommunication business shall not exceed 50%. Foreign investors are only permitted to invest up to 50% of the registered capital in a foreign-invested telecommunication enterprise that engages in the operation of commercial Internet information services or general online data processing and transaction processing services. As an exception, Circular 196, which was promulgated on June 19, 2015, provides that foreign investors are permitted to invest up to 100% of the registered capital in a foreign-invested telecommunication enterprise engaging in the operation of online data processing and transaction processing (E-commerce). While Circular 196 permits foreign ownership, in whole or in part, of online data processing and transaction processing businesses (E-commerce), a sub-set of value-added telecommunications services, there is still uncertainty regarding whether foreign investment restrictions may be applied to our business and industry. Further, under either circumstance, the largest foreign investor will be required to have a satisfactory business track record and operational experience in the value-added telecommunication business. If regulatory authorities wereAny restructuring to treat marketplace lending businesses as Internet information services of a commercial nature, which is a form of a value-added telecommunication business, our platform may be subject to such foreign investment restrictions and we may be required to restructure our operations by establishing a joint venture with foreign capital equal to no more than 50% of its total capital or a domestic enterprise with no foreign capital through variable interest entities to obtain a telecommunication business certificate. Any such restructuringmeet the requirements may be costly and may involve interruptions to our business. If we are unable to obtain the telecommunication business certificate in a timely fashion, our business may be materially and adversely affected. Substantial uncertainties and restrictions with respect to the political and economic political or social conditions orpolicies of the PRC government policiesand PRC laws and regulations could have a material adverse effectsignificant impact upon the business that we may be able to conduct in the PRC and accordingly on our business andthe results of operations. Substantially all of our operations are located in China. Accordingly,and financial condition.
Our business operations conducted through our business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole. The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China's economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operationsPRC operating entities may be adversely affected by the current and future political environment in the PRC. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. The Chinese government exerts substantial influence and control over capital investments orthe manner in which we must conduct our business activities. Our ability to operate in China may be adversely affected by changes in taxChinese laws and regulations. In addition,Under the current government leadership, the government of the PRC has been pursuing reform policies which have adversely affected China-based operating companies whose securities are listed in the pastUnited States, with significant policies changes being made from time to time without notice. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with borrowers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. Only after 1979 did the Chinese government begin to promulgate a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity inbeen increasing, China has not developed a fully integrated legal system and since 2012, China's economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.
Uncertainties in the interpretation and enforcement of Chineserecently enacted laws and regulations could limit the legal protections available to us.
The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Sincemay not sufficiently cover all aspects of economic activities in China. Also, because these laws and regulations are relatively new, and because of the PRC legal system continues to rapidly evolve, the interpretationslimited volume of many laws, regulationspublished cases and rules are not always uniformtheir lack of force as precedents, interpretation and enforcement of these laws regulations and rules involves uncertainties.
In particular, PRC laws and regulations concerning the peer-to-peer lending service industry are developing and evolving. Although we have taken measures to comply with theinvolve significant uncertainties. New laws and regulations that are applicable to our business operations, including the regulatory principles raised by the CBRC,affect existing and avoid conducting any activities thatproposed future businesses may also be deemed as illegal fund-raising, forming capital pool or providing guarantee to investors under the current applicableapplied retroactively. In addition, there have been constant changes and amendments of laws and regulations over the PRCpast 30 years in order to keep up with the rapidly changing society and economy in China. Because government authorityagencies and courts provide interpretations of laws and regulations and decide contractual disputes and issues, their inexperience in adjudicating new business and new polices or regulations in certain less developed areas causes uncertainty and may promulgateaffect our business. Consequently, we cannot predict the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations regulating the peer-to-peer lending service industryand changes of existing laws, as well as judicial interpretation by inexperienced officials in the future.agencies and courts in certain areas, may cause possible problems to foreign investors. Although the PRC government has been pursuing economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC through the allocation of resources, controlling payments of foreign currency, setting monetary policy and imposing policies that impact particular industries in different ways. We cannot assure you that our practices wouldthe PRC government will continue to pursue policies favoring a market oriented economy or that existing policies will not be deemedsignificantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC.
Accordingly, given the PRC government’s significant oversight and discretion over the conduct of our operating subsidiaries’ business, it may intervene or influence the operations of our PRC subsidiaries at any time and to violate anyexert control over an offering of securities conducted overseas and/or foreign investment in China-based issuers, which may cause us to make material changes to the operations of our PRC subsidiaries and could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or be worthless. Adverse regulatory developments in China may subject us to additional regulatory review, and additional disclosure requirements and regulatory scrutiny to be adopted by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies like us with significant China-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements. In addition, uncertainties with respect to the PRC legal system could adversely affect us. We conduct all of our business through our subsidiaries in China. Our operations in China are governed by PRC laws orand regulations. Our PRC subsidiaries are generally subject to laws and regulations relatingapplicable to illegal fund-raising, forming capital pools or the provision of credit enhancement services. Moreover,foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value. The recent regulatory developments in the peer-to-peer lending service industryChina, in particular with respect to restrictions on China-based companies raising capital offshore, may lead to changesadditional regulatory review in PRC laws, regulationsChina over our financing and policies orcapital raising activities in the interpretation and application of existing laws,United States. In addition, we may be subject to industry-wide regulations and policies that may limitbe adopted by the relevant PRC authorities, which may have the effect of limiting our service offerings, restricting the scope of our operations in China, or restrict online finance marketplaces like us,causing the suspension or termination of our business operations in China entirely, all of which couldwill materially and adversely affect our business, financial condition and results of operations. Furthermore,We may have to adjust, modify, or completely change our business operations in response to adverse regulatory changes or policy developments, and we cannot rule outassure you that any remedial action adopted by us can be completed in a timely, cost-efficient, or liability-free manner or at all. On July 30, 2021, in response to the possibility thatrecent regulatory developments in China and actions adopted by the PRC government, the Chairman of the SEC issued a statement asking the SEC staff to seek additional disclosures from offshore issuers associated with China-based operating companies before their registration statements will institutebe declared effective. On August 1, 2021, the CSRC stated in a licensing regime coveringstatement that it had taken note of the new disclosure requirements announced by the SEC regarding the listings of Chinese companies and the recent regulatory development in China, and that both countries should strengthen communications on regulating China-related issuers. To the best knowledge of this Company, as of the date of this Report, current Chinese laws and regulations do not forbid us from issuing securities overseas. On December 24, 2021, the CSRC published the Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Draft Administrative Provisions”) and the Administration Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (the “Draft Filing Measures”). The Draft Administrative Provisions and the Draft Filing Measures lay out requirements for filing and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”), which took effect on March 31, 2023. On the same date, the CSRC circulated Supporting Guidance Rules No. 1 through No. 5, Notes on the Trial Measures, Notice on Administration Arrangements for the Filing of Overseas Listings by Domestic Enterprises and relevant CSRC Answers to Reporter Questions, or collectively, the Guidance Rules and Notice, on CSRC’s official website. The Trial Measures, together with the Guidance Rules and Notice reiterate the basic principles of the Draft Administrative Provisions and Draft Filing Measures and impose substantially the same requirements for the overseas securities offering and listing by domestic enterprises, and clarified and emphasized several aspects, which include but are not limited to: (1) criteria to determine whether an issuer will be required to go through the filing procedures under the Trial Measures; (2) exemptions from immediate filing requirements for issuers including those that have already been listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial Measures, but these issuers shall still be subject to filing procedures if they conduct refinancing or are involved in other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, such as issuers whose affiliates have been recently convicted of bribery and corruption; (4) issuers’ compliance with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, such as obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and obligation after offering or listing overseas to file with the CSRC after it completes subsequent offerings and to report to the CSRC material events including change of control or voluntary or forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their relevant shareholders for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation. Specifically, pursuant to the Trial Measures, our industry at some pointfuture securities offerings in the future. IfNasdaq Capital Market where we have previously offered and listed shall also be filed with the CSRC within 3 working days after the offering is completed. The Trial Measures provide the CSRC with power to warn, fine, and issue injunctions against both PRC domestic companies, their controlling shareholders, and their advisors in listing or offering securities (collectively, the “Subject Entities”), as well as individuals directly responsible for these Subject Entities (the “Subject Individuals”). For failure to comply with the Trial Measures Negative List or the Trial Measures Filing Obligations, or materially false or misleading statements in the filing and reporting required by the Trial Measures: (1) PRC domestic companies, and their controlling shareholders if the controlling shareholders induced the PRC domestic companies’ failure to comply, severally, may face warnings, injunctions to comply, and fines between RMB1 million and RMB10 million (approximately $145,647 and $1,456,473); the Subject Individuals in these entities may severally, face warnings and fines between RMB0.5 million and RMB5 million (approximately $72,824 and $728,237). (2) Advisors in listing or offering securities that failed to dutifully advise the PRC domestic companies and their controlling shareholders in complying with the Trial Measures and caused such a licensing regime were introduced,failures to comply can face warnings and fines between RMB0.5 million and RMB5 million (approximately $72,824 and $728,237); the Subject Individuals in these advisor entities may, severally, face warnings and fines between RMB0.2 million and RMB2 million (approximately $29,129 and $291,295). As the Trial Measures are newly issued, there remain uncertainties regarding its interpretation and implementation. Therefore, we cannot assure you that we wouldwill be able to obtain any newly required license incomplete the filings for our future offerings and fully comply with the relevant new rules on a timely manner, orbasis, if at all. In addition, we cannot guarantee that we will not be subject to tightened regulatory review and we could be exposed to government interference in China. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all which could materiallyaspects of economic activities in China. In particular, because these laws and adversely affect our businessregulations are relatively new, and impede our ability to continue our operations. From time to time, we may have to resort to administrativebecause of the limited volume of published decisions and court proceedings to enforce our legal rights. However, since PRC administrativetheir nonbinding nature, the interpretation and court authorities have significant discretion in interpreting enforcement of these laws
and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore,regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published inon a timely mannerbasis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometimesome time after the violation. Such uncertainties, including uncertainty overIn addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. Compliance with China’s new Data Security Law, Measures on Cybersecurity Review, Personal Information Protection Law, regulations and guidelines relating to the scopemulti-level protection scheme and effect of our contractual, property (including intellectual property)any other future laws and procedural rights,regulations may entail significant expenses and could materially affect our business. China has implemented or will implement rules and is considering a number of additional proposals relating to data protection. China’s Data Security Law promulgated by the SCNPC in June 2021, took effect in September 2021. The Data Security Law provides that the data processing activities must be conducted based on “data classification and hierarchical protection system” for the purpose of data protection and prohibits entities in China from transferring data stored in China to foreign law enforcement agencies or judicial authorities without prior approval by the Chinese government. As the Data Security Law has not yet come into effect, we may need to make adjustments to our data processing practices to comply with this law. Additionally, China’s Cyber Security Law, requires companies to take certain organizational, technical and administrative measures and other necessary measures to ensure the security of their networks and data stored on their networks. Specifically, the Cyber Security Law provides that China adopt a multi-level protection scheme (MLPS), under which network operators are required to perform obligations of security protection to ensure that the network is free from interference, disruption or unauthorized access, and prevent network data from being disclosed, stolen or tampered. Under the MLPS, entities operating information systems must have a thorough assessment of the risks and the conditions of their information and network systems to determine the level to which the entity’s information and network systems belong-from the lowest Level 1 to the highest Level 5 pursuant to the Measures for the Graded Protection and the Guidelines for Grading of Classified Protection of Cyber Security. The grading result will determine the set of security protection obligations that entities must comply with. Entities classified as Level 2 or above should report the grade to the relevant government authority for examination and approval. During the year ended March 31, 2022, the CAC has taken action against several Chinese internet companies in connection with their initial public offerings on U.S. securities exchanges, for alleged national security risks and improper collection and use of the personal information of Chinese data subjects. According to the official announcement, the action was initiated based on the National Security Law, the Cyber Security Law and the Measures on Cybersecurity Review, which are aimed at “preventing national data security risks, maintaining national security and safeguarding public interests.” It is unclear at the present time how widespread the cybersecurity review requirement and the enforcement action will be and what effect they will have on the life sciences sector generally and the Company in particular. China’s regulators may impose penalties for non-compliance ranging from fines or suspension of operations, and this could lead to us delisting from the U.S. stock market. Also, on August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, started to be implemented on November 1, 2021. The law creates a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in China, and the processing of personal information of persons in China outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in China. The law also proposes that critical information infrastructure operators and personal information processing entities who process personal information meeting a volume threshold to-be-set by Chinese cyberspace regulators are also required to store in China personal information generated or collected in China, and to pass a security assessment administered by Chinese cyberspace regulators for any export of such personal information. Lastly, the draft contains proposals for significant fines for serious violations of up to RMB50 million or 5% of annual revenues from the prior year. Interpretation, application and enforcement of these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation and changes in enforcement. Compliance with the Cyber Security Law and the Data Security Law could significantly increase the cost to us of providing our service offerings, require significant changes to our operations or even prevent us from providing certain service offerings in jurisdictions in which we currently operate or in which we may operate in the future. Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, and our belief that we are currently in compliance therewith, it is possible that our practices, offerings or platform could fail to meet all of the requirements imposed on us by the Cyber Security Law, the Data Security Law and/or related implementing regulations. Any failure on our part to comply with such law or regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in unauthorized access, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing counterparties from contracting with us or result in investigations, fines, suspension or other penalties by Chinese government authorities and private claims or litigation, any of which could materially adversely affect our business, financial condition and results of operations. Even if our practices are not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and brand and adversely affect our business, financial condition and impederesults of operations. Moreover, the legal uncertainty created by the Data Security Law and the recent Chinese government actions could materially adversely affect our ability, on favorable terms, to continueraise capital, including engaging in follow-on offerings of our operations.securities in the U.S. market or the Stock Exchange of Hong Kong. While we believe that our current operations are in compliance with the laws and regulations of the Cyberspace Administration of China, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry. Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering. SubstantialOn December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the Cybersecurity Review Measures, which took effect on February 15, 2022. The Cybersecurity Review Measures provide that, in addition to critical information infrastructure operators (“CIIOs”) that intend to purchase Internet products and services, online platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures require that an online platform operator which possesses the personal information of at least one million users must apply for a cybersecurity review by the CAC if it intends to be listed in foreign countries.
On November 14, 2021, the CAC promulgated the draft Regulations on the Administration of Cyber Data Security for public comment, pursuant to which data processors conducting certain activities must apply for cybersecurity review. The draft regulations also require that data processors processing important data or going public overseas shall conduct an annual data security self-assessment or entrust a data security service institution to do so, and submit the data security assessment report of the previous year to the local branch of the CAC before January 31 each year. Further, the draft regulations would require internet platform operators to establish platform rules, privacy policies and algorithm strategies related to data, and solicit public comments on their official websites and personal information protection related sections for no less than 30 working days when they formulate platform rules or privacy policies or makes any amendments that may have a significant impact on users’ rights and interests. In addition, platform rules and privacy policies formulated by operators of large internet platforms with more than 100 million daily active users, or amendments to such rules or policies by operators of large internet platforms with more than 100 million daily active users that may have significant impacts on users’ rights and interests shall be evaluated by a third-party organization designated by the CAC and reported to local branch of the CAC for approval. The CAC has solicited comments on this draft until December 13, 2021, but there is no definite timetable as to when the draft regulations will be enacted. As such, substantial uncertainties exist with respect to the enactment timetable, final content, interpretation and implementation of draftsuch regulations. We have made our determinations based on Yuantai Law Offices, our PRC Foreign Investment Lawcounsel, to the extent that the discussion relates to matters of CSRC, CAC and how it may impactother government authorities on our PRC subsidiaries’ operations and concluded that: as of the viabilitydate of this Report, we, our PRC subsidiaries and equity investee company, (i) are not required to obtain permissions from the CSRC, CAC or any other government authorities on our PRC subsidiaries’ operations, and (ii) have not received or were denied such permissions by any PRC government authorities. If the Security Administration Draft is enacted as proposed, we believe that the operations of our current corporate structure, corporate governancePRC subsidiaries and our listing will not be affected and that we will not be subject to cybersecurity review by the CAC, given that our PRC subsidiaries possess personal data of fewer than one million individual clients and do not collect data that affects or may affect national security in their business operations. The MOC published a discussion draftoperations as of the proposed Foreign Investment Lawdate of this Report and do not anticipate that they will be collecting over one million users’ personal information or data that affects or may affect national security in January 2015 aimingthe near future. There remains uncertainty, however, as to upon its enactment, replacehow the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise LawCybersecurity Review Measures and the Wholly Foreign-invested Enterprise Law, together with their implementation rulesSecurity Administration Draft will be interpreted or implemented and ancillary regulations. The draft Foreign Investment Law embodies an expectedwhether the PRC regulatory trendagencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to rationalize its foreign investment regulatory regime in line with prevailing international practicethe Cybersecurity Review Measures and the legislative effortsSecurity Administration Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to unifycomply and to minimize the corporate legal requirements for both foreignadverse effect of such laws on us. We cannot guarantee, however, that we will not be subject to cybersecurity review and domestic investments. The MOC is currently soliciting comments on this draftnetwork data security review in the future. During such reviews, we may be required to suspend our operation or experience other disruptions to our
operations. Cybersecurity review and substantial uncertainties existnetwork data security review could also result in negative publicity with respect to its enactment timetable,our Company and diversion of our managerial and financial resources, which could materially and adversely affect our business, financial conditions, and results of operations. As of the date of this Report, we have not received any notice from any authorities identifying our PRC subsidiaries as CIIOs. However, given the uncertainties surrounding the interpretation and implementation. The draft Foreign Investmentimplementation of the Cyber Security Law, if enacted as proposed, may materially impactData Security Law and relevant regulations, we cannot rule out the viabilitypossibility that we, or certain of our current corporate structure, corporate governance and business operations in many aspects. Among other things, the draft Foreign Investment Law expands the definitioncustomers or suppliers may be deemed as a CIIO, or an operator processing “important data.” First, if we are deemed as a CIIO, our purchase of foreign investment and introduces the principle of "actual control" in determining whether a company is considered an FIE. The draft Foreign Investment Law specifically provides that entities established in China but "controlled" by foreign investors will be treated as FIEs. Once an entity is considerednetwork products or services, if deemed to be an FIE, itaffecting or may affect national security, will need to be subject to cybersecurity review, before we can enter into agreements with relevant customers or suppliers, and before the foreign investment restrictionsconclusion of such procedure, these customers will not be allowed to use our products or prohibitions set forth in a "negative list"services, and we are not allowed to purchase products or services from our suppliers. There can be separately issued by the State Council later. If an FIE proposes to conduct business in an industry subject to foreign investment "restrictions" in the "negative list," the FIE must go through a market entry clearance by the MOC before being established. If an FIE proposes to conduct business in an industry subject to foreign investment "prohibitions" in the "negative list," it must not engage in the business. However, an FIEno assurance that is subject to foreign investment "restrictions," upon market entry clearance, may apply in writing for being treated as a PRC domestic investment if it is ultimately "controlled" by PRC government authorities and its affiliates and/or PRC citizens. In this connection, "control" is broadly defined in the draft law to cover the following summarized categories: (i) holding 50% or more of the voting rights of the subject entity; (ii) holding less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to exert material influence on the board, the equity holders' meeting or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity's operations, financial matters or other key aspects of business operations. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a "negative list," to be separately issued by the State Council at a later date, if the FIE is engaged in an industry listed in the negative list. Unless the underlying business of the FIE falls within the negative list, which calls for market entry clearance by the MOC, prior approval from the government authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE.
The "variable interest entity" structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. See "Risk Factors— Risks Related to Our Corporate Structure" and "Business — Our Corporate History and Structure." Under the draft Foreign Investment Law, variable interest entities that are controlled via contractual arrangement would also be deemed as FIEs, if they are ultimately "controlled" by foreign investors. Therefore, for any companies with a VIE structure in an industry category that is included in the "negative list" as restricted industry, the VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the variable interest entities will be treated as FIEs and any operation in the industry category on the "negative list" without market entry clearance may be considered as illegal.
It is uncertain whether we would be considered as ultimately controlled by Chinese parties. Moreover,able to complete the draft Foreign Investment Law has not taken a position on what actions will be taken with respect to the companies currently employing a VIE structure, whether or not these companies are controlled by Chinese parties, while it is soliciting comments from the public on this point. In addition, it is uncertain whether the online consumer finance marketplace industry, in which our variable interest entity operates, will be subject to the foreign investment restrictions or prohibitions set forth in the "negative list" that is to be issued. If the enacted version of the Foreign Investment Law and the final "negative list" mandate further actions, such as MOC market entry clearance or certain restructuring of our corporate structure and operations, to be completed by companies with existing VIE structure like us, there may be substantial uncertainties as to whether we can complete these actionsapplicable cybersecurity review procedures in a timely manner, or at all, and our business and financial condition may be materially and adversely affected.
The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and increase our compliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from an investment implementation report and an investment amendment report that are required for each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteriawe are required to reportfollow such procedures. Any failure or delay in the completion of the cybersecurity review procedures may prevent us from using certain network products and services, and may result in fines of up to ten times the purchase price of such network products and services being imposed upon us, if we are deemed a CIIO using network products or services without having completed the required cybersecurity review procedures. If the reviewing authority is of the view that the use of such network products or services by us, or by certain of our customers or suppliers, involves risk of disruption, is vulnerable to external attacks, or may negatively affect, compromise, or weaken the protection of national security, we may not be able to provide such products or services to relevant customers, or purchase products or services from relevant suppliers. This could have a material adverse effect on a quarterly basis. Any company foundour results of operations and business prospects. Second, the notion of “important data” is not clearly defined by the Cyber Security Law or the Data Security Law. In order to comply with the statutory requirements, we will need to determine whether we possess important data, monitor the important data catalogs that are expected to be non-compliantpublished by local governments and departments, perform risk assessments and ensure we are complying with these information reporting obligations to applicable regulators. We may potentiallyalso be subjectrequired to fines and/disclose to regulators business-sensitive or administrativenetwork security-sensitive details regarding our processing of important data, and may need to pass the government security review or criminal liabilities,obtain government approval in order to share important data with offshore recipients, which can include foreign licensors, or share data stored in China with judicial and law enforcement authorities outside of China. If judicial and law enforcement authorities outside China require us to provide data stored in China, and we are not able to pass any required government security review or obtain any required government approval to do so, we may not be able to meet the persons directly responsible may be subject to criminal liabilities.foreign authorities’ requirements. The potential conflicts in legal obligations could have adverse impact on our operations in and outside of China.
We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations. The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations. We only have contractual control over our website. We do not directly own the website due to the restriction of foreign investment in businesses providing value-added telecommunication services in China, including internet information provision services. This may significantly disrupt our business, subject us to sanctions, compromise enforceability of related contractual arrangements, or have other harmful effects on us.
The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, in May 2011, the State Council announced the establishment of a new department, the State Internet Information Office (with the involvement of the State Council Information Office, the MIIT, and the MPS). The primary role of this new agency is to facilitate the policy-making and legislative development in this field, to direct and coordinate with the relevant departments in connection with online content administration and to deal with cross-ministry regulatory matters in relation to the internet industry. Our online platform, operated by our consolidated variable interest entity, Sichuan Senmiao, may be deemed to be providing commercial internet information services, which would require Sichuan Senmiao to obtain an ICP License. An ICP License is a value-added telecommunications business operating license required for provision of commercial internet information services. See "Regulation — Regulations Related to Value-Added Telecommunication Business Certificates and Foreign Investment Restrictions." Sichuan Senmiao, our PRC consolidated variable interest entity has obtained an ICP license as an internet information provider. Furthermore, as we are providing mobile applications to mobile device users, it is uncertain if Sichuan Senmiao will be required to obtain a separate operating license in addition to the ICP License. Although we believe that not obtaining such separate license is in line with the current market practice, there can be no assurance that we will not be required to apply for an operating license for our mobile applications in the future.
The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, issued by the MIIT in July 2006, prohibits domestic telecommunication service providers from leasing, transferring or selling telecommunications business operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of a telecommunications business in China. According to this circular, either the holder of a value-added telecommunication services operation permit or its shareholders must directly own the domain names and trademarks used by such license holders in their provision of value-added telecommunication services. The circular also requires each license holder to have the necessary facilities, including servers, for its approved business operations and to maintain such facilities in the regions covered by its license. Sichuan Senmiao owns the relevant domain names in connection with our value-added telecommunications business and has the necessary personnel to operate our website. However, if operating telecommunications business without operating licenses, the relevant governmental authority will order to rectify, confiscate illegal gains and impose a fine equal to three to five times The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our existing licenses or obtain new ones. If the PRC government considers that we were operating without the proper approvals, licenses or permits or promulgates new laws and regulations that require additional approvals or licenses or imposes additional restrictions on the operation of any part of our business, it has the power, among other things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material adverse effect on our business and results of operations.
Any failure by us or our third-party service providers to comply with applicable anti-money laundering laws and regulations could damage our reputation.
In cooperation with our partnering custody banks and payment companies, we have adopted various policies and procedures, such as internal controls and "know-your-customer" procedures, for anti-money laundering purposes. In addition, we rely on our third-party service providers, in particular the custody banks and payment companies that handle the transfer of funds between borrowers and lenders, to have their own appropriate anti-money laundering policies and procedures. The custody banks and payment companies are subject to anti-money laundering obligations under applicable anti-money laundering laws and regulations and are regulated in that respect by the PBOC. If any of our third-party service provides fail to comply with applicable anti-money laundering laws and regulations, our reputation could suffer and we could become subject to regulatory intervention, which could have a material adverse effect on our business, financial condition and results of operations. Any negative perception of the industry, such as that arises from any failure of other finance marketplaces to detect or prevent money laundering activities, even if factually incorrect or based on isolated incidents, could compromise our image or undermine the trust and credibility we have established.
The Guidelines jointly released by ten PRC regulatory agencies in July 2015 purport, among other things, to require internet finance service providers, including online peer-to-peer lending platforms, to comply with certain anti-money laundering requirements, including the establishment of a customer identification program, the monitoring and reporting of suspicious transactions, the preservation of customer information and transaction records, and the provision of assistance to the public security department and judicial authority in investigations and proceedings in relation to anti-money laundering matters. The PBOC will formulate implementing rules to further specify the anti-money laundering obligations of internet finance service providers. We cannot assure you that the anti-money laundering policies and procedures we have adopted will be effective in protecting our platform from being exploited for money laundering purposes or will be deemed to be in compliance with applicable anti-money laundering implementing rules if and when adopted.
We rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material adverse effect on our ability to conduct our business.
We are a holding company, and we rely on dividends and other distributions on equity paid by our PRC subsidiary for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our stockholders and service any debt we may incur. If our PRC subsidiary incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require Senmiao Consulting to adjust its taxable income under the contractual arrangements it currently has in place with our consolidated variable interest entity in a manner that would materially and adversely affect its ability to pay dividends and other distributions to us. See "Risk Factors — Risks Related to Our Corporate Structure — Contractual arrangements in relation to our consolidated variable interest entity may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC consolidated variable interest entity owe additional taxes, which could negatively affect our financial condition and the value of your investment."
Under PRC laws and regulations, our PRC subsidiary, as a wholly foreign-owned enterprise in China, may pay dividends only out of their respective accumulated after-tax profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
Our PRC subsidiary is currently unable to pay us any dividend given its financial condition. If our PRC subsidiary's financial condition improves, the above discussed PRC laws will likely limit its ability to pay dividends or make other distributions to us. Such limitations could materially and adversely impact our cash flows and limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. See also "Risk Factors — If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC stockholders."
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of from our initial public offeringofferings to make loans to or make additional capital contributions to our PRC subsidiary,subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business. Under PRC laws and regulations, we are permitted to utilize the proceeds from our initial public offeringofferings to fund our PRC subsidiarysubsidiaries by making loans to or additional capital contributions to our PRC subsidiary,subsidiaries, subject to applicable government registration and approval requirements. Any loans to our PRC subsidiary,subsidiaries, which are treated as foreign-invested enterprises under PRC laws, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to our PRC subsidiarysubsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange, or SAFE. The statutory limit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by the MOCMOFCOM or its local counterpart and the amount of registered capital of such foreign-invested company or 2.5 times of the net assets of such foreign-invested company. We currently anticipate financinghave financed and expect to continue to finance our PRC subsidiarysubsidiaries by means of capital contributions. These capital contributions must be approved by the MOCMOFCOM or its local counterpart. In addition, SAFE issued a circular in September 2008, SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142 provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and unless otherwise provided by law, may not be used for equity investments within the PRC. On July 4, 2014, the SAFE issued the Circular of the SAFE on Relevant Issues Concerning the Pilot Reform in Certain Areas of the Administrative Method of the Conversion of Foreign Exchange Funds by Foreign-invested Enterprises, or SAFE Circular 36, which launched a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises in certain designated areas from August 4, 2014 and some of the restrictions under SAFE Circular 142 will not apply to the settlement of the foreign exchange capitals of the foreign-invested enterprises established within the designate areas and such enterprises are allowed to use its RMB capital converted from foreign exchange capitals to make equity investment. On March 30, 2015, SAFE promulgated Circular 19, to expand the reform nationwide. Circular 19 came into force and replaced both Circular 142 and Circular 36 on June 1, 2015. Circular 19 allows foreign-invested enterprises to make equity investments by using RMB fund converted from foreign exchange capital. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using RMB fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of a foreign-invested company. The use of such RMB capital may not be altered without SAFE'sSAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. On June 9, 2016, SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts (“Circular 16”), which became effective simultaneously. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to RMB on self-discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on self-discretionary basis which applies to all enterprises registered in the PRC. Circular 16 reiterates the principle that RMB converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purpose beyond its business scope or prohibited by PRC Laws or regulations, while such converted RMB shall not be provide as loans to its non-affiliated entities. SAFE has not provided detailed guidelines with respect to its interpretation or implementation, it is uncertain how these rules will be interpreted and implemented. Violations of these Circulars could result in severe monetary or other penalties. These circulars may significantly limit our ability to use RMB converted from the net proceeds of our initial public offeringofferings to fund the establishment of new entities in China by our PRC subsidiary,subsidiaries, to invest in or acquire any other PRC companies through our PRC subsidiary, orsubsidiaries. As March 31, 2023, the Company has made accumulated capital contributions and loans of $21.1 million and $2.9 million directly to establish new variable interest entitiesthe subsidiaries, respectively. The contributions were generated from our historical offering proceeds. Besides, the Company also loaned accumulated approximately $2.2 million to our former VIE, Jinkailong, through our subsidiaries in PRC. The loans were from the PRC. daily operation of these subsidiaries. In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future capital contributions or future loans by us to our PRC subsidiary.subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds ofwe expect to receive from our initial public offeringofferings and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business. We rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business. We are a holding company, and we rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our stockholders and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries, as a wholly foreign-owned enterprise in China, may pay dividends only out of their respective accumulated after-tax profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. Our PRC subsidiaries currently suffer accumulated loss and are unable to pay us any dividend given their financial condition. If our PRC subsidiaries’ financial condition improves, the above discussed PRC laws will likely limit their ability to pay dividends or make other distributions to us. Such limitations could materially and adversely impact our cash flows and limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment. Substantially all of our revenues and expenditures are denominated in RMB, whereas our reporting currency is the U.S. dollar. As a result, fluctuations in the exchange rate between the U.S. dollar and RMB will affect the relative purchasing power in RMB terms of our U.S. dollar assets and the proceeds from our initial public offering.offerings. Our reporting currency is the U.S. dollar while the functional currency for our PRC subsidiary and consolidated variable interest entitysubsidiaries is RMB. Gains and losses from the remeasurement of assets and liabilities that are receivable or payable in RMB are included in our consolidated statements of operations. The remeasurement has caused the U.S. dollar value of our results of operations to vary with exchange rate fluctuations, and the U.S. dollar value of our results of operations will continue to vary with exchange rate fluctuations. A fluctuation in the value of RMB relative to the U.S. dollar could reduce our profits from operations and the translated value of our net assets when reported in U.S. dollars in our financial statements. This could have a negative impact on our business, financial condition or results of operations as reported in U.S. dollars. If we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations in currencies relative to the periods in which the earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations. The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China'sChina’s political and economic conditions and China'sChina’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. However, the People's Bank of China, or the PBOC, regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rates and achieve policy goals. During the period between July 2008 and June 2010, the exchange rate between the RMB and the U.S. dollar had been stable and traded within a narrow range. However, the RMB fluctuated significantly during that period against other freely traded currencies, in tandem with the U.S. dollar. Since June 2010, the RMB has started to slowly appreciate against the U.S. dollar, though there have been periods when the U.S. dollar has appreciated against the RMB. On August 11, 2015, the PBOC allowed the RMB to depreciate by approximately 2% against the U.S. dollar. It is difficult to predict how long such depreciation of RMB against the U.S. dollar may last and when and how the relationship between the RMB and the U.S. dollar may change again. There remains significant international pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our securities in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from our initial public offeringofferings into RMB to pay our operating expenses, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our securities. Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.
Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment. The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our net revenues in RMB. Under our current corporate structure, we rely on dividend payments from our PRC subsidiarysubsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. Therefore, our PRC subsidiary issubsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of our company who are PRC residents. But approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our stockholders.
Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties. We are required under PRC laws and regulations to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. We have not made adequate employee benefit payments. As of March 31, 2023 and 2022, we did not make adequate employee benefit contributions in the amount of $1,086,526 and $963,824, respectively, for our continuing operations. We accrued the amount in accrued payroll and welfare. We may be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected. The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of ChinesePRC companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. The MRules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules discussed in the preceding risk factorRules”) and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOCMOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOCMOFCOM shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOCMOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise "national“national defense and security"security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise "national security"“national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOCMOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. If the chops of our PRC subsidiaries are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised. In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiaries are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so. In addition, if the chops are misused by unauthorized persons, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management from our operations. Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions. In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who are granted options or other awards under our 2018 Equity Incentive Plan will be subject to these regulations. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary'subsidiaries’ ability to increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law. SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident's Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37 in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 is issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. If our stockholders who are PRC residents or entities do not complete their registration as required, our PRC subsidiarysubsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiary.subsidiaries. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions. AllTo our knowledge, all of our pre-IPO PRC stockholders who directly or indirectly hold shares in our Nevada holding company and who are knownsubject to us as being PRC residentsthe registration requirements of Circular 37 have completed the required foreign exchange registrations required in connection with our corporate restructuring.
registrations. In addition, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. As a result, we cannot assure you that all of our stockholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain any applicable registrations or approvals required by, SAFE regulations. Failure by such stockholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiary,subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiary'subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects. Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. In the event we adopt an equity incentive plan, we and our executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who are granted options or other awards under the equity incentive plan will be subject to these regulations when our company becomes an overseas listed company. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary' ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See "Regulations — SAFE Regulations Relating to Employee Stock Incentive Plans."
If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC stockholders.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a "de facto management body" within the PRC is considered a resident enterprise and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term "de facto management body" as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the "de facto management body" of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners like us, the criteria set forth in the circular may reflect the State Administration of Taxation's general position on how the "de facto management body" test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its "de facto management body" in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise's financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise's primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.
We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. See "Regulations — Regulations Related to Tax." However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term "de facto management body." As substantially all of our management members are based in China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that the Company or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then the Company or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or other disposition of our securities may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC stockholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our securities.
Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59 and Circular 698, which became effective in January 2008, and a Circular 7 in replacement of some of the existing rules in Circular 698, which became effective in February 2015.
Under Circular 698, where a non-resident enterprise conducts an "indirect transfer" by transferring the equity interests of a PRC "resident enterprise" indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.
In February 2015, the SAT issued Circular 7 to replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced a new tax regime that is significantly different from that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an "indirect transfer" by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a "substance over form" principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.
We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under Circular 59 or Circular 698 and Circular 7, and may be required to expend valuable resources to comply with Circular 59, Circular 698 and Circular 7 or to establish that we and our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
The PRC tax authorities have the discretion under SAT Circular 59, Circular 698 and Circular 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. Although we currently have no plans to pursue any acquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under SAT Circular 59 or Circular 698 and Circular 7, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.
Risks Related to Our Common Stock Securities Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock. Our common stock is currently listed for trading on The Nasdaq Capital Market, and the continued listing of our common stock on The Nasdaq Capital Market is subject to our compliance with a number of listing standards. On August 16, 2021, we received a notice from Nasdaq that because the closing bid price for our common stock had fallen below $1.00 per share for 30 consecutive business days, we no longer complied with the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market under Rule 5550(a)(2) of the Nasdaq Listing Rules. On February 15, 2022, we received a letter from Nasdaq informing that trading of the Company’s common stock will be suspended at the opening of business on February 24, 2022, unless the Company requests an appeal of Nasdaq’s determination. The Company has timely requested an appeal and on May 5, 2022, the Nasdaq Hearings Panel (the “Panel”) confirmed the Company has regained compliance with the minimum bid price through a reserve stock split effective on April 6, 2022. The Panel has also determined to impose a Panel Monitor for a period of one year from the date of the letter, or until May 5, 2023 to monitor the Company’s continued compliance with all Nasdaq continued listing requirements, pursuant to Nasdaq Listing Rule 5815(d)(4)(A). Should the Company fail to meet the minimum bid price requirement for a period of 30 consecutive trading days or any other requirements for continued listing on Nasdaq, the staff will issue a Delist Determination Letter and promptly schedule a new hearing. On May 8, 2023, we received a notice from Nasdaq to inform the Company was in compliance with the applicable Nasdaq Listing Rules. On June 15, 2023, we received a notice from Nasdaq that because the closing bid price for our common stock had fallen below $1.00 per share for 30 consecutive business days, we no longer complied with the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market under Rule 5550(a)(2) of the Nasdaq Listing Rules. We are provided a compliance period of 180 calendar days in which to regain compliance. If our common stock were no longer listed on The Nasdaq Capital Market, investors might only be able to trade on one of the over-the-counter markets. This would impair the liquidity of our common stock not only in the number of shares that could be bought and sold at a given price, which might be depressed by the relative illiquidity, but also through delays in the timing of transactions and reduction in media coverage. In addition, we could face significant material adverse consequences, including: | ● | a limited availability of market quotations for our securities; |
| ● | a limited amount of news and analyst coverage for us; and |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
We may take actions to maintain our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock or prevent future non-compliance with Nasdaq’s listing requirements. The market price for our common stock may be volatile.
The trading prices of our common stock are likely volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of internet or other companies based in China that have listed their securities in the United States in recent years. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial decline in their trading prices. The trading performances of other Chinese companies'companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performance of our common stock, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, which may have a material adverse effect on the market price of our common stock. In addition to the above factors, the price and trading volume of our common stock may be highly volatile due to multiple factors, including the following: | ● | · | regulatory developments affecting us, our users,customers, or our industry; |
| ● | · | regulatory uncertainties with regard to our variable interest entity arrangements; |
| · | announcements of studies and reports relating to our loan products and service offerings or those of our competitors; |
| ● | · | changes in the economic performance or market valuations of other online finance marketplaces; |
| ● | · | actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results; |
| ● | · | changes in financial estimates by securities research analysts; |
| ● | · | conditions in the internetautomobile finance and marketplace lending industries;ride-hailing industries in China; |
| ● | · | announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capital commitments; |
| ● | · | additions to or departures of our senior management; |
| ● | · | detrimental negative publicity about us, our management or our industry; |
| ● | · | fluctuations of exchange rates between the RMB and the U.S. dollar; |
| ● | · | release or expiry of lock-up or other transfer restrictions on our outstanding shares of common stock; and |
| ● | · | sales or perceived potential sales of additional shares of common stock. |
AWe have a significant portionnumber of outstanding warrants, some of which contain full-ratchet anti-dilution protection and reset provisions, which may cause significant dilution to our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future, which could causestockholders, have a material adverse impact on the market price of our common stock and make it more difficult for us to drop significantly, even ifraise funds through future equity offerings.
Pursuant to the Purchase Agreements with investors in our business is performing well. Salesofferings in June 2019 and May 2021, we issued to the investors a series of a substantialwarrants. The issuance of shares of common stock upon the exercise of the warrants would dilute the percentage ownership interest of all stockholders, might dilute the book value per share of our common stock and would increase the number of our publicly traded shares, which could depress the market price of our common stock. In addition, the so-called full-ratchet anti-dilution protections and reset provisions, subject to limited exceptions, would reduce the exercise price of the warrants in the event that we in the future issue common stock, or securities convertible into or exercisable to purchase common stock, at a lower price per share.
As of the date of this Report, there were 6,062,504 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $2.26 per share, and we may issue additional options, warrants and other types of equity in the future as part of stock-based compensation, capital raising transactions or other strategic transactions. To the extent these options and warrants are ultimately exercised, existing holders of our common stock would experience dilution which may cause the price of our common stock to decline. In addition to the dilutive effects described above, the perceived risk of dilution as a result of the significant number of outstanding warrants may cause our common stockholders to be more inclined to sell their shares, which would contribute to a downward movement in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our common stock price could encourage investors to engage in short sales of our common stock, which could further contribute to price declines in our common stock. The fact that our stockholders, warrant holders and option holders can sell substantial amounts of our common stock in the public market, whether or not sales have occurred or are occurring, as well as the existence of full-ratchet anti-dilution provisions and reset provisions in a substantial number of our outstanding warrants could occurmake it more difficult for us to raise additional funds through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate, or at all. Certain judgments obtained against us by our stockholders may not be enforceable. We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, most of our directors and executive officers reside within China, and most of the assets of these persons are located within China. As a result, it may be difficult or impossible for you to effect service of process within the United States upon these individuals, or to bring an action against us or against these individuals in the United States in the event that you believe your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers. Our articles of incorporation and by-laws could deter a change of our management, which could discourage or delay offers to acquire us. Certain provisions of our articles of incorporation (the “Articles of Incorporation”) and by-laws could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions include: | ● | requiring stockholders who wish to request a special meeting of the stockholders to disclose certain specified information in such request and to deliver such request in a specific way within a certain timeframe, which may inhibit or deter stockholders from requesting special meetings of the stockholders; |
| ● | requiring that stockholders who wish to act by written consent request a record date from us for such action and such request must include disclosure of certain specified information, which may inhibit or deter stockholders from acting by written consent; |
| ● | establishing the board as the sole entity to fill vacancies of the board, which lengthens the time needed to elect a new majority of the board; |
| ● | establishing a two-thirds majority vote of the stockholders to remove a director from the board, as opposed to a simple majority, which lengthens the time needed to elect a new majority of the board; and |
| ● | establishing that any person who acquires equity in us shall be deemed to have notice and consented to the forum selection provision of our Bylaws requiring actions to be brought only in Nevada, which may inhibit or deter stockholders actions (i) on behalf of us; (ii) asserting claims of breach of fiduciary duty by officers or directors of us; or (iii) arising out of the Nevada Revised Statutes, and establishing more detailed disclosure in any stockholder’s advance notice to nominate a new member of the board, including specified information regarding such nominee, which may inhibit or deter such nomination and lengthen the time needed to elect a new majority of the board. |
Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our common stock for return on your investment. We currently intend to retain most, if not all, of our available funds and any time,future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our common stock as a source for any future dividend income. Our board of directors has discretion as to whether to distribute dividends, subject to certain restrictions described below. Theseunder Nevada law. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our common stock will likely depend entirely upon any future price appreciation of our common stock. Other General Risk Factors We may need additional capital to pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on terms acceptable to us, or at all. We have been financing our Automobile Transaction and Related Services and Online Ride-hailing Platform Services through proceeds from our IPO and follow-on public offerings, and borrowing from third parties and related parties. As we intend to continue to make investments to support the growth of this business, we may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances, including developing new solutions and services, further enhance our risk management capabilities, increasing our sales and marketing expenditures to improve brand awareness and engage automobile purchasers through expanded online channels, enhancing our operating infrastructure and acquiring complementary businesses and technologies. To be in line with our strategy to cross sell our automobile leasing business with the online ride-hailing platform services business, we may need to make additional capital contribution for promotion activities as a result. Accordingly, we may need to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Repayment of the perceptiondebts may divert a substantial portion of cash flow to repay principal and service interest on such debt, which would reduce the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes; and we may suffer default and foreclosure on our assets if our operating cash flow is insufficient to service debt obligations, which could in turn result in acceleration of obligations to repay the indebtedness and limit our sources of financing. Volatility in the market thatcredit markets may also have an adverse effect on our ability to obtain debt financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, financial condition, results of operations and prospects could be adversely affected. Fluctuations in interest rates could negatively affect our results of operations. We charge service fees to automobile purchasers for facilitating financing transactions. If prevailing market interest rates increase, automobile purchasers would be less likely to finance automobile purchases with credit or we may need to reduce our service fees to mitigate the impact of increased interest rates. If we do not sufficiently lower our service fees and keep our fees competitive in such instances, automobile purchasers may decide not to utilize our services because of our less competitive service fees and may take advantage of lower service fees offered by other companies, and our ability to attract prospective automobile purchasers as well as our competitive position may be severely undermined. On the other hand, if prevailing market interest rates decline, the operating margins of financial institutions may decrease, which may make the financial institutions less likely to finance automobile purchases. Under either circumstance, our financial condition and profitability could also be materially and adversely affected. Our operating results may fluctuate significantly and may not fully reflect the underlying performance of our business. Our results of operations, including the levels of our net revenues, expenses, net (loss)/income and other key metrics, may vary significantly in the future due to a large numbervariety of shares intend to sell shares, could reducefactors, some of which are outside of our control, and period-to-period comparisons of our operating results may not be meaningful, especially given our limited operating history. Accordingly, the marketresults for any one quarter are not necessarily an indication of future performance. Fluctuations in quarterly results may adversely affect the price of our common stock. Factors that may cause fluctuations in our quarterly financial results include: | ● | our ability to attract new customers and maintain relationships with existing customers; |
| ● | our ability to maintain existing relationship with existing business partners and establish new relationships with additional partners for our Automobile Transaction and Related Services and Online Ride-hailing Platform Services; |
| ● | the revenue generated from automobile leasing and online ride-hailing platform services; |
| ● | overdue ratios of automobile financing transactions we serve; |
| ● | financial institutions’ willingness and ability to fund financing transactions through us on reasonable terms; |
| ● | changes in our services and introduction of new products and services; |
| ● | the amount and timing of operating expenses related to acquiring customers and the maintenance and expansion of our business, operations and infrastructure; |
| ● | our ability to manage transaction volume growth during the period; |
| ● | the timing of expenses related to the development or acquisition of technologies or businesses; |
| ● | network outages or security breaches; |
| ● | general economic, industry and market conditions; |
| ● | our emphasis on customer experience instead of near-term growth; and |
| ● | the timing of expenses related to the development or acquisition of technologies or businesses. |
If we fail to promote and maintain our brands in an effective and cost-efficient way, our business and results of operations may be harmed. We believe that developing and maintaining awareness of our brands effectively is critical to attracting new and retaining existing customers. Successful promotion of our brands and our ability to attract customers depend largely on the effectiveness of our marketing efforts and the success of the channels we use to promote our services. Our efforts to build our brands have caused us to incur expenses, and it is likely that our future marketing efforts will require us to incur additional expenses. These efforts may not result in increased revenues in the immediate future or at all and, even if they do, any increases in revenues may not offset the expenses incurred. If we fail to successfully promote and maintain our brands while incurring substantial expenses, our results of operations and financial condition would be adversely affected, which may impair our ability to grow our business. Any harm to our brands or reputation or any damage to the reputation of our business partners or other third parties, or the automobile financing or ride-hailing industries in China may materially and adversely affect our business and results of operations. Maintaining and enhancing the recognition and reputation of our brands is critical to our business and competitiveness. Factors that are vital to this objective include but are not limited to our ability to: | ● | maintain and develop relationships with dealers, leasing companies, ride-hailing platforms and financial institutions; |
| ● | provide prospective and existing customers with superior experiences; |
| ● | enhance and improve our credit assessment and decision-making models; |
| ● | effectively manage and resolve any user complaints of financial institutions or customers; and |
| ● | effectively protect personal information and privacy of customers. |
Any malicious or innocent negative allegation made by the media or other parties about the foregoing or other aspects of our company, including but not limited to our management, business, compliance with law, financial conditions or prospects, whether with merit or not, could severely hurt our reputation and harm our business and operating results. As the markets for China’s automobile financing and online ride-hailing are new and the regulatory framework for this market is also evolving, negative publicity about these markets may arise from time to time. Negative publicity about China’s automobile financing and ride-hailing industries in general may also have a negative impact on our reputation, regardless of June 25, 2018,whether we had outstanding 25,879,400 shareshave engaged in any inappropriate activities. In addition, certain factors that may adversely affect our reputation are beyond our control. Negative publicity about our partners, outsourced service providers or other counterparties, such as negative publicity about any failure by them to adequately protect the information of users, to comply with applicable laws and regulations or to otherwise meet required quality and service standards could harm our reputation. Furthermore, any negative development in any of the automobile financing or ride-hailing industries, such as bankruptcies or failures of other companies in any of this these, and especially a large number of such bankruptcies or failures, or negative perception of any of the industries as a whole, could compromise our image, undermine the trust and credibility we have established and impose a negative impact on our ability to attract new clients. Negative developments in these industries, such as widespread automobile purchaser/borrower defaults, unethical or illegal activities by industry players and/or the closure of companies providing similar services, may also lead to tightened regulatory scrutiny of these sectors and limit the scope of permissible business activities that may be conducted by us. If any of the foregoing takes place, our business and results of operations could be materially and adversely affected. Our reputation may be harmed if information supplied by customers is inaccurate, misleading or incomplete. Our customers supply a variety of information that is in the applications to financing partners. We do not verify all the information we receive from our customers, and such information may be inaccurate or incomplete. If financing partners provide funding to the automobile purchasers based on information supplied by automobile purchasers that is inaccurate, misleading or incomplete, those financing partners may not receive their expected returns and our reputation may be harmed. Moreover, inaccurate, misleading or incomplete customer information could also potentially subject us to liability as an intermediary under the PRC Contract Law. See “Business — Regulations.” Misconduct, errors and failure to function by our employees and third-party service providers could harm our business and reputation. We are exposed to many types of operational risks, including the risk of misconduct and errors by our employees and third-party service providers. Our business depends on our employees and third-party service providers to interact with potential customers, process large numbers of transactions and support the loan/lease payment collection process, all of which mayinvolve the use and disclosure of personal information. We could be resoldmaterially adversely affected if transactions were redirected, misappropriated or otherwise improperly executed, if personal information was disclosed to unintended recipients or if an operational breakdown or failure in the public market immediately without restriction, other than shares owned by our affiliates, which may be sold pursuant to Rule 144. However, the resaleprocessing of an aggregate of 22,500,000 shares are restricted until March 20, 2019transactions occurred, whether as a result of lock-up agreements executedhuman error, purposeful sabotage or fraudulent manipulation of our operations or systems. In addition, the manner in conjunctionwhich we store and use certain personal information and interact with our initial public offering. customers is governed by various PRC laws. It is not always possible to identify and deter misconduct or errors by employees or third-party service providers, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses. If any of our employees or third-party service providers take, convert or misuse funds, documents or data or fail to follow protocol when interacting with customers, we could be liable for damages and subject to regulatory actions and penalties. We could also be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, or the failure to follow protocol, and therefore be subject to civil or criminal liability. Aggressive practices or misconduct by any of our third-party service providers in the course of collecting loans could damage our reputation. Furthermore, as we rely on certain third-party service providers, such as third-party payment platforms and custody and settlement service providers, to conduct our business, if these third-party service providers failed to function properly, we cannot assure you that we would be able to find an alternative in a timely and cost-efficient manner or at all. Any of these occurrences could result in our diminished ability to operate our business, potential liability to borrowers and investors, inability to attract borrowers and investors, reputational damage, regulatory intervention and financial harm, which could negatively impact our business, financial condition and results of operations. A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition. Any prolonged slowdown in the Chinese or global economy may have a negative impact on our business, results of operations and financial condition. In particular, general economic factors and conditions in China or worldwide, including the general interest rate environment and unemployment rates, may affect automobile purchasers and lessees’ willingness to seek working opportunities and financing partners’ ability and desire to provide financing. Economic conditions in China are sensitive to global economic conditions. The COVID-19 pandemic resulted in declines in economic activities in China and other parts of the world and raised concerns about the prospects of the global economy. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have also been concerns over unrest in Ukraine, the Middle East and Africa, which have resulted in volatility in financial and other markets. There have also been concerns about the economic effect of the tensions in the relationship between China and the United States. If present Chinese and global economic uncertainties persist, our business partners may suspend their collaboration or reduce their business with us. Adverse economic conditions could also reduce the number of customers seeking to utilize our services. Should any of these situations occur, our transaction volume will decline, and our business and financial conditions will be negatively impacted. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs. As of the date of this Report, we are unable to assess the full impact of the outbreak on our business, results of operations and financial condition. Our ability to protect the confidential information of our customers may be adversely affected by cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. We collect, store and process certain personal and other sensitive data from our customers, which makes it an attractive target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. While we have taken steps to protect the confidential information that we have access to, our security measures could be breached. Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or other unauthorized access to our operation systems could cause confidential user information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships with customers could be severely damaged, we could incur significant liability and our business and operations could be adversely affected. Moreover, the platforms we cooperate with, which have their own apps, are facing an increasingly tense regulatory environment. With respect to the security of information collected and used by mobile apps, the Announcement of Conducting Special Supervision against the Illegal Collection and Use of Personal Information requires that these app operators shall collect and use personal information in compliance with the Cyber Security Law, shall be responsible for the security of personal information obtained from users and take effective measures to strengthen personal information protection. If they are investigated or fined by China’s Cyber Security Review Office, we may be required to cooperate with the government and there is uncertainty as to the potential impact on our business. We may register all shares of common stock that we may issue under our equity compensation plans on a Registration Statement on Form S-8. These shares cannot be freely sold in the public market upon issuance, subjectable to volume limitations applicable to affiliates and the lock-up agreements described above.
We have broad discretion in theprevent others from unauthorized use of our cash,intellectual property, which could harm our business and competitive position.
We regard our trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality and non-compete agreements with our employees and others to protect our proprietary rights. We have 19 software copyrights, 52 trademarks and two trademark applications pending at the net proceedsPRC Trademark Office. Thus, we cannot assure you that any of our intellectual property rights would not be challenged, invalidated, circumvented or misappropriated, or such intellectual property will be sufficient to provide us with competitive advantages. In addition, because of the rapid pace of technological change in our industries, parts of our business rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from our IPO, and mightthese third parties on reasonable terms, or at all. Intellectual property protection may not use them effectively.
Our management will have broad discretionbe sufficient in the applicationjurisdiction in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Preventing any unauthorized use of our cash, includingintellectual property is difficult and costly and the net proceeds from our IPO, and could spend our cash in ways that do not improve our results of operations or enhancesteps we take may be inadequate to prevent the valuemisappropriation of our common stock. The failure byintellectual property. In the event that we resort to litigation to enforce our management to apply these funds effectivelyintellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial lossesresources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. To the extent that our employees or consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related know-how and inventions. Any failure in protecting
or enforcing our intellectual property rights could have a material adverse effect on our business, cause the pricefinancial condition and results of operations. We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations. We cannot be certain that our operations or any aspects of our common stockbusiness do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may be from time to declinetime in the future subject to legal proceedings and delayclaims relating to the developmentintellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our products, services or other aspects of our product candidates. Pending their use,business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against us in China, the United States or other jurisdictions. If any third-party infringement claims are brought against us, we may invest our cash, including the net proceedsbe forced to divert management’s time and other resources from our IPO,business and operations to defend against these claims, regardless of their merits. Additionally, the application and interpretation of China’s intellectual property right laws and the procedures and standards for granting trademarks, patents, copyrights, know-how or other intellectual property rights in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we were found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. As a result, our business and results of operations may be materially and adversely affected. Some aspects of our digital operations include open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business. Some aspects of our digital operations include software covered by open source licenses. The terms of various open source licenses have not been interpreted by PRC courts, and there is a risk that such licenses could be construed in a manner that doesimposes unanticipated conditions or restrictions on our online and mobile-based channels. If portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies if required so by the license, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and loan products. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not produce incomeprovide warranties or controls on the origin of the software. Many of the risks associated with use of open source software cannot be eliminated, and could adversely affect our business. From time to time, we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant management attention, disrupt our business and adversely affect our financial results. Although we do not currently have any plans to consummate any acquisitions, we may in the future evaluate and consider strategic investments, combinations, acquisitions or alliances to further increase the value of our services and better serve our customers. These transactions could be material to our financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction. Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including: | ● | difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business; |
| ● | inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; |
| ● | difficulties in retaining, training, motivating and integrating key personnel; |
| ● | diversion of management’s time and resources from our normal daily operations; |
| ● | difficulties in successfully incorporating licensed or acquired technology and rights into our business; |
| ● | difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations; |
| ● | difficulties in retaining relationships with customers, employees and suppliers of the acquired business; |
| ● | risks of entering markets in which we have limited or no prior experience; |
| ● | regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; |
| ● | assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; |
| ● | failure to successfully further develop the acquired technology; |
| ● | liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; |
| ● | potential disruptions to our ongoing businesses; and |
| ● | unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions. |
We may not make any investments or acquisitions, or any future investments or acquisitions may not be successful, may not benefit our business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits. In addition, we cannot assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new or enhanced loan products and services or that loses value.any new or enhanced loan products and services, if developed, will achieve market acceptance or prove to be profitable. Our business depends on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to continue in their present positions, our business may be severely disrupted. Our business operations depend on the continued services of our senior management, particularly the executive officers named in this Report. While we have provided different incentives to our management, we cannot assure you that we can continue to retain their services. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, our future growth may be constrained, our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member of our management team will not join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all. Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business. We believe our success depends on the efforts and talent of our employees, including risk management, driver and automobile management, post-financing management, financial and marketing personnel. Our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for highly skilled technical, risk management and financial personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we invest significant time and expenses in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our services and our ability to serve borrowers and investors could diminish, resulting in a material adverse effect to our business. Increases in labor costs in the PRC may adversely affect our business and results of operations. The economy in China has experienced increases in inflation and labor costs in recent years. As a result, average wages in the PRC are expected to continue to increase. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee benefits, and those employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. We expect that our labor costs, including wages and employee benefits, shall continue to increase, without regarding to the influence of resignation. Furthermore, if the drivers on our platform believe that their earnings on our platform are not competitive with wages that they can earn elsewhere, either with competitors or in other lines of work, we may have to increase their earnings to ensure an adequate supply of drivers on our platform, and we may be unable to pass that cost on to riders. In addition, if drivers on our platform are reclassified as employees instead of independent contractors, our labor costs will be substantially increased, which could adversely affect our business and results of operations. See also “Risks Factors—Risks Relating to Our Business—Our business would be adversely affected if drivers were classified as employees, workers or quasi-employees”. Pursuant to the Labor Contract Law and its implementation rules, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration and statutory benefits, determining the term of employee’s probation and unilaterally terminating labor contracts. In addition, enterprises are forbidden to force laborers to work beyond the time limit and employers shall pay laborers for overtime work in accordance with the laws and regulations. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. To date, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2020, 2021 and 2022 were increases of 2.5%, 0.9% and 2.0%, respectively. Although we have not been materially affected by inflation in the past, we may be affected by higher rates of inflation in China in the future, particularly if it affects labor costs. Unless we are able to control our labor costs or pass on these increased labor costs to our customers by increasing the fees of our services, our financial condition and results of operations may be adversely affected. Furthermore, on July 16, 2021, the Ministry of Human Resources and Social Security, the NDRC, the Ministry of Transport, together with several other governmental authorities jointly promulgated Guiding Opinions on Safeguarding the Rights and Interests of Labors in New Forms of Employment, which require, among others, platform enterprises adopting labor outsourcing and other cooperative labor methods to undertake corresponding responsibilities in accordance with laws and regulations when labors’ rights and interests are damaged, call for organizing and launching pilot programs for occupational injury protection of flexible employment personnel, focusing on platform enterprises in industries such as mobility, takeout, instant delivery and intra-city freight, and encourage platform enterprises to improve the protection for flexible employment personnel on the platform by purchasing personal accident, employer liability and other commercial insurances. On November 17, 2021, the Ministry of Transport, the NDRC, the CAC and certain other governmental authorities jointly promulgated the Opinions on Strengthening the Protection of the Rights and Interests of Labors in New Forms of Transportation Industry, which provide that the relevant departments shall urge online ride hailing platform enterprises to announce pricing rules and income distribution rules to relevant parties such as drivers and passengers. The total amount paid by the passengers and the remuneration of the driver, and the ratio of the difference between the aforementioned amounts to the total amount paid by the passengers shall be displayed to the drivers. In addition, these opinions aim to strengthen the occupational injury protection of online ride hailing drivers, encourage online ride hailing platform to actively participate in the occupational injury protection pilot, and urge online ride hailing platform to pay social insurance for drivers who meet the labor relationship conditions in accordance with the law, and guide and support drivers who do not fully meet the conditions for establishing labor relations with online ride hailing platform enterprises to participate in corresponding social insurance. These opinions also emphasize to safeguard the rights of the drivers to have reasonable remuneration and rest, among others. As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practices do not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. We cannot assure you that we have complied or will be able to comply with all labor-related law and regulations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations will be adversely affected. If we cannot maintain our corporate culture as we grow, we could lose the innovation, collaboration and focus that contribute to our business. We believe that a critical component of our success is our corporate culture, which we believe fosters innovation, encourages teamwork and cultivates creativity. As we develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives. Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies. We may seek additional capital through a combination of public and private equity offerings, debt financings, collaborations and licensing arrangements. To the extent that we raise additional capital through the sale of equity or debt securities, your ownership interest will be diluted and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or grant licenses on terms unfavorable to us.
Certain judgments obtained against us by our stockholders may not be enforceable.
We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, all of our directors and executive officers reside within China, and most of the assets of these persons are located within China. As a result, it may be difficult or impossible for you to effect service of process within the United States upon these individuals, or to bring an action against us or against these individuals in the United States in the event that you believe your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
Our articles of incorporation and by-laws could deter a change of our management, which could discourage or delay offers to acquire us.
Certain provisions of our articles of incorporation (the "Articles of Incorporation") and by-laws could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions include:
| · | requiring stockholders who wish to request a special meeting of the stockholders to disclose certain specified information in such request and to deliver such request in a specific way within a certain timeframe, which may inhibit or deter stockholders from requesting special meetings of the stockholders; |
| · | requiring that stockholders who wish to act by written consent request a record date from us for such action and such request must include disclosure of certain specified information, which may inhibit or deter stockholders from acting by written consent; |
| · | establishing the board as the sole entity to fill vacancies of the board, which lengthens the time needed to elect a new majority of the board; |
| · | establishing a two-thirds majority vote of the stockholders to remove a director from the board, as opposed to a simple majority, which lengthens the time needed to elect a new majority of the board; and |
| · | establishing that any person who acquires equity in us shall be deemed to have notice and consented to the forum selection provision of our Bylaws requiring actions to be brought only in Nevada, which may inhibit or deter stockholders actions (i) on behalf of us; (ii) asserting claims of breach of fiduciary duty by officers or directors of us; or (iii) arising out of the Nevada Revised Statutes, and establishing more detailed disclosure in any stockholder's advance notice to nominate a new member of the board, including specified information regarding such nominee, which may inhibit or deter such nomination and lengthen the time needed to elect a new majority of the board. |
We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.
We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley Act of 2002 for so long as we are an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important.
The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected not to "opt out" of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for private companies. This decision to take advantage of the extended transition period under the JOBS Act is irrevocable.
We will incur increased costs as a result of operating as a smaller reporting public company after we no longer qualify to be an emerging growth company, and our management will be required to devote substantial time to new compliance initiatives. A smaller reporting company is defined as a company that has a public float of less than $75 million in common equity as of the last business day of its most recently completed second fiscal quarter, or if a public float of zero, has less than $50 million in annual revenues as of its most recently completed fiscal year-end. As a smaller reporting public company, and particularly after we arewere no longer an emerging growth company since April 1, 2023, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and Nasdaq have imposedvarious requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors. For as long as we remain an emerging growth company, we may take advantage of certain exemptionsfrom various reporting requirements that are applicable to other public companies that are not emerging growth companies as described in the preceding risk factor. We might remain an emerging growth company until March 31, 2023, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have annual gross revenues of $1.07 billion or more in any fiscal year, we would cease to be an emerging growth company as of December 31 of the applicable year. We also would cease to be an emerging growth company if we issue more than $1 billion of nonconvertible debt over a three-year period.
Pursuant to Section 404, we will bewere not required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, whilesince we remain an emerging growthare a smaller reporting company, we willare not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our common stock and trading volume could decline. The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the market price for our common stock would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our common stock to decline. Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our common stock for return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our common stock as a source for any future dividend income.
Our board of directors has discretion as to whether to distribute dividends, subject to certain restrictions under Nevada law. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our common stock will likely depend entirely upon any future price appreciation of our common stock. There is no guarantee that our common stock will appreciate in value or even maintain the price at which you purchased our common stock. You may not realize a return on your investment in our common stock and you may even lose your entire investment in our common stock.
| Item 1B. | Unresolved Staff Comments |
Not Applicable. None.
We currently maintain our principal executive offices at 16F, Shihao Square, Middle Jiannan Blvd., High-Tech Zone, Chengdu, Sichuan, People'sPeople’s Republic of China 610000, comprising an aggregate of 964965 square meters in Chengdu, China under a lease agreementsagreement that expire in 2019 and 2020.March 2026. The cost for these offices is approximately RMB63,600 (approximately $9,781) per-month$10,700 per month in aggregate. We maintain another three offices for our Automobile Transaction and Related Services and Online Ride-hailing Platform Services in the cities of Changsha and Guangzhou, China. The total area of our offices in Changsha is 680 square meters. We lease those offices for a total monthly rent of approximately $4,200 under two lease agreements that expire in October 2023 and May 2025, respectively. The total area of our office in Guangzhou is 101 square meters. We lease the office for a total monthly rent of approximately $960 under a lease agreement that expire in December 2023. The total area of the offices of our equity investee company, Jinkailong, is approximately 2,907 square meters in Chengdu. Jinkailong leases those offices for a total monthly rent of approximately $6,800 under two lease agreements that expire in August 2024 and December 2023, respectively. We also lease a parking lot for automobiles and an exhibition hall in Changsha, with total areas of 2,750 square meters. The monthly rent for the parking lot and the exhibition hall is approximately $1,100 and approximately $3,500, respectively. Jinkailong leases a parking lot with total area of approximately 7,300 square meters in Chengdu. The monthly rent was approximately $2,900. We consider our current office spaces, combined with the other office space otherwise available to our executive officers,facilities adequate for our current operations. We are not currently not a party to any material legal or administrative proceedings. We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management'smanagement’s time and attention. Please see “Risk Factors.” | Item 4. | Mine Safety Disclosures |
Item 4.Mine Safety Disclosures Not applicable. PART II | Item 5. | Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
Market Information Our common stock trades on the Nasdaq Capital Market under the symbol “AIHS.” From our initial public offering on March 16, 2018 through March 30, 2018 the high and low sales prices for our common stock as reported by Nasdaq were $6.25 and $5.00, respectively. On June 28, 2018, our common stock had a closing price of $5.53.
Holders Based upon information furnished by our transfer agent, as of June 25, 2018,July 10, 2023, the Company had approximately 1224 stockholders of record. Because some of our common stock is held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders.stockholders represented by these record holders. Dividend
Dividends We have never declared or paid cash dividends on our shares. We do not have any present plan to pay any cash dividends on our common stock in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and grow our business. Our board of directors will have the discretion to declare and pay dividends in the future subjectas we are a holding company and we rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to applicable PRC regulationspay dividends and restrictions.other cash distributions to our stockholders and service any debt we may incur. The Wholly-Foreign Owned EnterpriseForeign Investment Law, (1986), as amended, and The Wholly-Foreign Owned Enterprise Law Implementing Rules (1990), as amended, and the Company Law of the PRC (2006), as amended, contain the principal regulations governing dividend distributions by wholly foreign owned enterprises. Under these regulations, wholly foreign owned enterprises may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, such companies are required to set aside a certain amount10% of their accumulatedafter-tax profits eachof the year, if any, to fund certainstatutory reserve funds until such time as the accumulated reserve funds reach and remain above 50% of the registered capital amount. These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. As of March 31, 2023, the total respective registered capital of all the Company’s direct subsidiaries was approximately RMB492 million (approximately $71.6 million). And as of March 31, 2023, all the Company’s subsidiaries incorporated in the PRC have suffered accumulated loss and the Company concluded those subsidiaries did not have abilities to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances. Furthermore, if our subsidiaries and affiliates in China incur debt on their own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. If we or our subsidiary and affiliates are unable to receive all of the revenues from our operations through the current contractual arrangements, we may be unable to pay dividends on our common stock. Equity Compensation Plan Information We have notIn September 2018, our board of directors adopted any equity compensation plan.
Purchases of Ourand in November 2018, our stockholders approved, the 2018 Equity Securities
None.
Recent Sales of Unregistered Securities
On June 19, 2017, we sold 50,000 shares of its common stock to an individual for a purchase price of $10.00. Such securities were issuedIncentive Plan, pursuant to the exemption from registration contained in Section 4(a)(2)which a maximum of the Securities Act.
On July 11, 2017, we issued an aggregate of 2,200,000200,000 (2,000,000 pre-reverse stock split) shares of common stock were reserved for issuance to three consultantsour employees, officers, directors, consultants. The plan permits the grant of nonqualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, stock bonus awards, and performance compensation awards. In March 2023, our annual meeting of stockholders for the Company for a total purchase price of $440.00. These shares were also issued as part of consideration for services provided by such consultantsyear ended March 31, 2022 further approved the amendment to the Company. Such issuances were made pursuant2018 Equity Incentive Plan, to increase the exemption from registration contained in Section 4(a)(2)number of the Securities Act.
In September 2017, we issued an aggregate of 20,250,000 shares of common stock reserved under the Plan to the equity holders of Sichuan Senmiao, our variable interest entity, as contemplated by the Exclusive Business Cooperation Agreement. The issuances were made pursuant to the exemption from registration contained in Section 4(a)(2)1,500,000 shares. As of the Securities Act.
Usedate of Proceeds
On March 15, 2018, the SEC declared effective our Registration Statement on Form S-1 (File No. 333-221225), as amended, filed in connection with the initial public offeringthis Report, an aggregate of our common stock. Pursuant to the Registration Statement, we registered the offer and sale of up to 3,000,000 shares of our common stock. On March 21, 2018, we29,630 RSUs were issued and sold 3,000,0003,182 RSUs were vested but have not been issued under the plan.
The following table provides information as of March 31, 2023 with respect to the shares of our common stock at a price to the public of $4.00 per share for gross proceeds of $12,000,000. On March 28, 2018, the underwriter exercised their over-allotment option and purchased 379,400 shares of common stock at a price of $4.00 per share, generating gross proceeds of $1,517,600. As a result of the offering, we received net proceeds of approximately $11,052,972 in the aggregate, which consists of gross proceeds of $13,517,600 offset by underwriting discounts and commissions of approximately $946,232 and other offering expenses of approximately $1,158,396.
No payments for such expenses were made directly or indirectly to (i) any ofthat may be issued under our officers or directors or their associates, (ii) any persons owning 10% or more of any class of ourexisting equity securities or (iii) any of our affiliates. The offering has terminated.
There has been no material change in the expected use of the net proceeds from our initial public offering as described in our final prospectus, dated March 15, 2018, filed with the SEC pursuant to Rule 424(b) relating to our Registration Statement on Form S-1.
incentive plan: | | | | | | | | | | | | | Number of securities remaining | | | Number of securities to be | | Weighted-average exercise | | available for future issuance | | | issued upon exercise of | | price of outstanding | | under equity compensation | | | outstanding options, warrants | | options, warrants and | | plans (excluding securities | Plan category |
| and rights |
| rights |
| reflected in column (a)) | 2018 Equity Incentive Plan | | — | | — | | 1,470,371 |
Purchases of Our Equity Securities None. Recent Sales of Unregistered Securities None. Use of Proceeds Not applicable. Item 6. | Selected Financial Data[Reserved] |
Not required for smaller reporting companies.
| Item 7. | Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our results of operations and financial condition should be read together with our consolidated financial statements and the notes thereto and other financial information, which are included elsewhere in this Report. Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).GAAP. In addition, our financial statements and the financial information included in this Report reflect our organizational transactions and have been prepared as if our current corporate structure had been in place throughout the relevant periods. Overview This section contains forward-looking statements. These forward-looking statementsWe are subject to various factors, risksa provider of automobile transaction and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Further, as a resultrelated services, connecting auto dealers, financial institutions, and consumers, who are mostly existing and prospective ride-hailing drivers affiliated with different operators of these factors, risks and uncertainties, the forward-looking events may not occur. Relevant factors, risks and uncertainties include, but are not limited to, those discussedonline ride-hailing platforms in the section entitled “Business,” “Risk Factors”People’s Republic of China (“PRC” or “China”). We provide automobile transaction and elsewhererelated services through our wholly owned subsidiaries, Yicheng Financial Leasing Co., Ltd., a PRC limited liability company (“Yicheng”), Chengdu Corenel Technology Limited, a PRC limited liability company (“Corenel”), and our majority owned subsidiaries, Chengdu Jiekai Technology Ltd. (“Jiekai”), and Hunan Ruixi Financial Leasing Co., Ltd. (“Hunan Ruixi”), a PRC limited liability company, and equity investee company, Sichuan Jinkailong Automobile Leasing Co., Ltd. (“Jinkailong”). Since October 2020, we also operate an online ride-hailing platform through Hunan Xixingtianxia Technology Co., Ltd. (“XXTX”), a wholly-owned subsidiary of Sichuan Senmiao Zecheng Business Consulting Co., Ltd., our wholly-owned subsidiary (“Senmiao Consulting”). Our platform enables qualified ride-hailing drivers to provide application-based transportation services mainly in this Report. ReadersChengdu, Changsha, Guangzhou, and other 23 cities in China. Substantially all of our operations are cautionedconducted in China.
Our Automobile Transactions and Related Services Our Automobile Transaction And Related Services are mainly comprised of (i) automobile operating lease where we provide car rental services to individual customers to meet their personal needs with lease term no more than twelve months (the “Auto Operating Leasing”); (ii) service fees from new energy vehicles (“NEVs”) leasing, automobile purchase and management services where we charge NEVs lessees or automobile purchasers for a series of the services provided to them throughout the leasing or purchase process based on the chosen product solutions, such as ride-hailing driver training, assisting with a series of administrative procedures and other consulting services (the “Purchase and NEVs Services”); (iii) automobile sales where we sell new purchased or used cars to our customers (the “Auto Sales”); (iv) automobile financing where we provide our customers with auto finance solutions through financing leases (the “Auto Financing”); (v) auto management and guarantee services provided to online ride-hailing drivers after the delivery of automobiles (the “Auto Management and Guarantee Services”); and (vi) other supporting services provided to online ride-hailing drivers. We started our facilitation and supporting services in November 2018, the sale of automobiles in January 2019, and financial and operating leasing in March 2019, respectively. Since November 22, 2018, the acquisition date of Hunan Ruixi, and as of March 31, 2023, we and our former VIEs have facilitated financing for an aggregate of 1,687 automobiles with a total value of approximately $24.4 million, sold an aggregate of 1,466 automobiles with a total value of approximately $14.1 million and delivered approximately 2,936 automobiles under operating leases (including 1,826 automobiles used to be delivered by Jinkailong before March 31, 2022) and 144 automobiles under financing leases to customers, the vast majority of whom are online ride-hailing drivers. The table below provides a breakdown of the number of vehicles sold or delivered under different leasing arrangements or managed/guaranteed by us and corresponding revenue generated for the years ended March 31, 2023 and 2022: | | | | | | | | | | | | | For the Years Ended | | | March 31, | | | 2023 | | 2022 | | | Number of | | | | | Number of | | | | | | Vehicles | | Revenue* | | Vehicles | | Revenue* | Auto Operating Leasing | | 1,802 | | $ | 3,453,000 | | 486 | | $ | 1,722,000 | Auto Sales | | 43 | | $ | 243,000 | | 6 | | $ | 26,000 | Auto Financing | | 144 | | $ | 42,000 | | 131 | | $ | 102,000 | Other Services | | >1,000 | | $ | 635,000 | | >420 | | $ | 398,000 |
* The number excluded operation information of our former VIEs and was rounded to the nearest thousand for disclosure purpose. As of March 31, 2022, we deconsolidated Jinkailong and its operation result was not included in our consolidated statements of operations and comprehensive income (loss) during the year ended March 31, 2023. However, although Jinkailong ceased to place undue reliance on forward-looking statements,be within our consolidation scope since March 31, 2022, Hunan Ruixi, Corenel and Jiekai continuously provide automobile transaction and related services, mainly Auto Operating Leasing, similar to Jinkailong in Changsha and Chengdu. During the year ended March 31, 2023, our Auto Operating Leasing, Auto Sales, Auto Financing and other services income accounted for approximately 79.0%, 5.6%, 1.0% and 14.4% of our total revenue from our automobile transactions and related services, respectively, while our Auto Operating Leasing, Auto Sales, Auto Financing and other services income accounted for approximately 76.6%, 1.2%, 4.5% and 17.7% for the year ended March 31, 2022, respectively, excluding the income which reflect management’s beliefsJinkailong generated. Our Ride-Hailing Platform Services As part of our goal to provide an all-round solution for online ride-hailing drivers as well as to increase our competitive power in an increasingly competitive online ride-hailing industry and opinions asto take advantage of the market potential, in October 2020, we began operating our own online ride-hailing platform in Chengdu. The platform (called Xixingtianxia) was owned and operated by XXTX, of which Senmiao Consulting acquired the 100% equity interest pursuant to a series of investment and supplementary agreements. As of the date of this Report.Report, Senmiao Consulting has made accumulated capital contribution of RMB39.76 million (approximately $5.79 million) to XXTX and the remaining amount is expected to be paid before December 31, 2025. XXTX operates Xixingtianxia and holds a national online reservation taxi operating license. The platform is presently servicing online ride-hailing drivers in 26 cities in China, including Chengdu, Changsha, Guangzhou and so on, providing them with a platform to view and take customer orders for rides. We are not obligated to publicly update or revise any forward looking statements, whether ascurrently collaborate with Gaode Map, a result of new information, future events or otherwise. See “Cautionary Note Regarding Forward-Looking Statements.” Overview
We operate an online lendingwell-known aggregation platform in China connecting Chinese investors with individualon our ride-hailing platform services. Under our collaboration, when a rider uses the platform to search for taxi/ride-hailing services on the aggregation platform, the platform provides such rider a number of online ride-hailing platforms for selection, including ours and SME borrowers. Throughif our platform is selected by the rider, the order will then be distributed to registered drivers on our platform for viewing and acceptance. The rider may also simultaneously select multiple online ride-hailing platforms in which case, the aggregation platform will distribute the requests to different online ride-hailing platforms which they cooperate with, based on the number of available drivers using the platform in a certain area and these drivers’ historical performance, among other things. XXTX generates revenue from providing services to online ride-hailing drivers to assist them in providing transportation services to the riders looking for taxi/ride-hailing services. XXTX earns commissions for each completed order as the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider. XXTX settles its commissions with the aggregation platforms on a weekly basis.
Meanwhile, in order to strengthen our market position in certain cities, our collaboration model with Meituan has been changed from the one same as Gaode, to the one focusing on automobile operating lease and drivers’ management services since August 2021. During the year ended March 31, 2023, our subsidiary, Jiekai, and equity investee company and former VIE, Jinkailong, signed cooperation contracts with other online ride-hailing platforms (“Partner Platforms”), such as Chengdu Anma Zhixing Technology Co., Ltd. and Hangzhou Xiehua Network Technology Co., Ltd., whereby the online ride-hailing requests and orders shall be completed on Partner Platforms utilizing the network of cars and drivers of us and Jinkailong. Jiekai and Jinkailong earned rental income from drivers and earned commissions from Partner Platforms. The acquisition of XXTX has brought us a new stream of revenue and enhanced our goal of providing an all-round solution for online ride-hailing drivers. We launched Xixingtianxia in specific markets within Chengdu in late October 2020, focusing on current driver customers. As of the date of this Report, we have expanded marketing of our ride-hailing platform to a larger pool of potential drivers and riders in Chengdu, Changsha, Guangzhou and other 23 cities through cooperation with certain local car rental companies and through offering attractive incentives and awards to drivers. During the year ended March 31, 2023, approximately 6.1 million rides with gross fare of approximately $19.9 million were completed through Xixingtianxia and an average of over 5,100 Active Drivers each month. During the year ended March 31, 2023, we earned online ride-hailing platform service fees of approximately $3.7 million, after netting off approximately $0.5 million incentives paid to Active Drivers. During the year ended March 31, 2022, approximately 11.5 million rides with gross fare of approximately $37.3 million were completed through Xixingtianxia and an average of over 9,500 Active Drivers each month. During the year ended March 31, 2022, we earned online ride-hailing platform service fees of $2.7 million, after netting off approximately $3.4 million incentives paid to Active Drivers. We plan to expand our driver base for the platform and automobile rental business while strengthening the royalty of the drivers who both lease our cars and use our platform while expanding, but our platform is available to others. We plan to launch Xixingtianxia in more cities across China the next 12 months. Key Factors and Risks Affecting Results of Operations Ability to Increase Our Automobile Lessee and Active Driver Base Our revenue growth has been largely driven by the expansion of our automobile lessee base and the corresponding revenue generated from operating and financial leasing. After the acquisition of XXTX, our revenue growth also depends on the number of completed online ride-hailing orders on our platform, which largely depends on the number of Active Drivers who complete ride-hailing transactions on our platform. We acquire customers for our Automobile Transaction and Related Services, as well as for our Online Ride-hailing Platform Services, through the network of third-party sales teams, referral from online ride-hailing platforms and our own efforts including online advertising and billboard advertising. We also send out fliers and participate in trade shows to advertise our services. We plan to increase the number of our Active Drivers by expanding our platform to more cities during the next five years as well as marketing our platform to our existing and prospective automobile lessees. We expect the expansion of our Active Driver base to promote the growth of our automobile rental business because we offer quickautomobile rental solutions/incentives specifically targeted at drivers using our platform. An effective cross-selling strategies between our automobile leasing business and easy accessOnline Ride-hailing Platform Services business is important to creditour expansion and revenue growth. We also plan to borrowersstrengthen our marketing efforts through the collaboration with certain automobile dealers and attractive investment returns for investors. Asthrough our own team by employing more fully described inexperienced staffs and improving the Business section, we acquired the Aihongsen platform from Chenghexin in September 2016. Since the Acquisition through March 31, 2018, we have facilitated direct loansquality and assignmentvariety of loans with an aggregate of principal of over RMB579 million (approximately US$89 million).our services. As of March 31, 2018,2023, we had an aggregate of 40,044 registered users10 and a total of 3,372 investors, 2,558 borrowers59 employees in our own sales department and two creditor partners had participated in loan transactions through our platform. We currently conduct our business operations exclusively in China, and allsales department of our investorsequity investee company, Jinkailong, respectively. Management of Automobile Rentals Due to the fierce competition of online ride-hailing industry in Chengdu and borrowers are locatedthe adverse impact from COVID-19 pandemic across mainland China, a significant number of online ride-hailing drivers exited the ride-hailing business and rendered their automobiles to us for sublease or sales in China. Our online platform enables usorder to efficiently match borrowers with investors and execute loan transactions. We seekgenerate income/proceeds to address an unmet investor and borrower demand in China. While presently our borrowers mainly come from referrals fromcover their payments owed to the financial institutions and us. The demand for short-term car rentals increased accordingly, which remained stable during the year ended March 31, 2023. To meet the demand of business partners,expansion in Chengdu, Changsha, and Guangzhou, we also purchased and leased automobiles from third parties for our investors comeoperating lease. The daily management and timely maintenance of leased automobiles will have a significant effect on the growth of
our income from a varietyleasing automobiles in the next twelve months. The effective management of channels, including internetour automobiles through our proprietary system and experienced auto-management team could provide qualified automobiles to potential lessees, either for personal use or providing online ride-hailing services. As of March 31, 2023, we had one parking lot, an exhibition hall and 6 employees in Changsha, and our mobile applications, promotion through our own business development department as well as referrals from our business partners. Historically, we offered two typesequity investee company, Jinkailong, had one parking lot and 12 employees in Chengdu, for parking and management of products: standard loansautomobiles for operating lease. During the years ended March 31, 2023 and assignment of loans, providing qualified borrowers with convenient access to affordable credit at competitive prices and creditors with a fast and cost-efficient way to assign their existing loans for more liquidity. Our investors have2022, the option to individually select specific loans to invest in or to use our automated investing tool that identifies and selects loans on the basis of an investor targeted return and risk tolerance.
Starting in January 2018, we no longer offer the loan assignment services to creditors in preparation for our record-filing under the newly promulgated regulationsaverage utilization of the marketplace lending industry. For more information on these regulations, see “Business – Regulations — Regulations Related to the Marketplace Lending Industry.” To continue to utilize our relationship with existing creditors, whom we now refer to as our business partners, we signed cooperation agreements with them pursuant to which these business partners introduced their customers with financing needs to us in connection with their transactions with such customers.automobiles for operating lease was approximately 64.9% and 56.3%, respectively.
Our Service Offerings and Pricing In February 2018, Sichuan province issued local guidelines on the rectification and acceptance of internet lending information intermediaries which require the guarantors for the loans facilitated by lending platforms to be guaranty institutions or insurance companies that hold professional guaranty qualifications. Our business partners who guaranteed the loans do not hold the guarantor qualifications. To comply with the local guidelines and also as partThe growth of our preparation forrevenue depends on our record –filing under the new marketplace lending regulationsability to improve existing solutions and as requested by the local finance bureau in connection with their inspection ofservices provided, continue identifying evolving business needs, refine our operations, we ceased our cooperationcollaborations with business partners in March 2018 and beganprovide value-added services to focus on facilitating loan transactions solely between borrowers and investorsour customers. The attraction of new automobile leases depends on our platform.
Allleasing solutions with attractive rental price and flexible leasing terms. We have also adopted a stable pricing formula, considering the historical and future expenditure, remaining available leasing months and market price to determine our rental price for varied rental solutions. Furthermore, our product designs affect the type of automobile leases we attract, which in turn affect our financial performance. The attraction of new Active Drivers depends on the loans facilitatedcomprehensive income they could earn from our own or previously assigned through ourcooperated platform, feature fixed interest rates. The interest rates, transaction fees and other charges are all clearly disclosedwhich is mainly affected by the number of orders distributed to the users of our platform.
We generate revenues primarily from fees charged for our services in matching investors with borrowers. We charge borrowers transaction fees for the work we performthem through our platform and chargethe amount of the incentives paid to them from platforms. Our revenue growth also depends on our investorsabilities to effectively price our services, which enables us to attract more customers and improve our profit margin.
Ability to Retain Key Business Cooperators Historically, we have set up a series of strategy and business relationships with certain affiliates of some famous and leading companies of NEVs manufacturers, online ride-hailing platforms, local NEVs leasing companies, and travel service providers to develop our Automobile Transaction and Related Services and Online Ride-hailing Platform Services. We earned commission or services fee on their actual investment return. Previously we also generated revenue from transaction fees from Creditor Partners in connectionthem, purchased and leased automobiles for our business at a favorable price. The close relationships have provided us with the assignmentnecessary capacity to support the development of their loans on our platform. Our management regularly reviews a numberonline ride-hailing platform and leasing business. To retain these valuable cooperators and continuously explore opportunities to collaborate with them in more areas is important to us to have considerable resources to support the exploration and expansion of metrics to evaluate our business measure our performance, identify trends, formulateinto new cities.
Ability to Collect Receivables on a Timely Basis We used to advance the purchase price of automobiles and all service expenses when we provide related services to the purchasers. We collect the receivables due from automobile purchasers from their monthly installment payments and repay financial projections and make strategic decisions. The main metrics we consider, and results for each quarter since our acquisitioninstitutions on behalf of the Aihongsenpurchasers every month. As of March 31, 2023, we had accounts receivable, net of allowance of approximately $76,000 and advanced payments of approximately $45,000 due from the historical automobile purchasers, net of allowance, which will be collected through installment payments on a monthly basis during the relevant affiliation periods. For receivables from Auto Operating Leasing, we usually settle the rental income with each online ride-hailing driver monthly based on the product solutions they chose. In accordance with the development of the operating lease business, our Partner Platforms, such as Gaode, agree to temporarily “lock-up” the fares of the rides which Active Drivers earn from the platform are set forth into ensure the table below. | | | For the Three Months Ended | | | | | March 31,
2018 | | | December 31,
2017 | | | September
30, 2017 | | | June 30,
2017 | | | March 31,
2017 | | | December 31,
2016 | | | Loan Amount (Standard Loan) | | $ | 19,943,097 | | | $ | 10,776,692 | | | $ | 12,142,615 | | | $ | 5,834,087 | | | $ | 2,493,794 | | | $ | 4,005,092 | | | Loan Amount (Assignment of Loan) | | $ | - | | | $ | 4,840,155 | | | $ | 13,025,964 | | | $ | 3,100,300 | | | $ | - | | | $ | - | | | Number of Investors | | | 245 | | | | 271 | | | | 329 | | | | 381 | | | | 329 | | | | 359 | | | Number of Borrowers | | | 364 | | | | 2,043 | | | | 289 | | | | 160 | | | | 26 | | | | 140 | | | Average Investment Amount | | $ | 81,400 | | | $ | 57,627 | | | $ | 76,500 | | | $ | 23,450 | | | $ | 7,580 | | | $ | 11,156 | | | Average Borrowing Amount | | $ | 54,789 | | | $ | 12,539 | | | $ | 87,088 | | | $ | 55,841 | | | $ | 95,915 | | | $ | 28,608 | | | Transaction Fees from borrowers | | $ | 14,118 | | | $ | 72,420 | | | $ | 56,246 | | | $ | 42,889 | | | $ | 35,745 | | | $ | 20,828 | | | Transaction Fees from Creditor Partners | | $ | 1,793 | | | $ | 68,594 | | | $ | 50,330 | | | $ | 16,663 | | | | - | | | | - | | | Service Fees from Investors | | $ | 143,487 | | | $ | 11,524 | | | $ | 10,592 | | | $ | 6,240 | | | $ | 7,945 | | | $ | 8,719 | |
The volumetimely collection of standard loans forits rental receivables from those Active Drivers. Besides, during the three monthsyear ended March 31, 2018 was2023, we settle our commissions with the highest amongPartner Platforms for our online ride-hailing platform services and automobile rental income on a monthly basis. As of March 31, 2023, we had accounts receivable of online ride-hailing service fees of approximately $51,000 in total.
The efficiency of collection of the presented quarters, mainly attributablemonthly and weekly payments has a material impact on our daily operation. Our risk and asset management department has set up a series of procedures to monitor the collection from drivers. Our business department has also set up a stable and close relationship with cooperated platform to ensure the timely collection of commissions. The accounts receivable and advance payments may increase our liquidity risk. We have used the majority of the proceeds from our equity offerings and plan to seek equity and/or debt financings to pay for the expenditure related to the Company’s efforts in increasing the number of borrowers. In the contrast, the volume of standard loansautomobile purchase. To pay for the three monthsexpenditure in advance will enhance the stability of our daily operation and lower the liquidity risk, and attract more customers. Ability to Manage Defaults and Potential Guarantee Liability Effectively Our subsidiary, Hunan Ruixi, and its equity investee company and former VIE, Jinkailong are exposed to credit risk as they are required by certain financial institutions to provide guarantee on the lease/loan payments (including principal and interests) of the automobile purchasers referred by us. If a default occurs, they are required to make the monthly payments on behalf of the defaulted purchasers to the financial institution. We manage the credit risk arising from the default of automobile purchasers and lessees by performing credit checks on each automobile purchaser or lessee based on the credit reports from People’s Bank of China and third-party credit rating companies, and personal information including residence, ethnicity group, driving history and involvement in legal proceeding. Our risk department continuously monitors the payment by each purchaser and sends them payment reminders. We also keep monitoring the daily gross fare earned by the online ride-hailing drivers, who are our majority customers and run their business through our online ride-hailing platform During the year ended March 31, 2017 was the lowest, primarily due to the development, testing and integration of our platform with the system of Huaxing Bank as well as adjustment of loan product offerings from December 2016 to February 2017. 2023. We started to facilitate assignment of loans from Creditor Partners in the quarter ended June 30, 2017. However,do this so that we discontinued the offering of assigned loan products on our platform to facilitate our record-filing under Circular 57 and the Interim Measures from January 2018. As a result, we did not have any assigned loans for the three months ended March 31, 2018. The number of borrowers for the three months ended December 31, 2017 was significantly higher than other quarters, mainly due to a trial launch of small consumer loans to individual borrowers in October 2017, which attracted large volume of individual borrowers. However, we suspended offering these loans after the trial due to the issues connecting to the systems of our partners who referred these borrowers. Regardless of the three months ended December 31, 2017, the Company had a continuous increase in the number of borrowers from quarter to quarter.
We experienced a significant and continuing increase in the average investment amount during the three months ended December 31, 2017, primarily due to the completion of our custody arrangement with Huaxing Bank and adjustment of loan product offerings in the prior quarter. The average investment amount for the three months ended March 31, 2018 deceased as compared with the three months December 31, 2017, primarily caused by a decrease in the number of investors and investment amount during February 2018 when the investors needed funds for Chinese New Year.
Caused by increasing number of individual borrowers in the mix of borrowers and the suspension of assigned loans whose average loan amount was higher than individual loans since January 2018, the average borrowing amount for the three months ended March 31, 2018 decreased as compared with the three months ended September 30, 2017. The average borrowing amount for the three months ended March 31, 2018 increased as compared with the three months ended December 31, 2017, primarily due to a trial launch of small consumer loans to individual borrowers in October 2017 which attracted individual borrowers who borrowed lower principals from the platform than SMEs did.
In terms of loan amount and the number of loans facilitated on our platform, there has not been any significant concentration on any borrower, investor, Creditor Partner or any group of borrowers, investors or Creditor Partners. Therefore, we do not believe that our business operation or financial position is heavily reliant upon any borrower, investor or Creditor Partner.
Key Factors Affecting Our Results of Operations
Our online platform was launched by Chenghexin in May 2014 and acquired by us in September 2016 and has a limited operating history. As our business develops or in response to competition, we may introduce new products or make adjustments to our existing products, or make adjustments to our business model. In connection with the introduction of new products or in response to general economic conditions, we may impose more stringent borrower or creditor qualifications to ensure the quality of loans on our platform, which may negatively affect the growth of our business. Any significant change to our business model may not achieve expected results and may have a material and adverse impact on ourcan evaluate their financial conditions and resultsprovide them with assistance including the transfer of operations.automobile to a new driver if they are no longer interested in providing ride-hailing services or are unable to earn enough income to make monthly lease/loan payments.
To achieveIn addition, automobiles are used as collateral to secure purchasers’ payment obligations under the financing arrangement. In the event of a default, Hunan Ruixi and maintainJinkailong can track the growth of our platform, we must continuously increaseautomobile through an installed GPS system and repossess and handover the volume of loan transactions by retaining current participantsautomobile over to the financial institution so that they can be released from their guarantee liability. However, if a financial institution initiates a legal proceeding to collect payments due from a defaulted automobile purchaser, Hunan Ruixi and attracting more users. We intendJinkailong may be required to continuerepay the defaulted amount as a guarantor. If they are unable to dedicate resources to our user acquisition efforts, including establishing new acquisition channels, particularlyundertake the responsibility as we continue to grow our platform and introduce new products and services. We utilize online channels,a guarantor, their own assets, such as search engine marketing, search engine optimizationcash and partnerships with internet companies, as well as our on-the-ground sales network for user acquisition. If there are insufficient qualifiedcash equivalents, may be frozen by the court if the financial institution successfully requests for direct loansan order to freeze our assets or loan assignments, investorsbank accounts, which may be unableadversely affect our operations.
As of March 31, 2023, 108 online ride-hailing drivers we serviced rendered their automobiles to deploy their capital in a timelyHunan Ruixi for sublease or efficient manner and may seek other investment opportunities. If there are insufficient investor commitments, borrowers may be unable to obtain capital through our platform and may turn to other sources for their borrowing needs. Below are key metrics for each quarter reflecting our efforts in retaining current participants and attracting more users: | | | For the Three Months Ended | | | | | March 31,
2018 | | | December 31,
2017 | | | September 30,
2017 | | | June 30,
2017 | | | March 31,
2017 | | | December 31,
2016 | | | Reinvestment of existing investors | | | 233 | | | | 225 | | | | 252 | | | | 73 | | | | 235 | | | | 353 | | | Reinvestment rate of existing investors | | | 95.10 | % | | | 87.51 | % | | | 63.83 | % | | | 57.21 | % | | | 45.25 | % | | | 49.58 | % | | Number of new investors | | | 12 | | | | 17 | | | | 77 | | | | 308 | | | | 94 | | | | 46 | | | Total number of investors | | | 245 | | | | 271 | | | | 329 | | | | 381 | | | | 329 | | | | 359 | | | Average loan amount of each investor | | $ | 81,400 | | | $ | 57,627 | | | $ | 76,500 | | | $ | 23,450 | | | $ | 7,580 | | | $ | 11,156 | | | Average number of total loans held by each investor | | | 10 | | | | 17.24 | | | | 8.31 | | | | 6.00 | | | | 6.95 | | | | 6.37 | |
The table below shows key metrics pertaining to each type of participants on our platform.
| | | | | For the Three Months Ended | | | | | | | March 31,
2018 | | | December 31,
2017 | | | September 30,
2017 | | | June 30,
2017 | | | March 31,
2017 | | | December 31,
2016 | | | Re-Borrowing rate of existing borrowers | | Individuals | | | 45 | % | | | 5 | % | | | - | | | | 25 | % | | | 29 | % | | | 5 | % | | | | SMEs | | | 43 | % | | | 28 | % | | | 50 | % | | | 19 | % | | | 0 | % | | | 21 | % | | | | Assigned loans | | | 7 | % | | | 30 | % | | | 52 | % | | | 0 | % | | | 0 | % | | | 0 | % | | Number of new borrowers | | Individuals | | | 209 | | | | 1,669 | | | | 1 | | | | 3 | | | | 2 | | | | 120 | | | | | SMEs | | | 72 | | | | 2 | | | | 10 | | | | 34 | | | | 10 | | | | 11 | | | | | Assigned loans | | | - | | | | 196 | | | | 218 | | | | 114 | | | | 0 | | | | 0 | | | Total number of borrowers | | Individuals | | | 256 | | | | 1,775 | | | | 1 | | | | 4 | | | | 10 | | | | 126 | | | | | SMEs | | | 108 | | | | 66 | | | | 41 | | | | 42 | | | | 16 | | | | 14 | | | | | Assigned loans | | | - | | | | 202 | | | | 247 | | | | 114 | | | | 0 | | | | 0 | | | Average loan amount of each borrower | | Individuals | | $ | 25,254 | | | $ | 534 | | | $ | 1,417 | | | $ | 19,311 | | | $ | 17,129 | | | $ | 17,129 | | | | | SMEs | | $ | 124,156 | | | $ | 148,930 | | | $ | 296,127 | | | $ | 137,068 | | | $ | 145,157 | | | $ | 146,321 | | | | | Assigned loans | | $ | - | | | $ | 73,466 | | | $ | 52,737 | | | $ | 27,196 | | | $ | - | | | $ | - | | | Total amount of loans | | Individuals | | $ | 6,534,271 | | | $ | 947,315 | | | $ | 1,417 | | | $ | 77,244 | | | $ | 171,285 | | | $ | 1,956,601 | | | | | SMEs | | $ | 13,408,826 | | | $ | 9,829,377 | | | $ | 12,141,198 | | | $ | 5,756,843 | | | $ | 2,322,509 | | | $ | 2,048,491 | | | | | Assigned loans | | $ | - | | | $ | 14,840,155 | | | $ | 13,025,964 | | | $ | 3,100,300 | | | $ | - | | | $ | - | |
Based on our management’s reviewsale. In general, most of the above metrics,defaulted automobile purchasers who want to remain in online ride-hailing business would pay the default amounts within one to three months. Our risk management department typically starts to interact with overdue purchasers if they have missed one monthly installment payment. However, if the balances are overdue for more than two months or the purchasers decide to exit the online ride-hailing business and sublease or sell their automobiles, we believe that we do not overly rely on one typewould fully record an allowance against receivables from those purchasers. As of borrowers/products for generating revenue. Assigned loans used to account for a large portion of our revenue and revenue from individual borrowers has increased in the quarter ended March 31, 2018 due to our arrangement with our business partners. As a result2023, we recognized an accumulated allowance against receivables of the cessation of our relationship with our Creditor Partners and business partners, we expect the revenue$378,941 from individual borrowers to decrease and fees from SME loans to constitute a larger percentage of our revenue mix in 2018 before we effectively increase the number of individual borrowers on our own.
From time to time, our management and stockholders have invested in loans through our platform using their personal funds and may continue to do so in the future. The table below summarizes key metrics pertaining to loans invested inthese purchasers served by our management and stockholders.
| Quarter ended | | Number of
Investment | | Total Amount of
Investment | | | Average Amount of
Investment | | | December 31, 2016 | | 66 | | $ | 745,907 | | | $ | 11,302 | | | March 31, 2017 | | 15 | | $ | 61,484 | | | $ | 4,099 | | | June 30, 2017 | | 34 | | $ | 263,482 | | | $ | 7,749 | | | September 30, 2017 | | 140 | | $ | 1,045,949 | | | $ | 7,471 | | | December 31, 2017 | | 226 | | $ | 804,986 | | | $ | 3,562 | | | March 31, 2018 | | 130 | | $ | 966,718 | | | $ | 7,436 | |
Prior to February 2018, each loan facilitated or assigned on our platform was guaranteed by unaffiliated third parties who were jointly and severally liable for the loan and/or secured by collateral provided by borrowers. None of the loans facilitated through our platform is guaranteed by any affiliate of the Company. To our knowledge, the unaffiliated third-party guarantors were not compensated for providing the guaranty to our borrowers. In the case of borrowers referred by our business partners, our business partners would provide the guaranty so that the borrowers could complete the transactions with them. In the case of direct borrowers, the guarantors were affiliates of the borrowers and had the incentive to facilitate the transactions for the benefits of the borrowers without being paid.
The table below summarizes loan amounts guaranteed by unaffiliated third parties for each quarter since we acquired the Aihongsen platform.
| Quarter ended | | Guarantee | | Loan Amount | | | December 31, 2016 | | Unaffiliated Third
Party Guarantee | | $ | 4,004,799 | | | March 31, 2017 | | Unaffiliated Third
Party Guarantee | | $ | 152,415 | | | June 30, 2017 | | Unaffiliated Third
Party Guarantee | | $ | 5,762,961 | | | September 30, 2017 | | Unaffiliated Third
Party Guarantee | | $ | 12,141,198 | | | December 31, 2017 | | Unaffiliated Third
Party Guarantee | | $ | 15,616,847 | | | March 31, 2018 | | Unaffiliated Third
Party Guarantee | | $ | 13,341,921 | |
We have adopted a sales and marketing strategy aimed at enhancing our profile in the marketplace lending industry and the credit industry as a whole. Our sales and marketing efforts have included event promotions, online marketing, user meetings and sales support. In addition, in order to increase our brand recognition among potential borrowers and investors, we have participated in industry or government organized forums and summits. Our recent borrower acquisition activities have primarily comprised of developing user base through our strategic alliance with Resgreen Group, a direct selling company based in Hunan China, as well as identifying potential borrowers through online advertisement.
Our management reviews key metrics relating to acquisitions of investors and borrowers and adjust our investor and borrower acquisition strategies accordingly. The average acquisition costs for each quarter since our acquisition of the Aihongsen platform are set forth in the table below.
| Quarter ended | | Average Customer
Acquisition Cost Per
Person | | | December 31, 2016 | | $ | 13.90 | | | March 31, 2017 | | $ | 7.98 | | | June 30, 2017 | | $ | 3.79 | | | September 30, 2017 | | $ | 23.17 | | | December 31, 2017 | | $ | 17.76 | | | March 31, 2018 | | $ | 37.12 | |
As compared with the quarter ended March 31, 2017, the average customer acquisition cost continuously decreased for the period through June 30, 2017, which was primarily due to (i) the temporary suspension of marketing activities from December 2016 to February 2017 when we updated and integrated our system with Huaxing Bank; (ii) the implementation of our cost efficient user acquisition strategy through cooperation with Resgreen and (iii) a decrease in offline marketing expenses as a result of the Interim Measures. The average customer acquisition cost for the three months ended December 31, 2017 and September 30, 2017 was higher than prior quarters, as we increased our marketing efforts to further expand our borrower and investor base. Because our marketing efforts were primarily targeted on maintenance of existing customers during Chinese New Year, we did not attract as many new customers as the prior quarters, thus the average customer acquisition cost for the three months ended March 31, 2018 was the highest among all the quarters.
We believe that our current acquisition cost is below the average cost per person of the peer-to-peer lending industry in China. As we continue to grow our borrower and investor base, we anticipate such costs will increase, which may go above industry level if our customer acquisition strategy turns out to be inefficient under future market conditions.
The regulatory environment for the marketplace lending industry in China is evolving and creating opportunities that could affect our results of operations. Most recently, multiple PRC governmental authorities have published and promulgated various new laws and rules to further regulate the marketplace lending industry in China. See “Business—Regulations.” We have closely tracked the development and implementation of new rules and regulations likely to affect us. These requirements have created entry barriers for many marketplace lending companies in China and further differentiated us from our competitors. We will continue to ensure timely compliance with new rules, and believe that such timely compliance with these newly promulgated rules will provide us with a competitive advantage in the marketplace lending industry in China. Our operations may need to be further modified to comply with relevant PRC laws and regulations on marketplace lending as the regulatory regime for this sector continues to evolve. See "Risk Factors — Risks Related to the PRC Laws Regulating Our Business and Industry — Our operations may need to be modified to comply with existing and future requirements set forth by the CBRC or laws or regulations promulgated by other PRC authorities regulating the marketplace lending industry in China."
For other factors affecting our results of operations, please refer to “Risk Factors.”
Results of Operations for the Year Ended March 31, 2018 Compared to the Year Ended March 31, 2017
| | | For the Years Ended March 31, | | | | | | | | 2018 | | | 2017 | | | Change | | | | | | | | | | | | | | Revenues | | $ | 494,897 | | | $ | 73,237 | | | $ | 421,660 | | | Gross revenues | | | 494,897 | | | | 73,237 | | | | 421,660 | | | | | | | | | | | | | | | | | Operating expenses | | | | | | | | | | | | | | Selling, general and administrative expenses | | | (1,517,804 | ) | | | (258,772 | ) | | | (1,259,032 | ) | | Amortization of intangible assets | | | (659,558 | ) | | | (324,710 | ) | | | (334,848 | ) | | Impairments of intangible assets and goodwill | | | (8,179,381 | ) | | | - | | | | (8,179,381 | ) | | Total operating expenses | | | (10,356,743 | ) | | | (583,482 | ) | | | (9,773,261 | ) | | Loss from operations | | | (9,861,846 | ) | | | (510,245 | ) | | | (9,351,601 | ) | | Other income, net | | | 2,874 | | | | 476 | | | | 2,398 | | | Loss before income taxes | | | (9,858,972 | ) | | | (509,769 | ) | | | (9,349,203 | ) | | Income tax expense | | | - | | | | — | | | | - | | | Net loss from continuing operations | | | (9,858,972 | ) | | | (509,769 | ) | | | (9,349,203 | ) | | Net loss income from discontinued operations | | | - | | | | (86,876 | ) | | | (86,876 | ) | | Net Loss | | $ | (9,858,972 | ) | | $ | (596,645 | ) | | $ | (9,262,327 | ) |
Revenues
We generated revenues primarily from transaction fees from borrowers and service fees from investors by providing services in matching investors with borrowers on our platform.Ruixi. For the year ended March 31, 2018,2023, we charged borrowers transaction fees rangingrecognized approximately $7,300 expenses for the guarantee services as the drivers exited the online ride-hailing business and would no longer make the monthly repayments to us. During the year ended March 31, 2023, we sub-leased approximately 49 rendered automobiles in total to other customers. By subleasing automobiles from 0.30%these drivers, we believe we can cope with the defaults and control associated risks.
Further, the automobiles subject to 2.98%our financing leases are not collateralized by us. As of March 31, 2023, the total value of non-collateralized automobiles was approximately $356,000. We believe our risk exposure of financing leasing is immaterial as we have experienced limited default cases and we are able to re-lease those automobiles to drivers under financing leases. Actual and Potential Impact of Coronavirus (COVID-19) in China on Our Business Impact on the Automobile Transactions and Related Services Our Automobile Transactions and Related Services have been gradually recovering from the adverse impact of COVID-19 pandemic. As of March 31, 2023, 108 online ride-hailing drivers we serviced rendered their automobiles to Hunan Ruixi. As a result, we recorded accumulated allowance for doubtful accounts of approximately $378,941 for them. As most of the loan amount for standard loans and from 0.32% to 0.94% for assigned loans, which fees were paid (i) upon disbursementleasing term of the proceedsautomobiles we delivered in Changsha in prior periods has come to the end, during the year ended March 31, 2023, the number of newly rendered automobiles decreased to 8 as compared with 25 during the year ended March 31, 2022. Meanwhile, over 1,200 online ride-hailing drivers rendered their automobiles to Jinkailong as of March 31, 2023. However, our daily cash flow will be adversely impacted as a result of the unsatisfied collection from the online ride-hailing drivers and our potential guarantee expenditure pursuant to the financing agreements we guaranteed. Our cash flow has been adversely impacted by local resurgences of COVID-19 in Chengdu, Changsha and Guangzhou while the COVID-19 measures in China keep applying the current control and prevention measures especially from September to November 2022, which had negative impact on the online ride-hailing market accordingly due to travel restriction. In addition, our automobile purchasers and lessees may be unable to generate sufficient income to make their monthly installment payments, which may create a significant risk of continuing default from our automobile purchasers or lessees. As a result, we may have to repay the defaulted amount as a guarantor or lose the monthly rental revenue. If we experience a widespread default by our automobile purchasers/lessees, our cash flow and results of operations will be materially and adversely affected. As a consequence, we could face shortfalls in liquidity without extra financing resources for loans accruing interestthe foreseeable future and lose the ability to grow our business or may even be required to scale down or restructure our operations. Impact on the Ride-Hailing Platform Services XXTX commenced the operation of its online ride-hailing platform since late October 2020 and have witnessed the decrease in online ride-hailing orders in July 2021, November 2021, February 2022, September 2022 and December 2022, when Chengdu, Changsha and Guangzhou reported several confirmed COVID-19 cases. Under the zero-tolerance approach to smothering Covid outbreaks in China, the local government usually ensured concrete and effective measures to fight against the resurgence, including suspending some traffic activities in certain medium-risk and high-risk areas. Fewer people took ride-hailing trips as a monthly basisresult and (ii) upon full paymentthe average daily rides completed through our platform decreased and our income decreased accordingly. The average daily rides completed through our platform decreased by approximately 20% to 30% compared to that before the reporting of principalthe new COVID-19 cases in these cities and interestrecovered one to two weeks later as the new confirmed cases were fully under control. Furthermore, the online ride-hailing services in Chengdu was temporally suspended by the Municipal Communications Commission of loans accruing interestChengdu from September 1 to September 18, 2022, when Chengdu reported accumulated over 1,000 COVID-19 cases since late August 2022. We also had no income from the online ride-hailing platform services in Chengdu during those periods. The total number of rides completed through our platform in September 2022 decreased by approximately 35% compared with the prior months. Consequently, the income of our Automobile Transaction and Related Services customers who ran their business through the online ride-hailing platforms also decreased during this period. Since March 2022, major outbreaks of the Omicron variant of COVID-19 occurred in many cities of China. These outbreaks resulted in lockdowns, highway closures and other restrictive measures across China, which caused severe hardships to countless dealers and consumers. Furthermore, Chengdu suffered an infection peak in the middle of December, after China shifted the prevention and control of COVID-19 infection strategy in December 2022. Base on the surveys released from Sichuan Provincial Center for Disease Control and Prevention, the actual infection rate of the surveyed population was estimated to be over 80 percent. And the peak of positive detection in the whole province was concentrated from December 12 to 23, which caused significant decreasing orders for online ride-hailing in December. The central government of China has adjusted the prevention and control measures of COVID-19, and gradually restored the order of production and life, which would bring optimism for us to operate our online ride-hailing platform in the next 12 months. We may have a larger cash outflow in our daily basis. The transaction fee rateoperations in the next twelve months as we expand our Online Ride-hailing Platform Services in more cities in China and incur more marketing and promotion expenses. Our cash flow situation may worsen if the economy in China does not improve as expected. Any of these factors related to COVID-19 and other similar or currently unforeseen factors beyond our control could have an adverse effect on our overall business environment, causing uncertainties in the regions in China where we conduct business, and causing our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations. Ability to Manage and Grow New Ride-Hailing Business Due to the fierce competition of online ride-hailing industry in Chengdu, Changsha and Guangzhou, our ability to increase our revenue over time may be limited if we focus only on our current Automobile Transaction and Related Services business model. As part of our strategy to provide an all-encompassing solution for online ride-hailing drivers, we have expanded our services to drivers through the operation of Xixingtianxia, our own online ride-hailing platform, which has brought us a new stream of revenue. We generate revenue from commissions earned from each completed order, which represent the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to borrowers varied basedthe rider. As the aggregation platforms distribute the demand orders to different online ride-hailing platforms, the flow of drivers in our area of operations is enhanced, leading to a higher probability that more ride orders will be distributed to our platform, which in turn will increase the revenue of the drivers who use our platform (and our revenue). This also allows us to attract more drivers to engage their online ride-hailing business on our platform. Through a series of promotion and effective daily management and training services, we expect our own online ride-hailing platform will offer us a stable revenue source which can also help grow our automobile financing and leasing business. Besides, we are dealing with other trip platforms to attract more riders choosing their trip through our platform. Pursuant to the cooperation agreement signed with Didi Chuxing Technology Co., Ltd. (“Didi”) for our Automobile Transaction and Related Services, we may be penalized by Didi, or our partnership with Didi may be terminated as we now operate a business competitive with Didi. However, the service fees we earned from Didi for automobile transaction and related services currently represent less than 0.1% of our total revenue. Therefore, we believe that the risk of termination of cooperation with Didi on automobile transaction and related services will not have a material influence on our business or results of operations. Ability to Compete Effectively Our business and results of operations depend on our ability to compete effectively. Overall, our competitive position may be affected by, among other things, our service quality and our ability to price our solutions and services competitively. We will set up and continuously optimize our own business system to improve our service quality and user experience. Our competitors may have more resources than we do, including financial, technological, marketing and others and may be able to devote greater resources to the development and promotion of their services. We will need to continue to introduce new or enhance existing solutions and services to continue to attract automobile dealers, financial institutions, car buyers, lessees, ride-hailing drivers and other industry participants. Whether and how quickly we can do so will have a significant impact on the amountgrowth of our business. Market Opportunity and termGovernment Regulations in China The demand for our services depends on overall market conditions of loan facilitated.the online ride-hailing industry in China. The continuous growth of the urban population places increasing pressure on the urban transportation and the improvement of living standards has increased the market demand for quality travel in China. Traditional taxi service is limited, and the emerging online platforms have created good opportunities for the development of the online ride-hailing service market. According to the 51th Statistical report on Internet Development in China published in March 2023 by the China Internet Network Information Center (the “CNNIC”), the number of online ride-hailing service users had reached 473 million by the end of December 2022, and took approximately 40.9% of the total number of Chinese internet users. The online ride-hailing industry is facing increasing competition in China and is attracting more capital investment. According to the Ministry of Transportation (the “MOT”) of the People’s Republic of China, as of May 31, 2023, approximately 313 online ride-hailing platforms have obtained booking taxi operating licenses and the total volume of online ride-hailing orders was approximately 735 million in May 2023 in China. Meanwhile, approximately 2.36 million online booking taxi transportation certificates and approximately 5.58 million online booking taxi driver’s licenses were issued nationwide in China. Since 2019, in addition to the traditional online ride-hailing platforms, automobile manufacturers, offline operation service companies, financial and map service providers, among others, have built cooperation relationships with each other to make the online ride-hailing industry a more aggregated industry. The online ride-hailing industry may also be affected by, among other factors, the general economic conditions in China. The interest rates and unemployment rates may affect the demand of ride-hailing services and automobile purchasers’ willingness to seek credit from financial institutions. Adverse economic conditions could also reduce the number of qualified automobile purchasers and online ride-hailing drivers seeking credit from the financial institutions, as well as their ability to make payments. Should any of those negative situations occur, the volume and value of the automobile transactions we service will decline, and our revenue and financial condition will be negatively impacted. In order to manage the rapidly growing ride-hailing service market and control relevant risks, on July 27, 2016, seven ministries and commissions in China, including the MOT, jointly promulgated the “Interim Measures for the Administration of Online Taxi Booking Business Operations and Services” (“Interim Measures”) and amended it on December 28, 2019 and November 30, 2022, which legalizes online ride-hailing services such as XXTX and requires the online ride-hailing services to meet the requirements set out by the measures and obtain taxi-booking service licenses and take full responsibility of the ride services to ensure the safety of riders. On November 5, 2016, the Municipal Communications Commission of Chengdu City and a number of municipal departments jointly issued the “Implementation Rules for the Administration of Online Booking Taxi Management Services for Chengdu”, which was abolished and replaced by the updated version issued on July 26, 2021. On August 10, 2017, the Transportation Commission of Chengdu further issued the guidelines on compliance requirements for online ride-hailing businesses, including Working Process for the Online Appointment of Taxi Drivers Qualification Examination and Issuance and Online Appointment Taxi Transportation Certificate Issuance Process. On November 28, 2016, Guangzhou Municipal People’s Government promulgated Interim Measures for the Management of Online Ride Hailing Operation and Service in Guangzhou, as amended on November 14, 2019. According to these regulations and guidelines, three licenses /certificates are required for operating the online ride-hailing business in Chengdu and Guangzhou: (1) the ride-hailing service platform such as XXTX should obtain the online booking taxi operating license; (2) the automobiles used for online ride-hailing should obtain the online booking taxi transportation certificate (“automobile certificate”); (3) the drivers should obtain the online booking taxi driver’s license (“driver’s license”). Besides, all the new cars used for online ride-hailing in Chengdu should be NEVs since July 2021. On July 23, 2018, the General Office of Changsha Municipal People’s Government issued the “Detailed Rules for the Administration of Online Booking Taxi Management Services for Changsha.” On June 12, 2019, the Municipal Communications Commission of Changsha City further issued “Transfer and Registration Procedures of Changsha Online Booking of Taxi.” According to the regulations and guidelines, to operate a ride-hailing business in Changsha requires similar licenses in Chengdu, except those automobiles used for online ride-hailing services are required to meet certain standards, including that the sales price (including taxes) is over RMB120,000 (approximately $17,000). In practice, Hunan Ruixi is also required to employ a safety administrator for every 50 automobiles used for online ride-hailing services and submit daily operation information of these automobiles such as traffic violation to the Transport Management Office of the Municipal Communications Commission of Changsha City every month. On November 28, 2016, Guangzhou Municipal People’s Government also promulgated Interim Measures for the Management of Online Ride Hailing Operation and Service in Guangzhou, as amended on November 14, 2019. In addition to the national online reservation taxi operating license, XXTX and its subsidiaries also obtained the online reservation taxi operating license in 31 cities, including Chengdu, Changsha, Guangzhou, Tianjin, Shenyang, Harbin, Nanchang, Haikou, Xining, two cities in Zhejiang, Shandong, and Guangxi Province, respectively, three cities in Guizhou Province, five cities in Jiangsu Province, other two cities in Hunan and Guangdong Province, respectively, and other four cities in Sichuan Province from June 2020 to May 2023, to operate the online ride-hailing platform services. However, approximately 57% of our ride-hailing drivers have not obtained the driver’s license as of March 31, 2023 while all of the cars used for online ride-hailing services which we provided management services have the automobile certificate. Without requisite automobile certificate or driver’s license, these drivers may be suspended from providing ride-hailing services, confiscated their illegal income and subject to fines of up to 10 times of their illegal income. Starting in December 2019, Didi began to enforce such limitation on drivers in Chengdu who have a driver’s license but operate automobiles without the automobile certificate. Furthermore, according to the Interim Measures, no enterprise or individual is allowed to provide information for conducting online ride-hailing services to unqualified vehicles and drivers. Pursuant to the Interim Measures, XXTX and its subsidiaries may be fined between RMB5,000 to RMB30,000 (approximately $728 to $4,370) for violations of the Interim Measures, including providing online ride-hailing platform services to unqualified drivers or vehicles. During the year ended December 31, 2023, we have been fined by approximately $19,000 by Traffic Management Bureaus in Chengdu and Changsha, of which, approximately $4,000, respectively, was further compensated by drivers or cooperated third parties, respectively. If we are deemed in serious violation of the Interim Measures, our Online Ride-hailing Platform Services may be suspended and the relevant licenses may be revoked by certain government authorities. We are in the process of assisting the drivers to obtain the required certificate and license both for our Automobile Transaction and Related Services and our Online Ride-hailing Platform Services. However, there is no guarantee that all of the drivers who run their online ride-hailing business through our platform would be able to obtain all the certificates and licenses. Our business and results of operations will be materially and adversely affected if our affiliated drivers are suspended from providing ride-hailing services or imposed substantial fines or if we are found to be in serious violation of the Interim Measures due to the drivers’ failure to obtain requite licenses and/or automobile certificates in connection with providing services through our platform. The Chinese government has exercised and continued to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. For example, the Chinese cybersecurity regulator announced on July 2, 2021 that it had begun an investigation of Didi and two days later ordered that the company’s app be removed from smartphone app stores. We believe that our current operations are in compliance with the laws and regulations of the Chinese cybersecurity regulator. However, the Company’s operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry. Results of Continuing Operations for the year ended March 31, 2023 Compared to the year ended March 31, 2022 | | | | | | | | | | | | For the Years Ended | | | | | | March 31, | | | | | | 2023 | | 2022 | | Change | Revenues | | $ | 8,082,514 | | $ | 4,913,102 | | $ | 3,169,412 | Cost of revenues | | | (6,590,001) | | | (7,001,297) | | | 411,296 | Gross profit (loss) | | | 1,492,513 | | | (2,088,195) | | | 3,580,708 | Operating expenses | | | | | | | | | | Selling, general and administrative expenses | | | (6,142,447) | | | (9,035,142) | | | 2,892,695 | Provision for doubtful accounts, net of recovery | | | (1,487,889) | | | (235,279) | | | (1,252,610) | Impairments of inventories | | | (3,085) | | | (60,398) | | | 57,313 | Impairments of long-lived assets and goodwill | | | — | | | (142,974) | | | 142,974 | Total operating expenses | | | (7,633,421) | | | (9,473,793) | | | 1,840,372 | Loss from operations | | | (6,140,908) | | | (11,561,988) | | | 5,421,080 | Other income (expenses), net | | | 664,001 | | | (107,444) | | | 771,445 | Interest expense | | | — | | | (5,893) | | | 5,893 | Interest expense on finance leases | | | (25,675) | | | (55,844) | | | 30,169 | Change in fair value of derivative liabilities | | | 1,711,889 | | | 6,951,482 | | | (5,239,593) | Issuance cost incurred for issuing series A convertible preferred stock | | | — | | | (821,892) | | | 821,892 | Loss before income taxes | | | (3,790,693) | | | (5,601,579) | | | 1,810,886 | Income tax expenses | | | — | | | (4,566) | | | 4,566 | Net loss from continuing operations | | $ | (3,790,693) | | $ | (5,606,145) | | $ | 1,815,452 |
Revenues We started generating revenue from Automobile Transaction and Related Services from our acquisition of Hunan Ruixi on November 22, 2018 and revenue from online ride-hailing platform services from our acquisition of XXTX on October 23, 2020, respectively. Revenue for the year ended March 31, 2023 increased by $3,169,412, or approximately 65%, as compared with the year ended March 31, 2022. The increase was mainly due to the increase of operating lease revenues from automobile rentals and revenues from online ride-hailing platform services, as a result of the expansion and our continuous “efficiency - improving” strategy of those two businesses. As we have focused on our automobile rental and Online Ride-hailing Platform Services business, we expect revenue from our online ride-hailing platform services and automobile rental to keep stable over the next twelve months. We also chargeexpect them to continuously account for a majority of our investorsrevenues. We plan to provide a service feeseries of 8.00%product solutions to sustain and further increase the number of their actual investment return and the service fee is paid when the investors receive their interest payment.our automobiles for operating leases. The following table sets forth the breakdown of revenues by revenue source for the years ended March 31, 20182023 and 2017:2022: | | | | | | | | | For the Years Ended | | | March 31, | | | 2023 | | 2022 | Revenue from automobile transactions and related services | | $ | 4,372,569 | | $ | 2,247,645 | - Operating lease revenues from automobile rentals | | | 3,453,392 | | | 1,722,480 | - Service fees from NEVs leasing | | | 350,510 | | | 126,227 | - Revenues from sales of automobiles | | | 243,065 | | | 26,019 | - Financing revenues | | | 41,738 | | | 101,828 | - Service fees from automobile management and guarantee services | | | 40,158 | | | 73,554 | - Service fees from automobile purchase services | | | 33,585 | | | 1,468 | - Other service fees | | | 210,121 | | | 196,069 | | | | | | | | Revenue from online ride-hailing platform services | | | 3,709,945 | | | 2,665,457 | | | | | | | | Total Revenue | | $ | 8,082,514 | | $ | 4,913,102 |
| | | For the Years Ended March 31, | | | | | 2018 | | | 2017 | | | Revenue | | $ | 494,896 | | | $ | 73,237 | | | - Transaction fees from borrowers | | | 185,673 | | | | 56,573 | | | - Transaction fees from Creditor Partners | | | 137,380 | | | | - | | | - Service fees from investors | | | 171,843 | | | | 16,664 | |
Revenue from Automobile Transactions and Related Services SinceRevenue from our automobile transaction and related services mainly includes operating lease revenues from automobile rentals, service fees from NEVs leasing, sales revenue of automobiles, financing revenues, service fees from automobile management and guarantee services, service fees from automobile purchase services, and other services fees, which accounted for approximately 79.0%, 8.0%, 5.6%, 1.0%, 0.9%, 0.8% and 4.7%, respectively, of the Company started its operations in October 2016total revenue from automobile transaction and started facilitating loan assignments on its platform since April 2017, the Company witnessed a dramatic increase in revenuesrelated services during the year ended March 31, 2018 as compared with2023. Meanwhile, operating lease revenues from automobile rentals, service fees from NEVs leasing, financing revenues, service fees from automobile management and guarantee services, sales revenue of automobiles, and other services fees, which accounted for approximately 76.6%, 5.6%, 4.5%, 3.3%, 1.2% and 8.8%, respectively, of the same periodtotal revenue from automobile transaction and related services during the year ended March 31, 2017.2022.
Operating lease revenues from automobile rentals Transaction FeesWe generate revenues from Borrowersleasing our own automobiles, sub-leasing automobiles leased from third-parties or rendered by online ride-hailing drivers with their authorization for a lease term of no more than twelve months. The increase of rental income of $1,730,912 during the year ended March 31, 2023 was due to the increased number of leased automobiles. We leased over 1,800 automobiles with an average monthly rental income of $478 per automobile, resulting in a rental income of $3,453,392, including rental income of $344,120 from Jinkailong, for the year ended March 31, 2023. While we leased over 480 automobiles with an average monthly rental income of $485 per automobile, resulting in a rental income of $1,722,480, for the year ended March 31, 2022. Meanwhile, the rental income of approximately $1.28 million generated from Jinkailong was eliminated in the revenue of continuing operations while the sub-leasing income from these automobiles of approximately $1.8 million was recorded in the revenue of discontinued operations for the year ended March 31, 2022.
Service fees from NEVs leasing
The amountWe generated revenues of transaction$350,510 and $126,227 from leasing NEVs by charging leases service fees earned is determined by the term and amount of loan facilitated. We generally charge borrowers higher transaction fees for loans with longer terms and higher principals. Duringduring the years ended March 31, 20182023 and 2017,2022, respectively, in accordance with the transactionsincreasing demand for NEVs in the online ride-hailing industry in Chengdu, Changsha and Guangzhou. The amount of services fees for NEVs leasing is based on its product solutions. The increase of $224,283 was mainly due to the increase in the number of NEVs we own and lease to drivers.
Sales of automobiles As we have shifted our business focus to automobile leasing, we sold one new and 42 used automobiles with income of $243,065 during the year ended March 31, 2023. Meanwhile, we sold one new and five used automobiles with income of $26,019 during the year ended March 31, 2022. Financing revenues We started our financial leasing business in March 2019 and began to generate interest income from borrowers averaged 0.41%providing financial leasing services to ride-hailing drivers in April 2019. We also charge the customers of our automobile financing facilitation services interest on their monthly payments which cover purchase price of automobile and 0.89%our services fees and facilitation fees for terms of 36 or 48 months. We recognized a total interest income of $41,738 from an average monthly number of 44 automobiles and $101,828 from an average monthly number of 75 automobiles during the total loan amounts,years ended March 31, 2023 and 2022, respectively. The decrease was further aggravated by the decrease in the averagemonthly amortization of interest income for automobiles leased in prior periods. Service fees from automobile management and guarantee services and Service fees from automobile purchase services The majority of our customers are online ride-hailing drivers. Some of them also entered into affiliation service agreements in prior periods with us pursuant to which we provide them post-transaction management services and guarantee services. The decrease of $33,396 was due to the decrease in the accumulated number of rendered automobiles which were subsequently rented to ride-hailing drivers whom we charge rent rather than charging management and guarantee services fee. We had management and guarantee services for over 110 and 200 automobiles during the years ended March 31, 2023 and 2022, respectively. We generate revenues from providing a series of automobile purchase services throughout the automobile purchase transaction fee percentage was primarilyprocess, including sales-type lease. We had revenue from 15 new automobiles purchase transactions during the year ended March 31, 2023 while we had revenue from only two new automobile purchase services during the year ended March 31, 2022. Other service fees We generate other revenues such as monthly services commissions from Partner Platforms and other companies, and other miscellaneous service fees charged to our customers, which accounted for approximately 85.3%, and 14.7% of revenues from other service fees during the year ended March 31, 2023, respectively. The commissions from insurance companies, Ride-hailing platform companies and other companies, and other miscellaneous service fees charged to the automobile purchasers, which accounted for approximately 53.4%, and 46.6% of revenues from other service fees during the year ended March 31, 2022, respectively. Revenue from online ride-hailing platform services We generate revenue from providing services to online ride-hailing drivers to assist them in providing transportation service to the riders though our platform and earn commissions for each completed order equal to the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider since October 2020. During the year ended March 31, 2023, approximately 6.1 million rides with gross fare of approximately $19.9 million were completed through our Xixingtianxia platform and we earned online ride-hailing platform service fees of $3,709,945, after netting off approximately $0.5 million incentives paid to Active Drivers. During the year ended March 31, 2022, approximately 11.5 million rides with gross fare of approximately $37.3 million were completed through our Xixingtianxia platform and we earned online ride-hailing platform service fees of $2,665,457, after netting off approximately $3.4 million incentives paid to Active Drivers. We paid excess driver incentives to attract drivers to our platform during the year ended March 31, 2022 based on the historical market strategy while reduced the expenditure in the year ended March 31, 2023 in accordance with the market change. Cost of Revenues Cost of revenues represents (1) the amortization, daily maintenance and insurance expense related to our Auto Operating Leasing of $3,975,857; (2) technical service charges, insurance and other expenses related to our Online Ride-Hailing Platform Services of $2,295,233; and (3) costs of our Auto Sales of $318,911. Cost of revenues decreased by $411,296 during the year ended March 31, 2023 as compared with the last year, mainly due to the decrease of $1,510,910 in direct expense and technical service fees of online ride-hailing platform services due to the decrease in the number of completed orders, partially offset by the increase of $818,259 in costs of automobiles under operating leases as a result of increasebusiness expansion and $281,355 in costs of automobile sold as the number of borrowersautomobiles sold increased from 5 to 43. During the year ended March 31, 2023, the costs of automobiles under operating leases with short term loans and low transaction feesamount of $509,904 was from one of our related parties. Gross Profit (Loss) We had gross profit of $1,492,513 during the year ended March 31, 2023 as compared with the gross loss of $2,088,195 in the last year. The change of $3,580,708 was mainly due to the Company’s trial launchincrease in profit in our online ride-hailing platform services and operating lease, partially offset by the gross loss of small consumer loans to individual borrowers in October 2017 and$75,846 from sales of automobiles. The following table sets forth the suspensionbreakdown of assigned loan service since January 2018, which services involved longer term of loans and higher transaction fee rates. Transaction fees from borrowers accounted for 37.5% and 72.2% of our totalgross profit (loss) by major revenue source for the years ended March 31, 20182023 and 2017, respectively. The decreased percentage was due to the additional revenue the Company generated through loan assignments since the April 2017. Due to the discontinuation2022:
| | | | | | | | | For the Years Ended | | | March 31, | | | 2023 | | 2022 | - Auto Operating Leasing | | $ | (522,465) | | $ | (1,435,118) | - Auto Sales | | | (75,846) | | | (11,537) | - Other Services | | | 676,112 | | | 499,146 | - Online Ride-Hailing Platform Services | | | 1,414,712 | | | (1,140,686) | Total Gross Profit (Loss) | | $ | 1,492,513 | | $ | (2,088,195) |
We had a gross profit of cooperation with$1,414,712 in our business partners, we expect our transaction fees earned from borrowers to decrease before we can effectively increase the number of borrowers on our own. However, as a result of the cessation of our loan assignmentonline ride-hailing platform services we expect transaction fees earned from borrowers as a percentage of total revenue to increase in the next 12 months, in particular when we further grow the number of borrowers and introduce new loan products and services on our platform. Transaction Fees from Creditor Partners
The Company started transactions with Creditor Partners for assigned loan in April 2017 and discontinued such transactions in January 2018.
The transaction fees earned from Creditor Partners are charged on the total assigned loan amounts, ranging from 0.32% to 0.94%. The amount of transaction fees earned is determined by the term and total amount of loans assigned. We generally charge Creditor Partners higher transaction fees for loans with longer terms and higher principals. Duringduring the year ended March 31, 2018,2023, which increased by $2,555,398 from a gross loss of $1,140,686 in the transaction fees from Creditor Partners averaged 0.57% of the total assigned loan amounts. Transaction fees from Creditor Partners accounted for 27.8% ofsame period in 2022. We paid excess driver incentives to attract drivers to our total revenue forplatform during the year ended March 31, 2018. Due to2022 based on the discontinuation of loan assignment service, we expect that both our transaction fees earned from Creditor Partners and transaction fees earned from Creditor Partners as a percentage of total revenue will decrease to zerohistorical market strategy while reduced the driver incentives in the next 12 months
Service Fees from Investors
Service fee charged to investors is equal to 8.00% of the interest that investors receive, and is paid at the time of each interest payment. Service fees from investors accounted for 34.7% and 22.8% of our total revenue for the yearsyear ended March 31, 2018 and 2017, respectively.2023 in accordance with the market change. We had a gross loss of $522,465 in our automobile operating leasing during the year ended March 31, 2023, which decreased by $912,653 from a gross loss of $1,435,118 in the same period in 2022. The increase in percentagedecrease was mainly due to the increase in both investment amount per investorthe average utilization and the number of investors resulting fromdecrease in the Company’s marketing activitiesaverage daily maintenance and increased market awarenessinsurance expense of the Company. We may adjust the interest rates on the loan products based on market rates from time to time, which will likely affect the service feeautomobiles for operating lease as we receive from investors. However, in light of our business expansion, we generally expect service fees from investors to increaseused more NEVs in the next 12 months.
year ended March 31, 2023. Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily consistedconsist of salary and employee surcharge,benefits, office rental expense, travel expenses, and platform maintenance cost.other costs. Selling, general and administrative expenses increaseddecreased from $258,772$9,035,142 for the year ended March 31, 20172022 to $1,517,804$6,142,447 for the year ended March 31, 2018,2023, representing an increasea decrease of $1,259,032.$2,892,695, or approximately 32.0%. The increase mainly consisted of an increase of salary and employee benefit of $524,576decrease was attributable to increase in headcountthat our continuous control on costs and bonuses, an increase of rentstreamline expenses of $94,382, an increase of promotional conference expense of $44,457, and an increase of expenses of $151,926 in connection with the Company’s initial public offering and as the Company became a public listed company on NASDAQ.
Amortization of Intangible Assets
Intangible amortization forduring the year ended March 31, 2018 was $659,5582023. The decrease mainly consists of (1) a decrease of $912,317 in professional service fees such as compared to $324,710financial, legal and market consulting as we incurred a consulting fee of approximately $653,000 for certain market research and business development advisory services during the year ended March 31, 2017, representing an increase2022; (2) a decrease of $334,848. The increase was attributable to$704,955 in salary and employee benefits as the amortization of intangible assets from the acquisitionaverage monthly number of our employee decreased from 199 to 175; (3) a decrease of $782,337 in advertising and promotion for the online ride-hailing platform services as the number of completed orders decreased and we cut down market promotion expenditure in October 2016, resultingaccordance with the market change in a six-month period of amortization for the year ended March 31, 20172023; (4) a decrease of $526,646 in offices expenditure as compareda result of reducing office rental and insurance charges; (5) a decrease of $51,598 in amortization of intangible assets and automobiles which were rendered to us but have not been sub-leased as we leased more automobiles; and partially offset by (6) a twelve-month periodliquidated damages compensation of amortization$86,250 for investors in November 2021 Private Placement during the year ended March 31, 2018.2023.
Provision for doubtful accounts, net of recovery We re-evaluated the possibility of collection of unsettled balances from customers of our automobile transactions and related services, and provided bad debt expense for the receivables of $1,484,495 and $3,394, respectively, against receivables from Jinkailong and an automobile purchaser during the year ended March 31, 2023. While we provided additional allowance for doubtful accounts of $123,744 for unsettled balances from historical customers, allowance of $111,536 for a historical business cooperator who did not settle its balance on time, respectively, during the year ended March 31, 2022. Impairments of Intangible Assets and Goodwill inventories For the year ended March 31, 2018,2023 and 2022, we evaluated the Company performednet realizable value of our inventories and recognized an impairment testloss of $3,085 and $60,398, respectively, for certain automobiles for sale based on separately identifiable intangibletheir selling price in the market. Impairments of Long-lived Assets and Goodwill For the years ended March 31, 2023, we evaluated the future cash flow of our right-of-use assets and goodwill and recorded impairment charges of $2,000,175 and $6,179,206 against platform and goodwill, respectively. The Company recognized theour own vehicles used for operating leases during their remaining useful life. We did not recognize any impairment loss because, due to regulatory changes in the marketplace lending industry, the Company did not generate sufficient revenue and net earnings for the fiscal year ended March 31, 2018 to support the valuation2023. While we recognized an impairment loss of its intangible$3,044 for certain right-of-use assets and goodwill. our own vehicles as property and equipment that could not generate sufficient cash, and fully recognized impairment of $139,930 against goodwill during the year ended March 31, 2022. Other income, net For the year ended March 31, 2017,2023, we had other income, net of $664,001, which primarily consist of the Company did not incur any impairmentincome of approximately $453,000 from the disposal of our right-of-use assets and our own vehicles used for operating leases; and the miscellaneous income of approximately $211,000. For the year ended March 31, 2022, we had other expenses, net of $107,444, primarily consist of: (1) a donation by Hunan Ruixi of approximately $190,000 (RMB1,200,000) to a public welfare foundation in Changsha, China; (2) penalty fines of $97,000 for our served online ride-hailing drivers who failed to obtain the ride-hailing driver’s licenses approximately; which was offset by (2) income of approximately $198,000 from some leases. Interest Expense and Interest Expense on Finance Leases Interest expense for the year ended March 31 2022 resulted from the borrowings of Corenel from a financial institution for its automobile commercial insurance by installment. Interest expense on finance leases for the year ended March 31, 2023 was $25,675, representing the interest expense accrued under financing leases for the leased automobiles rendered to us for sublease or sale by the online ride-hailing drivers who exited the ride-hailing business. Interest expense on finance leases decreased by $30,169, or approximately 54%, as compared with the year ended March 31, 2022, mainly due to the decreased weighted average number of rendered automobiles during the year ended March 31, 2023. Change in Fair Value of Derivative Liabilities Warrants issued in our registered direct offerings that took place in June 2019, February 2021 and May 2021, and the August 2020 underwritten public offering, and November 2021 private placement were classified as liabilities under the caption “Derivative Liabilities” in the consolidated balance sheet and recorded at estimated fair value at each reporting date, computed using the Black-Scholes valuation model. The change in fair value of derivative liabilities for the year ended March 31, 2023 was a gain of $1,711,889 in total as our stock price as of March 31, 2023 was lower than the price on March 31, 2022. The gain consists of a gain of $12,432 for the warrants issued in our June 2019 registered direct offering, a gain of $36,131 for the warrants issued in our August 2020 underwritten public offering, a gain of $54,052 for the warrants issued in our February 2021 registered direct offering, a gain of $662,767 for the warrants issued in our May 2021 registered direct offering, and a gain of $946,507 for the warrants issued in our November 2021 private placement. The change in fair value of derivative liabilities for the year ended March 31, 2022 was a gain of $6,951,482 in total, which consists of a gain of $185,727 for the warrants issued in our June 2019 registered direct offering, a gain of $352,944 for the warrants issued in our August 2020 underwritten public offering, a gain of $572,018 for the warrants issued in our February 2021 registered direct offering, a gain of $2,725,530 for the warrants issued in our May 2021 registered direct offering, and a gain of $3,115,263 for the warrants issued in our November 2021 private placement. Income Tax Expense Generally, our subsidiaries are subject to enterprise income tax on their taxable income in China at a rate of 25%. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. All subsidiaries in China incurred cumulative losses on intangible assets or goodwill. and no tax expense was recorded for the year ended March 31, 2023, while for the year ended March 31, 2022, income tax expense of $4,566 mainly represented the provision of enterprise income tax resulting from the taxable income of $18,264 from Hunan Ruixi. Net Lossloss from Continuing Operations continuing operations As a result of the foregoing, net loss from our continuing operations for the year ended March 31, 20182023 was $9,858,972,$3,790,693, representing an increasea decrease of $9,349,203$1,815,452 from net loss of $509,769$5,606,145 for the year ended March 31, 2017.2022. Results of Discontinued Operations for the year ended March 31, 2022 | | | | | | For the Year Ended | | | March 31, 2022 | Revenues | | $ | 6,830,116 | Cost of revenues | | | (5,183,806) | Gross profit | | | 1,646,310 | Operating expenses | | | | Selling, general and administrative expenses | | | (4,139,800) | Provision for doubtful accounts | | | (11,746) | Impairments of long-lived assets | | | (32,479) | Total operating expenses | | | (4,184,025) | Loss from operations | | | (2,537,715) | Other income, net | | | 118,344 | Interest expense | | | (50,472) | Interest expense on finance leases | | | (277,366) | Loss before income taxes | | | (2,747,209) | Income tax expenses | | | — | Loss from discontinued operations, net of applicable income taxes | | | (2,747,209) | Net gain from deconsolidation of VIEs - discontinued operations | | | 10,975,101 | Gain from discontinued operations | | $ | 8,227,892 |
The results of discontinued operations mainly consist of the financial figures of our former VIE, Jinkailong. As of March 31, 2022, we deconsolidated Jinkailong and its operation result was not included in our consolidated statements of operations and comprehensive income (loss) during the year ended March 31, 2023. Revenues The following table sets forth the breakdown of revenues by revenue source for the year ended March 31, 2022: | | | | | | For the Year Ended | | | March 31, 2022 | - Operating lease revenues from automobile rentals | | $ | 5,452,483 | - Commission from an online ride-hailing platform | | | 399,600 | - Service fees from NEVs leasing | | | 232,295 | - Service fees from automobile management and guarantee services | | | 217,838 | - Financing revenues | | | 15,855 | - Other service fees | | | 512,045 | Total revenues from discontinued operations | | $ | 6,830,116 |
Revenue from the automobile transaction and related services (discontinued operations) mainly included operating lease revenues from automobile rentals, commissions from online ride-hailing platforms, service fees from NEVs leasing, service fees from automobile management and guarantee services, and other revenues, which accounted for approximately 79.8%, 5.9%, 3.4%, 3.2% and 7.7%, respectively, of the total revenue from discontinued operations during the year ended March 31, 2022. Jinkailong leased over 1,700 automobiles with an average monthly rental income of $442 per automobile, resulting in a rental income of $5,452,483, for the year ended March 31, 2022. Among them, approximately 400 automobiles were leased or sub-leased from Cornel, which brought rental income of approximately $1.8 million to Jinkailong. And the leasing costs of approximately $1.3 million was recorded as costs of revenue in the loss of discontinued operations of the consolidated financial statements. Jinkailong earned commissions from online ride-hailing platforms, such as Meituan, a leading aggregation platform before, and XXTX for drivers serviced and introduced by Jinkailong, who ran their business through these platforms. During the year ended March 21, 2022, Jinkailong earned commissions of $399,600 from Meituan. Meanwhile, it earned commissions of $553,760 from XXTX, which was eliminated in the loss of discontinued operations of the consolidated financial statements. Jinkailong generated revenues of $232,295 from leasing NEVs by charging leases service fees during the year ended March 31, 2022 in accordance with the increasing demand for NEVs in the online ride-hailing industry in Chengdu. The amount of services fees for NEVs leasing is based on its product solutions. Jinkailong also generated other revenues such as monthly services commissions from insurance companies, and other miscellaneous service fees charged to our customers, which accounted for approximately 41.1% and 58.9% of revenues from services commissions from insurance companies, and other miscellaneous service fees during the year ended March 31, 2022, respectively. Cost of Revenues Cost of revenues represents the amortization and depreciation of $2,590,277, daily maintenance and insurance expense, and rental costs of automobiles leased to online ride-hailing drivers of $2,593,529 during the year ended March 31, 2022. Jinkailong leased approximately another 500 automobiles, including approximately 400 from Corenel and Yicheng, to expand leasing scale during the year ended March 31, 2022. Meanwhile, the rental costs of approximately $1.3 million belong to Corenel and Yicheng was eliminated in the loss of discontinued operations of the consolidated financial statements during the year ended March 31, 2022. Selling, General and Administrative Expenses Selling, general and administrative expenses primarily consist of $2,334,672 in salary and employee benefits, $712,949 in amortization of rendered automobiles which were rendered to Jinkailong but have not been sub-leased, $558,840 in office rental and charges, and $191,371 in advertising and promotion, during the year ended March 31, 2022. Provision for doubtful accounts Jinkailong re-evaluated the possibility of collection of unsettled balances from additional 13 online ride-hailing drivers who rendered their automobiles and provided additional allowance for doubtful accounts of $11,746 for those receivables during the year ended March 31, 2022. Impairments of Long-lived Assets For the year ended March 31, 2022, Jinkailong evaluated the future cash flow of our right-of-use assets and its own vehicles used for operating leases during their remaining useful life and recognized an additional impairment loss of $32,479 for those assets that could not generate sufficient cash. Other income, net For the year ended March 31, 2022, Jinkailong had other income, net of $118,344, primarily consist of the penalty income amounted to $302,131 from some online ride-hailing drivers for their violence on the contracts, which was offset by expenditures of approximately $159,000 such as penalty fines for served drivers who failed to obtain the ride-hailing driver’s licenses. Interest Expense and Interest Expense on Finance Leases Interest expense for the year ended March 31, 2022 was $50,472, resulting from the borrowings from financial institutions. Interest expense on finance leases for the year ended March 31, 2022 was $277,366, representing the interest expense accrued under financing leases for the leased automobiles rendered to Jinkailong for sublease or sale by the online ride-hailing drivers who exited the ride-hailing business. Loss from discontinued operations, net of applicable income taxes As a result of the foregoing, net loss from our discontinued operations, net of applicable income taxes, for the year ended March 31, 2022 was $2,747,209. Net gain from deconsolidation of VIEs - discontinued operations As fully described above, we had terminated series of VIE agreements with other shareholders of our former VIEs as of March 31, 2022. We had a gain of $10,951,545 from the termination of Jinkailong due to its accumulated loss in historical period. We had a gain of $23,556 from the termination of Youlu as it suffered loss during the year ended March 31, 2022. On March 23, 2022, Senmiao Consulting and other shareholders with 94.5% equity interests of Sichuan Senmiao terminated the VIE Agreements and purchased Sichuan Senmiao’s 94.5% equity interests with total consideration of zero. The gain of non-controlling interest from acquired equity interest of Sichuan Senmiao amounted to $366,604 was recognized in the consolidated statements of changes in stockholders’ equity. The detailed analysis were in Note 3 to our consolidated financial statements. Liquidity and Capital ResourcesGoing Concern To date, weWe have financed our operations primarily through stockholder capital contributions,proceeds from our equity offerings, stockholder loans, commercial debt and cash flow from operations and our initial public offering.
On March 16, 2018, we closed our initial public offering of 3,000,000 shares of common stock. On March 28, 2018, the Company sold additional 379,400 shares of common stock upon exercise of the underwriter’s over-allotment option. The offering price of the shares sold in the initial public offering was $4.00 per share. The total gross proceeds from the offering were approximately $13.5 million. After deducting underwriting discounts and commissions and offering expenses payable by the Company, the aggregate net proceeds received by the Company totaled approximately $12.2 million.
operations. We had cash and cash equivalents of $11,141,566$1,610,090 as of March 31, 20182023 as compared to $161,292$1,185,221 as of March 31, 2017.2022 for our continuing operations. We primarily hold our excess unrestricted cash in short-term interest-bearing bank accounts at financial institutions. In December 2017, Our business is capital intensive. We have considered whether there is substantial doubt about our ability to continue as a going concern due to (1) the Companynet loss of approximately $3.8 million for the year ended March 31, 2023; (2) accumulated deficit of approximately $37.7 million as of March 31, 2023; (3) the working capital deficit of approximately $0.4 million as of March 31, 2023; and (4) two purchase commitments of approximately $1.36 million for 120 automobiles. As of the date of this Report, we have entered into loan agreementstwo purchase contracts with Xiang Hutwo automobile dealers to purchase a total of 150 automobiles in the amount of approximately $2.4 million, of which, 30 automobiles amounted to approximately $0.34 million have been purchased in cash and Jun Wang, who agreeddelivered to grant a lineus, and approximately $0.7 million has been remitted as purchase prepayments. The remaining purchase commitment of credit of approximating $955,300 and $159,200, respectively,approximately $1.36 million shall be remit in installment to the Company for five years. The line of credit wasbe completed before December 31, 2023. We do not interest-bearing, effective from January 2017. Withbelieve that the proceeds from our initial public offeringofferings and our anticipated cash flows from operating activities, we believe that our cash position iswould be sufficient to meet our liquidity needsanticipated working capital requirements and capital expenditures in the ordinary course of business for at least the next 12 months.months from the date of this Report. We have determined there is substantial doubt about our ability to continue as a going concern. If we are unable to generate significant revenue, we may be required to cease or curtail our operations. We are trying to alleviate the going concern risk through the following sources: | ● | equity financing to support our working capital; |
| ● | other available sources of financing (including debt) from PRC banks and other financial institutions; and |
| ● | financial support and credit guarantee commitments from our related parties. |
Based on the above considerations, we are of the opinion that we will probably not have sufficient funds to meet our working capital requirements and debt obligations as they become due one year from the filing date of this Report, if we are unable to obtain additional financing. However, there is no assurance that we will be successful in implementing the foregoing plans or that additional financial will be available to us on commercially reasonable terms, or at all. There are a number of factors that could potentially arise that could undermine our plans, such as (i) the impact of the COVID-19 pandemic on our business and areas of operations in China, (ii) changes in the demand for our services, (iii) PRC government policies, (iv) economic conditions in China and worldwide, (v) competitive pricing in the automobile transaction and related service and ride-hailing industries, (vi) changes in our relationships with key business partners, (vii) that financial institutions in China may not able to provide continued financial support to our customers, and (viii) the perception | | | For the Years Ended
March 31, | | | | | 2018 | | | 2017 | | | Net Cash (Used in) Provided by Operating Activities | | $ | (813,780 | ) | | $ | 1,324,449 | | | Net Cash Used in Investing Activities | | | (2,990 | ) | | | (1,246,018 | ) | | Net Cash Provided by Financing Activities | | | 11,778,199 | | | | 341,736 | | | Effect of Exchange Rate Changes on Cash | | | 18,845 | | | | (259,040 | ) | | Cash and cash equivalents at Beginning of Year | | | 161,292 | | | | 165 | | | Cash and cash equivalents at End of Year | | $ | 11,141,566 | | | $ | 161,292 | |
of PRC-based companies in the U.S. capital markets. Our inability to secure needed financing when required could require material changes to our business plans and could have a material adverse effect on our viability and results of operations. | | | | | | | | | For the Years Ended | | | March 31, | | | 2023 | | 2022 | Net Cash Provided by (Used in) Operating Activities | | $ | 557,837 | | $ | (9,159,281) | Net Cash Provided by (Used in) Investing Activities | | | 320,528 | | | (3,477,125) | Net Cash Provided by (Used in) Financing Activities | | | (373,834) | | | 9,755,410 | Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | (79,662) | | | (381,858) | Cash and Cash Equivalents at Beginning of Year | | | 1,185,221 | | | 4,448,075 | Cash and cash equivalents at End of year | | $ | 1,610,090 | | $ | 1,185,221 |
Cash Flow in Operating Activities For the year ended March 31, 2023, net cash provided by operating activities was $557,837. While for the year ended March 31, 2022, net cash used in operating activities was $9,159,281, which consists of outflows of $9,036,114 from continuing operations and $123,167 discontinued operations. The total net cash provided by operating activities from continuing operations for the year ended March 31, 2023 primarily comprised of the revenue received of $8,361,688, and the net collection of $258,932 on automobiles used for financial lease to be collected within the lease terms, partially offset by the payment of salary and employee benefits of $1,977,230, maintenance fees, insurance and other costs for automobiles and related transactions of $4,952,281, and other operating costs of $1,133,272. The change of $9,593,951 in net cash provided by operating activities from continuing operations for the year ended March 31, 2023 as compared with last year was primarily attributable to (1) decrease of $1,815,452 in net loss; (2) decrease of $5,239,593 in change in fair value of derivative liabilities; (3) increase of $1,548,475 in the change of accrued expenses and other liabilities;(4) increase of $1,252,610 in the change of provision for doubtful accounts; (5) increase of $1,018,211 in the change of prepayments, other receivables and other assets; (6) increase of $576,603 in the change of inventories, and partially offset by (7) decrease in the issuance cost of $821,892 which incurred for issuing series A convertible preferred stock in the year ended March 31, 2022; (8) decreased of the stock compensation expense of $653,000 which incurred in the year ended March 31, 2022, and (9) gain on disposal of long-lived assets of $452,522 in the year ended March 31, 2023. For the year ended March 31, 2022, net cash used in operating activities from discontinued operation was primarily the payment to investors of the discontinued P2P platform of $1.7 million, offset by the net cash inflow of approximately $1.6 million for the year ended March 31, 2022. Cash Flow in Investing Activities For the year ended March 31, 2018, net cash used in operating activities was $813,780 as compared to2023, we had net cash provided by operatinginvesting activities of $1,324,449$320,528. The majority net cash provided by investing was for the year ended March 31, 2017, representing a change of $2,138,229. For the year ended March 31, 2018, netting off against the increase in net loss of $9,858,972, the change in net cash used operating activities primarily resultedproceeds from impairments of intangible assets and goodwill totaling $8,179,381, and a change of $1,518,609 in the balance of prepayments, receivables and other assets, netting off against the increase in amortization expenses of $658,597 arising from intangible assets acquired in our acquisitionsales of the platform. used-automobiles and rendered automobiles of $1,498,024, which was offset by the expenditures on the licenses of $26,420 for online ride-hailing platforms in different cities in China and purchase of automobiles for operating lease purpose of $1,151,076. For the year ended March 31, 2017, net cash provided by operating activities was $1,324,449, as compared to net cash used in operating activities of $241 for the year ended March 31, 2016, representing a change of $1,324,690. Netting off against the increase in net loss of $582,371, the change in net cash provided by operating activities primarily resulted from collection of receivables from a third party of $1,485,806 and the increase in amortization expenses of $324,710 arising from intangible assets acquired in our acquisition of the platform. Cash Flow in Investing Activities
We2022, we had net cash used in investing activities of $2,990 for the year ended March 31, 2018,$3,477,125, which primarily consisted of the payment for the purchase of office equipment.
We had net cash used in investing activities of $1,246,018$3,365,915 from continuing operations and $111,210 from discontinued operations. The majority net cash used in investing was for the year ended March 31, 2017, which primarily consistedpurchase of automobiles for operating lease purpose of $3,223,992 and expenditures on the paymentlicenses of $10,099,444$141,730 for the acquisition of our platform, partially offset by the proceeds from disposal of a subsidiary of $8,914,833.
online ride-hailing platforms in different cities in China. Cash Flow in Financing Activities For the year ended March 31, 2023, we had net cash used in financing activities of $373,834, which primarily consisted of: (1) principal payments made for finance lease liabilities of $392,145, (2) repayments of current borrowings from a financial institution of $125,840, partially offset by (3) repayment from related parties and affiliates of $144,151. For the year ended March 31, 2018, the2022, we had net cash provided by financing activities was mainly theof $9,755,410, which primarily consisted of: (1) total net proceeds of $11,052,972approximately $5.8 million from our initialregistered public offering and net proceeds of $725,227 borrowedin May 2021, approximately $4.4 million from stockholders. For the year ended March 31, 2017, the net cash provided by financing activities was mainly the proceeds borrowed from stockholders.
our private placement in November 2021, and $22,015 from exercised warrants from investors, respectively; (2) borrowings from a financial institution of $183,390, partially offset by (3) principal payments made for finance lease liabilities of $433,611, and (4) repayments to related parties and the financial institution of $157,374. Off-Balance Sheet Arrangements The Company does notAs of the date of this Report, we have anythe following off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on itsour financial condition, revenues or expenses, results of operations liquidity, capital expenditures or capital resources thatand liquidity:
On February 22, 2021, we entered into a purchase contract with an automobile dealer to purchase a total of 200 automobiles for the amount of approximately $3.4 million. Pursuant to the contract, we are materialrequired to investors.purchase 100 automobiles in cash with the amount of approximately $1.7 million. The remaining 100 automobiles purchase commitment with the amount of approximately $1.7 million shall be completed with financing option through the dealer’s designated financial institutions. As of the date of this Report, 100 automobiles of the contract signed in February 2021 have been purchased in cash and delivered to us. And on May 15, 2023, both parties decided to terminate the remaining 100 automobiles purchase through a termination agreement. On September 23, 2022, we entered into a purchase contract with an automobile dealer to purchase a total of 100 automobiles for the amount of approximately $1.6 million, of which approximately $0.7 million has been remitted as purchase prepayments, and we expect to fulfill the purchase commitment before December 31, 2023. InflationOn March 28, 2023, we entered into another purchase contract with an automobile dealer to purchase a total of 50 automobiles for the amount of approximately $0.8 million, of which 30 automobiles of approximately $0.34 million have been purchased in cash and delivered to us, and we expect to fulfill the purchase commitment before December 31, 2023.
We are exposed to credit risk as we are required by certain financial institutions to provide guarantee on the lease/loan payments (including principal and interests) of the automobile purchasers referred by us. As of March 31, 2023, the maximum contingent liabilities we would be exposed to was approximately $9,691, assuming all the automobile purchasers were in default, which may cause an increase in guarantee expense and cash outflow in financing activities. Besides, the maximum contingent liabilities our former VIE, Jinkailong, would be exposed to was approximately $3.9 million, assuming all the automobile purchasers were in default, which may cause an increase in guarantee expense and cash outflow in its own financing activities. As Hunan Ruixi holds 35% of equity interest of Jinkailong and has not made any consideration towards to the investment, Hunan Ruixi will subject to the maximum amount of RMB3.5 million (approximately $510,000) of which is equivalent to 35% of liabilities in case Jinkailong is liquidated in accordance with PRC’s company registry compliance. Inflation We do not believe our business and operations have been materially affected by inflation. Critical Accounting PoliciesEstimates Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United Statesand accompanying notes requires our managementus to make assumptions, estimates and judgments that affect the reported amounts reported, including the notes thereto,of assets, liabilities, revenues and expenses, and related disclosuresdisclosure of commitmentscontingent assets and contingencies, if any.liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We have identified certain accounting policiesestimates that are significant to the preparation of our consolidated financial statements. These accounting policiesestimates are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management'smanagement’s current judgments. We believe the following critical accounting policiesestimates involve the most significant estimates and judgments used in the preparation of our financial statements. In presenting the consolidated financial statements.statements in accordance with U.S. GAAP, management make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgement and available information. Accordingly, actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions using the currently available information. Changes in facts and circumstances may cause us to revise our estimates. we base our estimates on past experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Estimates are used when accounting for items and matters including, but not limited to the critical accounting estimates as follows. When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions. Our critical accounting policies and practices include the following: (i) fair values of financial instruments, including derivative liabilities; (ii) accounts receivable, net; (iii) inventories; (iv) property and equipment, net; (v) intangible assets, net; (vi) goodwill; (vii) revenue recognition; and (viii) leases - lessee. See Note 2—Summary of Significant Accounting Policies to our consolidated financial statements for the disclosure of these accounting policies. We believe the following accounting estimates involve the most significant judgments used in the preparation of our financial statements. (a) | (a) | Intangible assetsDerivative liabilities |
A contract is designated as an asset or a liability and is carried at fair value on a company’s balance sheet, with any changes in fair value recorded in a company’s results of operations. We then determine which options, warrants and embedded features require liability accounting and records the fair value as a derivative liability by using Black-Scholes model. The changes in the values of these instruments are shown in the accompanying consolidated statements of operations and comprehensive income (loss) as “change in fair value of derivative liabilities”. Leases - Lessor On September 25, 2016, Sichuan Senmiao acquired a peer-to-peer platform(including website, ICP license, operating systems, servers, and management system, collectively “Platform”) and relevant employees and usersWe recognized revenue as lessor in accordance with ASC 842. We recognized sales from sales-type leases equal to the present value of the Platformminimum lease payments discounted using the implicit interest rate in the lease and cost of sales equal to carrying amount of the asset being leased and any initial direct costs incurred, less the present value of the unguaranteed residual. Interest income from Chenghexin, who had establishedthe lease is recognized in financing revenues over the lease term. Operating leases and operatedrevenue is recognized over the platformterm of the lease. The basis of the amount of revenue that is recognized since it isn’t straight-line basis
We exclude from the measurement of our lease revenues any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer. We consider the economic life of most of automobile to be three to five years, since this represents the most common long-term lease term for twoour automobile and the automobile will be used for online ride-hailing services. We believe three to five years prioris representative of the period during which the automobile is expected to be economically usable, with normal service, for the purpose for which it is intended. Our lease pricing interest rates, which are used in determining customer payments in a bundled lease arrangement, are developed based upon the local prevailing rates in the marketplace where its customer will be able to obtain an automobile loan under similar terms from the bank. We reassess our pricing interest rates quarterly based on changes in the local prevailing rates in the marketplace. As of March 31, 2023, our pricing interest rate is 6.0% per annum. Share-based awards are measured at fair value on grant date and share-based compensation expense is recognized (i) immediately at the grant date if no vesting conditions are required, or (ii) using the straight-line basis, net of estimated forfeitures, over the requisite service period. The fair value of restricted shares is determined with reference to the Acquisition. Priorfair value of the underlying shares. At each date of measurement, we review internal and external sources of information to assist in the estimation of various attributes to determine the fair value of the share-based awards granted by us, including but not limited to the Acquisition, Sichuan Senmiao was a holding companyfair value of the underlying shares, expected life, expected volatility and expected forfeiture rates. We are required to consider many factors and make certain assumptions during this assessment. If any of the assumptions used to determine the fair value of the share-based awards changes significantly, share-based compensation expense may differ materially in the future from that owned a 60% equity interestrecorded in an equity investment fund management company. Sichuan Senmiao sold its 60% equity interest for a cash consideration of RMB 60,000,000 (US$8,914,833) immediately following the Acquisition, in order to focuscurrent reporting period. Finance and operating lease ROU assets and lease liabilities are recognized at the commencement date based on the online marketplace lending business.present value of lease payments over the lease term. Since the implicit rate for our leases is not readily determinable, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that we would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and over a similar term. Lease terms used to calculate the present value of lease payments generally do not include any options to extend, renew, or terminate the lease, as we do not have reasonable certainty at lease inception that these options will be exercised. We generally consider the economic life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. We have elected the short-term lease exception; therefore, operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. The leases generally do not provide a residual guarantee. The finance or operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term for operating lease. Meanwhile, we recognize the finance leases ROU assets and interest on an amortized cost basis. The amortization of finance ROU assets is recognized on a straight-line basis as amortization expense, while the lease liability is increased to reflect interest on the liability and decreased to reflect the lease payments made during the period. Interest expense on the lease liability is determined each period during the lease term as the amount that results in a constant periodic interest rate of the automobile loans on the remaining balance of the liability. We review the impairment of our ROU assets consistent with the approach applied for our other long-lived assets. We review the recoverability of its long-lived assets when events or changes in circumstances occur, indicating that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. We have elected to include the carrying amount of operating lease liabilities in any tested asset group and include the associated operating lease payments in the undiscounted future pre-tax cash flows. The acquisition was accountedCompany accounts for underits business combinations using the acquisition method of accounting which requiredin accordance with ASC 805 “Business Combinations.” The cost of an acquisition is measured at the aggregate of the acquisition date fair value of the assets transferred to the sellers and liabilities incurred by the Company to perform an allocation of the purchase priceand equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets acquired. Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based onliabilities acquired or assumed are measured separately at their estimated fair values as of the acquisition date.date, irrespective of the extent of any non-controlling interests. (f) | Impairment of long-lived assets and goodwill |
Long-lived assets PurchasedLong-lived assets, including property and equipment and intangible assets are recognized and measured at fair value upon acquisition. Separately identifiable intangible assets that have determinablewith finite lives continue to be amortized over their estimated useful lives using the straight-line method as follows:
Platform | 7 years | Customer relationship | 10 years |
Separately identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amountvalue of such assetsan asset may not be recoverable. DeterminationWe assess the recoverability of recoverability isthe assets based on an estimate ofthe undiscounted future cash flows resultingthe assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. Measurementplus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment loss for identifiable intangible assets is based on the amount by whichidentified, we would reduce the carrying amount of the assets exceeds theasset to its estimated fair value ofbased on a discounted cash flows approach or, when available and appropriate, to comparable market values.
Goodwill We review the assets. For the years ended March 31, 2018 and 2017, the Company recorded an impairment charge against platform in the amount of $2,000,175 and nil, respectively.
Goodwill represents the excess of the purchase consideration over the faircarrying value of the identifiable tangible and intangible assets acquired and liabilities assumed of the acquired entity or business as a result of the Company’s acquisitions of interests in its subsidiaries and VIE and business. Goodwill is not amortized but is tested forsubject to amortization, including goodwill, to determine whether impairment on an annual basis,may exist annually or more frequently if events or changes inand circumstances indicate that it might be impaired.is more likely than not that an impairment has occurred. The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Inin accordance with ASC 350-20. If the Company believes, as a result of the qualitative assessment, the Company considers primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations. Based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the carrying amount, the quantitative impairment test is performed.
In performing the two-step quantitative impairment test thedescribed below is required.
The first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combinationacquisition with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for the purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units, and determining theEstimating fair value of each reporting unit. is performed by utilizing various valuation techniques, with the primary technique being a discounted cash flow. For the yearsyear ended March 31, 2018 and 2017,2023, we did not record impairment against goodwill. For the Companyyear ended March 31, 2022, we recorded an impairment chargeof $139,930 against goodwillgoodwill. (g)Allowances for doubtful accounts Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of account receivable, finance receivable, prepayment, other receivables and other assets, and due from related parties. Management also periodically evaluates above mentioned account’s corresponding parties’ financial condition, credit history and the current economic conditions to make adjustments in the amountallowance when necessary. Above mentioned account balances are charged off against the allowance after all means of $6,179,206collection have been exhausted and nil, respectively.the potential for recovery is considered remote. (h)Inventory obsolescence Inventories consist of automobiles which are held primarily for sale and for leasing purposes, and are stated at lower of cost or net realizable value, as determined using the weighted average cost method. Management compares the cost of inventories with the net realizable value and if applicable, an allowance is made for writing down the inventory to its net realizable value, if lower than cost. On an ongoing basis, inventories are reviewed for potential write-down for estimated obsolescence or unmarketable inventories which equals the difference between the costs of inventories and the estimated net realizable value based upon forecasts for future demand and market conditions. When inventories are written-down to the lower of cost or net realizable value, it is not marked up subsequently based on changes in underlying facts and circumstances. | (i) | (c) | Revenue recognitionValuation of deferred tax assets |
The Company recognizes revenue when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured.
During the years ended March 31, 2018 and 2017, the Company generates revenues primarily from service fees in matching investors with borrowers and for other services provided over the life of a loan.
Borrowers and Creditor Partners — Transaction fees are paid by borrowers and credit partners to the Company for the work the Company performs through its platform at the time of loan issuance. The amount of these fees is based upon the loan amount and other terms of the loan, including credit grade, maturity and other factors. The fees charged to borrowers and creditor partners are paid (i) upon disbursement of the proceeds for loans accruing interest on a monthly basis and (ii) upon full payment of principal and interest of loans accruing interest on a daily basis. These fees are non-refundable upon the issuance of loan.
Investors — The Company charges investors a service fee on their actual investment return. As a general practice, the Company generally received the service fees upon the investors receiving their investment return. The Company recognizes the revenue when loan was repaid and investor received their investment income.
The Company accounts for income taxes in accordance with the U.S. GAAP for income taxes. Under the asset and liability method as required by this accounting standard, the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes.
The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent that it is probable that taxable income to be utilized with prior net operating loss carried forward. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Company did not have significant unrecognized uncertain tax positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of March 31, 2018 and 2017. As of March 31, 2018, the tax years ended December 31, 2013 through 2017 for the Company’s PRC entities remain open for statutory examination by PRC tax authorities.
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Not required for smaller reporting companies. | Item 8. | Financial Statements and Supplementary Data |
The financial statements required by this item begin on page F-1 hereof. Index to Financial Statements 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors and Stockholdersof Senmiao Technology Limited Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Senmiao Technology Limited (the “Company”) as of March 31, 2018 and2023, the related consolidated statementsstatement of operations andoperation, comprehensive loss, changes in stockholders’ equity and cash flowsflow for the year ended March 31, 20182023, and the related notes (collectively referred to as the “consolidated financial statements)statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Senmiao Technology Limitedthe Company as of March 31, 2018,2023, and the results of their operationsits operation and theirits cash flow for the year ended March 31, 2018,2023, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit providesprovides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current year audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ FriedmanMarcum Asia CPAs LLP Marcum Asia CPAs LLP We have served as the Company’s auditor since 2018.2018 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum Asia CPAs LLP effective September 1, 2022) New York, New York June 29, 2018July 12, 2023
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors and SENMIAO TECHNOLOGY LIMITEDStockholders of Senmiao Technology Limited
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SENMIAO TECHNOLOGY LIMITED (the “Company”Senmiao Technology Limited (collectively, the “Company”) as of March 31, 2017,2022 and 2021, and the related consolidated statements of operations andcomprehensive loss,income (loss), changes in stockholders’equity, and cash flows for each of the yearyears in the two-year period endedMarch 31, 2017,2022, and the related notes (collectively referred to as the “consolidated financial statements). In our opinion, the consolidated financial statements”). present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Consideration of the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company had incurred significant working capital deficiency and accumulated deficit at March 31, 2022, net loss from continuing operations and net operating cash flows for the year ended March 31, 2022. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. If the Company is unable to successfully obtain the necessary additional financial support as specified in Note 2, there could be a material adverse effect on the Company. Basis for Opinion These consolidated financial statements are the responsibility of the Company’sCompany’s management. Our responsibility is toexpress an opinion on thesethe Company’s consolidated financial statements based on our audits. We conducted our audits in accordanceare a public accounting firm registered with standards of the Public Company Accounting Oversight Board (United States). (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company wasis not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits includeincluded performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. Our audits also include assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2017, and the results of its operations and its cash flows for the year ended March 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 3 to the consolidated financial statements, the consolidated financial statements for the year ended March 31, 2017 have been restated to correct misstatements.
/s/ ZH CPAFriedman LLP Vancouver, CanadaWe have served as the Company’s auditor since 2018 through 2022
New York, New York September 28, 2017, except for the effectsJuly 14, 2022
| | | | One Liberty Plaza, 165 Broadway, 21st Floor, New York, NY 10006 p 212.842.7000 | friedmanllp.com | | | | Your livelihood, empowered. | An Independent Member Firm of DFK with offices worldwide. | 
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SENMIAO TECHNOLOGY LIMITED CONSOLIDATED BALANCE SHEETS As of March 31, 2018 and 2017
(Expressed in U.S. dollar, except for the number of shares) | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | ASSETS | | | | | | | Current assets | | | | | | | Cash and cash equivalents | | $ | 1,610,090 | | $ | 1,185,221 | Accounts receivable, net, current portion | | | 158,435 | | | 418,022 | Accounts receivable, a related party | | | 6,312 | | | — | Inventories | | | 6,678 | | | 286,488 | Finance lease receivables, net, current portion | | | 146,114 | | | 314,264 | Prepayments, other receivables and other assets, net | | | 1,438,243 | | | 2,713,208 | Due from related parties, current portion, net | | | 1,488,914 | | | 682,335 | Total current assets | | | 4,854,786 | | | 5,599,538 | | | | | | | | Property and equipment, net | | | 3,343,457 | | | 5,658,773 | | | | | | | | Other assets | | | | | | | Operating lease right-of-use assets, net | | | 121,672 | | | 109,621 | Operating lease right-of-use assets, net, related parties | | | 92,916 | | | 515,906 | Financing lease right-of-use assets, net | | | 623,714 | | | 305,933 | Intangible assets, net | | | 774,324 | | | 959,551 | Accounts receivable, net, noncurrent | | | — | | | 69 | Finance lease receivables, net, noncurrent | | | 71,133 | | | 92,980 | Due from a related party, noncurrent | | | 3,640,206 | | | 6,635,746 | Other non-current assets | | | 716,407 | | | — | Total other assets | | | 6,040,372 | | | 8,619,806 | | | | | | | | Total assets | | $ | 14,238,615 | | $ | 19,878,117 | | | | | | | | LIABILITIES, MEZZANNIE EQUITY AND EQUITY | | | | | | | Current liabilities | | | | | | | Borrowings from a financial institution | | $ | 8,813 | | $ | 145,542 | Accounts payable | | | 183,645 | | | 14,446 | Advances from customers | | | 148,188 | | | 120,629 | Accrued expenses and other liabilities | | | 3,377,507 | | | 2,444,367 | Due to related parties and affiliates | | | 8,667 | | | 11,682 | Operating lease liabilities | | | 60,878 | | | 50,177 | Operating lease liabilities - related parties | | | 143,462 | | | 330,781 | Financing lease liabilities | | | 264,052 | | | 304,557 | Derivative liabilities | | | 501,782 | | | 2,215,204 | Current liabilities - discontinued operations | | | 487,829 | | | 528,426 | Total current liabilities | | | 5,184,823 | | | 6,165,811 | | | | | | | | Other liabilities | | | | | | | Operating lease liabilities, non-current | | | 83,485 | | | 47,910 | Operating lease liabilities, non-current - related parties | | | 42,247 | | | 226,896 | Financing lease liabilities, non-current | | | 388,064 | | | 1,376 | Deferred tax liability | | | 42,930 | | | 46,386 | Total other liabilities | | | 556,726 | | | 322,568 | | | | | | | | Total liabilities | | | 5,741,549 | | | 6,488,379 | | | | | | | | Commitments and contingencies (note 19) | | | | | | | | | | | | | | Mezzanine Equity | | | | | | | Series A convertible preferred stock (par value $1,000 per share, 5,000 shares authorized; 1,641 and 5,000 shares issued and outstanding at March 31, 2023 and 2022, respectively) | | | 269,386 | | | 820,799 | | | | | | | | Stockholders’ equity | | | | | | | Common stock (par value $0.0001 per share, 500,000,000 shares authorized; 7,743,040 and 6,186,783 shares issued and outstanding at March 31, 2023 and 2022, respectively) * | | | 773 | | | 618 | Additional paid-in capital | | | 43,355,834 | | | 42,803,045 | Accumulated deficit | | | (37,715,294) | | | (34,601,545) | Accumulated other comprehensive loss | | | (1,247,099) | | | (109,454) | Total Senmiao Technology Limited stockholders’ equity | | | 4,394,214 | | | 8,092,664 | | | | | | | | Non-controlling interests | | | 3,833,466 | | | 4,476,275 | | | | | | | | Total equity | | | 8,227,680 | | | 12,568,939 | | | | | | | | Total liabilities, mezzanine equity and equity | | $ | 14,238,615 | | $ | 19,878,117 |
| | | March 31, 2018 | | March 31, 2017 | | | | | | | | | (Restated) | | | ASSETS | | | | | | | | | | Current Assets | | | | | | | | | | Cash and cash equivalents | | $ | 11,141,566 | | | $ | 161,292 | | | Prepayments, receivables and other assets | | | 70,421 | | | | 19,476 | | | Total Current Assets | | | 11,211,987 | | | | 180,768 | | | | | | | | | | | | | Property and equipment, net | | | 8,872 | | | | 4,648 | | | | | | | | | | | | | Other Assets | | | | | | | | | | Intangible assets, net | | | 1,953,223 | | | | 4,237,451 | | | Goodwill | | | - | | | | 5,631,819 | | | Escrow receivable | | | 1,200,000 | | | | - | | | Total Assets | | $ | 14,374,082 | | | $ | 10,054,686 | | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | Current Liabilities | | | | | | | | | | Accrued expenses and other liabilities | | $ | 404,604 | | | $ | 90,256 | | | Due to stockholders | | | 1,090,808 | | | | 333,761 | | | Total Liabilities | | | 1,495,412 | | | | 424,017 | | | | | | | | | | | | | Commitments and Contingencies | | | | | | | | | | | | | | | | | | | | Stockholders' Equity | | | | | | | | | | Common stock (par value $0.0001 per share, 100,000,000 shares authorized; 25,879,400 and 20,250,000 shares issued and outstanding at March 31, 2018 and 2017, respectively)* | | | 2,588 | | | | 2,025 | | | Additional Paid-in capital | | | 23,611,512 | | | | 11,359,103 | | | Accumulated deficit | | | (10,481,669 | ) | | | (622,697 | ) | | Accumulated other comprehensive loss | | | (253,761 | ) | | | (1,107,762 | ) | | Total Equity | | | 12,878,670 | | | | 9,630,669 | | | Total Liabilities and Stockholders’ Equity | | $ | 14,374,082 | | | $ | 10,054,686 | |
*Giving retroactive effect for 1 for 2to the 1-for-10 reverse stock split effected on January 29, 2018.April 6, 2022 The accompanying notes are an integral part of the consolidated financial statements
SENMIAO TECHNOLOGY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the years ended March 31, 2018 and 2017
(Expressed in U.S. dollar, except for the number of shares)
| | | For the Years Ended March 31, | | | | | 2018 | | | 2017 | | | | | | | | (Restated) | | | Revenues | | $ | 494,897 | | | $ | 73,237 | | | Gross revenues | | | 494,897 | | | | 73,237 | | | | | | | | | | | | | Operating expenses | | | | | | | | | | Selling, general and administrative expenses | | | (1,517,804 | ) | | | (258,772 | ) | | Amortization of intangible assets | | | (659,558 | ) | | | (324,710 | ) | | Impairments of intangible assets and goodwill | | | (8,179,381 | ) | | | - | | | Total operating expenses | | | (10,356,743 | ) | | | (583,482 | ) | | | | | | | | | | | | Loss from operations | | | (9,861,846 | ) | | | (510,245 | ) | | | | | | | | | | | | Other income, net | | | 2,874 | | | | 476 | | | | | | | | | | | | | Loss before income taxes | | | (9,858,972 | ) | | | (509,769 | ) | | Income tax expense | | | - | | | | - | | | Net loss from continuing operations | | | (9,858,972 | ) | | | (509,769 | ) | | Net loss from discontinued operations, net of tax | | | - | | | | (86,876 | ) | | Net Loss | | | (9,858,972 | ) | | | (596,645 | ) | | Net loss attributable to non-controlling interest | | | - | | | | (8,763 | ) | | Net loss attributable to Senmiao Technology Limited | | $ | (9,858,972 | ) | | $ | (587,882 | ) | Net loss attributable to Senmiao Technology Limited from
continuing operations | | $ | (9,858,972 | ) | | $ | (509,769 | ) | | Net loss attributable to Senmiao Technology Limited from discontinued operations | | | - | | | | (78,113 | ) | | Net loss attributable to non-controlling interest | | | - | | | | (8,763 | ) | | | | | | | | | | | | Other comprehensive income (loss) | | | | | | | | | | Foreign currency translation adjustment | | | 854,001 | | | | (807,024 | ) | | Comprehensive Loss | | | (9,004,971 | ) | | | (1,403,669 | ) | | Less: comprehensive loss attributable to non-controlling interest | | | - | | | | (214,165 | ) | | Comprehensive loss attributable to Senmiao Technology Limited | | | (9,004,971 | ) | | | (1,189,504 | ) | | Comprehensive income attributable to Senmiao Technology Limited from discontinued operations | | | - | | | | 2,214 | | | Comprehensive loss attributable to Senmiao Technology Limited from continuing operations | | $ | (9,004,971 | ) | | $ | (1,191,718 | ) | | | | | | | | | | | | Weighted average number of common stock | | | | | | | | | | Basic* | | | 21,967,776 | | | | 20,250,000 | | | Diluted* | | | 21,967,776 | | | | 20,250,000 | | | | | | | | | | | | | Loss per share | | | | | | | | | | Basic and diluted loss for the period attributable to the stockholders of the Company* | | $ | (0.45 | ) | | $ | (0.03 | ) | | Loss per share from continuing operations | | | | | | | | | | Basic and diluted loss from continuing operations attributable to the stockholders of the Company* | | $ | (0.45 | ) | | $ | (0.03 | ) | | Loss per share from discontinued operations | | | | | | | | | | Basic and diluted loss from discontinued operations attributable to the stockholder of the Company* | | $ | - | | | $ | (0.00 | ) |
* Giving retroactive effect for 1 for 2 reverse stock split effected on January 29, 2018.
The accompanying notes are an integral part of the consolidated financial statements
SENMIAO TECHNOLOGY LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the years ended March 31, 2018 and 2017
(Expressed in U.S. dollar, except for the number of shares)
| | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | Additional | | | | | | other | | | | | | | | | | | | | | Paid-in | | | Accumulated | | | comprehensive | | | Non-controlling | | | | | | | | Common stock | | | capital | | | deficit | | | loss | | | interest | | | Total equity | | | | | Shares* | | | Par value | | | | | | | | | | | | | | | | | | Balance as of March 31, 2016 | | | 20,250,000 | | | $ | 2,025 | | | $ | 11,359,103 | | | $ | (34,815 | ) | | $ | (506,140 | ) | | $ | 6,200,699 | | | $ | 17,020,872 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | - | | | | - | | | | - | | | | (587,882 | ) | | | - | | | | (8,763 | ) | | | (596,645 | ) | | Foreign currency translation loss | | | - | | | | - | | | | - | | | | - | | | | (601,622 | ) | | | (205,402 | ) | | | (807,024 | ) | | Disposal of a subsidiary | | | - | | | | - | | | | - | | | | - | | | | - | | | | (5,986,534 | ) | | | (5,986,534 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of March 31, 2017 | | | 20,250,000 | | | | 2,025 | | | | 11,359,103 | | | | (622,697 | ) | | | (1,107,762 | ) | | | - | | | | 9,630,669 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Capital restructuring | | | 2,250,000 | | | | 225 | | | | (225 | ) | | | - | | | | - | | | | - | | | | - | | Issuance of common stock pursuant
to initial public offering, net of
issuance costs | | | 3,000,000 | | | | 300 | | | | 10,735,072 | | | | - | | | | - | | | | - | | | | 10,735,372 | | | Issuance of common stock pursuant to exercise of underwriter’s over-allotment option | | | 379,400 | | | | 38 | | | | 1,517,562 | | | | - | | | | - | | | | - | | | | 1,517,600 | | | Net loss | | | - | | | | - | | | | - | | | | (9,858,972 | ) | | | - | | | | - | | | | (9,858,972 | ) | | Foreign currency translation gain | | | - | | | | - | | | | - | | | | - | | | | 854,001 | | | | - | | | | 854,001 | | | Balance as of March 31, 2018 | | | 25,879,400 | | | $ | 2,588 | | | $ | 23,611,512 | | | $ | (10,481,669 | ) | | $ | (253,761 | ) | | $ | - | | | $ | 12,878,670 | |
* Giving retroactive effect for 1 for 2 reverse stock split effected on January 29, 2018.
The accompanying notes are an integral part of the consolidated financial statements SENMIAO TECHNOLOGY LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Expressed in U.S. dollar, except for the number of shares) | | | | | | | | | For the Years Ended March 31, | | | 2023 | | 2022 | Revenues | | | | | | | Revenues | | $ | 7,738,394 | | $ | 4,913,102 | Revenues, a related party | | | 344,120 | | | — | Total revenues | | | 8,082,514 | | | 4,913,102 | | | | | | | | Cost of revenues | | | | | | | Cost of revenues | | | (6,080,097) | | | (7,001,297) | Cost of revenues, a related party | | | (509,904) | | | — | Total cost of revenues | | | (6,590,001) | | | (7,001,297) | | | | | | | | Gross profit (loss) | | | 1,492,513 | | | (2,088,195) | | | | | | | | Operating expenses | | | | | | | Selling, general and administrative expenses | | | (6,142,447) | | | (9,035,142) | Provision for doubtful accounts, net of recovery | | | (1,487,889) | | | (235,279) | Impairments of inventories | | | (3,085) | | | (60,398) | Impairments of long-lived assets and goodwill | | | — | | | (142,974) | Total operating expenses | | | (7,633,421) | | | (9,473,793) | | | | | | | | Loss from operations | | | (6,140,908) | | | (11,561,988) | | | | | | | | Other income (expense) | | | | | | | Other income (expense), net | | | 664,001 | | | (107,444) | Interest expense | | | — | | | (5,893) | Interest expense on finance leases | | | (25,675) | | | (55,844) | Change in fair value of derivative liabilities | | | 1,711,889 | | | 6,951,482 | Issuance cost incurred for issuing series A convertible preferred stock | | | — | | | (821,892) | Total other income, net | | | 2,350,215 | | | 5,960,409 | | | | | | | | Loss before income taxes | | | (3,790,693) | | | (5,601,579) | | | | | | | | Income tax expense | | | — | | | (4,566) | | | | | | | | Net loss from continuing operations | | | (3,790,693) | | | (5,606,145) | | | | | | | | Loss from discontinued operations, net of applicable income taxes | | | — | | | (2,747,209) | Net gain from deconsolidation of VIEs - discontinued operations | | | — | | | 10,975,101 | Gain from discontinued operations | | | — | | | 8,227,892 | | | | | | | | Net (loss) income | | | (3,790,693) | | | 2,621,747 | | | | | | | | Net loss (income) attributable to non-controlling interests from continuing operations | | | 676,944 | | | (3,872,645) | Net loss attributable to non-controlling interests from discontinued operations | | | — | | | 714,274 | | | | | | | | Net loss attributable to the Company’s stockholders | | $ | (3,113,749) | | $ | (536,624) | | | | | | | | Net (loss) income | | $ | (3,790,693) | | $ | 2,621,747 | | | | | | | | Other comprehensive (loss) income | | | | | | | Foreign currency translation adjustment | | | (1,103,510) | | | 64,470 | | | | | | | | Comprehensive (loss) income | | | (4,894,203) | | | 2,686,217 | | | | | | | | less: Total comprehensive (loss) income attributable to noncontrolling interests | | | (642,809) | | | 3,142,520 | | | | | | | | Total comprehensive loss attributable to stockholders | | $ | (4,251,394) | | $ | (456,303) | | | | | | | | Weighted average number of common stock | | | | | | | Basic and diluted* | | | 7,195,781 | | | 5,726,997 | | | | | | | | Earning (loss) per share - basic and diluted* | | | | | | | Continuing operations | | $ | (0.43) | | $ | (1.66) | Discontinued operations | | | — | | | 1.56 | Net Loss per share - basic and diluted* | | $ | (0.43) | | $ | (0.10) |
*Giving retroactive effect to the 1-for-10 reverse stock split effected on April 6, 2022 | | | For the Years Ended March 31, | | | | 2018 | | 2017 | | | | | | (Restated) | | Cash Flows from Operating Activities: | | | | | | | | | | Net loss from continuing operations | | $ | (9,858,972 | ) | | $ | (509,769 | ) | | Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | | | | | | Depreciation of property and equipment | | | 3,580 | | | | 961 | | | Amortization of intangible assets | | | 659,558 | | | | 324,710 | | | Impairments of intangible assets and goodwill | | | 8,179,381 | | | | - | | | Changes in operating assets and liabilities: | | | | | | | | | | Prepayments, receivables and other assets | | | (52,744 | ) | | | 1,465,865 | | | Accrued expenses and other liabilities | | | 293,892 | | | | 43,475 | | | Due to stockholders | | | (38,475 | ) | | | - | | | | | | | | | | | | | Net Cash Used in Operating Activities from Discontinued Operations | | | - | | | | (793 | ) | | Net Cash (Used in)/Provided by Operating Activities | | | (813,780 | ) | | | 1,324,449 | | | | | | | | | | | | | Cash Flows from Investing Activities: | | | | | | | | | | Disposal of a subsidiary | | | - | | | | 8,914,833 | | | Purchases of property and equipment | | | (2,990 | ) | | | (1,975 | ) | | Purchases of intangible assets | | | - | | | | (59,432 | ) | | Consideration paid in a business acquisition | | | - | | | | (10,099,444 | ) | | Net Cash Used in Investing Activities | | | (2,990 | ) | | | (1,246,018 | ) | | | | | | | | | | | | | | | | | | | | | | Cash Flows From Financing Activities: | | | | | | | | | | Net Proceeds from issuance of common stock from initial public offering (“IPO”) | | | 9,641,604 | | | | - | | | Proceeds from exercise of underwriter’s over-allotment option | | | 1,411,368 | | | | - | | | Proceeds received from stockholders | | | 830,857 | | | | 341,736 | | | Repayments to stockholders | | | (105,630 | ) | | | - | | | Net Cash Provided by Financing Activities | | | 11,778,199 | | | | 341,736 | | | | | | | | | | | | | Effect of Exchange Rate Changes on Cash and cash equivalents | | | 18,845 | | | | (259,040 | ) | | | | | | | | | | | | Net Increase in cash and cash equivalents | | | 10,980,274 | | | | 161,127 | | | Cash and cash equivalents at Beginning of Year | | | 161,292 | | | | 165 | | | Cash and cash equivalents at End of Year | | $ | 11,141,566 | | | $ | 161,292 | | | | | | | | | | | | | Supplemental Cash Flow Information | | | | | | | | | | Cash paid for interest expense | | $ | - | | | $ | - | | | Cash paid for income tax | | $ | - | | | $ | - | | | Non-cash transaction in investing and financing activities | | | | | | | | | | Unpaid property and equipment purchases | | $ | 4,166 | | | $ | - | | | IPO issuance costs net against additional paid-in capital | | $ | 1,264,628 | | | $ | - | | | Escrow receivable in connection with IPO | | $ | 1,200,000 | | | $ | - | | | IPO expenses paid by the Company’s stockholders | | $ | 67,277 | | | $ | - | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements SENMIAO TECHNOLOGY LIMITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For the Years Ended March 31, 2023 and 2022 (Expressed in U.S. dollar, except for the number of shares) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | Additional | | | | other | | | | | | | | Common stock | | paid-in | | Accumulated | | comprehensive | | Non-controlling | | Total | | | Shares* | | Par value | | capital | | deficit | | loss | | interest | | equity | BALANCE, March 31, 2021 | | 4,978,073 | | $ | 498 | | $ | 40,759,807 | | $ | (34,064,921) | | $ | (838,671) | | $ | (3,284,143) | | $ | 2,572,570 | Net income (loss) | | — | | | — | | | — | | | (536,624) | | | — | | | 3,158,371 | | | 2,621,747 | Issuance of common stock and warrants in a registered direct offering, net of issuance costs | | 553,192 | | | 55 | | | 2,208,594 | | | — | | | — | | | — | | | 2,208,649 | Issuance of restricted stock units | | 9,546 | | | 1 | | | 104,999 | | | — | | | — | | | — | | | 105,000 | Exercise of Series A warrants into common stock | | 4,403 | | | 1 | | | 22,014 | | | — | | | — | | | — | | | 22,015 | Fair value of derivative liabilities upon exercise of warrants | | — | | | — | | | 45,674 | | | — | | | — | | | — | | | 45,674 | Issuance of common stock in purchase of XXTX’s remaining NCI | | 533,167 | | | 53 | | | (1,357,637) | | | — | | | (21,762) | | | 1,379,346 | | | — | Issuance of common stock for consulting service | | 100,000 | | | 10 | | | 652,990 | | | — | | | — | | | — | | | 653,000 | Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | 80,321 | | | (15,851) | | | 64,470 | Recognition of non-controlling interest from acquired equity interest of Sichuan Senmiao upon termination of the VIE agreement | | — | | | — | | | 366,604 | | | — | | | — | | | (366,604) | | | — | Deconsolidation of discontinued operation | | — | | | — | | | — | | | — | | | 670,658 | | | 3,605,156 | | | 4,275,814 | Additional shares of common stock round up adjustment due to retroactive effect of 1-for-10 reverse stock split | | 8,402 | | | — | | | — | | | — | | | — | | | — | | | — | BALANCE, March 31, 2022 | | 6,186,783 | | | 618 | | | 42,803,045 | | | (34,601,545) | | | (109,454) | | | 4,476,275 | | | 12,568,939 | Net loss | | — | | | — | | | — | | | (3,113,749) | | | — | | | (676,944) | | | (3,790,693) | Conversion of preferred stock into common stock | | 1,546,125 | | | 155 | | | 551,256 | | | — | | | — | | | — | | | 551,411 | Cashless exercise of November 2021 Investor warrants into common stock | | 10,132 | | | — | | | — | | | — | | | — | | | — | | | — | Fair value of derivative liabilities upon exercise of warrants | | — | | | — | | | 1,533 | | | — | | | — | | | — | | | 1,533 | Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (1,137,645) | | | 34,135 | | | (1,103,510) | BALANCE, March 31, 2023 | | 7,743,040 | | $ | 773 | | $ | 43,355,834 | | $ | (37,715,294) | | $ | (1,247,099) | | $ | 3,833,466 | | $ | 8,227,680 |
*Giving retroactive effect to the 1-for-10 reverse stock split effected on April 6, 2022 The accompanying notes are an integral part of the consolidated financial statements SENMIAO TECHNOLOGY LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in U.S. dollar, except for the number of shares) | | | | | | | | | For the Years Ended March 31, | | | 2023 | | 2022 | Cash Flows from Operating Activities: | | | | | | | Net income (loss) | | $ | (3,790,693) | | $ | 2,621,747 | Net income from discontinued operations | | | — | | | 8,227,892 | Net loss from continuing operations | | | (3,790,693) | | | (5,606,145) | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | Depreciation of property and equipment | | | 1,095,518 | | | 956,400 | Stock compensation expense | | | — | | | 653,000 | Issuance cost incurred for issuing series A convertible preferred stock | | | — | | | 821,892 | Amortization of right-of-use assets | | | 711,630 | | | 955,443 | Amortization of intangible assets | | | 184,215 | | | 160,831 | Provision for doubtful accounts, net of recovery | | | 1,487,889 | | | 235,279 | Impairments of inventories | | | 3,085 | | | 60,398 | Impairments of long-lived assets and goodwill | | | — | | | 142,974 | Gain on disposal of equipment | | | (452,522) | | | — | Change in fair value of derivative liabilities | | | (1,711,889) | | | (6,951,482) | Change in operating assets and liabilities | | | | | | | Accounts receivable | | | 224,673 | | | 4,456 | Accounts receivable, a related party | | | (6,327) | | | — | Inventories | | | 316,139 | | | (260,464) | Finance lease receivables | | | 258,932 | | | 634,103 | Prepayments, other receivables and other assets | | | 1,046,465 | | | 28,254 | Accounts payable | | | 170,703 | | | (31,434) | Advances from customers | | | 36,911 | | | 6,678 | Accrued expenses and other liabilities | | | 1,170,510 | | | (377,965) | Operating lease liabilities | | | (53,620) | | | (240,051) | Operating lease liabilities - related parties | | | (133,782) | | | (228,281) | Net cash provided by (used in) operating activities from continuing operations | | | 557,837 | | | (9,036,114) | Net cash used in operating activities from discontinued operations | | | — | | | (123,167) | Net Cash Provided by (Used in) Operating Activities | | | 557,837 | | | (9,159,281) | | | | | | | | Cash Flows from Investing Activities: | | | | | | | Purchases of property and equipment | | | (1,151,076) | | | (3,223,992) | Cash proceed from disposal of property and equipment | | | 1,498,024 | | | — | Purchases of intangible assets | | | (26,420) | | | (141,730) | Cash released upon termination of a VIE | | | — | | | (193) | Net cash provided by (used in) investing activities from continuing operations | | | 320,528 | | | (3,365,915) | Net cash used in investing activities from discontinued operations | | | — | | | (111,210) | Net Cash Provided by (Used in) Investing Activities | | | 320,528 | | | (3,477,125) | | | | | | | | Cash Flows from Financing Activities: | | | | | | | Net proceeds from issuance of common stock in registered direct offering | | | — | | | 5,771,053 | Net proceeds from issuance of common stock upon warrants exercised | | | — | | | 22,015 | Net proceeds from issuance of series A convertible preferred stock and warrants in a private placement offering | | | — | | | 4,369,937 | Borrowings from a financial institution | | | — | | | 183,390 | Repayments to related parties and affiliates | | | — | | | (117,761) | Repayments from related parties and affiliates | | | 144,151 | | | — | Repayments of current borrowings from financial institutions | | | (125,840) | | | (39,613) | Principal payments of finance lease liabilities | | | (392,145) | | | (433,611) | Net cash provided by (used in) financing activities from continuing operations | | | (373,834) | | | 9,755,410 | Net Cash Provided by (Used in) Financing Activities | | | (373,834) | | | 9,755,410 | | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | | (79,662) | | | (381,858) | | | | | | | | Net increase (decrease) in cash and cash equivalents | | | 424,869 | | | (3,262,854) | Cash and cash equivalents, beginning of the year | | | 1,185,221 | | | 4,448,075 | Cash and cash equivalents, end of the year | | $ | 1,610,090 | | $ | 1,185,221 | | | | | | | | Supplemental Cash Flow Information | | | | | | | Cash paid for interest expense | | $ | — | | $ | 5,893 | Cash paid for income tax | | | — | | | — | | | | | | | | Non-cash Transaction in Investing and Financing Activities | | | | | | | Recognition of other receivables from Jinkailong upon deconsolidation | | $ | — | | $ | 7,298,208 | Recognition of right-of-use assets and lease liabilities | | $ | 917,687 | | $ | 273,555 | Recognition of right-of-use assets and lease liabilities, related parties | | $ | 121,742 | | $ | 181,620 | Termination of right-of use assets and lease liabilities | | $ | 47,438 | | $ | — | Termination of right-of use assets and lease liabilities, related parties | | $ | 302,010 | | $ | — | Cashless exercise of November 2021 Investor warrants into common stock | | $ | 1,533 | | $ | — | Allocation of fair value of derivative liabilities for issuance of common stock | | $ | — | | $ | 7,932,341 | Allocation of fair value of derivative liabilities to additional paid in capital upon warrants exercised | | $ | — | | $ | 45,674 | Acquisition of XXTX'S minority interest with issuance of common stock at fair value | | $ | — | | $ | 1,972,717 |
The accompanying notes are an integral part of the consolidated financial statements Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 1. | ORGANIZATION AND PRINCIPAL ACTITIVIES |
1. ORGANIZATION AND PRINCIPAL ACTIVITIES Senmiao Technology Limited (“Senmiao” or the(the “Company”) is a U.S. holding company incorporated in the State of Nevada on June 8, 2017. The Company operates anits business in two segments: (i)automobile transaction and related services focusing on the online lending platformride-hailing industry in the People’s Republic of China (“PRC” or “China”) through the Company’s wholly owned subsidiaries, Sichuan Senmiao Yicheng Assets Management Co., Ltd., formerly named Yicheng Financial Leasing Co., Ltd., a PRC limited liability company (“Yicheng”), Chengdu Corenel Technology Co., Ltd., a PRC limited liability company (“Corenel”), and its majority owned subsidiaries, Chengdu Jiekai Yunli Technology Co., Ltd. (“Jiekai”), and Hunan Ruixi Financial Leasing Co., Ltd., a PRC limited liability company (“Hunan Ruixi”), and its equity investee company (an entity 35% owned by Hunan Ruixi) and former variable interest entity (“VIE”), Sichuan Senmiao RonglianJinkailong Automobile Leasing Co., Ltd., a PRC limited liability company (“Jinkailong”). (ii)online ride-hailing platform services through its own platform (known as Xixingtianxia) as described further below, since October 2020, through Hunan Xixingtianxia Technology Co., Ltd. , a PRC limited liability company (“ Sichuan Senmiao”XXTX”) in China connecting Chinese investors with individual and small- to-medium-sized enterprise (“SME”) borrowers. Through its platform, the Company offers quick and easy access to credit to borrowers and creditors and attractive investment returns for investors. The Company’s executive offices are located in Chengdu, Sichuan province, China.On July 28, 2017, the Company established, which is a wholly owned subsidiary of Sichuan Senmiao Zecheng Business Consulting Co., Ltd. (“WFOE,” or “SenmiaoSenmiao Consulting”), a PRC limited liability company and wholly-owned subsidiary of the Company. The Company’s ride hailing platform enables qualified ride-hailing drivers to provide transportation services in China.Chengdu, Changsha, Guangzhou, and other 23 cities in China as of the filing date of these consolidated financial statements.
Hunan Ruixi holds a business license for automobile sales and financial leasing and has been engaged in automobile financial leasing services and automobile sales since March 2019 and January 2019, respectively. Yicheng holds a business license for automobiles sale and has been engaged in automobile sales since June 2019. Yicheng used to have a license of financial leasing, which has been terminated since June 2022. The Company undertakes substantially all ofalso has been engaged in operating leasing services through Hunan Ruixi and its business activities in China through WFOEequity investee company, Jinkailong since March 2019. Jinkailong used to facilitate automobile sales and VIE, Sichuan Senmiao.financing transactions for its clients, who are primarily ride-hailing drivers and provides them operating lease and relevant after-transaction services. Sichuan Senmiao was established in China in June 2014. On September 18, 2017,11, 2020, Senmiao Consulting entered into an investment agreement relating to XXTX with all the original shareholders of XXTX (the “XXTX Investment Agreement”), pursuant to which Senmiao Consulting would make an investment of RMB3.16 million (approximately $0.46 million) in XXTX in cash and obtain a 51% equity interest. As of the filing date of these consolidated financial statements, the Company had remitted the full amount of investment to XXTX pertained to above mentioned XXTX Investment Agreement.
On October 23, 2020, the registration procedures for the change in shareholders and registered capital were completed and XXTX became a majority owned subsidiary of Senmiao Consulting. On February 5, 2021, Senmiao Consulting and all the original shareholders of XXTX entered into a seriessupplementary agreement related to XXTX’s Investment agreement (the “XXTX Increase Investment Agreement”). Under the XXTX Increase Investment Agreement, all the shareholders of contractual arrangements with SichuanXXTX agreed to increase the total registered capital of XXTX to RMB50.8 million (approximately $7.40 million). Senmiao Consulting shall pay another investment amounted to RMB36.84 million (approximately $5.36 million) in cash in exchange of additional 27.74% of XXTX’s equity interest. As of the filing date of these consolidated financial statements, the Company had remitted approximately RMB36.60 million ($5.33 million) to XXTX pertained to above mentioned XXTX Increase Investment Agreement. On October 22, 2021, the Company, Senmiao Consulting, XXTX and its equity holders (“Sichuan Senmiao Shareholders”other shareholders further entered into a Share Swap Agreement (the “Share Swap Agreement”)through WFOE, pursuant to obtain control and became the primary beneficiary of Sichuan Senmiao (the “Restructuring”). In connection with the Restructuring, as partial consideration for Sichuan Senmiao Shareholders’commitment to perform their obligations under a series of contractual arrangements,which the Company, issued an aggregatethrough Senmiao Consulting, purchased all of 45,000,000 sharesthe remaining equity interests the original shareholders hold in XXTX at a total purchase price of its common stock to Sichuan Senmiao Shareholders pursuant to certain subscription agreements dated September 18, 2017. On January 29, 2018,$3.5 million, payable in the Company’s board of directors and stockholders approved a one-for-two reverse stock split of all issued and outstanding shares of common stock, (the “Reverse Stock Split”).par value $0.0001 per share at a per share price of the average closing price of a share of common stock reported on the Nasdaq Capital Market for ten (10) trading days immediately preceding the date of the Share Swap Agreement. On November 9, 2021, the issuance of 533,167 (5,331,667 pre reverse split) shares of the Company’s common stock for this transaction has been completed and on December 31, 2021, the registration procedures for the change in shareholders was completed. As a result, the numberXXTX became a wholly-owned subsidiary of Senmiao Consulting.
As of the Company’s issued and outstanding sharesfiling date of common stock was reduced to 22,500,000 shares. The discussion and presentation ofthese consolidated financial statements, herein accounted forSenmiao Consulting has made a cumulative capital contribution of RMB39.76 million (approximately $5.79 million) to XXTX and the Restructuring retroactively as if it occurred on April 1, 2015. On September 25, 2016, Sichuan Senmiao acquired a peer-to-peer platform (including website, ICP license, operating systems, servers,remaining amount is expected to be paid before December 31, 2025. As of March 31, 2023, XXTX had seven wholly owned subsidiaries and management system) from Sichuan Chenghexin Investment and Asset Management Co., Ltd. (“Chenghexin”), whotwo of them had established and operated the platform for two years prior to the acquisition by Sichuan Senmiao (the “Acquisition”). Prior to the Acquisition, Sichuan Senmiao was a holding company that owned a 60% equity interest in an equity investment fund management company. Sichuan Senmiao sold its 60% equity interest for a cash considerationoperations.
In December 2020, Senmiao Consulting formed Corenel, with a registered capital of RMB10 million (approximately $1.6 million) in Chengdu City, Sichuan Province. Corenel is engaged in automobile operating leases since March 2021. In December 2020, Hunan Ruixi and a third party jointly formed a subsidiary, Chengdu Xichuang Technology Service Co., Ltd. (“Xichuang”), with a registered capital of RMB200,000 (approximately $32,000) in Chengdu City, Sichuan Province. Hunan Ruixi holds 70% of the equity interests of Xichuang. In August 2021, Hunan Ruixi signed an equity transfer agreement with another shareholder of Xichuang. Pursuant to the equity transfer agreement, another shareholder of Xichuang would transfer 30% of its shares to Hunan Ruixi for a consideration of zero. However, in November 2021, Xichuang was dissolved. The dissolution of Xichuang did not have a material impact to the Company’s financial results. In April 2021, the Company formed Senmiao Technology (Hong Kong)., Ltd. (“Senmiao HK”), with a registered capital of $10,000 in Hongkong. The Company holds 99.99% of the equity interests of Senmiao HK. As of the filing date of these consolidated financial statements, Senmiao HK has no operations. In March 2022, Corenel and another company in Chengdu formed Jiekai, with a registered capital of RMB500,000 (approximately $80,000). Corenel holds 51% of the equity interests of Jiekai. Jiekai is engaged in automobile operating lease business since April 2022. The following diagram illustrates the Company’s corporate structure, including its subsidiarysubsidiaries and consolidated variable interest entityequity investee company, as of the filing date of thisthese consolidated financial statements: 
Former VIE Agreements with Sichuan Senmiao According to a series of contractual arrangements (collectively “VIE Agreements”),Senmiao Consulting, Sichuan Senmiao is obligated to pay service fees to WFOE equal toRonglian Technology Co., Ltd. (“Sichuan Senmiao”) and all the net incomeshareholders of Sichuan Senmiao. Sichuan Senmiao’s operations are, in fact, directly controlled by the Company entirely. There are no unrecognized revenue-producing assets that are held by Sichuan Senmiao.
Each of the VIE Agreements is described in detail below:
Equity Interest Pledge Agreement
WFOE, Sichuan Senmiao and Sichuan(the “Sichuan Senmiao ShareholdersShareholders”) entered into an Equity Interest Pledge Agreement, pursuant to which Sichuan Senmiao Shareholders pledged all of their equity interest in Sichuan Senmiao to WFOE in order to guarantee the performance of Sichuan Senmiao’s obligations under the Exclusive Business Cooperation Agreement as described below. During the term of the pledge, WFOE is entitled to receiving any dividends declared on the pledged equity interest of Senmiao. The Equity Interest Pledge Agreement ends when all contractual obligations under the Exclusive Business Cooperation Agreement have been fully performed.
Exclusive Business Cooperation Agreement
Pursuant to an Exclusive Business Cooperation Agreement, byan Exclusive Option Agreement, Power of Attorneys, and amongTimely Report Agreements in September 2017 (collectively, the Company, WFOE,“Sichuan Senmiao VIE Agreements”). For the details of such agreements, refer to the audited financial statements contained in the annual report on Form 10-K filed with the SEC on July 15, 2022. According to the VIE Agreements, Senmiao Consulting was the primary beneficiary of Sichuan Senmiao and eachthe financial statements of Sichuan Senmiao are consolidated in the accompanying consolidated financial statements. Sichuan Senmiao suffered accumulated loss of approximately $18.0 million as of March 31, 2022 with shareholders’ deficiency of $7.6 million. Due to such loss from Sichuan Senmiao, on March 23, 2022, Senmiao Consulting and other shareholders with 94.5% equity interests of Sichuan Senmiao terminated the VIE Agreements and acquired Sichuan Senmiao’s 94.5% equity interests with total consideration of zero. Sichuan Senmiao became the majority owned subsidiary of Senmiao Consulting accordingly. The termination of the Sichuan Senmiao Shareholders, WFOE will provide Sichuan SenmiaoVIE Agreements had no significant impact on the consolidated financial statements.
Former Voting Agreements with complete technical support, business supportJinkailong’s Other Shareholders Hunan Ruixi entered into two voting agreements signed in August 2018 and related consulting services during the term of the agreement. The Sichuan Senmiao ShareholdersFebruary 2020, respectively, as amended (the “Voting Agreements”), with Jinkailong and Sichuan Senmiao have agreed not to engage any other party for the same or similar consultation services without WFOE’s prior consent. Further, Sichuan Senmiao Shareholders are entitled to receiveJinkailong’s shareholders holding an aggregate of 20,250,000 shares of common stock of the Company under the Exclusive Business Cooperation Agreement. The term of the Exclusive Business Cooperation Agreement is 10 years. WFOE may terminate the Exclusive Business Operation Agreement at any time upon prior written notice to Sichuan Senmiao and the Sichuan Senmiao Shareholders. Exclusive Option Agreement
65% equity interests. Pursuant to an Exclusive Option Agreement by and among WFOE, Sichuan Senmiao and eachthe Voting Agreements, all other Jinkailong’s shareholders will vote in concert with Hunan Ruixi on all fundamental corporate transactions in the event of a disagreement for periods of 20 years and 18 years, respectively, ending on August 25, 2038. On March 31, 2022, Ruixi entered into an Agreement for the Termination of the Agreement for Concerted Action by Shareholders of Jinkailong (the “Termination Agreement”), pursuant to which the Voting Agreements mentioned above was terminated as of the date of the Termination Agreement. The termination will not impair the past and future legitimate rights and interests of all parties in Jinkailong. As of March 31, 2023 and 2022, the parties no longer maintain a concerted action relationship with respect to the decision required to take concerted action at its shareholders meetings as stipulated in the Voting Agreements. Each party shall independently express opinions and exercise various rights such as voting rights and perform relevant obligations in accordance with the provisions of laws, regulations, normative documents and the Jinkailong’s articles of association. As a result of the Termination Agreement, the Company no longer has a controlling financial interest in Jinkailong and has determined that Jinkailong was deconsolidated from the Company’s Consolidated Financial Statements effective as of March 31, 2022. However, as Hunan Ruixi still holds 35% equity interests in Jinkailong, Jinkailong is the equity investee company of the Company since then. As of March 31, 2023 and 2022, the paid-in capital of Jinkailong is zero. In connection with the deconsolidation and in accordance with ASC 810-10-40-5, the Company recorded a gain on deconsolidation of Jinkailong on March 31, 2022 as follows: | | | | | | March 31, | | | 2022 | Carrying amount of net deficit of Jinkailong as of March 31, 2022 | | $ | 15,227,359 | Carrying amount of non-controlling interest | | | (3,605,156) | Cumulative currency translation adjustment removal | | | (670,658) | Net gain on deconsolidation of Jinkailong | | $ | 10,951,545 |
In addition, the Company recognized $7,298,208 of related party receivable from Jinkailong as of March 31, 2022, of which, $6,635,746 is required to be repaid over a period from April 2023 to December 2026 based on the agreement between the Company and Jinkailong, classified as due from related parties, noncurrent. Besides, the deconsolidation also excluded $31,263 receivables due from related parties, which was recorded by Jinkailong. As of March 31, 2023, the Company has outstanding balance due from Jinkailong amounted to $5,106,100, net of allowance, of which, $3,640,206 is to be repaid over a period from April 2024 to December 2026, classified as due from related party, noncurrent (refer to Note 4 and Note 17). As of March 31, 2023 and 2022, allowance for doubtful accounts due from Jinkailong amounted to $1,481,036 and $0, respectively. During the year ended March 31, 2023, the Company recorded allowances against the balance due from Jinkailong of $1,484,495. The Company determined that the deconsolidation of Jinkailong represented a major shift that had a major effect on the Company’s operations and financial results for the year ended March 31, 2022, which triggers discontinued operations accounting in accordance with ASC 205-20-45 as discussed in note 4. PowersFormer VIE Agreements with Youlu
On December 7, 2021, XXTX entered into a series of Attorney Eachcontractual arrangements (collectively, the “Youlu VIE Agreements”) with Youlu and each of its equity holders (“Youlu Shareholders”). The terms of Youlu VIE Agreements were similar to the Sichuan Senmiao Shareholders has entered into a power of attorney (the “Power of Attorney”) pursuant to which each of the Sichuan Senmiao Shareholders has authorized WFOE to act on his or her behalf as the exclusive agent and attorney with respect to all rights of such individual as a shareholder, including but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under PRC law and the Articles of Association of Sichuan Senmiao, including but not limitedVIE Agreements. According to the sale or transfer or pledge or disposition of the equity interests of Sichuan Senmiao owned by such shareholder; and (c) designating and appointing on behalf of the shareholders the legal representative, chairperson, director, supervisor, chief executive officer and other senior management members of Sichuan Senmiao. The Power of Attorney has the same term as the Exclusive Option Agreement.
Timely Report Agreement
The Company and Sichuan Senmiao entered into a timely report agreement pursuant to which Sichuan Senmiao agrees to make its officers and directors available to the Company and promptly provide all information required by the Company so that the Company can make necessary SEC and other regulatory reports in a timely fashion.
The Company has concluded that it is the primary beneficiary of Sichuan Senmiao and should consolidate its financial statements. The Company is the primary beneficiary based on the Power of Attorneys entered into as part of the VIE arrangements that each equity holder of Sichuan Senmiao assigned their rights as a shareholder of Sichuan Senmiao to the WFOE, the Company’s wholly owned subsidiary. These rights include, but are not limited to, attending shareholders’ meetings, voting on matters submitted for shareholder approval and appointing legal representatives, executive directors, supervisors and other senior management members. As such, the Company, through its WFOE, is deemed to hold all of the voting equity interest in Sichuan Senmiao. For the periods presented, the Company has not yet provided any financial or other support to Sichuan Senmiao. However, pursuant to Exclusive Business Cooperation Agreement, the Company may provide complete technical support, business support and related consulting services during the term of the VIE Agreements. Though not explicit in theYoulu VIE Agreements, Youlu was obligated to pay XXTX service fees approximately equal to its net income. Youlu’s entire operations were, in fact, directly controlled by XXTX. There were no unrecognized revenue-producing assets that were held by Youlu. However, on March 31, 2022, the Company may provide financial support to Sichuan Senmiao to meet its working capital requirements and capitalization purposes. The terms of theYoulu VIE Agreements were terminated by XXTX and Youlu Shareholders. As Youlu had limited operation, the Company's plan to provide financial support totermination had no significant impact on the VIE were considered in determining that the Company is the primary beneficiary of the VIE. Accordingly, the financial statements of the VIE are consolidated in the Company's consolidated financial statements.
TotalAfter Jinkailong and Youlu were deconsolidated from the Company’s consolidated financial statements at March 31, 2022, there were no assets and total liabilities from the Company’s former VIEs included in the Company’s financial statements going forward. Net revenue,
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS loss from operations and net loss of the VIEformer VIEs that were included in the Company’s consolidated financial statements for the years ended March 31, 2023 and 2022 are as follows: | | | | | | | | | For the Years Ended | | | March 31, | | | 2023 | | 2022 | Net revenue from continuing operations | | $ | — | | $ | 32,817 | Net revenue from discontinued operations | | $ | — | | $ | 6,830,116 | Loss from operations from continuing operations | | $ | — | | $ | (179,068) | Loss from operations from discontinued operations | | $ | — | | $ | (2,537,715) | Net loss from continuing operations attributable to stockholders | | $ | — | | $ | (175,283) | Net loss from discontinued operations attributable to stockholders | | | — | | | (2,032,934) | Net loss attributable to stockholders | | $ | — | | $ | (2,208,218) |
2.GOING CONCERN In assessing the Company’s liquidity, the Company monitors and analyzes its cash on-hand and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. Debt financing from financial institutions and equity financings have been utilized to finance the working capital requirements of the Company. The Company’s business is capital intensive. The Company’s management has considered whether there is substantial doubt about its ability to continue as a going concern due to (1) the net loss of approximately $3.8 million for the year ended March 31, 2023; (2) accumulated deficit of approximately $37.7 million as of March 31, 2018 and 2017 are2023; (3) the working capital deficit of approximately $0.4 million as follows: | | | March 31, 2018 | | March 31, 2017 | | | | | | | | Total assets | | $ | 10,425,056 | | | $ | 10,054,686 | | | Total liabilities | | $ | 1,413,485 | | | $ | 424,017 | |
As of March 31, 20182023; and 2017,(4) two purchase commitments of approximately $1.36 million for 120 automobiles. As of the VIE didfiling date of these consolidated financial statements, the Company has entered into two purchase contracts with two automobile dealers to purchase a total of 150 automobiles in the amount of approximately $2.4 million, of which, 30 automobiles of approximately $0.34 million have been purchased in cash and delivered to the Company, and approximately $0.7 million has been remitted as purchase prepayments. The remaining purchase commitment of approximately $1.36 million shall be remitted in installment to be completed before December 31, 2023.
Management has determined there is substantial doubt about its ability to continue as a going concern. If the Company is unable to generate significant revenue, the Company may be required to curtail or cease its operations. Management is trying to alleviate the going concern risk through the following sources: | ● | Equity financing to support its working capital; |
| ● | Other available sources of financing (including debt) from PRC banks and other financial institutions; and |
| ● | Financial support and credit guarantee commitments from the Company’s related parties. |
Based on the above considerations, management is of the opinion that the Company will probably not hold unrecognized revenue producing assets.have sufficient funds to meet its working capital requirements and debt obligations as they become due one year from the filing date of these consolidated financial statements, if the Company is unable to obtain additional financing. There is no assurance that the Company will be successful in implementing the foregoing plans or that additional financing will be available to the Company on commercially reasonable terms, or at all. There are a number of factors that could potentially arise that could undermine the Company’s plans, such as (i) changes in the demand for the Company’s services, (ii) PRC government policies, (iii) economic conditions in China and worldwide, (iv) competitive pricing in the automobile transaction and related service and ride-hailing industries, (v) changes in the Company’s relationships with key business partners, (vi) the ability of financial institutions in China to provide continued financial support to the Company’s customers, and (vii) the perception of PRC-based companies in the U.S. capital markets. The Company’s inability to secure needed financing when required could require material changes to the Company’s business plans and could have a material adverse effect on the Company’s ability to continue as a going concern and results of operations. The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of such uncertainties. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Net revenue, net income, operating, investing and financing cash flows(a) Basis of the VIE that were included in the Company's consolidated financial statements for the years ended March 31, 2018 and 2017 are as follows:
| | | For the Years Ended March 31, | | | | 2018 | | 2017 | | | | | | | | Net revenue | | $ | 494,897 | | | $ | 73,237 | | | Net loss | | $ | (1,473,911 | ) | | $ | (596,645 | ) | | Net Cash (Used in) Provided by Operating Activities | | $ | (718,896 | ) | | $ | 1,324,449 | | | Net Cash Used in Investing Activities | | $ | (2,990 | ) | | $ | (1,246,018 | ) | | Net Cash Provided by Financing Activities | | $ | 725,227 | | | $ | 341,736 | |
The Restructuring constituted a reorganization. As all of the above mentioned companies are under common control, this series of transactions account for as a reorganization of entities under common control at carrying value and the consolidated financial statements have been prepared as if the reorganization had occurred retroactively. The consolidated financial statements have been prepared as if the existing corporate structure had been in existence throughout all periods and the reorganization had occurred as of the beginning of the earliest period presented in the accompanying consolidated financial statements.
SENMIAO TECHNOLOGY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
presentation The accompanying consolidated financial statements of the Company has been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). | (b) | Basis of consolidation |
(b) Basis of consolidation The consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues, and expenses of all majority-owned subsidiaries and VIE over which the Company exercises control and, when applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary.subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. TheA subsidiary is an entity in which the Company, records income attributabledirectly or indirectly, controls more than one half of the voting power; or has the power to non-controlling interest ingovern the consolidated statementsfinancial and operating policies, to appoint or remove the majority of operations for any non-owned portionthe members of consolidated subsidiaries.the board of directors, or to cast a majority of votes at the meeting of directors. | (c) | Foreign currency translation |
(c) Foreign currency translation Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing aton the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates aton the date of the balance sheet dates.sheet. The resulting exchange differences are recorded in the statement of operations. The reporting currency of the Company and its subsidiaries and former VIEs is the U.S. dollars (“US$”) and the accompanying consolidated financial statements have been expressed in US$. In addition,However, the Company’s operating subsidiaries maintain their maintains the books and records in their respective localits functional currency, Chinese Renminbi (“RMB”), which is alsobeing the respective functional currency for each subsidiary as they are the primary currency of the economic environment in which each subsidiary operates. its operations are conducted. In general, for consolidation purposes, assets and liabilities of the Company and its subsidiaries whose functional currency is not the US$, are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of a foreign entitythe Company and its subsidiaries and former VIEs are recorded as a separate component of accumulated other comprehensive incomeloss within the statementconsolidated statements of changes in stockholders’ equity. Translation of amounts from RMB into US$ has been made at the following exchange rates for the respective periods: | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Balance sheet items, except for equity accounts | | 6.8676 | | 6.3400 |
| | | March 31, 2018 | | March 31, 2017 | | Balance sheet items, except for equity accounts | | | 6.2807 | | | | 6.8912 | |
| | | | | | | For the years ended March 31, | | | 2023 | | 2022 | Items in the statements of operations and comprehensive income (loss), and statements of cash flows | | 6.8516 | | 6.4178 |
| | | For the Years ended March 31, | | | | 2018 | | 2017 | | Items in the statements of operations and comprehensive loss, and statements of cash flows | | | 6.6269 | | | | 6.7304 | |
SENMIAO TECHNOLOGY LIMITED(d) Use of estimates
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
The preparation ofIn presenting the consolidated financial statements in conformityaccordance with U.S.GAAP requiresU.S. GAAP, management to make estimates and assumptions that affect the amounts reported amounts of assets and liabilities, disclosure of contingent assetsrelated disclosures. Estimates, by their nature, are based on judgment and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actualavailable information. Accordingly, actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. The Company bases its estimates on historicalpast experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The followingEstimates are someused when accounting for items and matters including, but not limited to, revenue recognition, residual values of the areas requiring significant judgmentsproperty and estimates:equipment, lease classification and liabilities, inventory obsolescence, right-of-use assets, determinations of the useful lives and valuation of long-lived assets, estimates of allowances for doubtful accounts and valuation assumptions in performing assetprepayments, estimates of impairment tests of long-lived assets and goodwill, and determinationvaluation of deferred tax
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS assets, estimated fair value used in business acquisitions, valuation of derivative liabilities, allocation of fair value of net identifiable assetsderivative liabilities, fair value used in a business acquisition.issuance of common stock and warrants exercised and other provisions and contingencies. | (e) | Fair values of financial instruments |
(e) Fair values of financial instruments ASCAccounting Standards Codification (“ASC”) Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Topic 825 excludes certain financial instruments and all nonfinancial assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying value of the Company.
The three levels of valuation hierarchy are defined as follows: Level 1 inputsInputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputsInputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. Level 3 inputsInputs to the valuation methodology are unobservable and significant to the fair value. The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2023 and 2022: | | | | | | | | | | | | | | | Carrying Value as of | | Fair Value Measurement as of | | | March 31, 2023 | | March 31, 2023 | | | | | | Level 1 | | Level 2 | | Level 3 | Derivative liabilities | | $ | 501,782 | | $ | — | | $ | — | | $ | 501,782 |
| | | | | | | | | | | | | | | Carrying Value as of | | Fair Value Measurement as of | | | March 31, 2022 | | March 31, 2022 | | | | | | Level 1 | | Level 2 | | Level 3 | Derivative liabilities | | $ | 2,215,204 | | $ | — | | $ | — | | $ | 2,215,204 |
The following is a reconciliation of the beginning and ending balance of the assets and liabilities measured at fair value on a recurring basis for the years ended March 31, 2023 and 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | August | | February | | | | | | | | | | | | | | | | | | | 2020 | | 2021 | | | | | | | | | | | | | | | | | | | | | Underwritten | | Registered | | May 2021 | | November 2021 | | | | | | 2019 Registered Direct Offering | | Public | | Direct | | Registered Direct Offering | | Private Placement | | | | | | Series A | | Placement | | Offering | | Offering | | Investors | | Placement | | Investors | | Placement | | | | | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Total | BALANCE as of March 31, 2021 | | $ | 80,268 | | $ | 163,572 | | $ | 397,525 | | $ | 637,561 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,278,926 | Derivative liabilities recognized at grant date | | | — | | | — | | | — | | | — | | | 3,313,864 | | | 248,541 | | | 4,060,857 | | | 310,173 | | | 7,933,435 | Change in fair value of derivative liabilities | | | (32,680) | | | (153,047) | | | (352,944) | | | (572,018) | | | (2,535,376) | | | (190,154) | | | (2,895,392) | | | (219,871) | | | (6,951,482) | Fair value of warrants exercised | | | (45,675) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (45,675) | BALANCE as of March 31, 2022 | | | 1,913 | | | 10,525 | | | 44,581 | | | 65,543 | | | 778,488 | | | 58,387 | | | 1,165,465 | | | 90,302 | | | 2,215,204 | Change in fair value of derivative liabilities | | | (1,912) | | | (10,520) | | | (36,131) | | | (54,052) | | | (616,527) | | | (46,240) | | | (879,170) | | | (67,337) | | | (1,711,889) | Cashless exercise on November 2021 investor warrants | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,533) | | | — | | | (1,533) | BALANCE as of March 31, 2023 | | $ | 1 | | $ | 5 | | $ | 8,450 | | $ | 11,491 | | $ | 161,961 | | $ | 12,147 | | $ | 284,762 | | $ | 22,965 | | $ | 501,782 |
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s Series A and Series B warrants, the June 2019 Placement Agent Warrants, the Underwriters’ Warrants, the ROFR Warrants, the May 2021 Investors Warrants, the May 2021 Placement Agent Warrants, and the November 2021 Investors Warrants and November 2021 Placement Agent Warrants are not traded in an active securities market; therefore, the Company estimates the fair value to those warrants using the Black-Scholes valuation model on June 20, 2019 (the grant date), August 4, 2020 (the grant date), February 10, 2021 (the grant date), May 13, 2021 (the grant date), November 10, 2021 (the grant date), as of March 31, 2023 and 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | June 20, 2019 | | August 4, 2020 | | February 10, 2021 | | May 13, 2021 | | November 10, 2021 | | | | Series A | | Series B | | Placement Agent | | Underwriters’ | | Placement Agent | | ROFR | | Investor | | Placement Agent | | Investor | | Placement Agent | | | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | # of shares exercisable* | | | 133,602 | | | 111,632 | | | 14,251 | | | 56,800 | | | 38,044 | | | 15,218 | | | 553,192 | | | 41,490 | | | 5,310,763 | | | 55,148 | | Valuation date | | | 6/20/2019 | | | 6/20/2019 | | | 6/20/2019 | | | 8/4/2020 | | | 2/10/2021 | | | 2/10/2021 | | | 5/13/2021 | | | 5/13/2021 | | | 11/10/2021 | | | 11/10/2021 | | Exercise price* | | $ | 37.20 | | $ | 37.20 | | $ | 33.80 | | $ | 6.30 | | $ | 13.80 | | $ | 17.30 | | $ | 10.50 | | $ | 10.50 | | $ | 1.13 | | $ | 6.80 | | Stock price* | | $ | 28.00 | | $ | 28.00 | | $ | 28.00 | | $ | 5.10 | | $ | 16.30 | | $ | 16.30 | | $ | 7.20 | | $ | 7.20 | | $ | 6.70 | | $ | 6.70 | | Expected term (years) | | | 4 | | | 1 | | | 4 | | | 5 | | | 5 | | | 5 | | | 5 | | | 5 | | | 5 | | | 5 | | Risk-free interest rate | | | 1.77 | % | | 1.91 | % | | 1.77 | % | | 0.19 | % | | 0.46 | % | | 0.46 | % | | 0.84 | % | | 0.84 | % | | 1.23 | % | | 1.23 | % | Expected volatility | | | 86 | % | | 91 | % | | 86 | % | | 129 | % | | 132 | % | | 132 | % | | 131 | % | | 131 | % | | 126 | % | | 126 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of March 31, 2023 | | | | | | | | | | August 4, | | | | | | | | | | | | | | | | | | June 20, 2019 | | 2020 | | February 10, 2021 | | May 13, 2021 | | November 10, 2021 | | | | Series A | | Placement Agent | | Underwriters’ | | Placement Agent | | ROFR | | Investor | | Placement Agent | | Investor | | Placement Agent | | Granted Date | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | # of shares exercisable | | | 2,590 | | | 14,251 | | | 31,808 | | | 38,044 | | | 15,218 | | | 553,192 | | | 41,490 | | | 5,310,763 | | | 55,148 | | Valuation date | | | 3/31/2023 | | | 3/31/2023 | | | 3/31/2023 | | | 3/31/2023 | | | 3/31/2023 | | | 3/31/2023 | | | 3/31/2023 | | | 3/31/2023 | | | 3/31/2023 | | Exercise price | | $ | 5.00 | | $ | 5.00 | | $ | 6.30 | | $ | 13.8 | | $ | 17.30 | | $ | 10.50 | | $ | 10.50 | | $ | 1.13 | | $ | 6.80 | | Stock price | | $ | 0.90 | | $ | 0.90 | | $ | 0.90 | | $ | 0.90 | | $ | 0.90 | | $ | 0.90 | | $ | 0.90 | | $ | 0.90 | | $ | 0.90 | | Expected term (years) | | | 0.22 | | | 0.22 | | | 2.35 | | | 0.87 | | | 0.87 | | | 3.12 | | | 3.12 | | | 3.62 | | | 3.62 | | Risk-free interest rate | | | 1.02 | % | | 1.02 | % | | 4.02 | % | | 3.95 | % | | 4.43 | % | | 3.80 | % | | 3.80 | % | | 3.74 | % | | 3.74 | % | Expected volatility | | | 120 | % | | 120 | % | | 120 | % | | 120 | % | | 120 | % | | 120 | % | | 120 | % | | 120 | % | | 120 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of March 31, 2022 | | | | June 20, 2019 | | August 4, 2020 | | February 10, 2021 | | May 13, 2021 | | November 10, 2021 | | | | Series A | | Placement Agent | | Underwriters’ | | Placement Agent | | ROFR | | Investor | | Placement Agent | | Investor | | Placement Agent | | Granted Date | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | Warrants | | # of shares exercisable* | | | 2,590 | | | 14,251 | | | 31,808 | | | 38,044 | | | 15,218 | | | 553,192 | | | 41,490 | | | 5,335,763 | | | 55,148 | | Valuation date | | | 3/31/2022 | | | 3/31/2022 | | | 3/31/2022 | | | 3/31/2022 | | | 3/31/2022 | | | 3/31/2022 | | | 3/31/2022 | | | 3/31/2022 | | | 3/31/2022 | | Exercise price* | | $ | 5.00 | | $ | 5.00 | | $ | 6.30 | | $ | 13.80 | | $ | 17.30 | | $ | 10.50 | | $ | 10.50 | | $ | 1.13 | | $ | 6.80 | | Stock price* | | $ | 2.30 | | $ | 2.30 | | $ | 2.30 | | $ | 2.30 | | $ | 2.30 | | $ | 2.30 | | $ | 2.30 | | $ | 2.30 | | $ | 2.30 | | Expected term (years) | | | 1.22 | | | 1.22 | | | 3.35 | | | 3.87 | | | 3.87 | | | 4.12 | | | 4.12 | | | 4.62 | | | 4.62 | | Risk-free interest rate | | | 1.77 | % | | 1.77 | % | | 2.44 | % | | 2.44 | % | | 2.44 | % | | 2.43 | % | | 2.43 | % | | 2.43 | % | | 2.43 | % | Expected volatility | | | 123 | % | | 123 | % | | 123 | % | | 123 | % | | 123 | % | | 123 | % | | 123 | % | | 123 | % | | 123 | % |
*Giving retroactive effect to the 1-for-10 reverse stock split effected on April 6, 2022. As of March 31, 20182023 and 2017,2022, financial instruments of the Company comprised primarily comprised ofcurrent assets and current liabilities including cash and cash equivalents, accounts receivable, inventories, finance lease receivables, prepayments, other receivables and other assets, escrow receivables,due from related parties, borrowings from financial institutions, accounts payable, advance from customers, lease liabilities, accrued expenses and other liabilities, and due to stockholders. The financial instruments were carried at cost on the balance sheets,related parties and carrying amounts approximatedaffiliates, and operating and financing lease liabilities, which approximate their fair values because of the short-term nature of these instruments, and non-current liabilities of borrowings from financial institutions, which approximate their generally short maturitiesfair values because of the stated loan interest rate to the rate charged by similar financial institutions. The non-current portion of accounts receivables, finance lease receivables, and non-interest bearing.operating and financing lease liabilities were recorded at gross adjusted for the interest using the effective interest rate method. The Company believes that the effective interest rates underlying these instruments approximate their fair values because the Company used its incremental borrowing rate to recognize the present value of these instruments as of March 31, 2023 and 2022. Other than as listed above, the Company did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value. | (f) | Cash and cash equivalents |
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (f) Equity method investments The Company accounts for investments in private company by using equity method as the Company determined that it does not have control over Jinkailong under either voting or VIE models in accordance with ASC 323 “Investments- Equity Method and Joint Ventures”. As of March 31, 2023 and 2022, the Company had equity investment in Jinkailong of 35% that the Company has significant influence over Jinkailong. The Company records equity method investments initially at cost and subsequently records its share of the earnings or losses of the investee in the periods for which they are reported by the investee in its financial statements rather than in the period in which an investee declares a dividend. The Company adjusts the carrying amount of an investment for its share of the earnings or losses of the investee after the date of investment and share report the recognized earnings or loses in income. If an investment balance is reduced to zero as a result of cumulative losses, the Company will need to pause the recognition of losses until its share of earnings exceeds the accumulated losses resulting in the investment balance returning to zero. As of March 31, 2023 and 2022, the carrying value of the investment is $0 for both periods presented. (g) Business combinations and non-controlling interests The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805 “Business Combinations.” The cost of an acquisition is measured at the aggregate of the acquisition date fair value of the assets transferred to the sellers and liabilities incurred by the Company and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated income statements. During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated income statements. For the Company’s non-wholly owned subsidiaries, a non-controlling interest is recognized to reflect portion of equity that is not attributable, directly or indirectly, to the Company. The cumulative results of operations attributable to non-controlling interests are also recorded as non-controlling interests in the Company’s consolidated balance sheets and consolidated statements of operations and comprehensive loss. Cash flows related to transactions with non-controlling interests are presented under financing activities in the consolidated statements of cash flows. (h) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (the “CODM”), which is comprised of certain members of the Company’s management team. During the years ended March 31, 2019 and 2021, the Company acquired Hunan Ruixi and XXTX, respectively. The Company evaluated how the CODM manages the businesses of the Company to maximize efficiency in allocating resources and assessing performance. Consequently, the Company presents two operating and reportable segments of automobile transaction and related services and online ride-hailing platform services as set forth in Notes 1 and 20. (i) Cash and cash equivalents Cash and cash equivalents primarily consistsconsist of bank deposits with original maturities of three months or less, which are unrestricted as to withdrawal and use. Cash and cash equivalents also consist of funds received from automobile purchasers as payments for automobiles, funds received from automobile lessees as payments for rentals, which were held at the third-party platforms’ fund accounts and which are unrestricted and immediately available for withdrawal and use. (j) Accounts receivable, net Accounts receivable are recorded at the invoiced amount less an allowance for any uncollectible accounts and do not bear interest, and are due on demand. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Account balances are charged off Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of March 31, 2023 and 2022, allowance for doubtful accounts amounted to $0 and $112,905, respectively. 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(k) Inventories | (g) | Property and equipment |
Inventories consist of automobiles which are held primarily for sale or sales-type leases purpose and are stated at lower of cost or net realizable value, as determined using the weighted average cost method. Management compares the cost of inventories with the net realizable value and if applicable, an allowance is made for writing down the inventory to its net realizable value, if lower than cost. On an ongoing basis, inventories are reviewed for potential write-down for estimated obsolescence or unmarketable inventories which equals the difference between the costs of inventories and the estimated net realizable value based upon forecasts for future demand and market conditions. When inventories are written-down to the lower of cost or net realizable value, it is not marked up subsequently based on changes in underlying facts and circumstances. For the years ended March 31, 2023 and 2022, $3,085 and $60,398 impairment of inventories was recorded, respectively. (l) Finance lease receivables, net Finance lease receivables, which result from sales-type leases, are measured at discounted present value of (i) future minimum lease payments, (ii) any residual value not subject to a bargain purchase option as finance lease receivables on its balance sheet and (iii) accrued interest on the balance of the finance lease receivables based on the interest rate inherent in the applicable lease over the term of the lease. Management also periodically evaluates individual customer’s financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Finance lease receivables is charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of March 31, 2023 and 2022, the Company determined no allowance for doubtful accounts was necessary for finance lease receivables. As of March 31, 2023 and 2022, finance lease receivables consisted of the following: | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Minimum lease payments receivable | | $ | 297,960 | | $ | 511,030 | Less: Unearned interest | | | (80,713) | | | (103,786) | Financing lease receivables, net | | $ | 217,247 | | $ | 407,244 | Finance lease receivables, net, current portion | | $ | 146,114 | | $ | 314,264 | Finance lease receivables, net, non-current portion | | $ | 71,133 | | $ | 92,980 |
Future scheduled minimum lease payments for investments in sales-type leases as of March 31, 2023 are as follows: | | | | | | Minimum future | | | payments receivable | Twelve months ending March 31, 2024 | | $ | 176,891 | Twelve months ending March 31, 2025 | | | 94,643 | Twelve months ending March 31, 2026 | | | 26,426 | Total | | $ | 297,960 |
(m) Property and equipment, net Property and equipment primarily consistsconsist of computerautomobiles, leasehold improvements, computers and other equipment, which isare stated at cost less accumulated depreciation less any provision required for impairment in value. Depreciation is computed using the straight-line method with no residual value based on the estimated useful life. The useful life of property and equipment areis summarized as follows: | | | Categories | | Useful life | Leasehold improvements | | Shorter of the remaining lease terms or estimated useful lives | Computer equipment | | Computer equipment | | | 2 - 5 years | Office equipment, fixture and furniture | | 3 - 5 years | Automobiles | | 3 - 5 years |
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the future net undiscounted cash flows that the asset is expected to generate. If such asset is considered to be impaired, the impairment recognized is the amount by which the carrying amount of the asset, if any, exceeds its fair value determined using a discounted cash flow model. For the years ended March 31, 20182023 and 2017, there was no2022, the Company did not recognize impairment offor property and equipment. equipment from continuing operations. For the years ended March 31, 2023 and 2022, the impairment for property and equipment was $0 and $32,479 from discontinued operations, respectively. Costs of repairs and maintenance are expensed as incurred and asset improvements are capitalized. The cost and related accumulated depreciation of assets disposed of or retired are removed from the accounts, and any resulting gain or loss is reflected in the consolidated income statements.statements of operations and comprehensive loss. On September 25, 2016, Sichuan Senmiao acquired a peer-to-peer platform(including website, ICP license, operating systems, servers, and management system, collectively “Platform”) and relevant employees and users of the Platform from Chenghexin, who had established and operated the Platform for two years prior to the Acquisition. Prior to the Acquisition, Sichuan Senmiao was a holding company that owned a 60% equity interest in an equity investment fund management company. Sichuan Senmiao sold its 60% equity interest for a cash consideration of RMB 60,000,000 (US$8,914,833) immediately following the Acquisition, in order to focus on the online marketplace lending business.
The Acquisition was accounted for under the acquisition method of accounting which required the Company to perform an allocation of the purchase price to the assets, acquired. Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their estimated fair values as of the acquisition date.
Purchased intangible assets are recognized and measured at fair value upon acquisition. Separately identifiable intangible assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method as follows: Platform | 7 years | | Customer relationshipCategories | 10 | Useful life | Software | | 5-10 years | Online ride-hailing platform operating license | | 2-10 years |
Separately identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for identifiable intangible assets is based on the amount by which the carrying amount of the assets exceeds the fair value of the assets. For the years ended March 31, 20182023 and 2017, the Company recorded an2022, there was no impairment charge against the Platform in the amount of $2,000,175 and nil, respectively.
SENMIAO TECHNOLOGY LIMITEDintangible assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
The Company accounted for its business combination using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill.
(o) Goodwill Goodwill represents the excess of the purchase consideration paid of an acquisition over the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed of the acquired entity or business as a resultsubsidiaries at the date of the Company’s acquisitions of interests in its subsidiary, VIE and business.acquisition. Goodwill is not amortized butand is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated statements of operations and comprehensive loss. Impairment losses on an annual basis,goodwill are not reversed. The Company reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist annually or more frequently if events or changes inand circumstances indicate that it might be impaired.is more likely than not that an impairment has occurred. The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Inin accordance with ASC 350-20. If the Company believes, as a result of the qualitative assessment, the Company considers primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations. Based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the carrying amount, the quantitative impairment test is performed. In performing the two-step quantitative impairment test thedescribed below is required.
The first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combinationacquisition with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for the purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units, and determining theEstimating fair value of each reporting unit. is performed by utilizing various valuation techniques, with the primary technique being a discounted cash flow. For the years ended March 31, 20182023 and 2017,2022, the Company recorded an impairment chargeof $0 and $139,930 against goodwill, in the amountrespectively. (p) Earnings (loss) per share Basic lossearnings (loss) per share is computed by dividing net lossincome (loss) attributable to stockholders by the weighted average number of outstanding shares of common stock, adjusted for outstanding shares of common stock that are subject to repurchase. For the calculation of diluted lossincome (loss) per share, net lossincome (loss) attributable to ordinary stockholders for basic lossearnings (loss) per share is adjusted by the effect of dilutive securities, including share-based awards, under the treasury stock method and convertible securities under the if-converted method. Potentially dilutive securities, of which the amounts are insignificant, have been excluded from the computation of diluted net lossearnings (loss) per share if their inclusion is anti-dilutive. As of March 31, 2023, the Company’s dilutive securities from the outstanding series A convertible preferred stock are convertible into approximately 820,706 shares of common stock. This amount is not included in the computation of dilutive loss per share because their impact is anti-dilutive. F-14(q) Mezzanine Equity (redeemable)
The Company evaluates its convertible preferred stock in accordance with ASU 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to determine if its convertible preferred stock should be treated as a liability or an equity. As a result, the Company determined that the convertible preferred stock should be treated as an equity as it did not meet the definition of liability instrument. In accordance with ASC 480-10-S99, the convertible preferred stock should be classified as a mezzanine equity, since it contained a change of control redemption right feature which is not solely within the control of the Company. The Company believes the future event of change of control is not probable as of March 31, 2023; therefore, the convertible preferred stock has not been remeasured to its redemption value. Subsequently, the Company adjust the initial carrying amount of the convertible preferred stock by the at redemption value method. As of March 31, 2023, there was no change to the initial carrying amount of the convertible preferred stock. (r) Derivative liabilities A contract is designated as an asset or a liability and is carried at fair value on the Company’s balance sheet, with any changes in fair value recorded in the Company’s results of operations. The Company then determines which options, warrants and embedded features require liability accounting and records the fair value as a derivative liability. The changes in the values of these instruments are shown in the consolidated statements of operations and comprehensive loss as “change in fair value of derivative liabilities”. (s) Revenue recognition The Company recognized its revenue under Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606). ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. It also requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. To achieve that core principle, the Company applies the five steps defined under ASC 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company accounts for a contract with a customer when the contract is entered into by the parties, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration to collect is substantially probable. As of March 31, 2023, the Company had outstanding contracts for automobile transaction and related services amounting to $18,952, of which $18,560 is expected to be completed within twelve months after March 31, 2023, and $392 is expected to be completed after March 31, 2024. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Disaggregated information of revenues by business lines are as follows: | | | | | | | | | For the Years Ended | | | March 31, | | | 2023 | | 2022 | Automobile Transaction and Related Services (Continuing Operations) | | | | | | | - Operating lease revenues from automobile rentals | | $ | 3,453,392 | | $ | 1,722,480 | - Service fees from NEVs leasing | | | 350,510 | | | 126,227 | - Revenues from sales of automobiles | | | 243,065 | | | 26,019 | - Financing revenues | | | 41,738 | | | 101,828 | - Service fees from management and guarantee services | | | 40,158 | | | 73,554 | - Service fees from automobile purchase services | | | 33,585 | | | 1,468 | - Other service fees | | | 210,121 | | | 196,069 | Total revenues from Automobile Transaction and Related Services (Continuing Operations) | | | 4,372,569 | | | 2,247,645 | Online Ride-hailing Platform Services (Continuing Operations) | | | 3,709,945 | | | 2,665,457 | Total Revenues from Continuing Operations | | | 8,082,514 | | | 4,913,102 | Automobile Transaction and Related Services (Discontinued Operations) | | | | | | | -Operating lease revenues from automobile rentals | | | — | | | 5,452,483 | - Service fees from NEVs leasing | | | — | | | 232,295 | - Commission from Online Ride-hailing platforms | | | — | | | 399,600 | -Service fees from management and guarantee services | | | — | | | 217,838 | -Financing revenues | | | — | | | 15,855 | -Other service fees | | | — | | | 512,045 | Total revenues from Automobile Transaction and Related Services (Discontinued Operations) | | | — | | | 6,830,116 | Total revenues | | $ | 8,082,514 | | $ | 11,743,218 |
Automobile transaction and related services Operating lease revenues from automobile rentals –The Company generates revenue from sub-leasing automobiles to some online ride-hailing drivers or third-parties and leasing its own automobiles. The Company recognizes revenue wherein an automobile is transferred to the lessees and the lessees has the ability to control the asset, is accounted for under ASC Topic 842. Rental transactions are satisfied over the rental period and is recognized over time. As the operating lease revenue are variable in nature which is based on online ride-hailing drivers or third-parties’ performance for a certain period, the Company recognized the revenue from operating lease by using the output method based on periodic settlement between the Company and the online ride-hailing drivers or third-parties when such revenue is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Rental periods are short term in nature, generally are twelve months or less. Service fees from NEVs leasing and automobile purchase services – Services fees from NEVs leasing and automobile purchase services are paid by lessees who rent new energy electric vehicles from the Company or automobile purchasers for a series of the services provided to them throughout the purchase process such as credit assessment, installment of GPS devices, ride-hailing driver qualification and other administrative procedures. The amount of services fees for NEVs leasing is based on the product solutions while the fees for purchase is based on the sales price of the automobiles and relevant services provided. The Company recognizes revenue when all the following fourservices are completed and an automobile is delivered to the lessee or purchaser at a point in time. Accounts receivable related to the revenue recognition criteriafrom NEVs leasing and automobile purchase services is collected upon the NEVs are met: (i) persuasive evidencedelivered to lessees or purchaser. Sales of automobiles – The Company generated revenue from sales of automobiles to the customers of Hunan Ruixi. The control over the automobile is transferred to the purchaser along with the delivery of automobiles. The amount of the revenue is based on the sale price agreed by Hunan Ruixi and the customers. The Company recognizes revenues when an arrangement exists, (ii)automobile is delivered and control is transferred to the service has been rendered, (iii)purchaser at a point in time. Accounts receivable related to the revenue are being collected within 12 months. Service fees from management and guarantee services – Over 95% of the Company’s customers are fixed or determinable, and (iv) collectability is reasonably assured. Duringonline ride-hailing drivers. Some of the years ended March 31, 2018 and 2017,drivers sign affiliation agreements with the Company, generates revenues primarily from servicepursuant to which the Company provides them with management and guarantee services during the affiliation period. Service fees in matching investors with borrowersfor management and for the otherguarantee services provided over the life of a loan.
Borrowers and Creditor Partners — Transaction fees are paid by borrowers and credit partners to the Company for the work the Company performs through its platform. The amount of these fees is based upon the loan amount and other terms of the loan, including credit grade, maturity and other factors. The fees charged to borrowers and creditor partners are paid (i) upon disbursement of the proceeds for loans accruing interestsuch automobile purchasers on a monthly basis for the management and (ii) upon full payment of principal and interest of loans accruing interest on a daily basis. These fees are non-refundable uponguarantee services provided during the issuance of loan.
Investors — The Company charges investors a service fee on their actual investment return. The Company generally receives the service fees upon the investors receiving their investment return.affiliation period. The Company recognizes revenue over the revenueaffiliation period when loan was repaid and investor received their investment income.performance obligations are completed.
F-18 | (m) | Selling, general and administrative expenses |
Financing revenues – Interest income from the lease arising from the Company’s sales-type leases and bundled lease arrangements are recognized as financing revenues over the lease term based on the effective rate of interest in the lease. | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (n)Online ride-hailing platform services | Income taxes |
The Company accountsgenerates revenue from providing services to online ride-hailing drivers (“Drivers”) to assist them in providing transportation services to riders (“Riders”) looking for income taxestaxi/ride-hailing services. The Company earns commissions for each completed ride in an amount equal to the difference between an upfront quoted fare and the amount earned by a Driver based on actual time and distance for the ride charged to the Rider. As a result, the Company bears a single performance obligation in the transaction of connecting Drivers with Riders to facilitate the completion of a successful transportation service for Riders. The Company recognizes revenue upon completion of a ride as the single performance obligation is satisfied and the Company has the right to receive payment for the services rendered upon the completion of the ride. The Company evaluates the presentation of revenue on a gross or net basis based on whether it controls the service provided to the Rider and is the principal (i.e., “gross”), or it arranges for other parties to provide the service to the Rider and is an agent (i.e., “net”). Since the Company is not primarily responsible for ride-hailing services provided to Riders, it does not have discretion in establishing the price of the online ride-hailing service and inventory risk related to the services as the Company earns commissions for each completed order as the difference between an upfront quote fare and the amount earned by a driver based on actual time and distance for ride charged to the rider. Thus, the Company recognizes revenue at a net basis. Leases - Lessor The Company recognized revenue as lessor in accordance with ASC 842.The two primary accounting provisions the U.S. GAAPCompany uses to classify transactions as sales-type or operating leases are: (i) a review of the lease term to determine if it is for the major part of the economic life of the underlying equipment (defined as greater than 75%); and (ii) a review of the present value of the lease payments to determine if they are equal to or greater than substantially all of the fair market value of the equipment at the inception of the lease (defined as greater than 90%). Automobiles included in arrangements meeting these conditions are accounted for as sales-type leases. Interest income taxes. Underfrom the assetlease is recognized in financing revenues over the lease term. Automobile included in arrangements that do not meet these conditions are accounted for as operating leases and liability method as requiredrevenue is recognized over the term of the lease. The Company excludes from the measurement of its lease revenues any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer. The Company considers the economic life of most of the automobiles to be three to five years, since this accounting standard,represents the recognitionmost common long-term lease term for its automobiles and the automobiles will be used for online ride-hailing services. The Company believes three to five years is representative of deferredthe period during which an automobile is expected to be economically usable, with normal service, for the purpose for which it is intended. The Company’s lease pricing interest rates, which are used in determining customer payments in a bundled lease arrangement, are developed based upon the local prevailing rates in the marketplace where its customer will be able to obtain an automobile loan under similar terms from the bank. The Company reassesses its pricing interest rates quarterly based on changes in the local prevailing rates in the marketplace. As of March 31, 2023, the Company’s pricing interest rate was 6.0% per annum. (t) Income taxes Deferred income tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. ProvisionProvisions or benefits for income taxes consists of taxes currently duetax estimated from taxable income plus or minus deferred taxes. The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
expenses (benefits) if applicable. Deferred tax is accounted forcalculated using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable income towill be utilized with prior net operating loss carried forward. Deferred tax is calculatedforwards using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.utilized. Current income taxes are provided for in accordance with the laws of the relevant taxingtax authorities. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Company did not have any significant unrecognized uncertain tax positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of March 31, 20182023 and 2017.2022. As of March 31, 2018,2023, the taxcalendar years ended December 31, 20132018 through 20172022 for the Company’s PRC entities remain open for statutory examination by PRC tax authorities. The Company presents deferred tax assets and liabilities as non-current in the balance sheet based on an analysis of each taxpaying component within a jurisdiction. | (o) | Comprehensive income (loss) |
(u) Comprehensive income (loss) Comprehensive income (loss) includes net lossincome (loss) and foreign currency adjustments. Comprehensive income (loss) is reported in the consolidated statements of operations and comprehensive income (loss). Accumulated other comprehensive loss, as presented on the consolidated balance sheets are the cumulative foreign currency translation adjustments. As (v) Share-based awards Share-based awards granted to the Company’s employees are measured at fair value on grant date and share-based compensation expense is recognized (i) immediately at the grant date if no vesting conditions are required, or (ii) using the straight-line basis, net of March 31, 2018estimated forfeitures, over the requisite service period. The fair value of restricted shares is determined with reference to the fair value of the underlying shares. At each date of measurement, the Company reviews internal and 2017,external sources of information to assist in the balanceestimation of accumulated other comprehensive loss amountedvarious attributes to $253,761determine the fair value of the share-based awards granted by the Company, including but not limited to the fair value of the underlying shares, expected life, expected volatility and $1,107,762, respectively.expected forfeiture rates. The Company is required to consider many factors and make certain assumptions during this assessment. If any of the assumptions used to determine the fair value of the share-based awards changes significantly, share-based compensation expense may differ materially in the future from that recorded in the current reporting period. (w) Leases - lessee The Company accounts for leases in accordance with ASC 842. The Company enters into certain agreements as a lessee to lease automobiles and to conduct its automobiles rental operations. If any of the following criteria are met, the Company classifies the lease as a direct financing or sales-type lease (as a lessee): | ● | The lease transfers ownership of the underlying asset to the lessee by the end of the lease term; |
| ● | The lease grants the lessee an option to purchase the underlying asset that the Company is reasonably certain to exercise; |
| ● | The lease term is for 75% or more of the remaining economic life of the underlying asset, unless the commencement date falls within the last 25% of the economic life of the underlying asset; |
| ● | The present value of the sum of the lease payments equals or exceeds 90% of the fair value of the underlying asset; or |
| ● | The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. |
Leases that do not meet any of the above criteria are accounted for as operating leases. The Company combines lease and non-lease components in its contracts under Topic 842, when permissible. Finance and operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the implicit rate for the Company’s leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and over a similar term. Leases are classifiedLease terms used to calculate the present value of lease payments generally do not include any options to extend, renew, or terminate the lease, as either capitalthe Company does not have reasonable certainty at lease inception that these options will be exercised. The Company generally considers the economic life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception, therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. Its leases generally do not provide a residual guarantee. The finance or operating leases. Leases that transfer substantially all the benefits and risks incidental to the ownership of assets are accounted for as if there was an acquisition of anlease ROU asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases wherein rental payments arealso excludes lease incentives. Lease expense is recognized in the consolidated statements of operations on a straight-line basis over the lease terms. term for operating lease. Meanwhile, the Company recognizes the finance leases ROU assets and interest on an amortized cost basis. The amortization of finance ROU assets is recognized on a straight-line basis as amortization expense, while the lease liability is increased to reflect interest on the liability and decreased to reflect the lease payments made during the period. Interest expense on the lease liability is determined each period during the lease term as the amount that results in a constant periodic interest rate of the automobile loans on the remaining balance of the liability.
The Company had no capital leasesreviews the impairment of its ROU assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of finance and operating lease liabilities in any tested asset group and include the associated lease payments in the undiscounted future pre-tax cash flows. For the years ended March 31, 20182023 and 2017.2022, the Company recognized impairment loss of $0 and $3,044 on its finance lease ROU assets, respectively. | (q) | Significant risks and uncertainties |
(x) Significant risks and uncertainties 1) Credit risk a. Assets that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents. The maximum exposure of suchthese assets to credit risk is their carrying amountamounts as atof the balance sheet dates. AsOn March 31, 2018,2023 and 2022, approximately $11,000,000 was$79,000 and $117,000, respectively, were deposited with a bank in the United States which wasis insured by the U.S. government up to $250,000. AtOn March 31, 20182023 and 2017,2022, approximately $180,000$1,190,000 and $161,00,$874,000, respectively, were primarily deposited in financial institutions located in Mainlandmainland China, which were uninsuredinsured by the government authority. Under the Deposit Insurance System in China, an enterprise’s deposits at one bank are insured for a maximum of approximately $73,000 (RMB500,000). To limit exposure to credit risk relating to deposits, the Company primarily placeplaces cash deposits with large financial institutions in China which management believes are of high credit quality. The Company’s operations are carried out entirely in Mainlandmainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the social, political, economic and legal environments in the PRC as well as by the general state of the PRC’sPRC economy. In addition, the Company’s business may be influenced by changes in governmentalPRC government laws, rules and policies with respect to, laws and regulations,among other matters, the response to the COVID-19 pandemic, anti-inflationary measures, currency conversion and remittance abroad,of currency outside of China, rates and methods of taxation and the extraction of mining resources, among other factors. Theb. In measuring the credit risk of accounts receivables due from the automobile purchasers (the “customers”), the Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlledmainly reflects the “probability of default” by the application ofcustomer on its contractual obligations and considers the current financial position analysisof the customer and monitoring procedures. When necessary,the risk exposures to the customer and its likely future development.
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Historically, most of the automobile purchasers would pay the Company will turntheir previously defaulted amounts within one to other financial institutionsthree months. As a result, the Company would provide full provisions on accounts receivable if the customers default on repayments for over three months. As of March 31, 2023 and 2022, allowance for doubtful accounts amounted to $0 and $112,905, respectively. For years ended March 31, 2023 and 2022, the stockholders to obtain short-term funding to meetCompany wrote off accounts receivable of $107,868 and $44,227 from continuing operations, respectively, which represent due from automobile purchasers from continuing operation. For the liquidity requirements.year ended March 31, 2022, the Company wrote off accounts receivable of $16,273 from discontinued operations, which represent due from automobile purchasers, respectively. | 3) | 2) Foreign currency risk |
SubstantiallyAs of March 31, 2023 and 2022, substantially all of the Company’s operating activities and the Company’s major assets and liabilities, are denominated in RMB, except for the cash deposit of approximately $11,000,000 which was$79,000 and $117,000, respectively, in U.S. dollars, at March 31, 2018,are denominated in RMB, which isare not freely convertible into foreign currencies. All foreign exchange transactions take place through either through the Peoples’People’s Bank of China (“PBOC”(the “PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. The value of RMB is subject to changeschange in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. WhereWhen there is a significant change in value of RMB, the gains and losses resulting from translation of financial statements of a foreign subsidiary will be significantsignificantly affected. RMB depreciated from 6.34 RMB into US$1.00 on March 31, 2022 to 6.87 RMB into US$1.00 on March 31, 2023.
(y) Reclassification ItCertain items of common stock and additional paid-in capital in the consolidated balance sheets, cost of revenues and operating expenses in the consolidated statements of operations and comprehensive income (loss) of comparative period have been reclassified to conform to the consolidated financial statements for the current period. The reclassification has no impact on net income (loss).
(z) Recently issued accounting standards In June 2016, the FASB issued new accounting guidance ASU 2016-13 for recognition of credit losses on financial instruments, which is possible thateffective January 1, 2020, with early adoption permitted on January 1, 2019. The guidance introduces a new credit reserving model known as the VIE Agreements among Sichuan Senmiao, WFOE,Current Expected Credit Loss (“CECL”) model, which is based on expected losses, and differs significantly from the incurred loss approach used today. The CECL model requires measurement of expected credit losses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information and will likely result in earlier recognition of credit reserves. In November 2019, the FASB issued ASU No. 2019-10, which is to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit losses standard. The new effective date for these preparers is for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has adopted this update on April 1, 2023, and the Sichuan Senmiao Shareholders wouldadoption does not be enforceable in China if PRC government authorities or courts were to find that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company were unable to enforce these contractual arrangements, the Company would not be able to exert effective control over the VIE. Consequently, the VIE’s results of operations, assets and liabilities would not be included in the Company'shave material impact on Company’s consolidated financial statements. If such werestatements and related disclosures. CECL adoption will have broad impact on the case,financial statements of financial services firms, which will affect key profitability and solvency measures. Some of the Company's cash flows,more notable expected changes include: - Higher allowance on financial position,guarantee reserve and operating performance wouldfinance lease receivable levels and related deferred tax assets. While different asset types will be materially adversely affected. The Company's contractual arrangements with Sichuan Senmiao, WFOE,impacted differently, the expectation is that reserve levels will generally increase across the board for all financial firms. - Increased reserve levels may lead to a reduction in capital levels. - As a result of higher reserving levels, the expectation is that CECL will reduce cyclicality in financial firms’ results, as higher reserving in “good times” will mean that less dramatic reserve increases will be loan related income (which will continue to be recognized on a periodic basis based on the effective interest method) and the Sichuan Senmiao Shareholders are approved andrelated credit losses (which will be recognized up front at origination). This will make periods of loan expansion seem less profitable due to the immediate recognition of expected credit losses. Periods of stable or declining loan levels will look comparatively profitable as the income trickles in place. Management believes that such contracts are enforceable, and considers the possibility remote that PRC regulatory authorities with jurisdiction over the Company's operations and contractual relationships would find the contracts to be unenforceable.for loans, where losses had been previously recognized. 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (r) | Recently issued accounting standards |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The guidance in ASU 2014-09 was effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods), which means it became effective for the Company’s fiscal year beginning April 1, 2018. In March 2016,2023, the FASB issued new accounting guidance, ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”),2023-01, for leasehold improvements associated with common control leases, which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which makes minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments are intended to address implementation and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments have the same effective date as the new revenue standard. The Company planned to adopt Topic 606 in the first quarter of its fiscal year beginning April 1, 2018 using the retrospective transition method. The Company’s current revenue recognition policies are generally consistent with the new revenue recognition standards set forth in ASU 2014-09. Potential adjustments to input measures are not expected to be pervasive to the majority of the Company’s contracts. The adoption of this new guidance is not expected to have a material effect on the Company’s consolidated financial statements. The Company will make further assessment at adoption based upon outstanding contracts at that time. In September 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09. The Company will adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 for reporting periods beginning after December 15, 2017.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The update requires equity investments (except those accounted for under the equity method or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. It eliminated the requirement for public entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The ASU is effective for the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Amendments to the ASC 842 Leases. This update requires the lessee to recognize the assets and liability (the lease liability) arising from operating leases on the balance sheet for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Within twelve months or less lease term, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. If a lessee makes this election, it should recognize lease expense on a straight-line basis over the lease term. In transition, this update will be effective for fiscal years beginning after December 15, 2018,2023, including interim periods within those fiscal years. Management is evaluating the effect, if any, on the Company’s consolidated financial statements.
SENMIAO TECHNOLOGY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
In August 2016, the FASB has issued Accounting Standards Update (ASU) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization Transactions; and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted including adoptionfor both interim and annual financial statements that have not yet been made available for issuance. The new guidance introduced two issues: terms and conditions to be considered with leases between related parties under common control and accounting for leasehold improvements. The goals for the new issues are to reduce the cost associated with implementing and applying Topic 842 and to promote diversity in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to applypractice by entities within the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. Management is evaluating the effect, if any, on the Company’s consolidated financial statements. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.
On November 22, 2017, the FASB ASU No. 2017-14, “Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition Topic 605), and Revenue from Contracts with Customers (Topic 606): Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SEC Release 33-10403.” The ASU amends various paragraphs in ASC 220, Income Statement — Reporting Comprehensive Income; ASC 605, Revenue Recognition; and ASC 606, Revenue From Contracts With Customers, that contain SEC guidance. The amendments include superseding ASC 605-10-S25-1 (SAB Topic 13) as a result of SEC Staff Accounting Bulletin No. 116 and adding ASC 606-10-S25-1 as a result of SEC Release No. 33-10403. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.
scope when applying lease accounting requirements. The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect would have a material effect on the consolidated financial position, statements of operations and cash flows.flows of the Company. | 3. | RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS |
4.DISCONTINUED OPERATIONS Discontinued operations- Online P2P lending services On October 17, 2019, the Board approved the plan under which the Company has discontinued and is winding down its online P2P lending services business (the “Plan”). The Company determined that the operation of its online P2P lending services business was not viable in light of the tightened regulations on online peer-to-peer lending in China generally and the unofficial request from local regulator to reduce the Company’s online peer-to-peer lending transaction volume on a monthly basis. The Company also determined that the discontinuation of its online P2P lending services business would allow the Company to focus its resources on its automobile financing facilitation and transaction business. In connection with the Plan, the Company ceased facilitation of loan transactions on its online lending platform and assumed all the outstanding loans from investors on the platform. The decision and action taken by the Company of discontinuing the online lending services business represented a major shift that had a major effect on the Company’s operations and financial results, which triggers discontinued operations accounting in accordance with ASC 205-20-45. The fair value of discontinued operations, determined as of October 17, 2019, includes estimated consideration expected to be received, less costs to sell. After consideration of the determination of fair value of the discontinued operations including the assumption of all the outstanding loans from investors on the platform, $143,668 of accounts receivable, $3,760,599 of other receivables, and $143,943 of prepayments for impaired intangible assets were indicated as of the date the Company’s Board of Directors approved the Plan on October 17, 2019, and the Company has notedrecognized $4,048,210 provision for doubtful accounts as of December 31, 2019 related to the following errors in relation to its consolidated financial statementsCompany’s online lending services business, while the Company did not recognize any additional provision for doubtful accounts for the year ended March 31, 2017 that were included in the Company’s Registration Statement on Form S-1 filed with the Securities Exchange Commission on October 20, 2017, as amended. The errors related to the correction of adjustment of disposal loss arising from discontinued operations and accrual of unpaid employee benefit contributions. | 1) | Adjustment of disposal loss arising from discontinued operations |
Pursuant to ASC 205-20-45-3A, the disposal loss arising from discontinued operations shall be accounted for the results of the discontinued operations. As a result, the Company made an accounting adjustment reflected in the restated consolidated financial statements contained in this Form S-1. As a result, net loss from continuing operations decreased by $64,968, while net loss from discontinued operations increased by $64,986. The accounting adjustment had no impact on the consolidated balance sheet.
| 2) | Accrual of employee benefit contributions |
As of March 31, 2017, the Company did not make adequate employee benefit contributions in the amount of $34,437. The Company accrued the amount in accrued payroll and welfare.
SENMIAO TECHNOLOGY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 3. | RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) |
2023. The following table sets forth the adjustment to the Company’s results of operations compared to the previously reported consolidated financial statements. The effectsreconciliation of the restatement on the Company’scarrying amounts of major classes liabilities from discontinued operations of Online P2P lending services in consolidated balance sheet as of March 31, 2017 are2023 and 2022.
Carrying amounts of major classes of liabilities included as follows:part of discontinued operations of Online P2P lending services: | | | As at March 31, 2017 | | | | As Previously Reported | | Adjustments | | As Restated | | Accrued expenses and other liabilities | | $ | 55,819 | | | $ | 34,437 | | | $ | 90,256 | | | Total Current Liabilities | | $ | 389,580 | | | $ | 34,437 | | | $ | 424,017 | | | Accumulated deficit | | $ | (587,437 | ) | | $ | (35,260 | ) | | $ | (622,697 | ) | | Accumulated other comprehensive loss | | $ | (1,108,585 | ) | | $ | 823 | | | $ | (1,107,762 | ) | | Total Stockholders’ Equity | | $ | 9,665,106 | | | $ | (34,437 | ) | | $ | 9,630,669 | |
| | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | | | | | | | | Current liabilities | | | | | | | Accrued expenses and other liabilities | | | 487,829 | | | 528,426 |
F-20Discontinued operation- Jinkailong
On March 31, 2022, Ruixi, a majority owned subsidiary of the Company, holding 35% equity interest of Jinkailong, entered into an Agreement for the Termination of the Agreement for Concerted Action by Shareholders of Jinkailong (the “Termination Agreement”), pursuant to which the Agreement for Concerted Action by Shareholders with respect to Jinkailong signed on August 26, 2018 (“Voting Agreement No.1”) and the Agreement for Concerted Action by Shareholders with respect to Jinkailong signed on February 13, 2020 (“Voting Agreement No.2”, collectively, “Voting Agreements”) shall be terminated as of the date of the Termination Agreement. As a result, the Company no longer has a controlling financial interest in Jinkailong and has determined that Jinkailong was deconsolidated from the Company’s consolidated financial statements effective as of March 31, 2022. However, as Hunan Ruixi still holds 35% equity interests in Jinkailong, Jinkailong is the equity investee company of the Company since then. As of March 31, 2023, the paid-in capital of Jinkailong is zero. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 3. | RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) |
The effectsfollowing table sets forth the reconciliation of the restatement onamounts of major classes of income and losses from discontinued operations of Jinkailong in the Company’s consolidated statements of operations and comprehensive income (loss) for the yearyears ended March 31, 2017 are as follows:2023 and 2022. | | | For The Year Ended March 31, 2017 | | | | As Previously
Reported | | Adjustments | | As Restated | | Selling, general and administrative expenses | | $ | (223,512 | ) | | $ | (35,260 | ) | | $ | (258,772 | ) | | Total operating expenses | | $ | (548,222 | ) | | $ | (35,260 | ) | | $ | (583,482 | ) | | Loss from operations | | $ | (474,985 | ) | | $ | (35,260 | ) | | $ | (510,245 | ) | | Loss on disposal of a subsidiary | | $ | (64,968 | ) | | $ | 64,968 | | | $ | — | | | Total other income | | $ | (64,492 | ) | | $ | 64,968 | | | $ | 476 | | | Loss before income taxes | | $ | (539,477 | ) | | $ | 29,708 | | | $ | (509,769 | ) | | Net loss from continuing operations | | $ | (539,477 | ) | | $ | 29,708 | | | $ | (509,769 | ) | | Net (loss)/income from discontinued operations, net of tax | | $ | (21,908 | ) | | $ | (64,968 | ) | | $ | (86,876 | ) | | Net Loss | | $ | (561,385 | ) | | $ | (35,260 | ) | | $ | (596,645 | ) | | Net loss attributable to Senmiao Technology Limited | | $ | (552,622 | ) | | $ | (35,260 | ) | | $ | (587,882 | ) | Net loss attributable to Senmiao Technology Limited from continuing
operation | | $ | (539,477 | ) | | $ | 29,708 | | | $ | (509,769 | ) | | Net (loss)/income attributable to Senmiao Technology Limited from discontinued operation | | $ | (13,145 | ) | | $ | (64,968 | ) | | $ | (78,113 | ) | | Foreign currency translation adjustment | | $ | (807,847 | ) | | $ | 823 | | | $ | (807,024 | ) | | Comprehensive Loss | | $ | (1,369,232 | ) | | $ | (34,437 | ) | | $ | (1,403,669 | ) | | Comprehensive loss attributable to Senmiao Technology Limited | | $ | (1,155,067 | ) | | $ | (34,437 | ) | | $ | (1,189,504 | ) | | Comprehensive loss attributable to Senmiao Technology Limited from continuing operation | | $ | (1,142,014 | ) | | $ | (49,704 | ) | | $ | (1,191,718 | ) | | Comprehensive (loss)/income attributable to Senmiao Technology Limited from discontinued operation | | $ | (13,053 | ) | | $ | 15,267 | | | $ | 2,214 | | | Earnings per share | | | | | | | | | | | | | | Basic and diluted loss for the year attributable to the stockholders of the Company | | $ | (0.03 | ) | | $ | (0.00 | ) | | $ | (0.03 | ) | | Earnings per share from continuing operations | | | | | | | | | | | | | | Basic and diluted loss from continuing operations attributable to the stockholders of the Company | | $ | (0.03 | ) | | $ | 0.00 | | | $ | (0.03 | ) | | Earnings per share from discontinued operations | | | | | | | | | | | | | | Basic and diluted (loss)/profit from discontinued operations attributable to the stockholder of the Company | | $ | (0.00 | ) | | $ | (0.00 | ) | | $ | (0.00 | ) |
| | | | | | | | | For the Years Ended | | | March 31, | | | 2023 | | 2022 | Revenues | | $ | — | | $ | 6,830,116 | Cost of revenue | | | — | | | (5,183,806) | Gross profit | | | — | | | 1,646,310 | | | | | | | | Operating expenses | | | | | | | Selling, general and administrative expenses | | | — | | | (4,139,800) | Impairment of long-live assets | | | — | | | (32,479) | Provision for doubtful account | | | — | | | (11,746) | Total operating expenses | | | — | | | (4,184,025) | | | | | | | | Loss from discontinued operations | | | — | | | (2,537,715) | | | | | | | | Other expense, net | | | — | | | (209,494) | | | | | | | | Loss before income taxes | | | — | | | (2,747,209) | Income tax expenses | | | — | | | — | Net loss | | | — | | | (2,747,209) | Less: net loss from discontinued operations attributable to noncontrolling interest | | | — | | | 714,274 | Net loss attributable to stockholders | | $ | — | | $ | (2,032,935) |
Discontinued operation- Youlu F-21On March 31, 2022, the Youlu VIE Agreements were terminated by XXTX and Youlu Shareholders. As Youlu had limited operation, the Company recognized a gain of $23,556 from the termination.
5.ACCOUNTS RECEIVABLE, NET Accounts receivable include a portion of bundled lease arrangements on fixed minimum monthly payments to be paid by the automobile purchasers arising from automobile sales and services fees, net of unearned interest income, discounted using the Company’s lease pricing interest rates. It also includes online ride-hailing services fees due from online ride-hailing drivers and rental receivables due from operating lessees. As of March 31, 2023 and 2022, accounts receivables were comprised of the following: | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Receivables of automobile sales due from automobile purchasers | | $ | 76,106 | | $ | 392,530 | Receivables of service fees due from automobile purchasers | | | — | | | 17,350 | Receivables of online ride hailing fees from online ride-hailing drivers | | | 51,290 | | | 121,116 | Receivables of operating lease | | | 31,039 | | | — | Less: Allowance for doubtful accounts | | | — | | | (112,905) | Accounts receivable, net | | $ | 158,435 | | $ | 418,091 | Accounts receivable, net, current portion | | $ | 158,435 | | $ | 418,022 | Accounts receivable, net, non-current portion | | $ | — | | $ | 69 |
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Movement of allowance for doubtful accounts for March 31, 2023 and 2022 are as follows: | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Beginning balance | | $ | 112,905 | | $ | 78,167 | Addition | | | 3,394 | | | 153,988 | Write off | | | (107,868) | | | (44,227) | Deconsolidation of Jinkailong | | | — | | | (76,428) | Translation adjustment | | | (8,431) | | | 1,405 | Ending balance | | $ | — | | $ | 112,905 |
6. INVENTORIES | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Automobiles (i) | | $ | 6,678 | | $ | 286,488 |
(i) | 3. | RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)As of March 31, 2023 and 2022, the Company owned 1 and 36 automobiles with a total value of $6,678 and $286,488, net of impairment, for sale or sales-type leases, respectively. |
The effectsAs of March 31, 2023 and 2022, the restatement onCompany compared the Company’s consolidated statementscost of changes in stockholders’ equityautomobiles with their net realizable value and recognized impairments of $3,085 and $60,398, respectively for certain automobiles for sale for the yearyears ended March 31, 2017 are as follows:2023 and 2022, respectively.
| | | Accumulated Deficit as Previously
Reported | | Accumulated Deficit as Restated | | Accumulated other comprehensive Loss as Previously
Reported | | Accumulated other comprehensive Loss as Restated | | Total Equity as Previously Reported | | Total Equity as Restated | | Net loss | | $ | (552,622 | ) | | $ | (587,882 | ) | | $ | — | | | $ | — | | | $ | (561,385 | ) | | $ | (596,645 | ) | | Foreign currency translation loss | | | — | | | | — | | | | (602,445 | ) | | | (601,622 | ) | | | (807,847 | ) | | | (807,024 | ) | | Disposal of a subsidiary | | | — | | | | — | | | | — | | | | — | | | | (5,986,534 | ) | | | (5,986,534 | ) | | Balance as of March 31, 2017 | | $ | (587,437 | ) | | $ | (622,697 | ) | | $ | (1,108,585 | ) | | $ | (1,107,762 | ) | | $ | 9,665,106 | | | $ | 9,630,669 | |
7. PREPAYMENTS, OTHER RECEIVABLES AND OTHER ASSETS As of March 31, 2023 and 2022, the prepayments, other receivables and other assets were comprised of the following: | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Deposits (i) | | $ | 679,794 | | $ | 731,279 | Prepaid expenses (ii) | | | 334,297 | | | 957,200 | Receivables from aggregation platforms (iii) | | | 271,791 | | | 163,384 | Value added tax (“VAT”) recoverable (iv) | | | 86,051 | | | 597,884 | Due from automobile purchasers, net (v) | | | 45,489 | | | 238,421 | Employee advances | | | 11,482 | | | 11,054 | Others | | | 9,339 | | | 13,986 | Total prepayments, other receivables and other assets | | $ | 1,438,243 | | $ | 2,713,208 |
(i) Deposits The effectsbalance of deposits mainly represented the restatementsecurity deposit made by the Company to various automobile leasing companies, financial institutions and Didi Chuxing Technology Co., Ltd., who runs an online ride-hailing platform. (ii) Prepaid expense The balance of prepaid expense represented automobile liability insurance premium for automobiles for operating lease and other miscellaneous expense such as office lease, office remodel expense and etc. that will expire within one year. (iii) Receivables from aggregation platforms The balance of receivables from aggregation platforms represented the amount due from the collaborated aggregation platforms based on the confirmed billings, which will be disbursed to the drivers who completed their rides through the Company’s consolidated statements of cash flows for the year ended March 31, 2017 are as follows: | | | For The Year Ended March 31, 2017 | | | | As Previously Reported | | Adjustments | | As Restated | | Net loss from continuing operations | | $ | (539,477 | ) | | | 29,708 | | | | (509,769 | ) | | Loss on disposal of a subsidiary | | | 64,968 | | | | (64,968 | ) | | | — | | | Accrued expenses and other liabilities | | | 7,422 | | | | 35,260 | | | | 43,475 | |
F-22online ride-hailing platform.
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 4. | ACQUISITION OF LENDING PLATFORM |
(iv) Value added tax (“VAT”) recoverable On September 25, 2016, Sichuan Senmiao completedThe balance represented the acquisitionamount of a peer-to-peer lending businessVAT, which resulted from historical purchasing activities and could be further used for deducting future VAT in Chengdu, Sichuan Province. PRC.
(v) Due from automobile purchasers, net The Company acquired allbalance due from automobile purchasers represented the payments of automobiles and related insurances and taxes made on behalf of the right, title and interest in andautomobile purchasers. The balance is expected to substantially all of the assets associates with the lending business, including the lending platform (consisting of website, ICP license, operating systems, servers, and management system), all its employees, users and computer equipment. Under the terms of the purchase agreement, the seller received an aggregate consideration of RMB 69,690,000 in cash (approximately $10.1 million). The cash consideration was fully funded by the paid-in capital of Sichuan Senmiao and was fully paid in March 2017. The acquisition cost amounting to $6,163 was recorded in general and administrative expenses when it was incurred.
The acquisition had been accounted for as a business combination and the results of operations of the Platform have been included in the Company’s consolidated financial statementsbe collected from the acquisition date. The Company made estimatesautomobile purchasers in installments. As of March 31, 2023 and judgments in determiningduring the fair value of acquired assets and liabilities, based on an independent preliminary valuation report and management’s experiences with similar assets and liabilities. The following table summarizes the estimated fair values for major classes of assets acquired and liabilities assumed at the date of acquisition, using the exchange rate of 6.6714 on that day.
| | | Fair value | | Net tangible assets | | $ | 3,735 | | | Platform | | | 4,230,000 | | | User relationships | | | 395,000 | | | Goodwill | | | 5,817,308 | | | Total purchase consideration | | $ | 10,446,043 | |
SENMIAO TECHNOLOGY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 4. | ACQUISITION OF LENDING PLATFORM (CONTINUED) |
The accounting literature establishes guidelines regarding the presentation of this unaudited pro forma information. Therefore, this unaudited pro forma information is not intended to represent, nor doesyear ended March 31, 2023, the Company believe it is indicativedid not record allowance against doubtful receivables due from automobile purchasers.
As of March 31, 2022, the consolidated results of operations of Senmiao that would have been reported had the acquisition been completed as of April 1, 2016. Furthermore, this unaudited pro forma information does not give effect to the anticipated business and tax synergies of the acquisition and is not representative or indicative of the anticipated future consolidated results of operations of Senmiao. The unaudited pro forma consolidated financial information reflects the historical results of the peer-to-peer lending business, adjusted to reflect the acquisition had it been completed as of April 1, 2016. The most significant pro forma adjustments to the historical results of operations relate to the application of purchase accounting for the acquisition. The unaudited pro forma financial information includes various assumptions, including those related to the finalization of the purchase price allocation.
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2017
| | | For the Year Ended March 31, 2017 | | | | Senmiao | | Acquisition(1) | | Acquisition adjustments | | Pro Forma Financial Data | | | | Restated | | | | | | Restated | | Revenues | | $ | 73,237 | | | $ | 118,534 | | | $ | — | | | $ | 191,771 | | | Gross revenues | | | 73,237 | | | | 118,534 | | | | — | | | | 191,771 | | | Operating expenses | | | | | | | | | | | | | | | | | | Selling, general and administrative expenses | | | (258,772 | ) | | | (69,806 | ) | | | — | | | | (328,578 | ) | | Amortization of intangible assets | | | (324,710 | ) | | | — | | | | (319,074 | )(2) | | | (643,784 | ) | | Total operating expenses | | | (583,482 | ) | | | (69,806 | ) | | | (319,074 | ) | | | (972,362 | ) | | (Loss)/Income from operations | | | (510,245 | ) | | | 48,728 | | | | (319,074 | ) | | | (780,591 | ) | | Other income | | | | | | | | | | | | | | | | | | Interest income | | | 30 | | | | — | | | | — | | | | 30 | | | Other income, net | | | 446 | | | | — | | | | — | | | | 446 | | | Total other income | | | 476 | | | | — | | | | — | | | | 476 | | | (Loss)/Income Before Income Taxes | | | (509,769 | ) | | | 48,728 | | | | (319,074 | ) | | | (780,115 | ) | | Income tax recovery/(expense) | | | — | | | | (12,290 | ) | | | 12,290 | (3) | | | — | | | Net (Loss)/Income from continuing operations | | | (509,769 | ) | | | 36,438 | | | | (306,784 | ) | | | (780,115 | ) | | Net loss from discontinued operations | | | (86,876 | ) | | | — | | | | — | | | | (86,876 | ) | | Net (Loss)/Income | | $ | (596,645 | ) | | $ | 36,438 | | | $ | (306,784 | ) | | $ | (866,991 | ) |
| (1) | The income statement of the Acquisition is for the period from April 1, 2016 to September 25, 2016. |
| (2) | Represents the amortization of the Platform and user relationships which were acquired through the Acquisition. Their estimated useful life is 10 years for user relationship and 7 years for the Platform. |
| (3) | The tax effects of pro forma adjustments have been applied using the statutory rates in effect for the relevant jurisdictions during the period presented. |
SENMIAO TECHNOLOGY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 5. | DISCONTINUED OPERATIONS |
allowance against doubtful receivables due from automobile purchasers was zero. During the year ended March 31, 2017, the Company sold its 60% equity interest in Zhongyi Yinfeng Investment Management Co., Ltd. (Zhongyi Yinfeng), to an unrelated third party, for a cash consideration of RMB 60,000,000 (equivalent of $8.9 million). For disposal transactions that occur on or after April 1, 2015, a component of the Company is reported in discontinued operations after meeting the criteria for held-for-sale classification if the disposition represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results. The Company analyzed the quantitative and qualitative factors relevant to the disposal of equity interest in Zhongyi Yinfeng and determined the criteria for held-for-sale classification have been met, and the transaction represents a strategic shift where the Company is exiting the private equity investment, which will have a major effect on the Company’s operations and financial results going forward. As such, the financial results of Zhongyi Yinfeng are reported as discontinued operations in the consolidated financial statements. The consolidated financial statements and amounts previously reported have been reclassified, as necessary, to allow for meaningful comparison of continuing operations. As of September 30, 2016, the date of completion of the disposal, the net asset of Zhongyi Yinfeng amounted to approximately $15.0 million and the non-controlling interest amounted to approximately $6.0 million. As a result,2022, the Company recorded a lossadditional allowance of $64,968 on$84,600, while wrote off balance due from automobile purchase of $84,600, and recovered allowance against the sale of Zhongyi Yinfeng, in which the Company held a 60% equity interest.
The transaction qualified to be presented as discontinuedbalance due from automobile purchases $3,308 from continuing operations, as it met the criterion of 1) the disposed subsidiary is a component of an entity; 2) the subsidiary was disposed of by sale, and 3) the disposal represents a strategic shift that has a major effect on an entity’s operations and financial results.
Results of the discontinued operations are summarized as follows:
| | | For the six months ended September 30, 2016 | | For the year ended March 31, 2016 | | | | (Restated) | | | | Sales | | $ | 12,936 | | | $ | 88,992 | | | General and administrative expenses | | | (35,088 | ) | | | (92,760 | ) | | Other income | | | 244 | | | | 8,970 | | | Income tax expense | | | — | | | | (753 | ) | | Loss on disposal of a subsidiary | | | (64,968 | ) | | | — | | | Net (loss)/income from discontinued operations | | $ | (86,876 | ) | | $ | 4,449 | |
The following table summarizes the carrying amounts of the major classes of assets and liabilities held for sale in the consolidated balance sheets as of September 30, 2016 and March 31, 2016, respectively:
| | | September 30, 2016 | | March 31, 2016 | | Cash and cash equivalents | | $ | 1,084 | | | $ | 1,948 | | | Due from related parties | | | 9,270,711 | | | | 9,864,099 | | | Other current assets | | | 7,511,162 | | | | 7,768,428 | | | Long-term investment | | | 2,248,801 | | | | 2,325,816 | | | Assets of disposal group classified as held for sale | | $ | 19,031,758 | | | $ | 19,960,291 | | | Due to related parties | | $ | 3,930,649 | | | $ | 4,415,346 | | | Other current liabilities | | | 134,774 | | | | 43,197 | |
SENMIAO TECHNOLOGY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 5. | DISCONTINUED OPERATIONS (CONTINUED) |
| | | September 30, 2016 | | March 31, 2016 | | Liabilities directly associated with the assets classified as held for sale | | $ | 4,065,423 | | | $ | 4,458,543 | | | Non-controlling interest in net assets of discontinued operation | | $ | 5,986,534 | | | | | | | Company’s interest in net assets of discontinued operation | | | 8,979,801 | | | | | | | Less: Cash consideration received from disposal of the subsidiary | | | 8,914,833 | | | | | | | Loss on disposal of a subsidiary | | $ | 64,968 | | | | | |
against doubtful receivables. During the year ended March 31, 2016,2022, the Company did not incur significant divestures.recorded additional allowances of $35,983, while wrote off balance due from automobile purchases of $1,134, and recovered allowance against the balance due from automobile purchasers of $12,352 from discontinued operations. | 6. | PREPAYMENTS, RECEIVABLES AND OTHER ASSETS |
As of March 31, 2018 and 2017, prepayments, receivables and other assets consisted of the following:
| | | March 31, 2018 | | March 31, 2017 | | | | | | | | Loans to employees | | $ | 2,718 | | | $ | 8,654 | | | Prepaid expenses | | | 44,861 | | | | 6,961 | | | Advance to a supplier | | | - | | | | 3,309 | | | Others | | | 22,842 | | | | 552 | | | | | $ | 70,421 | | | $ | 19,476 | |
| 7. | PROPERTY AND EQUIPEMENT, NET |
The Company’s property and equipment are recorded at cost less accumulated depreciation. Depreciation expenses are calculated using straight-line method over the estimated useful life with no salvage value.
8. PROPERTY AND EQUIPMENT, NET Property and equipment consist of the following: | | | March 31, 2018 | | March 31, 2017 | | | | | | | | | | | | | | | | | | | | March 31, | | March 31, | | | | 2023 | | 2022 | Leasehold improvements | | | $ | 183,216 | | $ | 198,463 | | Computer equipment | | $ | 13,680 | | | $ | 5,587 | | | | 37,932 | | | 47,849 | | Less: accumulated depreciation | | | (4,808 | ) | | | (939 | ) | | | | | $ | 8,872 | | | $ | 4,648 | | | Office equipment, fixtures and furniture | | | | 78,372 | | | 81,898 | Automobiles | | | | 4,679,927 | | | 6,463,698 | Subtotal | | | | 4,979,447 | | | 6,791,908 | Less: accumulated depreciation and amortization | | | | (1,635,990) | | | (1,133,135) | Total property and equipment, net | | | $ | 3,343,457 | | $ | 5,658,773 |
Depreciation expense totaled $3,580 and $961from continuing operations for the years ended March 31, 20182023 and 2017,2022 were amounted to $1,095,518 and $956,400, respectively. Depreciation expense from discontinued operations for the year ended March 31, 2022 amounted to $170,177. 9. OTHER NON-CURRENT ASSETS | | | | | | | | | March 31 | | March 31, | | | 2023 | | 2022 | Prepayments of automobiles purchased (i) | | $ | 716,407 | | $ | — |
(i) | In March and September 2022, the Company entered into two automobile purchase agreements (“Purchase Agreements”) with two third parties to purchase a total of 150 automobiles which amounted to $2,444,813. As of March 31, 2023, the Company has made prepayments of $716,407 towards the remaining purchase pertaining to the Purchase Agreements. The Company expects to complete the remaining purchase by December 31, 2023. |
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 8. | 10. INTANGIBLE ASSETS, NET AND GOODWILL |
As of March 31, 2018 and 2017, the intangibleIntangible assets consisted of user relationship, platform and software.the following:
| | | Useful
life | | March 31, 2018 | | | March 31, 2017 | | | | | | | | | | | | | User relationship | | 10 | | $ | 419,573 | | | $ | 382,405 | | | Platform | | 7 | | | 4,493,151 | | | | 4,095,124 | | | Software | | 7 | | | 84,545 | | | | 77,055 | | | | | | | | 4,997,269 | | | | 4,559,584 | | | Less: accumulated amortization | | | | | (1,043,871 | ) | | | (317,133 | ) | | impairment | | | | | (2,000,175 | ) | | | - | | | | | | | $ | 1,953,223 | | | $ | 4,237,451 | |
| | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Software | | $ | 793,381 | | $ | 796,042 | Online ride-hailing platform operating licenses | | | 441,557 | | | 450,701 | Subtotal | | | 1,234,938 | | | 1,246,743 | Less: accumulated amortization | | | (460,614) | | | (287,192) | Total intangible assets, net | | $ | 774,324 | | $ | 959,551 |
Amortization expense from continuing operations totaled $659,558$184,215 and $324,710$160,831 for the years ended March 31, 20182023 and 2017,2022, respectively. The following table sets forth the Company’s amortization expensesexpense for the next five years since March 31, 2018:ending: | | | Amortization
expenses | | | | | | | | Year ending March 31, 2019 | | $ | 320,149 | | | Year ending March 31, 2020 | | | 320,149 | | | Year ending March 31, 2021 | | | 320,149 | | | Year ending March 31, 2022 | | | 320,149 | | | Year ending March 31, 2023 and thereafter | | | 672,627 | | | | | $ | 1,953,223 | |
| | | | | | Amortization | | | expenses | Twelve months ending March 31, 2024 | | $ | 177,316 | Twelve months ending March 31, 2025 | | | 170,232 | Twelve months ending March 31, 2026 | | | 115,868 | Twelve months ending March 31, 2027 | | | 79,211 | Twelve months ending March 31, 2028 | | | 77,511 | Thereafter | | | 154,186 | Total | | $ | 774,324 |
As
11. BORROWINGS FROM A FINANCIAL INSTITUTION The borrowings from a financial institution in China represented the short-term loans of $8,813 and $145,542 as of March 31, 20182023 and 2017,2022, respectively. Such borrowings bearing interest rate of 13.04% per annum as of March 31, 2023 and 2022, which are to be repaid within the goodwill is as follows: | | | March 31, 2018 | | | March 31, 2017 | | | | | | | | | | | Goodwill | | $ | 6,179,206 | | | $ | 5,631,819 | | | Less: impairment | | | (6,179,206 | ) | | | - | | | | | $ | - | | | $ | 5,631,819 | |
| 9. | ACCRUED EXPENSES AND OTHER LIABILITIES |
| | | March 31, 2018 | | | March 31, 2017 | | | | | | | | | | | Other payable | | $ | 194,943 | | | $ | 19,010 | | | Accrued payroll and welfare | | | 195,695 | | | | 68,976 | | | Other tax payable | | | 5,471 | | | | 2,270 | | | Customer deposit | | | 8,495 | | | | - | | | | | $ | 404,604 | | | $ | 90,256 | |
next 12 months. The balanceinterest expense for the years ended March 31, 2023 and 2022 was $0 and $5,893 from continuing operations, respectively. The interest expense for the year ended March 31, 2022 was $501,361 from discontinued operations, of other payable represented amountwhich, $450,889 was due to supplierscontinuing operations and vendors.eliminated in the consolidation statements of operations and comprehensive income (loss). Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. ACCRUED EXPENSES AND OTHER LIABILITIES | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Accrued payroll and welfare | | $ | 1,636,092 | | $ | 1,176,442 | Payables to drivers from aggregation platforms (i) | | | 1,103,892 | | | 806,921 | Deposits (ii) | | | 730,002 | | | 783,830 | Accrued expenses | | | 226,721 | | | 94,106 | Other taxes payable | | | 83,432 | | | 5,260 | Loan repayments received on behalf of financial institutions (iii) | | | 16,130 | | | 28,704 | Payables for expenditures on automobile transaction and related services | | | 31,719 | | | 56,222 | Other payables | | | 37,348 | | | 21,308 | Total accrued expenses and other liabilities | | | 3,865,336 | | | 2,972,793 | Total accrued expenses and other liabilities - discontinued operations | | | (487,829) | | | (528,426) | Total accrued expenses and other liabilities - continuing operations | | $ | 3,377,507 | | $ | 2,444,367 |
(i) | 10.Payables to drivers from aggregation platforms | |
The balance of payables to drivers from aggregation platforms represented the amount the Company collected on behalf of drivers who completed their transaction through the Company’s online ride-hailing platform base on the confirmed billings. (ii)Deposits The balance of deposits represented the security deposit from operating and finance lease customers to cover lease payment and related automobile expense in case the customers’ accounts are in default. The balance is refundable at the end of the lease term, after deducting any missed lease payment and applicable fee. (iii)Loan repayments received on behalf of financial institutions The balance of loan repayments received on behalf of financial institutions represented the loan repayments made by the automobile purchasers to financial institutions through the Company, which has not been paid to the financial institutions. 13. EMPLOYEE BENEFIT PLAN |
The Company has made employee benefit contributionplan in accordance with relevant ChinesePRC regulations, including retirement insurance, unemployment insurance, medical insurance, housing fund, work injury insurance and maternity insurance. The Company recorded the contribution in the salary and employee charges when incurred. The contributions made by the Company were $37,136$452,796 and $6,706$602,641 for the years ended March 31, 20182023 and 2017, respectively. 2022, respectively, from continuing operations of the Company. The contributions made by the Company were $464,159 for the year ended March 31 2022 for the Company’s discontinuing operations. As of March 31, 20182023 and 2017,2022, the Company did not make adequate employee benefit contributions in the amount of $150,205$1,086,526 and $34,437. The Company accrued the amount in accrued payroll and welfare. Common Stock
The Company is authorized to issue 100,000,000 shares of $0.0001 par value common stock. On September 18, 2017, the Company issued 45,000,000 shares of common stock to Sichuan Senmiao Shareholders.
On January 29, 2018, the Company’s board of directors and stockholders approved a one-for-two reverse stock split of its issued and outstanding shares of common stock. As such, the Company’s total issued and outstanding shares became 22,500,000 share immediately following the reverse stock split. In connection with reverse stock split, all shares and per share amounts have been retroactively restated as if it occurred on April 1, 2015.
On March 16, 2018, the Company closed its initial public offering of 3,000,000 shares of common stock. On March 28, 2018, the Company sold additional 379,400 shares of common stock$963,824, respectively, from the exercisecontinuing operations of the underwriter’s over-allotment option. The public offering price of the shares sold in the initial public offering was $4.00 per share. The total gross proceeds from the offering were approximately $13.5 million. After deducting underwriting discounts and commissions and offering expenses payable by the Company, the aggregate net proceeds received by the Company totaled approximately $12.2 million.Company.
Warrants14. EQUITY
Warrants IPO Warrants The registration statement relating to the Company’s initial public offering also coveredincluded the underwriter’sunderwriters’ common stock purchase warrants to purchase 337,94033,794 (337,940 pre reverse split) shares of common stock.stock (“IPO Underwriter’s Warrants”). Each five-year warrant entitles warrant holder to purchase one share of the Company’s common stock at the price of $4.80$48.0 ($4.80 before reverse split) per share and is not exercisable for a period of 180 days from March 16, 2018. As of March 31, 2023, there were 3,794 (37,940 pre reverse split) IPO Underwriter’s Warrants outstanding. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Warrants in Offerings The Company adopted the provisions of ASC 815 on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in ASC 815. Warrants issued in connection with the direct equity offering with exercise prices denominated in US dollars are no longer considered indexed to the Company’s stock, as their exercise prices are not in the Company’s functional currency (RMB), and therefore no longer qualify for the scope exception and must be accounted for as a derivative. These warrants are classified as liabilities under the caption “Derivative liabilities” in the consolidated statements of balance sheets and recorded at estimated fair value at each reporting date, computed using the Black-Scholes valuation model. Changes in the liability from period to period are recorded in the consolidated statements of operations and comprehensive income (loss) under the caption “Change in fair value of derivative liabilities.” 2019 Registered Direct Offering Warrants As of March 31, 2023 and 2022, there were 16,841 (168,411 pre reverse split) 2019 registered direct offering warrants outstanding. During years ended March 31, 2023 and 2022, the change of fair value was a gain of $12,432 and $185,727 in the consolidated statements of operations and comprehensive income (loss) based on the decrease in fair value of the liabilities since March 31, 2021, respectively. As of March 31, 2023 and 2022, the fair value of the derivative instrument totaled $6 and $12,438, respectively. August 2020 Underwriters’ Warrants As of March 31, 2023 and 2022, there were 31,808 (318,080 pre reverse split) underwriters’ warrants outstanding. During the years ended March 31, 2023 and 2022, the change of fair value was a gain of $36,131 and $352,944 recognized in the consolidated statements of operations and comprehensive income (loss) based on the decrease in fair value of the liabilities since March 31, 2021, respectively. As of March 31, 2023 and 2022, the fair value of the derivative instrument totaled $8,450 and $44,581, respectively. February 2021 Registered Direct Offering Warrants As of March 31, 2023 and 2022, there were 53,262 (532,609 pre reverse split) February 2021 registered direct offering warrants outstanding. During the years ended March 31, 2023 and 2022, the change of fair value was a gain of $54,052 and $572,018 recognized in the consolidated statements of operations and comprehensive income (loss) based on the decrease in fair value of the liabilities since March 31, 2021, respectively. As of March 31, 2023 and 2022, the fair value of the derivative instrument totaled $11,491 and $65,543, respectively. May 2021 Registered Direct Offering Warrants As of March 31, 2023 and 2022, there were 594,682 (5,946,810 pre reverse split) May 2021 registered direct offering warrants outstanding. During the years ended March 31, 2023 and 2022, the change of fair value was a gain of $662,767 and $2,725,530 recognized in the consolidated statements of operations and comprehensive income (loss) based on the decrease in fair value of the liabilities since March 31, 2021. As of March 31, 2023 and 2022, the fair value of the derivative instrument totaled $174,108 and $836,875, respectively. November 2021 Private Placement Warrants Pursuant to November 2021 Investors Warrants, if at any time and from time to time on or after the issuance date there occurs any stock split, stock dividend, stock combination recapitalization or other similar transaction involving the Common Stock (“Stock Combination Event”) and the Event Market Price (which is defined as with respect to any Stock Combination Event date, the quotient determined by dividing (x) the sum of the VWAP of the Common Stock for each of the five (5) lowest trading days during the twenty (20) consecutive trading day period ending and including the trading day immediately preceding the sixteenth (16th) trading day after such Stock Combination Event date, divided by (y) five (5)) is less than the original exercise price of $0.82 then in effect, then on the sixteenth (16th) trading day immediately following such Stock Combination Event, the exercise price then in effect on such sixteenth (16th) trading day shall be reduced (but in no event increased) to the event market price. As the 1-for-10 reverse stock split on the Company’s common stock became effective on April 6, 2022, the exercise price of the November 2021 Investors Warrants was adjusted to $1.13, and the total number of shares of the November 2021 Investors Warrants was adjusted to 5,335,763. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of March 31, 2023 and 2022, there were 5,365,911 (7,869,971 per reverse split), and 5,390,911 (7,904,422 pre reverse split) respectively for November 2021 Private Placement Warrants outstanding. During the years ended March 31, 2023 and 2022, the change of fair value was a gain of $946,507 and $3,115,263 recognized in the consolidated statements of operations and comprehensive income (loss) based on the decrease in fair value of the liabilities since insurance. On November 18, 2022, a holder of November 2021 private placement warrants exercised the warrants on a “cashless” basis. Upon exercise of above-mentioned warrants, the Company reduced the fair value of the warrants and increased the additional paid in capital by $1,533. As of March 31, 2023 and 2022, the fair value of the derivative instrument totaled $307,727 and $1,255,767, respectively. The Company has warrants outstanding as follows giving retroactive effect to the 1-for-10 reverse stock split effected on April 6, 2022: | | | | | | | | | | | | | | | | Weighted | | Average | | | | | | | Average | | Remaining | | | Warrants | | Warrants | | Exercise | | Contractual | | | Outstanding | | Exercisable | | Price | | Life | Balance, March 31, 2021 | | 110,107 | | 110,107 | | $ | 11.60 | | 4.09 | Granted | | 5,985,591 | | 5,985,591 | | $ | 2.11 | | 5.00 | Exercised | | (4,400) | | (4,400) | | | — | | — | Balance, March 31, 2022 | | 6,091,298 | | 6,091,298 | | $ | 2.28 | | 4.32 | Exercised | | (25,000) | | (25,000) | | | — | | — | Balance, March 31, 2023 | | 6,066,298 | | 6,066,298 | | $ | 2.29 | | 3.56 |
Restricted Stock Units On October 29, 2020, the Board approved the issuance of an aggregate of 127,273 restricted stock units (“RSUs”) to directors, officers and certain employees as stock compensation for their services for the year ended March 31, 2022. Total RSUs granted to these directors, officers and employees were valued at an aggregate fair value of $140,000. These RSUs will vest in four equal quarterly installments on January 29, 2021, April 29, 2021, July 29, 2021 and October 29, 2021 or in full upon the occurrence of a change in control of the Company, provided that the director, officer or the employee remains in service through the applicable vesting date. The RSUs will be settled by the Company’s issuance of shares of common stock in certificated or uncertificated form upon the earlier of (i) vesting date, (ii) a change in control and (ii) termination of the services of the director, officer or employee due to a “separation of service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, or the death or disability of such director, officer or employee. As of the filing date of these consolidated financial statements, all installment of RSUs with an aggregate of 12,727 (127,273 pre reverse split) was vested and 9,545 (95,457 pre reverse split) was settled by the Company. The Company expects to settle the remaining vested RSUs by issuance of shares of common stock before December 31, 2023 and account for the vested RSUs as an addition to both expenses and additional paid-in capital. Equity Incentive Plan At the 2018 Annual Meeting of Stockholders of the Company held on November 8, 2018, the Company’s stockholders approved the Company’s 2018 Equity Incentive Plan for employees, officers, directors and consultants of the Company and its affiliates. At the 2022 Annual Meeting of Stockholders of Company held on March 30, 2023, the Company’s stockholders approved the amendment to the 2018 Equity Incentive Plan, to increase the number of shares of common stock reserved under the Plan to 1,500,000 shares. A committee consisting of at least two independent directors would be appointed by the Board or in the absence of such a committee, the board of directors, will be responsible for the general administration of the Equity Incentive Plan. All awards granted under the Equity Incentive Plan will be governed by separate award agreements between the Company and the participants. As of March 31, 2023, the Company has granted an aggregate of RSUs and issued an aggregate of shares upon vest under the Equity Incentive Plan and RSUs were forfeited due to two directors ceased to serve on the board of the Company since November 8, 2018.
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1-for-10 shares reverse split on common stock The Company considered the above transactions after giving a retroactive effect to a 1-for-10 reverse stock split of its common stock which became effective on April 6, 2022. The Company believed it is appropriate to reflect the above transactions on a retroactive basis similar to those after a stock split or dividend pursuant to ASC 260. All shares and per share amounts used herein and in the accompanying consolidated financial statements have been retroactively stated to reflect the effect of the reverse stock split. Upon execution of the 1-for-10 reverse stock split, the Company recognized additional 8,402 shares of common stock due to round up issue. Conversion Price Adjustment for November 2021 Preferred Shares Pursuant to the COD signed by the Company and certain institutional investors in November 2021 Private Placement, the initial conversion price of the series A convertible Preferred Shares was $0.68. If as of the applicable date the conversion price then in effect is greater than the greater of (1) $0.41 (the “floor Price”) (as adjusted for stock splits, stock dividends, stock combinations, recapitalizations and similar events) and (2) 85% of the closing bid price on the applicable date (the “Adjustment Price”), the conversion price shall automatically lower to the Adjustment Price accordingly. As the 1-for-10 reverse stock split on the Company’s Common Stock became effective on April 6, 2022, the conversion price of the Preferred Shares was adjusted to $4.1. As of March 31, 2023 and March 31, 2022, there were 1,641 and 5,000 shares of Series A convertible preferred stock outstanding, respectively. During the year ended March 31, 2023, 3,359 shares of Series A convertible preferred stock was converted into 1,546,125 shares of the Company’s common stock. Further, on August 9, 2022, the Company and the investors agreed to reduce the conversion price of the series A convertible Preferred Shares from $4.10 to $2.00 and to increase the number of the shares of common stock that are available to be issued upon conversion of the Preferred Shares from 1,092,683 to 2,240,000. 15. INCOME TAXES The United States of America The Company is incorporated in the State of Nevada in the U.S., and is subject to U.S. federal corporate income taxes.taxes with tax rate of 21%. The State of Nevada does not impose any state corporate income tax. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Act”“Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. As the Company has a March 31 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 31.5% for its fiscal year ending March 31, 2018, and 21% for subsequent fiscal years. Accordingly, the Company has to remeasure it deferred tax assets on net operating loss carryforward in the U.S and concluded no effect on the Company’s income tax expenses as the Company has no deferred tax assets generated since inception. Additionally, the. The Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has causedTax Act also stablished the Company to remeasure all U.S. deferredGlobal Intangible Low-Taxed Income (GILTI), a new inclusion rule affecting non-routine income tax assetsearned by foreign subsidiaries. For the years ended March 31, 2023 and liabilities for temporary differences and NOL carryforwards and recorded one time income tax payable to be paid in 8 years. However, this one-time transition tax has no effect on2022, the Company’s income tax expensesforeign subsidiaries in China were operating at loss and as the Company has no undistributed foreign earnings prior to March 31, 2018, as the Company has cumulative foreign losses as of March 31, 2018.
such, did not record a liability for GILTI tax. The Company'sCompany’s net operating loss for U.S. income taxes from U.S for the yearyears ended March 31, 20182023 and 2022 amounted to approximately $0.2 million.$1.3 million and $2.3 million respectively. As of March 31, 2018,2023 and 2022, the Company’s net operating loss carry forwardcarryforward for United StatesU.S. income taxes was approximately $0.2 million.$7.1 million and $5.9 million, respectively. The net operating loss carry forwards arecarryforward will not expire and is available to reduce future years'years’ taxable income, through year 2037.but limited to 80% of income until utilized. Management believes that the realizationutilization of the benefit from this loss appears uncertain due to the Company'sCompany’s operating history. Accordingly, the Company has providedrecorded a 100% valuation allowance on the deferred tax asset to reduce the deferred tax assets to zero.zero on the consolidated balance sheets. As of March 31, 20182023 and 2017,2022, valuation allowanceallowances for deferred tax assets wasrelated to net operating loss carry forward for U.S. income taxes were approximately $0.04$1.5 million and nil,$1.2 million, respectively. Management reviews thisthe valuation allowance periodically and makes changes accordingly
SENMIAO TECHNOLOGY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 12. | INCOME TAXES (CONTINUED) |
accordingly. PRC The WFOESenmiao Consulting, Sichuan Senmiao, Hunan Ruixi, Ruixi Leasing, Jinkailong (deconsolidated in the year ended March 31, 2022), Yicheng, Jiekai, Youlu and Sichuan SenmiaoXXTX and its subsidiaries are subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is 25%.
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income taxes that are attributed to the continuing operations in the PRC are consist of: | | | For the Years Ended March 31 | | | | | 2018 | | | 2017 | | | | | | | | | | | Current income tax expense | | $ | - | | | $ | - | | | Deferred income tax benefit | | | - | | | | - | | | Deferred income tax benefit | | | | | | | | | | | | $ | - | | | $ | - | |
| | | | | | | | | For the Years Ended | | | March 31, | | | 2023 | | 2022 | Deferred income tax expenses | | $ | — | | $ | 4,566 | Total income tax expenses | | $ | — | | $ | 4,566 |
Below is a reconciliation of the statutory tax rate to the effective tax rate: | | | | | | | | | | For the Years Ended | | | | March 31, | | | | 2023 | | 2022 | | PRC Statutory tax rate* | | | 25.0 | % | | 25.0 | % | Differential of local statutory tax rate | | | 0.3 | % | | — | % | Permanent difference of write-off of receivables from guarantee of loans | | | — | % | | (0.5) | % | Permanent difference of gain from change in fair value of derivative liabilities not taxable in PRC | | | 9.5 | % | | 26.1 | % | Non-deductible expenses | | | (1.1) | % | | (8.3) | % | Valuation allowance on deferred income tax asset | | | (30.7) | % | | (43.6) | % | Others | | | (3.0) | % | | 1.2 | % | Effective tax rate | | | — | % | | (0.1) | % |
*As the Company business operation mainly concentrated PRC, the Company determined to apply PRC statutory tax rate in reconciliation of the statutory tax rate to the effective tax rate As of March 31, 20182023 and 2017,2022, the CompanyCompany’s PRC entities from continuing operations had net operating loss carryforwards of $1,512,341approximately $9.6 million and $527,498,$8.5 million, respectively, which will expire starting from 2025 and ending in 20232027. In addition, allowance for doubtful accounts must be approved by the Chinese tax authority prior to being deducted as an expense item on the tax return. The bad debt allowances are incurred in Company’s PRC subsidiaries and 2022, respectively. Theformer VIEs which were operating at losses, the Company reviews deferred tax assets for a valuation allowance based upon whetherbelieves it is more likely than not that the deferred tax assetits PRC operations will be unable to fully realized. At March 31, 2018 and 2017, full valuation allowance is provided against theutilize its deferred tax assets based upon management’s assessmentrelated to the net operating loss carryforwards in the PRC. As a result, the Company provided 100% allowance on all deferred tax assets on net operating loss carryforwards in the PRC of $2,403,785 and $2,315,793 related to its continuing operations in the PRC as of March 31, 2023 and 2022, respectively and provided 100% allowance on all deferred tax assets on allowance for doubtful account of $402,599 and $29,129 related to their realization. its continuing operations in the PRC as of March 31, 2023 and 2022, respectively. The tax effects of temporary differences from continuing operations that give rise to the Company’s deferred tax assets and liabilities are as follows: | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Deferred Tax Assets | | | | | | | Net operating loss carryforwards in the PRC | | $ | 2,403,785 | | $ | 2,315,793 | Net operating loss carryforwards in the U.S. | | | 1,499,607 | | | 1,234,789 | Allowance for doubtful account | | | 402,599 | | | 29,129 | Less: valuation allowance | | | (4,305,991) | | | (3,579,711) | Deferred tax assets, net | | $ | — | | $ | — | Deferred tax liabilities: | | | | | | | Capitalized intangible assets cost | | $ | 42,930 | | $ | 46,386 | Deferred tax liabilities, net | | $ | 42,930 | | $ | 46,386 |
| | | March 31, | | | March 31, | | | | | 2018 | | | 2017 | | | | | | | | | | | Net operating loss carryforwards in the PRC | | $ | 378,085 | | | $ | 131,874 | | | Net operating loss carryforwards in the U.S. | | | 43,021 | | | | - | | | Less: valuation allowance | | | (421,117 | ) | | | (131,874 | ) | | | | $ | - | | | $ | - | |
As of March 31, 2023 and 2022, the Company’s PRC entities associated with discontinued operations had net operating loss carryforwards of approximately $1.9 million and $10.3 million, respectively which will start to expire from 2024 to 2027. Meanwhile, net operating loss carry forward as of March 31, 2023 in the PRC from discontinued operations was reduced due to certain adjustments by PRC tax authorities. For In addition, allowance for doubtful accounts must be approved by the Chinese tax authority prior to being deducted as an expense item on the tax return. The Company evaluates its valuation allowance requirements at end of each reporting period by reviewing all available evidence, both positive and negative, and considering whether, based on the weight of that evidence,reviews deferred tax assets for a valuation allowance is needed. When circumstances cause a change in management’s judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in income from operations. The future realization of the tax benefit of an existing deductible temporary difference ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryforward period available under applicable tax law. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 12. | INCOME TAXES (CONTINUED) |
Belowit is a reconciliation ofmore likely than not that the statutorydeferred tax rate to the effective tax rate:
| | | For the Years Ended March 31, | | | | | 2018 | | | 2017 | | | | | | | | | | | PRC statutory tax rate | | $ | 25.0 | % | | $ | 25.0 | % | | Effect of income tax rate difference in other jurisdiction | | | (0.1 | )% | | | - | | | Effect of non-deductible impairments for intangibles and goodwill | | | (22.5 | )% | | | - | | | Effects of valuation allowance on deferred income tax asset | | | (2.4 | )% | | | (25.0 | )% | | PRC statutory tax rate | | $ | 0 | % | | $ | 0 | % |
SENMIAO TECHNOLOGY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 13. | RELATED PARTY TRANSACTIONS AND BALANCES |
asset will not be fully realized. As of March 31, 20182023 and 2017,2022, full valuation allowance is provided against the balancedeferred tax assets related to the Company’s discontinued operations based upon management’s assessment as to their realization. The tax effects of duetemporary differences from discontinued operations that give rise to stockholders wasthe Company’s deferred tax assets are as follows: | | | March 31, 2018 | | | March 31, 2017 | | | | | | | | | | | Jun Wang | | $ | 114,595 | | | $ | 43,534 | | | Xiang Hu | | | 945,824 | | | | 290,227 | | | Hong Li | | | 30,389 | | | | - | | | | | $ | 1.090,808 | | | $ | 333,761 | |
| | | | | | | | | March 31, 2023 | | March 31, 2022 | Net operating loss carry forwards in the PRC | | $ | 479,377 | | $ | 2,595,919 | Less: valuation allowance | | | (479,377) | | | (2,595,919) | Total | | $ | — | | $ | — |
The balances due to Jun Wang and Xiang Hu are unsecured borrowings.
The balance due to Hong Li is payable on demand.16. CONCENTRATION
| 2) | Related party transactions |
Major Suppliers In December 2017, the Company entered into loan agreements with Xiang Hu and Jun Wang, who agreed to grant a line of credit of approximating $955,308 and $159,218, respectively, for five years to the Company. The line of credit was non-interest bearing, effective from January 2017. During the year ended March 31, 2018, the Company borrowed from Hu Xiang and Jun Wang, the stockholders of the Company and Sichuan Senmiao, in the amount of $690,370 and $74,832, respectively. These borrowings were non-interest bearing and without specific terms of repayment.
During the year ended March 31, 2018, the Company paid listing expenses on behalf of Xiang Hu and Jun Wang who agreed to pay part of the Company’s expenses in connection with its initial public offering, in the amount of $59,692 and $7,585, respectively. The Company accounted for the expenses as a deduction against the amount due from the stockholders.
During the year ended March 31, 2017, the Company entered into two office lease agreements with Hong Li, both with a term from January 1, 2017 to January 1, 2020. For the year ended March 31, 2018,2023, two suppliers accounted for approximately 21.2% and 12.4% of the Company paid $86,405total costs of rental expenses to Hong Li.
SENMIAO TECHNOLOGY LIMITEDrevenue from continuing operations of the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 14. | COMMITMENTS AND CONTINGENCIES |
DuringFor the year ended March 31, 2018,2022, three suppliers accounted for approximately 23.65%,13.92%, and 13.18% of the total costs of revenue from continuing operations of the Company, leased its offices and three apartments under five lease agreements expiring through January 2020. Rental expensesone supplier accounted for approximately 18.18% of the years ended March 31, 2018 and 2017 were $122,741 and $28,359, respectively. The following table sets forthtotal cost of revenues for discontinued operations of the Company’s contractual obligations asCompany.
17. RELATED PARTY TRANSACTIONS AND BALANCES 1. Related Party Balances 1)Account receivable, a related party As of March 31, 2018 in future periods:2023 and 2022, account receivable from a related party from the Company’s continuing operations of $6,312 and $0, respectively, represented balance due from operating lease revenue recognized from Jinkailong, the Company’s equity investee company. 2)Due from related parties | | | Rental payments | | | | | | | | Year ending March 31, 2019 | | $ | 137,304 | | | Year ending March 31, 2020 | | | 97,855 | | | Year ending March 31, 2021 and thereafter | | | - | | | | | $ | 235,159 | |
As of March 31, 2023 and March 31, 2022, balances due from related parties from the Company’s continuing operations were comprised of the following: F-32
| | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Total due from related parties | | $ | 6,610,156 | | $ | 7,318,081 | Less: Allowance for doubtful accounts | | | (1,481,036) | | | — | Due from related parties, net | | $ | 5,129,120 | | $ | 7,318,081 | Due from related parties, net, current portion | | $ | 1,488,914 | | $ | 682,335 | Due from a related party, net, non-current portion | | $ | 3,640,206 | | $ | 6,635,746 |
As of March 31, 2023, balances due from Jinkailong of $5,106,100, net of allowance, of which, $3,640,206 is to be repaid over a period from April 2024 to December 2026, which was classified as due from a related party, net, non-current (refer to Note 4). As of March 31, 2022, balances due from Jinkailong of $7,298,208, represented balance due from Jinkailong as result of Jinkailong’s deconsolidation, of which, $6,635,746 is to be repaid over a period from April 2023 to December 2026, which was classified as due from a related party, non-current. Movement of allowance for doubtful accounts due from Jinkailong for March 31, 2023 and 2022 are as follows: Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Beginning balance | | $ | — | | $ | — | Addition | | | 1,484,495 | | | — | Translation adjustment | | | (3,459) | | | — | Ending balance | | $ | 1,481,036 | | $ | — |
As of March 31, 2023 and 2022, balance due from Youlu, the Company’s former VIE as result of Youlu’s deconsolidation in March 2022 were amounted to $23,020 and $19,873, respectively. 3) Due to related parties and affiliates | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Loan payable to a related party (i) | | $ | 8,667 | | $ | 9,897 | Others (ii) | | | — | | | 1,785 | Total due to related parties and affiliates | | $ | 8,667 | | $ | 11,682 |
| (i) | 15. | PARENT-ONLY FINANCIALSAs of March 31, 2023 and 2022, the balances represented borrowings from Xi Wen, the CEO of the Company, of which, $8,667 and $9,897 are unsecured, interest free and due on demand, respectively. |
| (ii) | As of March 31, 2023 and 2022, the balances of $0 and $1,785, respectively, represented payables to Jinkailong, the Company’s equity investee company, for operational purposes. |
4) Operating lease right-of-use assets, net, related parties and Operating lease liabilities - related parties SENMIAO TECHNOLOGY LIMITED
| | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Lease I (i) | | $ | — | | $ | 446,372 | Lease II (ii) | | | 92,916 | | | 69,534 | Total Operating lease right-of-use assets - related parties | | $ | 92,916 | | $ | 515,906 |
CONDENSED BALANCE SHEETS
| | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Lease I (i) | | $ | 82,069 | | $ | 246,516 | Lease II (ii) | | | 61,393 | | | 84,265 | Total Operating lease liabilities, current - related parties | | $ | 143,462 | | $ | 330,781 |
| | | March 31, | | | March 31, | �� | | | | 2018 | | | 2017 | | | | | | | | | | | ASSETS | | | | | | | | | | Current Assets | | | | | | | | | | Cash and cash equivalents | | $ | 10,961,071 | | | $ | - | | | Prepayments, receivables and other assets | | | 39,964 | | | | - | | | | | | | | | | | | | Total Current Assets | | | 11,001,035 | | | | - | | | | | | | | | | | | | Other Assets | | | | | | | | | | Escrow receivable | | | 1,200,000 | | | | - | | | Investment in subsidiary | | | 830,562 | | | | - | | | Total Assets | | $ | 13,031,597 | | | $ | - | | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | Total Liabilities | | $ | 152,927 | | | $ | - | | | | | | | | | | | | | Stockholders' Equity | | | | | | | | | | Common stock (par value $0.0001 per share, 100,000,000 shares authorized; 25,879,400 and 20,250,000 shares issued and outstanding at March 31, 2018 and March 31, 2017, respectively) | | | 2,588 | | | | 2,025 | | | Additional paid-in capital | | | 23,611,512 | | | | (2,025 | ) | | Accumulated deficit | | | (10,481,669 | ) | | | - | | | Accumulated other comprehensive loss | | | (253,761 | ) | | | - | | | Total Stockholders’ Equity | | | 12,878,670 | | | | - | | | Total Liabilities and Stockholders’ Equity | | $ | 13,031,597 | | | $ | - | |
| | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | Lease I (i) | | $ | — | | $ | 211,953 | Lease II (ii) | | | 42,247 | | | 14,943 | Total Operating lease liabilities, non-current - related parties | | $ | 42,247 | | $ | 226,896 |
(i) | The Company entered into two office lease agreements with Hong Li, supervisor of Sichuan Senmiao, which were set to expire on January 1, 2020. On April 1, 2020, the two office leases were updated with a leasing term from April 1, 2020 to March 31, 2023. On March 1, 2021, the Company entered into an additional office lease which was set to expire on February 1, 2026. On April 1, 2021, the Company entered into another office lease which was set to expire on April 1, 2024. In October 2022, the Company terminated the leases signed on March 1, 2021 and April 1, 2021 as mentioned above. |
(ii) | In November 2018, Hunan Ruixi entered into an office lease agreement with Hunan Dingchentai Investment Co., Ltd. (“Dingchentai”), a company where one of the Company’s independent directors serves as legal representative and general manager. The term of the lease agreement was from November 1, 2018 to October 31, 2023 and the rent was approximately $44,250 per year, payable on a quarterly basis. The original lease agreement with Dingchentai was terminated on July 1, 2019. The Company entered |
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS into another lease with Dingchentai on substantially similar terms on September 27, 2019, and a renewal lease contract was signed on June 2022 which extended the original lease to May 2025. SENMIAO TECHNOLOGY LIMITED2.Related Party Transactions
CONDENSED STATEMENTS OF OPERATIONSFor the years ended March 31, 2023 and 2022, the Company incurred $177,414 and $237,968, respectively, in rental expenses to Hong Li, supervisor of Sichuan Senmiao, pursuant to four office lease agreements in total.
| | | For the Years Ended March 31, | | | | | 2018 | | | 2017 | | | | | | | | | | | | | | | | | | | General and administrative expenses | | $ | (204,864 | ) | | $ | (99,550 | ) | | Equity of loss in subsidiary | | | (9,654,108 | ) | | | - | | | Net loss | | | (9,858,972 | ) | | | - | | | Foreign currency translation adjustments | | | 854,001 | | | | - | | | Comprehensive loss | | $ | (9,004,971 | ) | | $ | (99,550 | ) |
For the years ended March 31, 2023 and 2022, the Company incurred $47,043 and $45,651, respectively, in rental expenses to Dingchentai, a company where one of the Company’s independent directors serves as legal representative and general manager. SENMIAO TECHNOLOGY LIMITEDThe Company had reached cooperation with Jinkailong, the Company’s equity investee company, that the drivers who leased automobile from Jinkailong completed their online ride-hailing requests and orders through the company’s ride-hailing platform, and the company will pay Jinkailong a certain promotion service fee. During the year ended March 31, 2023, the company incurred promotion fee of $95,804 payable to Jinkailong. During the year ended March 31, 2022, the company incurred promotion fee of $553,761 to Jinkailong, which was eliminated in the loss of continuing operations of the consolidated financial statements.
CONDENSED STATEMENTS OF CASH FLOWSDuring the year ended March 31, 2023, Corenel leased automobiles to Jinkailong and generated revenues of $344,120, while Jiekai leased automobiles from Jinkailong and had a rental cost of $509,904. During the years ended March 31, 2022, Corenel and Yicheng leased automobiles to Jinkailong and generated revenues of $1,280,993, which was eliminated in the loss of continuing operations of the consolidated financial statements.
During the year ended March 31, 2022, Hunan Ruixi and Yicheng had loans due from Jinkailong, the Company’s equity investee company, and had interest income of $450,889, which was eliminated in the loss of continuing operations of the consolidated financial statements. | | | For the Years ended March 31, | | | | | 2018 | | | 2017 | | | | | | | | | | | Cash Flows from Operating Activities | | | | | | | | | | Net loss | | $ | (9,858,972 | ) | | $ | - | | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | - | | | Equity of loss of subsidiaries | | | 9,654,108 | | | | - | | | Changes in operating assets and liabilities: | | | | | | | | | | Prepayments, receivables and other assets | | | (39,964 | ) | | | - | | | Accrued expenses and other liabilities | | | 81,927 | | | | - | | | Due to stockholders | | | 71,000 | | | | - | | | | | | | | | | | | | Cash Flows used in Operating Activities | | | (91,901 | ) | | | - | | | | | | | | | | | | | | | | | | | | | | | Cash Flows From Financing Activities: | | | | | | | | | | Net Proceeds from issuance of common stock in initial public offering | | | 9,641,604 | | | | - | | | Proceeds from exercise of the underwriter’s overallotment option | | | 1,411,368 | | | | - | | | Cash Flows provided by Financing Activities | | | 11,052,972 | | | | - | | | | | | | | | | | | | Net increase in cash and cash equivalents | | | 10,961,071 | | | | - | | | Cash and cash equivalents, beginning of year | | | - | | | | - | | | | | | | | | | | | | Cash and cash equivalents, end of year | | $ | 10,961,071 | | | $ | - | | | | | | | | | | | | | Supplemental Cash Flows Information: | | | | | | | | | | Income tax paid | | $ | - | | | $ | - | | | Interest paid | | $ | - | | | $ | - | | | | | | | | | | | | | Non-cash investing and financing activities: | | | | | | | | | | IPO issuance costs net against additional paid-in capital | | $ | 1,264,628 | | | $ | - | | | Escrow receivable in connection with IPO | | $ | 1,200,000 | | | $ | - | | | IPO expenses paid by the Company’s stockholders | | $ | 67,277 | | | $ | | |
18. LEASES F-34Lessor
The Company’s operating leases for automobile rentals have rental periods that are typically short term, generally is twelve months or less. Revenue recognition section of Note 3 (s), the Company discloses that revenue earned from automobile rentals, wherein an identified asset is transferred to the customer and the customer has the ability to control that asset, is accounted for under Topic 842 upon adoption for the year ended March 31, 2020. Lessee As of March 31, 2023 and 2022, the Company has engaged in offices and showroom leases which were classified as operating leases. The Company leased automobiles under operating lease agreements with a term shorter than twelve months which it elected not to recognize lease assets and lease liabilities under ASC 842. Instead, the Company recognized the lease payments in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred. In addition, the Company had automobiles leases which were classified as finance lease. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company recognized lease expense on a straight-line basis over the lease term for operating lease. Meanwhile, the Company recognized the finance leases ROU assets and interest on an amortized cost basis. The amortization of finance ROU assets is recognized on a straight-line basis as amortization expense, while the lease liability is increased to reflect interest on the liability and decreased to reflect the lease payments made during the period. Interest expense on the lease liability is determined each period during the lease term as the amount that results in a constant periodic interest rate of the automobile loans on the remaining balance of the liability. The ROU assets and lease liabilities are determined based on the present value of the future minimum rental payments of the lease as of the adoption date, using an effective interest rate of 6.0%, which is determined using an incremental borrowing rate with similar term in Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the PRC. As of March 31, 2023, the weighted-average remaining operating and finance lease term of its existing leases is approximately 2.67 and 2.53 years, respectively. | (a) | Operating and finance lease expenses consist of the following: | | | | | | | | | | | | | For the Years Ended | | | Classification | | March 31, 2023 | | March 31, 2022 | Operating lease cost | | | | | | | | | Automobile lease costs | | Cost of revenues | | $ | 2,020,276 | | $ | 1,749,959 | Lease expenses | | Selling, general and administrative | | | 355,814 | | | 585,719 | Finance lease cost | | | | | | | | | Amortization of leased asset | | Cost of revenue | | | 230,022 | | | 2,844,167 | Amortization of leased asset | | General and administrative | | | 100,814 | | | 974,422 | Interest on lease liabilities | | Interest expenses on finance leases | | | 25,675 | | | 333,210 | Total lease expenses | | | | $ | 2,732,601 | | $ | 6,487,477 | Total Lease expenses – discontinued operations | | | | | — | | | (4,150,972) | Total Lease expenses- continuing operations | | | | $ | 2,732,601 | | $ | 2,336,505 |
Operating lease expenses for automobiles from continuing operations totaled $2,140,395 and $1,390,767 for the years ended March 31, 2023 and 2022, respectively. Operating lease expenses for automobiles from discontinued operations totaled $359,192 for the year ended March 31, 2022. Operating lease expenses for offices and showroom leases from continuing operations totaled $355,814 and $460,209 for the years ended March 31, 2023 and 2022, respectively. Operating lease expenses for offices and showroom leases from discontinued operations totaled $125,510 for the year ended March 31, 2022. Interest expenses on finance leases from continuing operations totaled $25,675 and $55,844 for the years ended March 31, 2023 and 2022, respectively. Interest expenses on finance leases from discontinued operations totaled $277,366 for the year ended March 31, 2022. The following table sets forth the Company’s minimum lease payments in future periods: | | | | | | | | | | | | *Operating lease | | Finance lease | | | | | payments | | payments | | Total | Twelve months ending March 31, 2024 | | $ | 205,894 | | $ | 294,410 | | $ | 500,304 | Twelve months ending March 31, 2025 | | | 86,897 | | | 270,837 | | | 357,734 | Twelve months ending March 31, 2026 | | | 50,391 | | | 135,418 | | | 185,809 | Twelve months ending March 31, 2027 | | | 3,591 | | | — | | | 3,591 | Total lease payments | | | 346,773 | | | 700,665 | | | 1,047,438 | Less: discount | | | (16,701) | | | (48,549) | | | (65,250) | Present value of lease liabilities | | $ | 330,072 | | $ | 652,116 | | $ | 982,188 |
*As of March 31, 2023, the outstanding balance of operating lease payments due to related parties was $185,709. 19. COMMITMENTS AND CONTINGENCIES Contingencies In measuring the credit risk of guarantee services to automobile purchasers, the Company primarily reflects the “probability of default” by the automobile purchasers on its contractual obligations and considers the current financial position of the automobile purchasers and its likely future development. The Company manages the credit risk of automobile purchasers by performing preliminary credit checks of each automobile purchaser and ongoing monitoring every month. By using the current credit loss model, management is of the opinion that the Company is bearing the credit risk to repay the principal and interests to the financial institutions if automobile purchasers’ default on their payments for Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS more than three months. Management also periodically re-evaluates probability of default of automobile purchasers to make adjustments in the allowance, when necessary, as the Company is the guarantor of the loans. Purchase commitments On September 23, 2022, the Company entered into a purchase contract with an automobile dealer to purchase a total of 100 automobiles for the amount of approximately $1.6 million. As of the date of filing of these consolidated financial statements, the Company has remit approximately $0.7 million as purchase prepayments, and expects to fulfill the purchase commitment before December 31, 2023. On March 28, 2023, the Company entered into a purchase contract with an automobile dealer to purchase a total of 50 automobiles for the amount of approximately $0.8 million. As of the date of filing of these consolidated financial statements, 30 automobiles of approximately $0.34 million have been purchased in cash and delivered to the Company, and the Company expects to fulfill the purchase commitment before December 31, 2023. Contingent liabilities for automobile purchasers Historically, most of the automobile purchasers would pay the Company their previous defaulted amounts within one to three months. In December 2019, a novel strain of coronavirus, or COVID-19, surfaced and it has spread rapidly to many parts of China and other parts of the world, including the United States. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in China and elsewhere. Because substantially all of the Company’s operations are conducted in China, the COVID-19 outbreak has materially and adversely affected the Company’s business operations, financial condition and operating results for 2021 and 2022, including but not limited to decrease in revenues, slower collection of accounts receivables and additional allowance for doubtful accounts. Some of the Company’s customers exited the ride-hailing business and rendered their automobiles to the Company for sublease or sale to generate income or proceeds to cover payments owed to financial institutions and the Company. For years ended March 31, 2023 and 2022, the Company recognized an estimated provision loss of approximately $7,287 and $8,000, respectively, for drivers who exited the ride-hailing business were not able to make the monthly payments from continuing operations. For the year ended March 31, 2022, the Company recognized an estimated provision loss of approximately $716, for the guarantee services for drivers who exited the ride-hailing business were not able to make the monthly payments from discontinued operations. As of March 31, 2023, the maximum contingent liabilities Hunan Ruixi would be exposed to was approximately $10,000, assuming all the automobile purchasers were in default. Automobiles are used as collateral to secure the payment obligations of the automobile purchasers under the financing agreements. The Company estimated the fair market value of the collateral represents approximately all of the maximum contingent liabilities as of March 31, 2023, based on the market price and the useful life of such collateral. Contingent liability of Jinkailong Despite that the Company holds 35% of equity interest of Jinkailong through Hunan Ruixi, and has not make any consideration towards to the investment, the Company will be subjected to the maximum amount of RMB3.5 million (approximately $510,000) of which is equivalent to 35% of liabilities in case Jinkailong is liquidated in accordance with PRC’s company registry compliance. As of March 31, 2023, the maximum contingent liabilities of Jinkailong, the Company’s equity investee company and former VIE, would be exposed to was approximately $3.9 million, assuming all the automobile purchasers were in default. Automobiles are used as collateral to secure the payment obligations of the automobile purchasers under the financing agreements. Jinkailong estimated the fair market value of the collateral to be approximately $2.5 million as of March 31, 2023, based on the market price and the useful life of such collateral, which represents approximately 65% of the maximum contingent liabilities. Meanwhile, approximately $2.6 million, including interests of approximately $232,000, due to financial institutions, of all the automobile purchases Jinkailong serviced were past due mainly due to the COVID-19 pandemic in China in prior years. Besides, as of March 31, 2023, due to Jinkailong has undertaken the joint and several liability guarantee for all loans of Langyue Automobile Service Co., Ltd. from Chengdu Industrial Impawn Co., Ltd (“Impawn”) for certain historical business, Jinkailong may be required to pay all the outstanding balance of approximately $881,000 to Impawn in the future. From time to time, the Company and its equity investee company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. The total amount of reasonable possible losses with the respect to such matters, individually and in the aggregate, are not deemed to be material to the consolidated financial statements. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. SEGMENT INFORMATION The Company presents segment information after elimination of inter-company transactions. In general, revenue, cost of revenue and operating expenses are directly attributable, or are allocated, to each segment. The Company allocates costs and expenses that are not directly attributable to a specific segment, such as those that support infrastructure across different segments, to different segments mainly on the basis of usage, revenue or headcount, depending on the nature of the relevant costs and expenses. The Company does not allocate assets to its segments as the CODM does not evaluate the performance of segments using asset information. By assessing the qualitative and quantitative criteria established by Accounting Standards Codification (“ASC”) 280, “Segment Reporting”, the Company considers itself to be operating in two reportable segments which comprise of automobile transaction and related services and online ride-hailing platform. The segments are organized based on type of service offered. The following tables present the summary of each segment’s revenue, loss from operations, loss before income taxes and net loss which is considered as a segment operating performance measure, for the years ended March 31, 2023 and 2022: | | | | | | | | | | | | | | | For the Year ended March 31, 2023 | | | Automobile | | | | | | | | | | | | Transaction and | | Online ride- | | | | | | | | Related | | hailing platform | | | | | | | | Services | | Services | | Unallocated | | Consolidated | Revenues | | $ | 4,372,569 | | $ | 3,709,945 | | $ | — | | $ | 8,082,514 | Interest income | | $ | 1,533 | | $ | 197 | | $ | 52 | | $ | 1,782 | Depreciation and amortization | | $ | 1,842,745 | | $ | 64,217 | | $ | 84,401 | | $ | 1,991,363 | Loss from operations | | $ | (4,319,384) | | $ | (357,916) | | $ | (1,463,608) | | $ | (6,140,908) | Loss before income taxes | | $ | (3,682,810) | | $ | (356,164) | | $ | 248,281 | | $ | (3,790,693) | Net loss | | $ | (3,682,810) | | $ | (356,164) | | $ | 248,281 | | $ | (3,790,693) | Capital expenditure | | $ | 1,151,076 | | $ | 26,420 | | $ | — | | $ | 1,177,496 |
| | | | | | | | | | | | | | | | | | | | | For the Year ended March 31, 2022 | | | Automobile | | Online ride- | | | | | | | | | | | | | | | Transaction and | | hailing | | | | | | | | | | | | | | | related | | platform | | | | | | | | Discontinued | | Continuing | | | service | | services | | Unallocated | | Total | | operations | | operations | Revenues | | $ | 9,077,761 | | $ | 2,665,457 | | $ | — | | $ | 11,743,218 | | $ | 6,830,116 | | $ | 4,913,102 | Interest income | | $ | 983 | | $ | 863 | | $ | 682 | | $ | 2,528 | | $ | 646 | | $ | 1,882 | Depreciation and amortization | | $ | 5,444,010 | | $ | 38,365 | | $ | 87,124 | | $ | 5,569,499 | | $ | 3,496,825 | | $ | 2,072,674 | Loss from operations | | $ | (3,957,831) | | $ | (6,962,113) | | $ | (3,179,759) | | $ | (14,099,703) | | $ | (2,537,715) | | $ | (11,561,988) | loss before income taxes | | $ | (4,682,007) | | $ | (7,438,693) | | $ | 3,771,912 | | $ | (8,348,788) | | $ | (2,747,209) | | $ | (5,601,579) | Net income (loss) | | $ | (4,686,573) | | $ | (7,438,693) | | $ | 3,771,912 | | $ | (8,353,354) | | $ | (2,747,209) | | $ | (5,606,145) | Capital Expenditure | | $ | 3,225,395 | | $ | 141,730 | | $ | — | | $ | 3,367,125 | | $ | 1,403 | | $ | 3,365,722 |
The accounting principles for the Company’s revenue by segment are set out in Note 3(h). As of March 31, 2023, the Company’s total assets were comprised of $12,579,764 for automobile transaction and related services, $937,400 for online ride-hailing platform services and $721,451 unallocated. As of March 31, 2022, the Company’s total assets were comprised of $12,022,387 for automobile transaction and related services, $7,003,867 for online ride-hailing platform services and $851,863 unallocated. As substantially all of the Company’s long-lived assets are located in the PRC and substantially all of the Company’s revenue is derived from within the PRC, no geographical information is presented. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. PARENT-ONLY FINANCIALS SENMIAO TECHNOLOGY LIMITED CONDENSED BALANCE SHEETS | | | | | | | | | March 31, | | March 31, | | | 2023 | | 2022 | | | (Unaudited) | | (Unaudited) | ASSETS | | | | | | | Current Assets | | | | | | | Cash and cash equivalents | | $ | 78,693 | | $ | 116,613 | Due from subsidiaries | | | 11,889,775 | | | 12,587,739 | Prepayments, other receivables and other assets, net | | | 35,251 | | | 135,252 | Total Current Assets | | | 12,003,719 | | | 12,839,604 | | | | | | | | Other Assets | | | | | | | Intangible assets | | | 525,000 | | | 600,000 | Total Assets | | $ | 12,528,719 | | $ | 13,439,604 | | | | | | | | LIABILITIES AND EQUITY | | | | | | | Current Liabilities | | | | | | | Accrued expenses and other liabilities | | $ | 340,151 | | $ | — | Derivative liabilities | | | 501,782 | | | 2,215,204 | Total Current Liabilities | | | 841,933 | | | 2,215,204 | | | | | | | | Other Liabilities | | | | | | | Excess of investments in subsidiaries | | | 7,023,186 | | | 2,310,937 | Total Liabilities | | | 7,865,119 | | | 4,526,141 | | | | | | | | Commitments and Contingencies | | | | | | | Mezzanine Equity (redeemable) | | | | | | | Series A convertible preferred stock (par value $1,000 per share, 5,000 shares authorized; 1,641 and 5,000 shares issued and outstanding at March 31, 2023 and 2022, respectively) | | | 269,386 | | | 820,799 | | | | | | | | Stockholders’ Equity | | | | | | | Common stock (par value $0.0001 per share, 500,000,000 shares authorized; 7,743,040 and 6,186,783 shares issued and outstanding at March 31, 2023 and 2022, respectively)* | | | 773 | | | 618 | Additional paid-in capital | | | 43,355,834 | | | 42,803,045 | Accumulated deficit | | | (37,715,294) | | | (34,601,545) | Accumulated other comprehensive loss | | | (1,247,099) | | | (109,454) | Total Senmiao Technology Limited Stockholders’ Equity | | | 4,394,214 | | | 8,092,664 | Total Liabilities, Mezzanine Equity and Equity | | $ | 12,528,719 | | | 13,439,604 |
*Giving retroactive effect to the 1-for-10 reverse stock split effected on April 6, 2022 Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SENMIAO TECHNOLOGY LIMITED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | | | | | | | | | For the Years Ended March 31, | | | 2023 | | 2022 | General and administrative expenses | | $ | (1,451,038) | | $ | (2,339,378) | Other Income, net | | | — | | | 16,189 | Change in fair value of derivative liabilities | | | 1,711,889 | | | 6,951,482 | Issuance costs for issuing series A convertible preferred stock | | | — | | | (821,892) | Equity of losses in subsidiaries | | | (3,374,600) | | | (4,343,025) | Net loss | | | (3,113,749) | | | (536,624) | Foreign currency translation adjustment | | | (1,137,645) | | | 80,321 | Comprehensive loss attributable to stockholders | | $ | (4,251,394) | | $ | (456,303) |
Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SENMIAO TECHNOLOGY LIMITED CONDENSED STATEMENTS OF CASH FLOWS | | | | | | | | | For the Years Ended March 31, | | | 2023 | | 2022 | Cash Flows from Operating Activities: | | | | | | | Net loss | | $ | (3,113,749) | | $ | (536,624) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | Equity of loss of subsidiaries | | | 3,374,600 | | | 4,343,025 | Amortization of intangible asset | | | 75,000 | | | 75,000 | Issuance cost incurred for issuing series A convertible preferred stock | | | — | | | 821,892 | Stock compensation expense | | | — | | | 653,000 | Change in fair value of derivative liabilities | | | (1,711,889) | | | (6,951,482) | Prepayments, receivables and other assets | | | 100,002 | | | 1,651 | Accrued expenses and other liabilities | | | 421,815 | | | 175,008 | Net Cash Used in Operating Activities | | | (854,221) | | | (1,418,530) | | | | | | | | Cash Flows from Investing Activities: | | | | | | | Working capital contribution for subsidiaries | | | — | | | (5,749,950) | Net Cash Used in Investing Activities | | | — | | | (5,749,950) | | | | | | | | Cash Flows from Financing Activities: | | | | | | | Net proceeds from issuance of common stock and warrants in a registered direct public offering | | | — | | | 5,771,053 | Net proceeds from issuance of common stock upon warrants exercised | | | — | | | 22,015 | Net proceeds from issuance of series A convertible preferred stock and warrants in a private placement offering | | | — | | | 4,369,937 | Repayment from subsidiaries | | | 750,000 | | | — | Borrowings from subsidiaries | | | 66,301 | | | — | Borrowings paid to subsidiaries | | | — | | | (4,487,690) | Net Cash Provided by Financing Activities | | | 816,301 | | | 5,675,315 | | | | | | | | Net decrease in cash and cash equivalents | | | (37,920) | | | (1,493,165) | Cash and cash equivalents, beginning of year | | | 116,613 | | | 1,609,778 | Cash and cash equivalents, end of year | | $ | 78,693 | | $ | 116,613 | | | | | | | | Supplemental Cash Flow Information | | | | | | | Cash paid for interest expense | | $ | — | | $ | — | Cash paid for income tax | | $ | — | | $ | — | | | | | | | | Non-cash Transaction in Investing and Financing Activities | | | | | | | Allocation of fair value of derivative liabilities for issuance of common stock proceeds | | $ | — | | $ | 7,932,341 | Allocation of fair value of derivative liabilities to additional paid in capital upon warrants exercised | | $ | — | | $ | 45,674 |
a) Basis of presentation |
The condensed financial information of Senmiao Technology Limited, has been prepared using the same accounting policies as set out in the consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted by reference to the consolidated financial statements. | (b) | Investment in subsidiaryb) Investments in subsidiaries and equity of loss in subsidiaries |
The investment in subsidiary consists of investments in WFOE and VIE. The equity of loss in subsidiary consistssubsidiaries
The investments in subsidiaries consist of investments in Senmiao Consulting, Hunan Ruixi and Yicheng. The equity losses in subsidiaries consist of equity of loss in WFOESenmiao Consulting, Hunan Ruixi, Yicheng, XXTX, Sichuan Senmiao, Corenel and VIE.Jiekai. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS c) Stockholders’ equity Restricted Stock Units On September 18, 2017,October 29, 2020, the Board approved the issuance of an aggregate of 127,273 restricted stock units (“RSUs”) to directors, officers and certain employees as stock compensation for their services for the year ended March 31, 2022. Total RSUs granted to these directors, officers and employees were valued at an aggregate fair value of $140,000. These RSUs will vest in four equal quarterly installments on January 29, 2021, April 29, 2021, July 29, 2021 and October 29, 2021 or in full upon the occurrence of a change in control of the Company, provided that the director, officer or the employee remains in service through the applicable vesting date. The RSUs will be settled by the Company’s issuance of shares of common stock in certificated or uncertificated form upon the earlier of (i) vesting date, (ii) a change in control and (ii) termination of the services of the director, officer or employee due to a “separation of service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, or the death or disability of such director, officer or employee. As of the filing date of these consolidated financial statements, all installment of RSUs with an aggregate of 12,727 (127,273 pre reverse split) was vested and 9,545 (95,457 pre reverse split) was settled by the Company. The Company expects to settle the remaining vested RSUs by issuance of shares of common stock before December 31, 2023 and account for the vested RSUs as an addition to both expenses and additional paid-in capital. 2019 Registered Direct Offering On April 15, 2019, the SEC declared effective the Company’s Registration Statement on Form S-3, pursuant to which, along with the accompanying prospectus, the Company registered up to $80,000,000 in aggregate principal amount of its common stock, preferred stock, debt securities, warrants, rights and/or units. On June 21, 2019, the Company closed a registered direct offering of an aggregate of 178,136 (1,781,360 pre reverse split) shares of its common stock, and in connection therewith, issued to the investors (i) for no additional consideration, Series A warrants to purchase up to an aggregate of 133,602 (1,336,021 pre reverse split) shares of common stock and (iii) for nominal additional consideration, Series B warrants to purchase up to a maximum aggregate of 111,632 (1,116,320 pre reverse split) shares of common stock. The Company sold the shares of common stock at a price of $33.8 ($3.38 pre reverse split) per share (the “Share Purchase Price”). The Company received gross proceeds from the offering of approximately $6.0 million, and net proceeds from the offering of approximately $5.1 million after deducting estimated offering expenses payable by the Company. The Series A warrants are exercisable immediately upon issuance at an exercise price of $37.2 ($3.72 pre reverse split) per share and will expire on the fourth (4th) anniversary of the original issue date. In the event that on December 20, 2019, the exercise price is greater than the Six Month Adjustment Price as defined below, on the trading day immediately following December 20, 2019 (the “Six Month Measuring Date”), the exercise price shall automatically adjust to the Six Month Adjustment Price (as adjusted for stock splits, stock dividends, stock combinations, recapitalizations and similar events). Six Month Adjustment Price means the greater of (x) $15.0 ($1.50 pre reverse split) (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction) and (y) 100% of the quotient of (I) the sum of the five lowest VWAPs of the common stock during the ten consecutive trading day period ending and including the Six Month Measuring Date, divided by (II) five. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during such period. The exercise price of the Series A warrant was adjusted pursuant to this formula from $37.2 ($3.72 pre reverse split) to $15.00 ($1.50 pre reverse split) per share on December 20, 2019. The Company used the adjusted exercise price to value its derivative liability on its December 31, 2019 financial statements and reporting periods onwards with changes in fair value of warrant liabilities from period to period are recorded in the consolidated statements of operations and comprehensive loss under the caption “Change in fair value of derivative liabilities”. The exercise price of the Series A warrant was further adjusted to $5.0 ($0.50 pre reverse split) per share on August 7, 2020 as a result of the Company’s issuance of shares of common stock in its underwritten public offering in August 2020, which has been recorded in the financial statements in the year ended March 31, 2021. In addition, the exercise price of the placement agent warrants from the June 2019 registered direct offering was voluntarily adjusted by the Company from $37.2 ($3.72 pre reverse split) to $5.0 ($0.50 pre reverse split) per share on August 18, 2020. The Series B warrants are pre-funded warrants and were issued as a true-up with respect to the shares of common stock. The maximum aggregate number of shares of common stock issuable upon exercise of the Series B warrants is 111,632 (1,116,320 pre reverse split). Initially, the Series B warrants shall not be exercisable for any shares of common stock. In the event that on the fiftieth (50th) day after the closing date (the “Adjustment Measuring Time”), the closing price of the common stock is less than the Share Purchase Price, then the number of shares of common stock issuable upon exercise of the Series B warrants shall be adjusted (upward or downward, as applicable) to the greater of (i) zero (0) and (ii) such aggregate number of shares of common stock equal to fifty percent (50%) of the difference of (A) the quotient of (x) the Share Purchase Price divided by (y) the Market Price (as defined in Purchase Agreement) as of Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the Adjustment Measuring Time, less (B) the aggregate number of shares of common stock issued to the investors at the closing (as adjusted for share splits, share dividends, share combinations, recapitalizations and similar events). The exercise price of the Series B warrant was adjusted from $37.2 ($3.72 pre reverse split) to $0.001 ($0.0001 pre reverse split) per share on August 12, 2019. The Company used the adjusted exercise price to value its derivative liability on its September 30, 2019 financial statements and reporting period onwards with changes in fair value of warrant liabilities from period to period are recorded in the consolidated statements of operations and comprehensive loss under the caption “Change in fair value of derivative liabilities. As of March 31, 2021, the Company has issued an aggregate of 45,000,000111,319 (1,113,188 pre reverse split) shares of common stock to Sichuan Senmiao Shareholders. The Company recorded $4,500 forcertain investors in the issuanceJune 2019 offering upon exercise of the shares.pre-funded Series B warrants for a total consideration of $111. Underwritten Public Offering and Exercise of the Over-Allotment Option On January 29, 2018, the Company’s board of directors and stockholders approved a one-for-two reverse stock split of its issued and outstanding shares of common stock. On March 16, 2018,August 4, 2020, the Company closed its initialentered into an underwriting agreement with The Benchmark Company, LLC and Axiom Capital Management, Inc., as representatives of the Underwriters, relating to an underwritten public offering of 3,000,0001,200,000 (12,000,000 pre reverse split) shares of the Company’s common stock. On March 28,stock at the Offering Price. Pursuant to the terms of the Underwriting Agreement, the Company soldgranted the Underwriters a 45-day option to purchase up to an additional 379,400180,000 (1,800,000 pre reverse split) shares of common stock uponto cover over-allotments, if any, at the Offering Price less the underwriting discounts and commissions. An underwriting discount of 7% was applied to the Offering Price, except for shares of common stock purchased by certain existing investors of the Company (the “Excluded Investors”), an underwriting discount of 6% was applied. On August 6, 2020, the Company completed the underwritten offering. The net proceeds to the Company from this offering, after deducting the underwriting discounts and commissions and other estimated offering expenses payable by the Company, were approximately $5.3 million.
On August 13, 2020, the Underwriters exercised their over-allotment option to purchase an additional 180,000 (1,800,000 pre reverse split) shares of common stock at $5.0 ($0.50 pre reverse split) per share. This transaction was completed on August 13, 2020. Net proceeds from the exercise of the underwriter’sunderwriters’ over-allotment option. The public offering price of the shares sold in the initial public offering was $4.00 per share. The total gross proceeds from the offeringoption were approximately $13.5 million. After deducting$0.8 million net of underwriting discounts and commissions and offering expenses. In connection with the underwritten offering, the Company issued the Underwriters or their permitted designees, on a private placement basis, the Underwriters’ Warrants to purchase up to 56,800 (568,000 pre reverse split) shares of common stock. These warrants are valid for a period of five years and exercisable commencing six months from August 4, 2020 at a price per share equal to 125% of the Offering Price and are exercisable on a “cashless” basis. February 2021 Registered Direct Offering On February 8, 2021, the Company entered into a placement agency agreement with FT Global Capital, Inc., to act as exclusive placement agent in connection with the registered direct public offering. Pursuant to the terms of the placement agency agreement, the Company agreed to pay the Placement Agent a cash fee equal to 7.5% of the gross proceeds raised in the Offering, and to reimburse the Placement Agent for certain expenses, including legal fees and expenses, up to $60,000 in the aggregate. The Placement Agent is also entitled to additional tail compensation for any financings consummated within the 12-month period following the termination of the Placement Agent Agreement to the extent that such financing is provided to the Company by investors that the Placement Agent had introduced to the Company. On February 10, 2021, the Company completed the registered direct offering. The net proceeds to the Company from this offering, after deducting the underwriting discounts and commissions and other estimated offering expenses payable by the Company, were approximately $5.7 million. In connection with the offering, the Company issued the placement agent warrants to purchase up to 38,044 (380,435 pre reverse split) shares of its common stock. These warrants are exercisable for a period of five years commencing 180 days from February 8, 2020 at a price of $13.8 ($1.38 pre reverse split) per share and are exercisable on a “cashless” basis. In addition, the company issued The Benchmark Company, LLC and Axiom Capital Management, Inc. ss from the offering and warrants to purchase up to 15,218 (152,174 pre reverse split) shares of its common stock, in consideration for the termination of the ROFR. These warrants are exercisable for a period of five years from February 8, 2020 at a price of $17.25 ($1.725 pre reverse split) per share. May 2021 Registered Direct Offering On May 11, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers (the “Investors”) pursuant to which the Company will sell to the Investors, in a registered direct offering, an aggregate of 553,192 (5,531,916 pre reverse split) units (the “Units”), each consisting of 0.1 (one pre reverse split) share (the “Shares”) of the Company’s Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS common stock, par value $0.0001 per share (“Common Stock”) and a warrant to purchase 0.1 (one pre reverse split) share of the Company’s Common Stock (the “Warrants”), at a purchase price of $1.175 per unit, for aggregate gross proceeds to the Company of $6,500,000, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. On May 13, 2021, the Company completed the registered direct offering. The net proceeds to the Company from this offering, after deducting the underwriting discounts and commissions and other estimated offering expenses payable by the Company, were approximately $5.8 million. The Warrants have a term of five years and are exercisable by the holders at any time after the date of issuance at an exercise price of $10.5 ($1.05 pre reverse split) per share. The exercise price and the number of shares issuable upon exercise of the Warrants are subject to an adjustment upon the occurrence of certain events, including, but not limited to, stock splits or dividends, business combinations, sale of assets, similar recapitalization transactions, or other similar transactions. The exercise price of the Warrants is also subject to an adjustment in the event that the Company issues or is deemed to issue shares of Common Stock for less than the applicable exercise price of such Warrants. However, the exercise price of the Warrants shall not be lower than $10.5 ($1.05 pre reverse split) as a result of an adjustment, unless the Company has obtained the stockholder approval. The exercisability of the Warrants may be limited if, upon exercise, the holder or any of its affiliates would beneficially own more than 4.99%. FT Global Capital, Inc. (“FT Global Capital”) acted as the exclusive placement agent in connection with this offering pursuant to the terms of a placement agency agreement, dated May 11, 2021, between the Company and FT Global Capital (the “Placement Agent Agreement”). Pursuant to the Placement Agent Agreement, the Company agreed to pay FT Global Capital a cash fee equal to seven point five percent (7.5%) of the aggregate net proceeds received by the Company totaled approximately $12.2 million. Warrants
The registration statement relatingfrom the sale of its securities to the Company’s initial public offeringinvestors introduced to the Company by FT Global Capital. FT Global Capital is also coveredentitled to additional tail compensation for any financings consummated within the underwriter’s common stock purchase12-month period following the termination of the Placement Agent Agreement to the extent that such financing is provided to the Company by investors that FT Global Capita had introduced to the Company. In addition to the cash fees, the Company agreed to issue to the Placement Agent warrants to purchase 337,940an aggregate of up to seven point five percent (7.5%) of the aggregate number of shares of our Common Stock sold in the offering (the “Placement Agent Warrants”). The Placement Agent Warrants shall generally be on the same terms and conditions as the Warrants, exercisable at a price of $10.5 ($1.05 pre reverse split) per share, provided that Placement Agent Warrants will not provide for certain anti-dilution protections included in the Warrants.
In connection with the offering, the Company issued the investors warrants and placement agent warrants to purchase up to 553,192 (5,531,916 pre reverse split) and 41,490 (414,894 pre reverse split) shares of its common stock, respectively. These warrants are exercisable at any time on or after the issuance date and expire on the fifth-year anniversary of their issuance. November 2021 Private Placement On November 8, 2021, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”) pursuant to which the Company will sell to the Investors, in a private placement (the “Private Placement”), an aggregate of $5,000,000 worth of securities of the Company, consisting of up to 5,000 shares (the “Preferred Shares”) of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) and warrants (the “Investor Warrants”) to initially acquire up to an aggregate number of shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”) that equals to the number of shares of Common Stock to be issued upon conversion of the Preferred Shares at $0.68 per share (the “Initial Conversion Price”) (as exercised, collectively, the “Warrant Shares”). The purchase price for the Preferred Shares shall be $1,000 per each Preferred Share (and related Investor Warrant). On November 10, 2021, the Company completed the Private Placement. The net proceeds to the Company from this offering, after deducting the placement agent commissions and other estimated offering expenses payable by the Company, were approximately $4.4 million. The Series A Convertible Preferred Stock is included in mezzanine equity on the consolidated balance sheets, because it is redeemable by the holders upon events of change of control which are not within the Company’s control. A discount to the redemption amount of a contingently redeemable preferred share should be amortized only once it is probable the share will become redeemable. The Company determined that the redemption is uncertain as the cash redemption feature upon change of control is at the option of the holder, and the redemption date upon the change of control is uncertain. Pursuant to the certificate of designations for the Series A Preferred Stock (the “COD”), at any time after the initial issuance date, each holder shall be entitled to convert any portion of the outstanding Preferred Shares held by such holder into shares of Common Stock (the “Conversion Shares”) at Initial Conversion Price, which shall be adjusted to the greater of $0.41 per share or 85% of the closing bid price of the Company’s Common Stock reported on the NASDAQ Capital Market on the Applicable Date, which is the earlier of the first date on which the registration statement covering the resale of the Conversion Shares and Warrant Shares is declared effective Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS by the SEC or the first date on which all such shares are eligible to be resold by the Investors pursuant to Rule 144 or Rule 144A promulgated under the Securities Act. As the 1-for-10 reverse stock split on the Company's Common Stock became effective on April 6, 2022, the conversion price of the Preferred Shares was adjusted to $4.1. As of March 31, 2023 and 2022, there were 1,641 and 5,000 shares of Series A convertible preferred stock outstanding, respectively. During the year ended March 31, 2023, 3,359 shares of Series A convertible preferred stock was converted into 1,546,125 shares of the Company's common stock. Each five-year warrant entitlesFurther, on August 9, 2022, the warrantCompany and the investors agreed to reduce the conversion price of the series A convertible Preferred Shares from $4.10 to $2.00 and to increase the number of the shares of common stock that are available to be issued upon conversion of the Preferred Shares from 1,092,683 to 2,240,000. The Investor Warrants have a term of five years and are exercisable by the holders at any time after six months and one day of the date of issuance at an exercise price of $8.2 ($0.82 pre reverse split) per share. The exercise price and the number of shares issuable upon exercise of the Investor Warrants are subject to an adjustment upon the occurrence of certain events, including, but not limited to, stock splits or dividends, business combinations, sale of assets, similar recapitalization transactions, or other similar transactions. The exercise price of the Investor Warrants are also subject to an adjustment in the event that the Company issues or is deemed to issue shares of Common Stock for less than the applicable exercise price of such Investor Warrants. However, the exercise price of the Investor Warrants shall not be lower than $7.1 ($0.7125 pre reverse split) as a result of an adjustment, unless the Company has obtained the stockholder approval. The exercisability of the Investor Warrants may be limited if, upon exercise, the holder or any of its affiliates would beneficially own more than 4.99% or 9.99% as the Investor chooses. As the 1-for-10 reverse stock split on the Company's common stock became effective on April 6, 2022, the exercise price of the November 2021 Investors Warrants was adjusted to $1.13, the Event Market Price and the total number of shares of the November 2021 Investors Warrants was adjusted to 5,335,763. FT Global Capital acted as the exclusive placement agent in connection with this Private Placement pursuant to the terms of a placement agency agreement, dated November 7, 2021, between the Company and FT Global Capital (the “Placement Agent Agreement”). Pursuant to the Placement Agent Agreement, the Company agreed to pay FT Global Capital a cash fee equal to 7.5% of the aggregate proceeds received by the Company from the sale of its securities to the Investors. FT Global Capital is also entitled to additional tail compensation for any financings consummated within the 12-month period following the termination of the Placement Agent Agreement to the extent that such financing is provided to the Company by investors that FT Global Capital had introduced to the Company. In addition to the cash fees, the Company agreed to issue to the Placement Agent warrants to purchase an aggregate of up to 7.5% of the aggregate number of the Conversion Shares (the “Placement Agent Warrants”). The Placement Agent Warrants shall generally be on the same terms and conditions as the Investor Warrants, exercisable at a price of $6.8 ($0.68 pre reverse split) per share, provided that Placement Agent Warrants will not provide for certain anti-dilution protections included in the Investor Warrants. In connection with the Private Placement, the Company issued warrants to the Investors to purchase up to an aggregate number of shares of common stock that equals to the number of shares of common stock to be issued upon conversion of the Series A Preferred Stock at the Initial Conversion Price. Meanwhile, the Company paid the placement agent cash commission of approximately $375,000 and issued to it warrants to purchase up to 55,148 (551,480 pre reverse split) shares of common stock at an exercise price of $6.8 ($0.68 pre reverse split) per share, which warrants will be exercisable at any time on or after the date of six months from the issuance date and expire on the fifth-year anniversary of their issuance. Share Swap in purchase of XXTX’s remaining minority interest In October 2021, the Company, Senmiao Consulting, XXTX and its shareholders entered into a Share Swap Agreement, pursuant to which the Company, through Senmiao Consulting, shall purchase all of the equity shares of XXTX held by its shareholders by issuing a total of 533,167 (5,331,667 pre reverse split) shares of the Company’s common stock atto XXTX’s Shareholders. Upon closing, the priceCompany, through Senmiao Consulting, shall own 100% of $4.80 per sharethe equity interests in XXTX. Common stock issued for consulting services On October 22, 2021, the Company entered into a consulting agreement (the “Consulting Agreement”) with Jolly Good River Group Limited. (the “Consultant”), pursuant to which the Company engaged the Consultant to provide certain market research and is not exercisablebusiness development advisory services for a period of 180twelve months. As compensation for the services, the Company agreed to issue the Consultant an aggregate of 100,000 (1,000,000 pre reverse split) shares of the Common Stock, par value $0.0001, payable within ten working days from the signing of the Consulting Agreement. As of November 9, 2021, the issuance of 100,000 (1,000,000 pre reverse split) shares of the Company’s common stock has been completed and the Company recorded the consulting fee of $653,000 pursuant to the fair value on November 3, 2021, the grant date. Table of Contents SENMIAO TECHNOLOGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1-for-10 shares reverse split on common stock The Company considered the above transactions after giving a retroactive effect to a 1-for-10 reverse stock split of its common stock which became effective on April 6, 2022. The Company believed it is appropriate to reflect the above transactions on a retroactive basis similar to those after a stock split or dividend pursuant to ASC 260. All shares and per share amounts used herein and in the accompanying consolidated financial statements have been retroactively stated to reflect the effect of the reverse stock split. Upon execution of the 1-for-10 reverse stock split, the Company recognized additional 8,402 shares of common stock due to round up issue. 22. SUBSEQUENT EVENTS Since March 16, 2018.31, 2023 to the filing date of these consolidated financial statements, 500 shares of Series A convertible preferred stock in the November 2021 Private Placement were converted into 250,000 shares of the Company’s common stock. Item 9 | Item 9.
| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None. On August 26, 2017, we dismissed Anton & Chia, LLP (''A&C'') as our independent registered public accounting firm. The reports of A&C, on our financial statements for each of the past two fiscal years contained no adverse opinion or a disclaimer of opinion and were not modified. The decision to change independent accountants was approved by our board of directors on September 27, 2017.
During our two most recent fiscal years and through the date of the dismissal of A&C, we had no disagreements with A&C, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of A&C, would have caused it to make reference to the subject matter of such disagreements in its report on our financial statements for such periods.
During our two most recent fiscal years and through the date of the dismissal of A&C, there have been no reportable events as defined under Item 304(a)(1)(v) of Regulation S-K adopted by the SEC.
We provided A&C, with a copy of this disclosure before the filing was made with the SEC. We requested that A&C, provide us with a letter addressed to the SEC stating whether or not it agrees with the above statements, and we received a letter from A&C, stating that it agrees with the above statements.
We then engaged ZH CPA LLP on August 26, 2017 and the auditors' actual work started right thereafter. Our board of directors approved and ratified the appointment of ZH CPA LLP ("ZH CPA") as our new independent registered public accounting firm, effective September 27, 2017. During the two most recent fiscal years and through the date of the engagement of ZH CPA, we did not consult with ZH CPA regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or (2) any matter that was either the subject of a disagreement or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K). In approving the selection of ZH CPA as our new independent registered public accounting firm, the board of directors considered all relevant factors.
On April 4, 2018, ZH CPA resigned as our independent registered public accounting firm.
The reports of ZH CPA on the Company's financial statements for the two most recent fiscal years did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
During the two most recent fiscal years and through April 4, 2018, there were (i) no disagreements between the Company and ZH CPA on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreement, if not resolved to the satisfaction of ZH CPA, would have caused ZH CPA to make reference thereto in their reports on the consolidated financial statements for such years, and (ii) no reportable events as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
We provided ZH CPA with a copy of the disclosure above and requested that ZH furnish us with a letter addressed to the Securities and Exchange Commission stating whether or not ZH agrees with the above disclosure. We received a letter from ZH CPA stating that it agrees with the above statements.
On April 4, 2018, our audit committee appointedFriedmanLLP ("Friedman") as our new independent registered public accounting firm, subject to the ratification of our stockholders at the Company's 2018 annual general meeting.
Except as disclosed herein, during the Company's two most recent fiscal years and in the subsequent interim period through April 4, 2018, the Company has not consulted with Friedman regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements, and neither a written report nor oral advice was provided to the Company that Friedman concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).
| Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) (the “Exchange Act”).under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, Based on the foregoing evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2018,2023, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below. Management'sManagement’s Report on Internal Control over Financial Reporting
This Report does not includeOur management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a reportprocess designed to provide reasonable assurance regarding the reliability of management’s assessment regardingfinancial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2018 or an attestation report of our registered public accounting firm due to a transition period established2023, based on the Internal Control-Integrated Framework (2013) issued by the rulesCommittee of Sponsoring Organizations of the SEC for newly public companies. However,Treadway Commission (COSO) (2013 Framework). Based on this evaluation under the following material weaknesses in2013 Framework, our principal executive officer and principal financial officer have concluded that our internal control over financial reporting were identified inwas not effective March 31, 2023 due to the normal course:
following material weaknesses: | ● | · | We had insufficient financial reporting and accountingdid not have sufficient personnel (including a qualified Chief Financial Officer) with appropriate levels of accounting knowledge of U.S. GAAP and SEC reporting requirementsexperience to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfillunder U.S. GAAP and SEC financial reporting requirements; |
| · | WeGAAP. Specifically, our control did not have comprehensiveoperate effectively to ensure the appropriate and timely analysis of and accounting for unusual and non-routine transactions and certain financial statement accounts; |
| ● | We are lacking adequate policies and procedures manual in accordance with U.S. GAAP;internal audit function to ensure that our policies and procedures have been carried out as planned; and |
| ● | · | We did not have effective entity level control;had deficiencies in our IT general controls regarding to the Logical Access Security, Change Management, IT Operations and Cybersecurity of our financial system and key application system, etc. |
| · | We have failed to record impairments of intangible assets and goodwill. |
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”)PCAOB Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company'sCompany’s annual or interim financial statements will not be prevented or detected on a timely basis. During the year ended March 31, 2023, we are in the progress of improving our system security environment and conducting regular backup plans and penetration testing to ensure network and information security. We intendalso kept refining the operational and financial system for our businesses to warn of risks and support management’s ability to make significant decisions. We are also developing a comprehensive system which could combine interactive information between our Automobile Transaction and Related Services and Online Ride-hailing Platform Services. We plan to address the weaknesses identified above by (a) engaging a qualified Chief Financial Officer with comprehensive knowledge of U.S. GAAP and SEC reporting requirements and (b) hiring additional accounting and finance staff to increase segregation of duties and (c) investing in technology infrastructure to support our financial reporting function.implementing the following measures: | (i) | Continuously hiring additional accounting staffs with comprehensive knowledge of U.S. GAAP and SEC reporting requirements; |
| (ii) | Ameliorating our internal audit to assist with assessment of Sarbanes-Oxley compliance requirements and improvement of internal controls related to financial reporting; and |
| (iii) | improving our IT environment and daily management. |
Changes in Internal Control over Financial Reporting OurThere has been no change in our internal control over financial reporting did not changethat occurred during the fourth quarter covered by this Report.of the year ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.Other Information | Item 9B. | Other Information |
None. None.
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10.Directors, Executive Officers and Corporate Governance | Item 10. | Directors, Executive Officers and Corporate Governance |
Directors and Executive Officers As of the date of this Report, ourOur current directors and officers are as follows:
Name |
| Age | Age
| | Position | Xin ChenXi Wen | | 40 | 48 | | Chief Executive Officer, | Rong Zhu | | | 40 | | Chief Financial Officer and Treasurer | Chunhai Li | | | 33 | | Chief Technology Officer | Xiaojuan Lin | | | 52 | | Director | Xiang Hu | | | 35 | | Director | Xi Wen | | | 34 | | Chairman of the Board, President and Secretary, Executive Director of Sichuan Senmiao | Yulei RaoXiaoyuan Zhang | | 35 | 53 | | DirectorChief Financial Officer and Treasurer | Haitao Liu | | 51 | | Chief Operating Officer | Xiaojuan Lin | | 58 | | Director | Trent D. Davis | | 55 | 50 | Director | Sichun Wang | | 35 | | Director | Jie Gao | | 44 | | Director |
Xin Chen has been serving as Chief Executive Officer of the Company since July 20, 2017. She joined Sichuan Senmiao in September 2016 and has served as Deputy General Manager and General Manager of Sichuan Senmiao since then. From September 2014 to August 2016, Ms. Chen acted as Deputy General Manager of Beijing Zhongdingjiaye Investment Management Co. where she was response for setting up the Company's internet finance platform, developing new business, establishing risk management system, and coordinating with corporate financing and accounting management. From November 2007 to August 2014, Ms. Chen was with Shengxin International Group where she held various managerial positions and was responsible for the group's accounting, tax and finance management and also in charge of overall project management and financing program management. Ms. Chen holds a Bachelor's degree in Accounting from Tianjin Finance University in Tianjin, China.
Rong Zhu has been serving as Chief Financial Officer of the Company and Treasurer since July 20, 2017. She has over 20 years of experience in finance and accounting. Ms. Zhu has been Finance Manager of Sichuan Senmiao since February 2017, where she manages various aspects of Sichuan Senmiao's accounting and finance, including budgeting, planning and risk management. From September 2014 to January 2017, Ms. Zhu served as Finance Manager of Jincai Technology Group, where she was in charge of financial statements preparation, budget analysis and risk management. From October 2010 to August 2014, she served as the Finance Manager of Hunan Jinfengxing Communication Equipment Co. Ltd., where she managed the company's finance department and made decisions in relation to accounting procedures, financial statements preparation, financing strategies implementation and budgeting. Prior to joining Hunan Jinfengxing, Ms. Zhu served as Finance Manager of Hunan Senhuo Yijia Trading Co. Ltd. and also held various accounting positions at Changsha Jinling Machine Equipment Co. Ltd. Ms. Zhu holds a Bachelor's degree in accounting from Wuhan University in Wuhan, China. She is an International Certified Management Accountant.
Chunhai Li has been serving as the Chief Technology Officer of the Company since July 20, 2017 and Chief Technology Officer of Sichuan Senmiao since September 2016. Before joining Sichuan Senmiao, he was the Director of Research and Development of Beijing Huashengtiancheng Technology Co., Ltd. from October 2014 to August 2016, where he was charge of the development of bank data platform and team management. Prior to that, he was the Director of Research and Development at Zhongkesanyang (Beijing) Technology Co., Ltd from February 2013 to September 2014, primarily responsible for the organization of the Company and technology team as well as management of technology and operations. From October 2007 to February 2013, he was the project manager for online banking at Beijing Yuxinyicheng Technology Co., Ltd, where he participated in and managed the online banking projects for many banks. Mr. Li received his bachelor's degree in computer science from University of Electronic Science and Technology of China.
Xi Wen has been serving as President, Secretary and Director of the Company since June 2017, and was appointed chairmanas Chairman of the board on July 20, 2017.2017 and our Chief Executive Officer on August 1, 2018. Mr. Wen has over 10 years of experience in finance and investment management. He has been serving as Executive Director of Sichuan Senmiao since February 2017, in charge of all aspects of Senmiao's online lending platformSenmiao’s operations. Immediately prior to joining Senmiao, Mr. Wen served as a director of Chenghexin, where he was responsible for overseeing the operations of the Aihongsen lending platform from May 2015 to February 2017. He also founded Chengdu Fubang Zhuoyue Investment Co. in September 2013 and served as General Manager until May 2015. From January 2009 to August 2013, Mr. Wen was the General Manager of Chengdu Haiyuan Trading Co., Ltd..Ltd., in charge of the company'scompany’s daily operations. Mr. Wen holds a Bachelor'sBachelor’s degree in Business and Economics from Manchester Metropolitan University in Manchester, United Kingdom. Mr. Wen is qualified to serve on our board of directors due to his knowledge of our businesses and expertise in business management, finance and investment.
Xiang HuXiaoyuan Zhang has been serving as our Chief Financial Officer since September 17, 2018. She has served as a director and the chairperson of the CompanyAudit Committee of Color Star Technology Co., Ltd. (Nasdaq: CSCW), a provider of online and offline education services in China, since July 20, 2017. Mr. Hu2019 to March 29, 2021. Ms. Zhang previously served as GeneralSenior Auditor and Assurance Manager of Ernst & Young Hua Ming LLP, Chengdu Branch, from October 2010 to September 2018 where she participated in audits of several public companies listed in China, Hong Kong Boen Investment Managementand Singapore, as well as large state-owned and foreign investment enterprises. Ms. Zhang received her dual bachelor’s degrees in accounting and law from Southwestern University of Finance and Economics in Chengdu, China. Ms. Zhang is an intermediate accountant and a Certified Public Accountant of the Chinese Institute of Certified Public Accountants.
Haitao Liu has been serving as the Chief Executive Officer of Sichuan Senmiao since August 1, 2018. On September 10, 2020, Mr. Haitao Liu tendered his voluntary resignation as Chief Executive Officer of Sichuan Senmiao. On the same date, the Board appointed Mr. Haitao Liu to serve as the Company’s Chief Operating Officer. Mr. Liu previously served as Chief Executive Officer of Shenzhen Qianhai Tuteng Internet Financial Services Co., Ltd., a peer-to-peer online lending company specialized in auto loans, from May 2013 to December 2016. For the period from December 20102015 to April 2013, Mr. Hu2018. Prior to that, he served as Business Department Manager of Changsha Junlong Light Industrial Products Co., Ltd. He also acted asthe Deputy General Manager of Changzhou Jintan Apollo Biological ProductsChengdu High-Tech Zone Xingrui Microfinance Co., Ltd., a company offering loans to small businesses and individuals, from May 2012 to April 2015, as the Chief Financial Officer of Sichuan Information Industry Co., Ltd., an information technology company, from July 2006 to May 2012, and as the Deputy General Manager of Sichuan Zhongxin Hengde CPA Co., Ltd. from August 2004 and December 2010. Mr. HuJune 2000 to July 2006. He also served as Senior Managera civil servant in Chenghua District People’s Government of Shenzhen Shidian Technology Development Co. Ltd.Chengdu from September 2000June 1993 to July 2003. He holdsJune 2000. Mr. Liu received a master’s degree in EMBA (Finance) from Southwestern University of Finance and Economics, a bachelor’s degree in Business Administration from Southwest Jiaotong University and an Associateassociate degree in Commercial Economy from Anhua Vocational Technical SchoolSouthwestern University of Finance and Economics in Anhui, China.
Xiaojuan Lin has been a director of the Company since July 20, 2017. Since March 2011, Ms. Lin has been the legal representative and Executive General Manager of Hunan DinchengtaiDinchentai Investment Co. Ltd. She previously served as Deputy General Manager and Finance Manager of Hunan Xinhongxin Group from April 2004 to February 2010 where she was in charge of the group'sgroup’s finance, tax and accounting matters. From August 2000 to March 2004, Ms. Lin served as Finance Manager for Northwest Region at Tianjin Jiashijian Commercial Group, where she managed the group'sgroup’s finance, tax and accounting matters. She also acted as Budgeting and Accounting Manager of Cygent Hotel from 1986 to 2000. Ms. HuLin holds a Bachelor'sBachelor’s degree in Statistics from Hunan Finance University in Hunan, China. She is a certified public accountantCertified Public Accountant in China.
Yulei Rao has been a director Ms. Lin is qualified to serve on our board of the Company since July 20, 2017. Dr. Yao is a professor at the Business Schooldirectors due to her expertise in accounting and finance.
Table of Central South University ("CSU") and focuses her researches on capital market, corporate finance and corporate governance. She has been serving as the director of CSU Financial Innovation Research Center since June 2007 and Doctor Tutor of CSU Business School since December 12, 2002. Dr. Yao is currently serving as independent directors at various public companies in China, including Lens Technology Co., Ltd. since January 2015, Hunan Gold Co., Ltd since May 2015 and Guoke Microelectronics Co., Ltd. since December 2016. In addition, she served as independent directors of Staidson (Beijing) Biopharmaceutical Co., Ltd. from September 2009 to September 2015, Kingray New Materials Science & Technology Co., Ltd. from January 2011 to 2015, and Xinzhi Motor Co., Ltd. from October 2011 to October 2014. Dr. Yao holds a bachelor's degree in mining engineering from Chongqing University, a master's degree in mining economy and a doctor's degree in management science and engineering from CSU.Contents Trent D. Davis has been a director of the Company since March 21, 2018. Mr. Davis has extensive experienceis currently the Chief Executive Officer of Paulson Investment Company, LLC, which is a boutique investment firm specializing in capital markets and brokerage operations and is credited with overseeing the syndication of approximately $600 millionprivate equity offerings for over 50 client companies in both public and private transactions. Sincesmall to mid-cap markets. Formerly, from December 2014 he has been serving asto December 2018, Mr. Davis was President and Chief Operating Officer of Whitestone Investment Network, Inc., which specializes in providing executive advisory services to small entrepreneurial companies, as well as restructuring, recapitalizing, and making strategic investments in small to midsized companies. From November 2013 until July 2014, Mr. Davis served as the President and a director of Paulson Capital Corp. (Nasdaq: PLCC) until he successfully completed the reverse merger of Paulson with VBI Vaccines (Nasdaq: VBIV). Mr. Davis was also the Chief Executive Officer of Paulson Investment Company, a subsidiary of Paulson Capital Corp, from July 2005 until October 2014, where he supervised all operations and over 200 investment representatives overseeing $1.5 billion in client assets. Prior to that, commencing in 1996, Mr. Davis served as Senior Vice President of Syndicate and National Sales of Paulson Investment Company, Inc. Mr. Davis has also served as a director at other publicmidsize companies. Currently, Mr. Davis is a Director for INVO Bioscience (OTC: INVOD), which is a medical device company focused on creating simplified, lower cost treatments for patients diagnosed with infertility. Formerly, from September 2016 to August 2019, Mr. Davis was Vice Chairman and Lead Director chairman of the compensation committee and member of the audit and nominating and governance committees for Eastside Distilling Inc. (OTCQB: ESDI)(Nasdaq: EAST), a manufacturer of high-quality, master-crafted spirits. From July 2014 to May 2017, Mr. Davis wasAs the Lead Independent Director chairman of the nominating and governance and special investments committees and member of the audit and compensation committees of Dataram Corporation (Nasdaq: DRAM), a company thatwhich develops, manufactures, and markets memory products primarily used in enterprise servers and workstations worldwide.worldwide, from July 2015 to April 2017, Mr. Davis helped the company successfully complete the reverse merger with U.S. Gold Corp (Nasdaq: USAU), a gold exploration and development company. Previously, from December 2014 to July 2015, Mr. Davis was Chairman of the Board for Majesco Entertainment Company (Nasdaq: COOL), an innovative developer, marketer, publisher, and distributor of interactive entertainment for consumers around the world. From November 2013 until July 2014, Mr. Davis served as the President and Director of Paulson Capital Corp. (Nasdaq: PLCC) until he successfully completed the reverse merger of Paulson with VBI Vaccines (Nasdaq: VBIV). He went on to serve as a member of its Board of Directors and Audit Committee until May 2016. Mr. Davis was also the Chief Executive Officer of Paulson Investment Company, Inc., a subsidiary of Paulson Capital Corp, from July 2005 to October 2014, and is credited with overseeing the syndication of approximately $600 million for over 50 client companies in both public and private transactions. In 2003, Mr. Davis served as a Chairman and board memberof the Board of the National Investment Banking Association.
Mr. Davis was previously subject to a FINRA investigation in connection with two private placements involving Paulson Investment Company, Inc., where he was a registered representative. Paulson and Mr. Davis entered into an Acceptance, Waiver and Consent in which they consented, without admitting, to FINRA's finding that the accounts set up to hold investment funds in those placements at issue did not comply with the requirements of Rule 15c2-4 under the Exchange Act. Paulson and Mr. Davis agreed to a censure against them and a $10,000 fine for which they were jointly and severally liable.
Mr. Davis holds a B.S. in Business and Economics from Linfield College and an M.B.A. from the University of PortlandPortland. Mr. Davis is qualified to serve on our board of directors because of his deep knowledge of finance and heldpublic company issues, capital market, advisory and entrepreneurial experiences, and extensive expertise in operational and executive management. Sichun Wang has been a director of the following FINRA Licenses: Series 7, 24, 63, 66,Company since November 8, 2018. Ms. Wang has served as the senior investment manager and 79.financial controller of SWHY SDH Equity Investment Management, an equity investment and management company, since October 2016, where she leads the financial department of the company and participated in several pre-initial-public offering, mergers and acquisitions and secondary offering projects. From February 2016 to April 2016, she served as the trust manager of JIC Trust Company Limited, a trust and financial company. Prior to that, Ms. Wang served as the assistant manager of KPMG Huazhen from September 2011 to January 2016, where she participated in audits of multiple companies and achieved Bravo Award for outstanding performance. Ms. Wang received her Bachelor of Arts degree in accounting with honors from Michigan State University in East Lansing, MI. She is a Certified Public Accountant in China. Ms. Wang is qualified to serve on our board of directors due to her expertise in accounting and auditing and her experience with capital market and corporate financing. Jie Gao has served as a director of the Company since November 8, 2018. She has been the general manager of Hunan Ruixi, our majority owned subsidiary, since February 2018. She has also served as the executive director of Ruixi Leasing, a wholly owned subsidiary of Hunan Ruixi, since April 2018. Prior to that, she was the executive director of Guangdong Hu Mao Sheng Tang Fund Management Co., Ltd., a fund management company, from May 2017 to January 2018, where she was responsible for the establishment and management of the finance and investment department. She served as the project director of finance and investment department of Resgreen Biotechnology Group Co., Ltd., a biotechnology company, from October 2003 to March 2017. Before that, she also served in administrative positions in electronic technology companies in Changsha, Hunan, China. She received an associate’s degree in hotel secretary from Hunan University of Commerce in Changsha, Hunan, China. Ms. Gao is qualified to serve on our board of directors due to her experience in business management, investment and finance. Chunhai Li had been serving as the Chief Technology Officer of the Company since July 20, 2017 and Chief Technology Officer of Sichuan Senmiao since September 2016. He resigned from these positions on March 31, 2023. Family Relationship Relationships There are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other personpersons pursuant to which such person was selected to serve as a director or officer. BoardDiversity The Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity. However, the Board of Directors and the Nominating and Corporate Governance Committee believe that it is essential that the members of the Board of Directors represent diverse viewpoints. In considering candidates for the Board of Directors, the Board of Directors and the Nominating and Corporate Governance Committee consider the entirety of each candidate’s credentials in the context of the factors mentioned above. The Company is currently in compliance with the diversity requirements of Nasdaq Rule 5605(f) and 5606, with three female Asian directors and one male Asian director. | | | | | | | | | Board Diversity Matrix (As of March 31, 2023) | Total Number of Directors | | 5 | | | | | | | | | Did Not | | | | | | | | | Disclose | | | Female | | Male | | Non-Binary | | Gender | Part I: Gender Identity | | | | | | | | | Directors | | 3 | | 2 | | — | | — | Part II: Demographic Background | | | | | | | | | African American or Black | | — | | — | | — | | — | Alaskan Native or Native American | | — | | — | | — | | — | Asian | | 3 | | 1 | | — | | — | Hispanic or Latinx | | — | | — | | — | | — | Native Hawaiian or Pacific Islander | | — | | — | | — | | — | White | | — | | 1 | | — | | — | Two or More Races or Ethnicities | | — | | — | | — | | — | LGBTQ+ | | — | Did Not Disclose Demographic Background | | — |
Board Committees Our board of directors currently have an Audit Committee, Compensation Committee, and Nomination and Corporate Governance Committee. Each committee'scommittee’s members and functions are described below.
Audit Committee. Our audit committee consists of Ms. Lin, Mr. Davis and Dr. Rao,Ms. Wang, and is chaired by Ms. Lin. We expect Mr. Davis will also serve on this committee.Wang. Each of our audit committee members satisfies the "independence"“independence” requirements of the Nasdaq listing rules of and meet the independence standards under Rule 10A-3 under the Exchange Act. We have determined that Ms. Lin qualifies as an "audit“audit committee financial expert."” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things: | ● | · | selecting the independent registered public accounting firm and pre-screening all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; |
| ● | · | reviewing with the independent registered public accounting firm any audit problems or difficulties and management'smanagement’s response; |
| · | reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; |
| ● | · | discussing the annual audited financial statements with management and the independent registered public accounting firm; |
| ● | · | reviewing the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; |
| ● | · | annually reviewing and reassessing the adequacy of our audit committee charter; |
| ● | · | meeting separately and periodically with management and the independent registered public accounting firm; and |
| ● | · | reporting to the board of directors. |
Compensation Committee. Our compensation committee consists of Ms. Lin, Ms. Wang and Dr. RaoMr. Davis and is chaired by Dr. Rao. We expect Mr. Davis will also serve on this committee.Ms. Lin. Each of the compensation committee members satisfies the "independence"“independence” requirements of the listing rules of Nasdaq. The compensation committee assists the board of directors in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our executive officers may not be present at any committee meeting during which their compensation is deliberated upon. The compensation committee is responsible for, among other things: | ● | · | reviewing the total compensation package for our executive officers and making recommendations to the board of directors with respect to it; |
| ● | · | approving and overseeing the total compensation package for our executives other than the three most senior executives; |
| ● | · | reviewing the compensation of our directors and making recommendations to the board of directors with respect to it; and |
| ● | · | periodically reviewing and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, and employee pension and welfare benefit plans. |
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Ms. Lin, Ms. Wang and Dr. Rao,Mr. Davis, and is chaired by Ms. Lin. We expect Mr. Davis will also serve on this committee. Each member of our nominating and corporate governance commit satisfies the "independence"“independence” requirements of the Nasdaq listing rules. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board of directors and its committees. The nominating and corporate governance committee is responsible for, among other things: | ● | · | recommending nominees to the board of directors for election or re-election to the board of directors, or for appointment to fill any vacancy on the board of directors; |
| ● | · | reviewing annually with the board of directors the current composition of the board of directors with regards to characteristics such as independence, age, skills, experience and availability of service to us; |
| ● | · | selecting and recommending to the board of directors the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; and |
| ● | · | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Compensation Committee Interlocks and Insider Participation None of the members of our compensation committee is or has been an officer or employee of our Company. None of our officers and directors currently serves, or in the past yearyears has served, as a member of the compensation committee or other board committee performing equivalent functions of any entity that has one or more executive officers serving on our board of directors or Compensation Committee. Delinquent Section 16(a) Beneficial Ownership Reporting Compliance Reports Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such forms, we believe that during the year ended March 31, 20182023 there were no delinquent filers. Code of Ethics We have adopted a written code of ethics that applies to all of our directors, officers and employees in accordance with the rules of the Nasdaq Stock Market and the SEC. We have filed copies of our code of ethics, our audit committee charter, our compensation committee charter and our nominating committee charter as exhibits to our registration statement in connection with our initial public offering.IPO. You may review these documents by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the code of ethics will be provided without charge upon request to us. Involvement in Certain Legal Proceedings Other than proceedings disclosed herein, noneNone of our directors and executive officers have been involved in any of the following events during the past ten years:
| 1. | any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| 2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| 3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; |
| 4. | being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| 5. | being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions, or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| 6. | being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
| Item 11.Executive Compensation | Executive Compensation |
Summary Compensation Table The following table sets forth the cash and non-cash compensation awarded to or earned by: (i) each individual who served as the principal executive officer and principal financial officerofficers of our company during the years ended March 31, 20182023 and 2017.2022. For purposes of this document, these individuals are collectively referred to as the "named“named executive officers"officers” of the Company. Name and
principal
position | | Year | | Salary
($) | | | Bonus
($) | | | Stock
awards
($) | | | Option
awards
($) | | | Non-equity
incentive plan
compensation
($) | | | Nonqualified
deferred
compensation
earnings
($) | | | All other
compensation
($) | | | Total
($) | | | Xin Chen, Chief | | 2017 | | | 15,601 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 15,601 | (1) | | Executive Officer | | 2018 | | | 64,589 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 64,589 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Rong Zhu, Chief Financial | | 2017 | | | 4,457 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,457 | (2) | | Officer and Treasurer | | 2018 | | | 18,454 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 18,454 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chunhai Li, Chief Technology | | 2017 | | | 5,977 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,977 | (3) | | Officer | | 2018 | | | 18,762 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 18,762 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nonqualified | | | | | | | | | | | | | | | | | Non-equity | | deferred | | | | | Name and | | | | | | | | Stock | | Option | | incentive plan | | compensation | | All other | | | principal | | | | Salary | | Bonus | | awards | | awards | | compensation | | earnings | | compensation | | Total | position | | Year | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | Xi Wen | | 2023 | | 187,570 | | 50,000 | | — | | — | | — | | — | | — | | 237,570 | Chief Executive Officer, Chairman, President and Secretary (1) | | 2022 | | 193,490 | | 40,000 | | 15,000 | | — | | — | | — | | — | | 248,490 | | | | | | | | | | | | | | | | | | | | Xiaoyuan Zhang, Chief Financial | | 2023 | | 78,842 | | — | | — | | — | | — | | — | | — | | 78,842 | Officer and Treasurer | | 2022 | | 84,172 | | — | | 11,250 | | — | | — | | — | | — | | 95,422 | | | | | | | | | | | | | | | | | | | | Chunhai Li, Chief Technology | | 2023 | | 54,615 | | — | | — | | — | | — | | — | | 13,646 | | 68,261 | Officer (3) | | 2022 | | 58,198 | | — | | 3,750 | | — | | — | | — | | — | | 61,948 | | | | | | | | | | | | | | | | | | | | Haitao Liu | | 2023 | | 78,813 | | — | | — | | — | | — | | — | | — | | 78,813 | Chief Operating Officer | | 2022 | | 84,141 | | — | | 7,500 | | — | | — | | — | | — | | 91,641 |
| (1) | The amount represents the salaries Ms. Chentotal compensation Mr. Wen received from Sichuan Senmiaoas the Company’s Chairman and executive officer. Mr. Wen did not receive any compensation for herhis services as chiefPresident and Secretary until June 20, 2019. |
| (2) | Except Mr. Wen’s salaries paid for his services as Chief Executive Officer of the Company, other executive officer duringofficers received their salaries in Renminbi which were translated into U.S. dollars at the average exchange rate used to translate statement of operations items, which was RMB6.8516 to US$1.00 for the year ended March 31, 2017. |
| (2) | The amount represents the salaries Ms. Zhu received from Sichuan Senmiao2023 and RMB6.4178 to US$1.00 for her services as chief financial officer during the year ended March 31, 2017.2022. |
| (3) | The amounts representMr. Chunhai Li resigned from his position as the salaries Mr. Li received from Sichuan Senmiao for his services as chief technology officer duringChief Technology Officer of the year endedCompany on March 31, 2017.2023. The Company shall pay him a compensation of $13,646. |
Employment Agreements and Potential Payments Upon Termination
Xin Chen,Xi Wen, Chief Executive Officer, Chairman of the Board, President and Secretary
Ms. Chen servesOn May 27, 2019, the Company and Mr. Wen entered into an employment agreement (the “Wen Agreement”) to memorialize the compensation arrangement and the other terms of Mr. Wen’s continuing employment with the Company and Sichuan Senmiao. Under the Wen Agreement, Mr. Wen is entitled to the following compensation: (i) an annual salary of US$100,000 for his service as Chief Executive Officer of the Company, pursuant to an employment agreement dated July 20, 2017. Under her employment agreement, Ms. Chen is entitled topayable quarterly in arrears, starting upon the Company’s receipt of proceeds from a financing of at least $1,000,000; (ii) an annual salary of $1.00RMB600,000 (approximately US$87,354) for herhis service as the Executive Director for Sichuan Senmiao, payable monthly in arrears starting upon the Company’s receipt of proceeds from a financing of at least $1 million; and (iii) a cash bonus of up to US$50,000 for his services as Chief Executive Officer of the Company. Her employmentCompany for the fiscal year ended March 31, 2020 upon satisfaction of the performance targets as reviewed by the Compensation Committee.
Mr. Wen is also entitled to participate in the Company’s equity incentive plans and other Company benefits (including health insurance, vacation and expense reimbursement), each in accordance with the Company’s policies as determined by the Board from time to time. The Wen Agreement has an initial term of one yearthree years and is subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the end of the applicable term. WePursuant to the Wen Agreement, the Company may terminate Ms. Chen'sMr. Wen’s employment for cause (as defined in the Wen Agreement), at any time, without notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty tonotice. Upon a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, Ms. Chen will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination and her right to all other benefits will terminate, except as required by any applicable law. We may also terminate Ms. Chen's employment without cause upon 30 days' advance written notice. In such case of termination by us, we are required to provide the following severance payments and benefits to her: (1) a lump sum cash payment equal to 3 months of her base salary as of the date of such termination; (2) a lump sum cash payment equal to a pro-rated amount of her target annual bonus for the year immediately preceding the termination, if any; (3) payment of premiums for continued health benefits under the Company's health plans for 3 months following the termination, if any; and (4) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held by her.
Ms. Chen may terminate her employment at any time with 30 days' advance written notice if there is any significant change in her duties and responsibilities or a material reduction in her annual salary. In such case, Ms. Chen will be entitled to receive compensation equivalent to 3 months of her base salary.
Ms. Chen has agreed to hold, both during and after the termination of her employment agreement, in strict confidence and not to use, except as required in the performance of her duties in connection with the employment, any of our confidential information or proprietary information of any third party received by us and for which we have confidential obligations. In addition, she has agreed to be bound by non-competition and non-solicitation restrictions during the term of her employment and for one year following termination of her employment.
Ms. Chen also serves as chief executive officer of Sichuan Senmiao pursuant to an employment agreement with Sichuan Senmiao for a term of three years ending September 12, 2019. Ms. Chen receives an annual salary of RMB 420,000 (approximately US$64,589) for her services and is entitled to benefits under PRC government statutory employee benefit plans.
Rong Zhu, Chief Financial Officer
Ms. Zhu serves as Chief Financial Officer of the Company pursuant to an employment agreement dated July 20, 2017. Under her employment agreement, Ms. Zhu is entitled to an annual salary of $1.00 for her services Chief Financial Officer of the Company. Her employment has an initial term of one year and is subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the end of the applicable term.
We may terminate Ms. Zhu's employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, Ms. Zhu will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and her right to all other benefits will terminate, except as required by any applicable law. We may also terminate Ms. Zhu's employment without cause upon 30 days' advance written notice. In such case of termination by us, we are required to provide the following severance payments and benefits to her: (1) a lump sum cash payment equal to 3 months of her base salary as of the date of such termination; (2) a lump sum cash payment equal to a pro-rated amount of her target annual bonus for the year immediately preceding the termination, if any; (3) payment of premiums for continued health benefits under the Company's health plans for 3 months following the termination, if any; and (4) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held by her.
Ms. Zhu may terminate her employment at any time with 30 days' advance written notice if there is any significant change in her duties and responsibilities or a material reduction in her annual salary. In such case, Ms. Zhu will be entitled to receive compensation equivalent to 3 months of her base salary.
Ms. Zhu has agreed to hold, both during and after the termination of her employment agreement, in strict confidence and not to use, except as required in the performance of her duties in connection with the employment, any of our confidential information or proprietary information of any third party received by us and for which we have confidential obligations. In addition, she has agreed to be bound by non-competition and non-solicitation restrictions during the term of her employment and for one year following termination of her employment.
Ms. Zhu also serves as Finance Manager of Sichuan Senmiao pursuant to an employment agreement with Sichuan Senmiao for a term of three years ending February 3, 2020. Ms. Zhu receives an annual salary of RMB 120,000 (approximately US$18,454) for her services and is entitled to benefits under PRC government statutory employee benefit plans.
Chunhai Li, Chief Technology Officer
Mr. Li serves as Chief Technology Officer of the Company pursuant to an employment agreement dated July 20, 2017. Under his employment agreement, Mr. Li is entitled to an annual salary of $1.00 for his services Chief Technology Officer of the Company. His employment has an initial term of one year and is subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the end of the applicable term. We may terminate Mr. Li's employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, Mr. LiWen will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and his right to all other benefits will terminate, except as required by any applicable law. We
The Company may also terminate Mr. Li'sWen’s employment without cause upon 30 days'days’ advance written notice. In suchthe case of such a termination by us, we arethe Company, the Company is required to provide the following severance payments and benefits to him:Mr. Wen: (1) a lump sum cash payment equal to 3three (3) months of histhe base salary as of the date of such termination; (2) a lump sum cash payment equal to a pro-rated amount of his target annual bonus for the year immediately preceding the termination, if any; (3) payment of premiums for continued health benefits under the Company'sCompany’s health plans for 3three (3) months following the termination, if any; and (4) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held by him.Mr. Wen. In addition, if the Company or its successor terminates the Wen Agreement upon a merger, consolidation, or transfer or sale of all or substantially all of the assets of the Company with or to any other individual(s) or entity, Mr. Wen shall be entitled to the following severance payments and benefits upon such termination: (1) a lump sum cash payment equal to three months of the base salary at a rate equal to the greater of his annual salary in effect immediately prior to the termination, or his then current annual salary as of the date of such termination; (2) a lump sum cash payment equal to a pro-rated amount of his target annual bonus for the year immediately preceding the termination; (3) payment of premiums for continued health benefits under the Company’s health plans for three months following the termination; and (4) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held by Mr. Wen. Pursuant to the Wen Agreement, Mr. LiWen may terminate his employment at any time with 30 days'days’ advance written notice without cause or if there is any significant change in his authority, duties and responsibilities or a material reduction in his annual salary. In such case, Mr. LiWen will be entitled to receive compensation equivalent to three months of his base salary. In order to receive any severance benefits under the Wen Agreement, Mr. Wen will be required to execute and deliver to the Company a general release of claims in a form reasonably satisfactory to the Board. The Wen Agreement also contains customary restrictive covenants relating to confidentiality, non-competition and non-solicitation. Xiaoyuan Zhang, Chief Financial Officer and Treasurer On September 17, 2018, the Company and Ms. Zhang entered into an employment agreement (the “Zhang Agreement”). Under the Zhang Agreement, Ms. Zhang is entitled to an annual salary of RMB540,000 (approximately $78,620) for her services as Chief Financial Officer and Treasurer of the Company. She is also entitled to participate in the Company’s equity incentive plans and other Company benefits, each as determined by the Board from time to time. Her employment has an initial term of one year and is subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the end of the applicable term. Pursuant to the Zhang Agreement, the Company may terminate Ms. Zhang’s employment for cause, at any time, without notice or remuneration, for certain acts, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to the detriment of the Company, or misconduct or a failure to perform agreed duties. In such case, Ms. Zhang will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and her right to all other benefits will terminate, except as required by any applicable law. The Company may also terminate Ms. Zhang’s employment without cause upon 30 days’ advance written notice. In such case of termination by the Company, the Company is required to provide the following severance payments and benefits to Ms. Zhang: a cash payment of one month of base salary as of the date of such termination for each year (which is any period longer than six months but no more than one year) and a cash payment of half month of base salary as of the date of such termination for any period of employment no more than six months, provided that the total severance payments shall not exceed twelve months of base salary. Pursuant to the Zhang Agreement, Ms. Zhang may terminate her employment at any time with 30 days’ advance written notice if there is any significant change in her duties and responsibilities or a material reduction in her annual salary. In such case, Ms. Zhang will be entitled to receive compensation equivalent to 3 months of hisher base salary. In addition, if the Company or its successor terminates the Zhang Agreement upon a merger, consolidation, or transfer or sale of all or substantially all of the assets of the Company with or to any other individual(s) or entity, Ms. Zhang shall be entitled to the following severance payments and benefits upon such termination: (1) a lump sum cash payment equal to 3 months of base salary at a rate equal to the greater of her annual salary in effect immediately prior to the termination, or her then current annual salary as of the date of such termination; (2) a lump sum cash payment equal to a pro-rated amount of target annual bonus for the year immediately preceding the termination; (3) payment of premiums for continued health benefits under the Company’s health plans for 3 months following the termination; and (4) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held by Ms. Zhang. The Zhang Agreement also contains customary restrictive covenants relating to confidentiality, non-competition and non-solicitation. Chunhai Li, Former Chief Technology Officer Mr. Li has agreedhad served as Chief Technology Officer of the Company pursuant to hold, both during and after the termination ofan employment agreement dated July 20, 2017. Under his employment agreement, in strict confidence and notMr. Li was entitled to use, except as required inan annual salary of $1.00 for his services Chief Technology Officer of the performance of his duties in connection with the employment, any of our confidential information or proprietary information of any third party received by us and for which we have confidential obligations. In addition, he has agreed to be bound by non-competition and non-solicitation restrictions during the term of his employment and for one year following termination of his employment. Company. Mr. Li also serveshad served as chief technology officerChief Technology Officer of Sichuan Senmiao pursuant to an employment agreement with Sichuan Senmiao for a term of three years ending September 12, 2019.11, 2022. Pursuant to the renewed employment agreement with Sichuan Senmiao in September 2019, Mr. Li receivesreceived an annual salary of RMB 122,004RMB374,004 (approximately US$18,762)53,835) for his services and is entitled to benefits under PRC government statutory employee benefit plans. Mr. Li resigned from his position as the Chief Technology Officer of the Company and Chief Technology Officer of Sichuan Senmiao on March 31, 2023. Haitao Liu, Chief Operating Officer Mr. Liu serves as the Chief Executive Officer of Sichuan Senmiao pursuant to his employment agreement with Sichuan Senmiao, dated August 1, 2018. The term of his employment was for one year, subject to a one-month probation period. He is entitled to a monthly salary of RMB45,000 (approximately US$6,551) except that he will receive RMB36,000 (approximately US$5,241) for his probation period. The employment may be terminated (i) by mutual consent, (ii) immediately for cause by Sichuan Senmiao, (iii) for incapacity after non-work related illness or injury by Sichuan Senmiao with a 30-day prior written notice or a one-month salary as severance payment, (iii) by a 30-day prior written notice from Mr. Liu and a three-day prior notice during the probation period, or (iv) immediately for cause by Mr. Liu. In connection with the employment agreement, Mr. Liu and Sichuan Senmiao entered into a confidentiality agreement, pursuant to which Mr. Liu agreed not to release or disclose Sichuan Senmiao’s confidential information. Despite the expiration of his employment agreement, Mr. Liu has agreed to continue to serve as the Chief Executive Officer of Sichuan Senmiao as well as assist to oversee our Automobile Transaction and Related Services after the discontinuation of our P2P business under the same terms of his employment agreement. On September 10, 2020, Mr. Haitao Liu tendered his voluntary resignation as Chief Executive Officer of Sichuan Senmiao. On the same date, the Board appointed Mr. Haitao Liu to serve as the Company’s Chief Operating Officer. Effective September 11, 2020, the Company and Mr. Liu entered into an employment agreement (the “Liu Agreement”). Under the Liu Agreement, Mr. Liu is entitled to an annual salary of RMB540,000 (approximately $77,000) for his service as Chief Operating Officer of the Company. He is also entitled to participate in the Company’s equity incentive plans and other Company benefits, each as determined by the Board from time to time. His employment has an initial term of one year and is subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the end of the applicable term. Equity Compensation Plan Information
We have not adopted any equity compensation plan.
Outstanding Equity Awards at Fiscal Year-End As of MarchMach 31, 2018, we had2023, there was no outstanding equity awards.awards of executive officers. Director Compensation The following table sets forth certain information concerning the compensation of our then serving non-executiveexecutive directors for the fiscal year ended March 31, 2018:2023, except that the compensation of Xi Wen as a director is included in “– Summary Compensation Table”: | | | | | | | | | | | | | | | | | Fees | | | | | | | | Nonqualified | | | | | | | earned | | | | | | Non-equity | | deferred | | | | | | | or | | Stock | | Option | | incentive plan | | compensation | | All other | | | | | paid in | | awards | | awards | | compensation | | earnings | | compensation | | Total | | | cash $ | | $ | | $ | | $ | | $ | | $ | | $ | Xiaojuan Lin | | 20,000 | | — | | — | | — | | — | | — | | 20,000 | Trent Davis | | 40,000 | | — | | — | | — | | — | | — | | 40,000 | Sichun Wang | | 20,000 | | — | | — | | — | | — | | — | | 20,000 | Jie Gao | | 20,000 | | — | | — | | — | | — | | — | | 20,000 |
| | | Fees
earned
or
paid in
cash
$ | | | Stock
awards
$ | | | Option
awards
$(1) | | | Non-equity
incentive plan
compensation
$ | | | Nonqualified
deferred
compensation
earnings
$ | | | All other
compensation
$ | | | Total
$ | | | Trent Davis | | $ | 1,205 | | | | — | | | | — | | | | — | | | | — | | | | — | | | $ | 1,205 | | | Xiaojuan Li | | $ | 13,918 | | | | — | | | | — | | | | — | | | | — | | | | — | | | $ | 13,918 | | | Yulei Rao | | $ | 13,918 | | | | — | | | | — | | | | — | | | | — | | | | — | | | $ | 13,918 | | | Xiang Hu | | $ | 13,918 | | | | — | | | | — | | | | — | | | | — | | | | — | | | $ | 13,918 | |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Each of our directors receives an annual retainer of $20,000 except that Mr. Trent receives an annual retainer of $40,000. They will also be reimbursed for reasonable, pre-approved expenses in connection with the performance of their services. As of March 31, 2023, the Company has issued accumulated 259,925 RSUs to directors, of which,2,273 was vested but not settled by the Company. During the year ended March 31, 2023, the Company did not issue RSUs to directors. The Company accounted for the vested RSUs as expenses and charged to common stock. The fair value of the vested RSUs is calculated at the grant date market price of this Report, there were 25,879,400the Company’s common stock multiplying by the number of vested shares. The Company expects to settle the vested RSUs by issuance of shares of common stock outstanding.within December 2022. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters On July 10, 2023, there were 7,993,040 shares of common stock outstanding, which does not include the shares of common stock underlying the vested RSUs. The following table sets forth certain information known to us with respect to the beneficial ownership of common stock as of that date by (i) each of our directors, and director nominee, (ii) each of our executive officers, (iii) all of our directors director nominee and executive officers as a group, and (iv) each person, or group of affiliated persons, whom we know to beneficially own more than 5% of our common stock. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them. | | | | | | | | Amount and | | | | | | Nature of | | Percentage of | | | | Beneficial | | Outstanding | | Name and Address of Beneficial Owner (1) | | Ownership | | Shares | | 5% Stockholders | | | | | | Senmiao International Investment Group Limited (2) | | 1,057,500 | | 13.2 | % | Officers and Directors | | | | | | Xiaoyuan Zhang (3) | | 1,364 | | * | | Haitao Liu (4) | | 909 | | * | | Chunhai Li (5) | | 455 | | * | | Xi Wen (6) | | 117,624 | | 1.5 | % | Xiaojuan Lin (7) | | 5,349 | | * | | Trent D. Davis (7) | | 5,349 | | * | | Jie Gao (8) | | 4,849 | | * | | Sichun Wang (8) | | 4,849 | | * | | All directors and executive officers as a group (eight individuals) | | 140,748 | | 1.8 | % |
* Less than 1%. | | | Amount and | | | | | | | | Nature of | | | Percentage of | | | | | Beneficial | | | Outstanding | | | Name and Address of Beneficial Owner(1) | | Ownership | | | Shares | | | 5% Stockholders | | | | | | | | Senmiao International Investment Group Limited (2) | | | 10,575,000 | | | | 40.9 | % | | THS Investment Group Limited (3) | | | 1,687,500 | | | | 6.5 | % | | HSM Investment Group Limited (4) | | | 1,912,500 | | | | 7.4 | % | | HSA Investment Group Limited (5) | | | 2,475,000 | | | | 9.6 | % | | Officers and Directors | | | | | | | | | | Xin Chen | | | — | | | | — | | | Rong Zhu | | | — | | | | — | | | Chunhai Li | | | — | | | | — | | | Xi Wen (6) | | | 1,122,750 | | | | 4.3 | % | | Xiang Hu (2) | | | 10,575,000 | | | | 40.9 | % | | Xiaojuan Lin | | | — | | | | — | | | Yulei Rao | | | — | | | | — | | | Trent D. Davis | | | — | | | | — | | | All directors and executive officers as a group (eight individuals) | | | 11,697,750 | | | | 45.2 | % |
| (1) | Unless otherwise indicated, the business address of each of the individuals is 16F, Building A, Shihao Square, Middle Jiannan Avenue, High-Tech Zone, Chengdu, Sichuan, China. |
| (2) | Mr. Xiang Hu does not hold any shares of common stock in our company directly. Mr. Hu, through Senmiao International Investment Group Limited, a British Virgin Islands company wholly owned by him, owns 10,575,0001,057,500 shares of common stock of the Company. |
| (3) | The natural person who exercises voting and dispositive power overRepresents 1,364 shares of common stock underlying 1,364 RSUs, of which, 341 RSUs have been vested but the underlying shares held by THS Investment Group Limited is Aiming Hu, who isof common stock of which have not been issued as of the parentdate of Mr. Xiang Hu.this Report. |
| (4) | The natural person who exercises voting and dispositive power overRepresents 909 shares of common stock underlying 909 RSUs, of which, 227 RSUs have been vested but the underlying shares held by HSM Investment Group Limited is Chan Wang.of common stock of which have not been issued as of the date of this Report. |
| (5) | The natural person who exercises voting and dispositive power overRepresents 455 shares of common stock underlying 455 RSUs, of which, 114 RSUs have been vested but the underlying shares held by HSA Investment Group Limited is Wuyong Luo.of common stock of which have not been issued as of the date of this Report. |
| (6) | Includes 1,122,750112,275 shares of common stock of the Company held beneficially byin the name of Mr. Wen’s spouse.spouse and 5,349 shares of common stock underlying 5,349 RSUs, of which, 455 RSUs have been vested but the underlying shares of common stock of which have not been issued as of the date of this Report. |
| Item 13.(7) | Certain Relationships and Related Transactions, and Director IndependenceRepresents 5,349 shares of common stock underlying 5,349 RSUs, of which, 455 RSUs have been vested but the underlying shares of common stock of which have not been issued as of the date of this Report. |
| (8) | Represents 4,849 shares of common stock underlying 4,849 RSUs, of which, 455 RSUs have been vested but the underlying shares of common stock of which have not been issued as of the date of this Report. |
Item 13.Certain Relationships and Related Transactions, and Director Independence In December 2017, we entered into loan agreements with Xiang HuCertain Relationships and Jun Wang, the stockholders of the Company and Sichuan Senmiao, who agreed to grant us a line of credit of approximating $955,308 and $159,218, respectively, for five years. The line of credit was non-interest bearing, effective from January 2017. During the year ended March 31, 2018, we borrowed from Hu Xiang and Jun Wang in the amount of $690,370 and $74,832, respectively. These borrowings were non-interest bearing and without specific terms of repayment.
During the year ended March 31, 2018, we paid listing expenses on behalf of Xiang Hu and Jun Wang who agreed to pay part of our expenses in connection with our initial public offering, in the amount of $59,692 and $7,585, respectively. We accounted for the expenses as a deduction against the amount due from the stockholders.
During the year ended March 31, 2017, we entered into two office lease agreements with Hong Li, the company’s stockholder, both with a term from January 1, 2017 to January 1, 2020. For the year ended March 31, 2018, we paid $86,405 of rental expenses to Hong Li.
Related Transactions Our audit committee must review and approve any related person transaction we propose to enter into.into which would need to be disclosed under Item 404(a) of Regulation S-K. Our audit committee charter details the policies and procedures relating to transactions that may present actual, potential or perceived conflicts of interest and may raise questions as to whether such transactions are consistent with the best interest of our company and our stockholders. Related Parties’ Loans In December 2017, Sichuan Senmiao entered into loan agreements with two of its former shareholders, who agreed to grant lines of credit of approximating $955,000 and $159,000, respectively, to Sichuan Senmiao for five years. The lines of credit are non-interest bearing, effective from January 2017. As of March 31, 2022, the loan due to one of former shareholder was fully settled. As of March 31, 2023 and 2022, the outstanding balances due to the other one in the discontinued operations were $17,434 and $18,886, respectively. In July 28, 2021 and August 17, 2021, Xi Wen, Chief Executive Officer and President of the Company, signed two Loan Agreements with Senmiao, under which Xi Wen agreed to lend $500,000 and $300,000 to the Company for its operation of business, with a term of six months and three months, respectively. The loan is interest-free and may be repaid in advance. As of March 31, 2022, the loans were fully settled. During the year ended March 31, 2022, Hunan Ruixi and Yicheng had loans due from Jinkailong, our equity investee company, and had interest income of $450,889, which was eliminated in the loss of continuing operations of the consolidated financial statements of operations and comprehensive income (loss). Related Parties’ Office Leasing Senmiao Consulting entered into two office lease agreements with a shareholder of Sichuan Senmiao. which were set to expire on January 1, 2020. On April 1, 2020, the two office leases were amended with a leasing term from April 1, 2020 to March 31, 2023. For the years ended March 31, 2023 and 2022, we incurred $177,414 and $237,968, respectively, in rental expenses to the shareholder. In September 2019, Hunan Ruixi entered into an office lease agreement which was set to expire in October 2023 with Hunan Dingchentai Investment Co., Ltd. (“Dingchentai”), a Company where one of our independent directors serves as legal representative and general manager. The rent was approximately $44,250 per year, payable on a quarterly basis. For the years ended March 31, 2023 and 2022, we incurred expense of $47,043 and $45,651, respectively, in rent to Dingchentai. We had reached cooperation with Jinkailong, our equity investee company, that the drivers who leased automobile from Jinkailong completed their online ride-hailing requests and orders through our ride-hailing platform, and we will pay Jinkailong a certain promotion service fee. During the years ended March 31, 2023 and 2022, we incurred promotion fee of $95,804 and $553,761 payable to Jinkailong. respectively. The decrease was in accordance with the decrease in the number of rides completed through XXTX. During the years ended March 31, 2023, Corenel leased automobiles to Jinkailong and generated revenues of $344,120, while Jiekai leased automobiles from Jinkailong and had a rental cost of $509,904. During the years ended March 31, 2022, Corenel and Yicheng leased automobiles to Jinkailong and generated revenues of $1,280,993. Others In June 2019 and January 2020, our former VIE, Jinkailong, entered into two automobile maintenance services contracts with Sichuan Qihuaxin Automobile Services Co., Ltd and Sichuan Yousen Automobile Maintenance Service Co., Ltd, the companies which are controlled by one of the noncontrolling shareholder of Jinkailong. During the year ended March 31, 2022, Jinkailong incurred automobile maintenance service fees of an aggregate of $942,581 to those companies, respectively. Director Independence Our Boardboard of Directorsdirectors has determined that each of Mr. Davis, Ms. Lin and Dr. RaoMs. Wang qualifies as an "independent director"“independent director” under the Nasdaq listing rules, which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company'scompany’s board of directors would interfere with the director'sdirector’s exercise of independent judgment in carrying out the responsibilities of a director. Our independent directors will have regularly scheduled meetings at which only independent directors are present. Item 14.Principal Accountant Fees and Services. | Item 14. | Principal Accountant Fees and Services. |
Effective September 1, 2022, Friedman LLP, our then independent registered public accounting firm, combined with Marcum LLP and continued to operate as an independent registered public accounting firm. On October 12, 2022, our Board of Directors approved the dismissal of Friedman LLP and the engagement of Marcum Asia CPAs LLP (“Marcum Asia”) to serve as our independent registered public accounting firm. The services previously provided by Friedman LLP are now provided by Marcum Asia. The following table shows the fees that we paid or accrued for the audit and other services provided by our independent registered public accounting firms for the fiscal years ended March 31, 20182023 and 2017.2022. | Fee Category | | Fiscal Year Ended
March 31, 2018 | | | Fiscal Year Ended March 31, 2017 | | | Audit Fees(1) | | $ | 115,000 | | | $ | 160,000 | | | Audit-Related Fees(2) | | $ | - | | | $ | - | | | Tax Fees(3) | | $ | - | | | $ | - | | | All Other Fees(4) | | $ | - | | | $ | - | |
(1) | | | | | | | | | Fiscal Year | | Fiscal Year | | | Ended | | Ended | | | March 31, | | March 31, | Fee Category | | 2023 | | 2022 | Audit Fees (1) | | $ | 321,700 | | $ | 280,000 | Audit-Related Fees (2) | | $ | 10,000 | | $ | 35,000 | Tax Fees (3) | | $ | 10,000 | | $ | 8,000 | All Other Fees (4) | | $ | — | | $ | — |
| (1) | This category consists of fees for professional services rendered by our principal independent registered public accountants for the audit of our annual financial statements, review of financial statements included in our quarterly reports and services that are normally provided by the independent registered public accounting firms in connection with statutory and regulatory filings or engagements for those fiscal years. |
| (2) | This category consists of fees for assurance and related services by our independent registered public accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultations concerning financial accounting and reporting standards. |
| (3) | This category consists of fees for professional services rendered by our independent registered public accountant for tax compliance, tax advice, and tax planning. |
| (4) | This category consists of fees for services provided by our independent registered public accountants other than the services described above. |
(2) This category consists of fees for assurance and related services by our independent registered public accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under "Audit Fees." The services for the fees disclosed under this category include consultations concerning financial accounting and reporting standards.
(3) This category consists of fees for professional services rendered by our independent registered public accountant for tax compliance, tax advice, and tax planning.
(4) This category consists of fees for services provided by our independent registered public accountants other than the services described above.
Policy on Pre-Approval of Audit Services Our audit committee pre-approves all services, including both audit and non-audit services, provided by our independent registered public accounting firm. PART IV Item 15.Exhibits, Financial Statement Schedules (a)The following documents are filed as part of this Report: | Item 15. | Exhibits, Financial Statement Schedules |
(a) | The following documents are filed as part of this Report: | | | | (1) | The Financial Statements in Item 8 herein; and |
| | | | (2) | Index to the Financial Statements Schedulein Item 8 herein. |
All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto in is Item 15 of Part IV below. We hereby file as part of this Report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website atwww.sec.gov. | Item 16.Form 10-K Summary | Form 10-K Summary |
Not applicable. EXHIBIT INDEX Exhibit
No. | | Description | Exhibit
No. | | Description | 3.1 | | | 3.1 | | Articles of Incorporation of the Company,, incorporated herein by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 3.2 | | Certificate of Amendment to Articles of Incorporation of the Company, incorporated herein by reference to Exhibit 3.2 to the Amendment No.3No.7 to Registration Statement on Form S-1 filed with the SEC on January 30,March 14, 2018 | | | | 3.33.2 | | Certificate of Amendment to Articles of Incorporation of the Company, incorporated herein by reference to Exhibit 3.2 to the Amendment No.7 to Registration Statement on Form S-1 filed with the SEC on March 14, 2018 | | | | 3.3 | | Certificate of Change of the Company filed with the State of Nevada on March 30, 2022, incorporated herein by reference to Exhibit 3.1 on the Current Report on Form 8-K filed by the Company with the SEC on April 6, 2022 | | | | 3.4 | | Certificate of Correction filed with the State of Nevada on April 5, 2022, incorporated herein by reference to Exhibit 3.1 on the Current Report on Form 8-K filed by the Company with the SEC on April 6, 2022 | | | | 3.5 | | Certificate of Amendment to Articles of Incorporation of the Company, on May 2, 2022, regarding the increase of authorized shares.* | | | | 3.6 | | Bylaws of the Company, incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed by the Company with the SEC on October 30, 20172017. | | | | 10.14.1 | | Exclusive Business CooperationDescription of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, incorporated herein by reference to Exhibit 4.4 on the Annual Report on Form 10-K filed by the Company with the SEC on July 9, 2020
| | | | 4.2 | | Form of Warrant relating to the August 2020 offering, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on August 4, 2020 | | | | 4.3 | | Form of Placement Agent Warrant relating to the February 2021 offering, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on February 9, 2021 |
| | | 4.4 | | Form of the Investor’s Common Stock Purchase Warrant relating to the May 2021 offering, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on May 11, 2021 | | | | 4.5 | | Form of the Placement Agent’s Common Stock Purchase Warrant relating to the May 2021 offering, incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on May 11, 2021 | | | | 10.1 | | Lease Agreement, dated September 18, 2017,April 1, 2018, by and between SichuanXiaodong Yang, Pin Li and Hong Li, as landlord, and Senmiao Zecheng Business Consulting, Co., Ltd. and Sichuan Senmiao Ronglian Technology Co., Ltd.,as tenant, incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on August 14, 2018 | | | | 10.2 | | Lease Agreement, dated April 1, 2018, by and between Xiaodong Yang, Pin Li and Hong Li, as landlord, and Sichuan Senmiao, as tenant, incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed with the SEC on August 14, 2018 | | | | 10.3 | | Employment Agreement, dated August 1, 2018, by and between Sichuan Senmiao and Haitao Liu, incorporated herein Exhibit 10.5 to the Quarterly Report on Form 10-Q filed with the SEC on August 14, 2018 | | | | 10.4 | | Employment Agreement between the Company and Chunhai Li, incorporated herein by reference to Exhibit 10.18 to the Amendment No. 7 to Registration Statement on Form S-1 filed with the SEC on October 30, 2017March 14, 2018 | | | | 10.210.5 | | Form of Equity Interest Pledge Agreement by and among Sichuan Senmiao Zecheng Business Consulting Co., Ltd., Sichuan Senmiao Ronglian Technology Co., Ltd. and each equity holder of Sichuan Senmiao Ronglian Technology Co., Ltd.,Director Offer Letter, incorporated herein by reference to Exhibit 10.210.19 to the Amendment No. 7 to Registration Statement on Form S-1 filed with the SEC on October 30, 2017March 14, 2018 | | | | 10.310.6 | | Exclusive Option Agreement, dated September 18, 2017, by and among Sichuan Senmiao Zecheng Business Consulting Co., Ltd., Sichuan Senmiao Ronglian Technology Co., Ltd. and each equity holder of Sichuan Senmiao Ronglian Technology Co., Ltd., incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.4 | | Form of Power of Attorney, incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.5 | | Timely Reporting Agreement, dated September 18, 2017, by and between Sichuan Senmiao Ronglian Technology Co., Ltd. and the Company, incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.6 | | Form of Financial Intermediary Service Contract, incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.7 | | System Integrating Agreement, dated December 7, 2016, by and between the Company and Guangdong Huaxing Bank Co., Ltd., incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 |
10.8 | | Individual Network Lending Institution Clients Fund Depository Business Cooperation Agreement, dated February 23, 2017, by and between the Company and Guangdong Huaxing Bank Co., Ltd., incorporated herein by reference to Exhibit 10.8 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017
| | | | 10.9 | | Internet Financial Platform Transfer Agreement, dated September 23, 2016, by and between the Company and Sichuan Cheng He Xin Investment Financing Information Consultation Co., Ltd., incorporated herein by reference to Exhibit 10.9 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.10 | | Supplementary to Internet Financial Platform Transfer Agreement, dated March 26, 2017, by and between the Company and Sichuan Cheng He Xin Investment Financing Information Consultation Co., Ltd., incorporated herein by reference to Exhibit 10.10 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.11 | | Lease Agreement, dated December 29, 2016, by and among the Company, Xiaodong Yang and Hong Li, incorporated herein by reference to Exhibit 10.11 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.12 | | Supplemental Lease Agreement, dated January 1, 2017, by and among the Company, Xiaodong Yang and Hong Li, incorporated herein by reference to Exhibit 10.12 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.13 | | Form of Loan Assignment and Repurchase Agreement, incorporated herein by reference to Exhibit 10.13 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.14 | | Form of Loan and Security Agreement, incorporated herein by reference to Exhibit 10.14 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.15 | | Strategic Cooperation Framework Agreement, dated March 18, 2017, by and between the Company and Resgreen Health Science & Technology Group Co., Ltd., incorporated herein by reference to Exhibit 10.15 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.16 | | Employment Agreement between the Company and Xin Chen, incorporated herein by reference to Exhibit 10.16 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.17 | | Employment Agreement between the Company and Rong Zhu, incorporated herein by reference to Exhibit 10.17 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.18 | | Employment Agreement between the Company and Chunhai Li, incorporated herein by reference to Exhibit 10.18 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 |
10.19 | | Form of Director Offer Letter, incorporated herein by reference to Exhibit 10.19 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017 | | | | 10.22 | | Loan Agreement, effective January 1, 2017, by and between Xiang Hu and Sichuan Senmiao Ronglian Technology Co., Ltd., incorporated herein by reference to Exhibit 10.22 to the Amendment No.4No. 7 to Registration Statement on Form S-1 filed with the SEC on February 13,March 14, 2018 | | | | 10.2310.7 | | LoanInvestment and Equity Transfer Agreement, effective January 1, 2017,dated as of November 21, 2018, by and among Senmiao Technology Limited, Hunan Ruixi Financial Leasing Co., Ltd., Hunan Ruipin Cultural Industry Co., Ltd., Luziyun International Group (Southeast Asia) Shares Limited and Chengdu Little Monkey Information and Technology Co., Ltd. incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company with the SEC on November 28, 2018
| | | | 10.8 | | Business Cooperation Agreement and Valuation Adjustment Mechanism and Indemnification Agreement, dated August 26, 2018, by and among Sichuan Jinkailong Automobile Leasing Co., Ltd., Hunan Ruixi Financial Leasing Co., Ltd., Xiaoliang Chen, Xi Yang, Yiqiang He and Xiaohui Luo, incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by the Company with the SEC on February 19, 2019 | | | | 10.9 | | Amendment to Business Cooperation Agreement and Valuation Adjustment Mechanism and Indemnification Agreement, dated October 16, 2018, by and among Sichuan Jinkailong Automobile Leasing Co., Ltd., Hunan Ruixi Financial Leasing Co., Ltd., Xiaoliang Chen, Xi Yang, Yiqiang He and Xiaohui Luo, incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed by the Company with the SEC on February 19, 2019 | | | | 10.10 | | Collaboration Agreement, dated August 13, 2019, by and between Jun Wang and Sichuan Senmiao RonglianDidi Chuxing Technology Co., Ltd. and Sichuan Jinkailong Automobile Leasing Co., Ltd., incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed with the SEC on February 14, 2020 | | | | 10.11 | | Collaboration Agreement, dated December 6, 2019, by and between Didi Chuxing Technology Co., Ltd. and Hunan Ruixi Financial Leasing Co., Ltd., incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed with the SEC on February 14, 2020 |
| | | 10.12 | | Consulting Service Agreement, dated March 26, 2019, by and between Didi Chuxing Technology Co., Ltd. and Sichuan Jinkailong Automobile Leasing Co., Ltd., incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on February 14, 2020 | | | | 10.13 | | Voting Agreement, dated August 26, 2018, by and among Hunan Ruixi Financial Leasing Co., Ltd. and certain shareholders of Sichuan Jinkailong Automobile Leasing Co., Ltd., incorporated herein by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed by the Company with the SEC on February 19, 2019 | | | | 10.14 | | Amendment to the Voting Agreement, dated November 11, 2018, by and among Hunan Ruixi Financial Leasing Co., Ltd. and certain shareholders of Sichuan Jinkailong Automobile Leasing Co., Ltd., incorporated herein by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed by the Company with the SEC on February 19, 2019 | | | | 10.15 | | Employment Agreement, dated as of May 27, 2019, by and between Senmiao Technology Limited and Xi Wen, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 30, 2019 | | | | 10.16 | | Employment Agreement, dated as of September 17, 2018, by and between the Company and Xiaoyuan Zhang, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on September 20, 2018 | | | | 10.17 | | Form of Hunan Ruixi Financial Leasing Contract, incorporated herein by reference to Exhibit 10.30 to the Annual Report on Form 10-K filed with the SEC on July 5, 2019 | | | | 10.18 | | Form of Hunan Ruixi Service Agreement, incorporated herein by reference to Exhibit 10.31 to the Annual Report on Form 10-K filed with the SEC on July 5, 2019 | | | | 10.19 | | Form of Jinkailong Automobile Affiliation Agreement, incorporated herein by reference to Exhibit 10.32 to the Annual Report on Form 10-K filed with the SEC on July 5, 2019 | | | | 10.20 | | Voting Agreement, dated February 13, 2020, by and between Hunan Ruixi Financial Leasing Co., Ltd. and Chengdu Simushi Technology Co., Ltd., incorporated herein by reference to Exhibit 10.30 to the Annual Report on Form 10-K filed with the SEC on July 9, 2020 | | | | 10.21 | | English Translation to Investment Agreement, dated July 4, 2020, by and among Hongyi Industrial Group Co., Ltd., Hunan Ruixi Financial Leasing Co., Ltd., Sichuan Jinkailong Automobile Leasing Co., Ltd. and other shareholders of Jinkailong, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on July 8, 2020 | | | | 10.22 | | Employment Agreement, dated as of September 11, 2020, by and between the Company and Haitao Liu, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on September 14, 2020 | | | | 10.23 | | English Translation to Investment Agreement, dated July 4, 2020, by and among Hongyi Industrial Group Co., Ltd., Hunan Ruixi Financial Leasing Co., Ltd., Sichuan Jinkailong Automobile Leasing Co., Ltd. and other shareholders of Jinkailong, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on July 8, 2020 | | | | 10.24 | | Form of Securities Purchase Agreement relating to the May 2021 offering, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 11, 2021 | | | | 10.25 | | Placement Agency Agreement dated May 11,2021 (including Form of Lock-Up Agreement in the exhibit) relating to the May 2021 offering, incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on May 11, 2021 | | | |
10.26 | | English Translation of the Investment Agreement, dated September 11, 2020, by and among Sichuan Senmiao Zecheng Business Consulting Co., Ltd., Hunan Xixingtianxia Technology Co., Ltd. and its shareholders, incorporated herein by reference to Exhibit 10.40 to the Annual Report on Form 10-K filed with the SEC on July 8, 2021 | | | | 10.27 | | English Translation of the Supplementary Agreement to the Investment Agreement, dated February 5, 2021, by and among Sichuan Senmiao Zecheng Business Consulting Co., Ltd., Hunan Xixingtianxia Technology Co., Ltd. and its shareholders, incorporated herein by reference to Exhibit 10.41 to the Annual Report on Form 10-K filed with the SEC on July 8, 2021 | | | | 10.28 | | English Translation of the Termination Agreement of the Investment Agreement, dated July 2, 2021, by and among Hongyi Industry Group Co., Ltd., Sichuan Jinkailong Automobile Leasing Co., Ltd. and its shareholders, incorporated herein by reference to Exhibit 10.42 to the Annual Report on Form 10-K filed with the SEC on July 8, 2021 | | | | 10.29 | | English Translation of Agreement for the Termination of the Agreement for Concerted Action by Shareholders of Jinkailong, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on April 6, 2022 | | | | 10.30 | | Loan Agreement, effective July 28, 2021, by and between Xi Wen and Senmiao Technology Limited, incorporated by reference to Exhibit 10.44 to the Annual Report on Form 10-K filed with the SEC on July 15, 2022 | | | | 10.31 | | Loan Agreement, effective August 17, 2021, by and between Xi Wen and Senmiao Technology Limited, incorporated by reference to Exhibit 10.44 to the Annual Report on Form 10-K filed with the SEC on July 15, 2022 | | | | 14.1 | | Code of Ethics, incorporated herein by reference to Exhibit 14.1 to the Amendment No.4No. 7 to Registration Statement on Form S-1 filed with the SEC on February 13,March 14, 2018 | | | | 10.2421.1 | | Fund Deposit Service Agreement dated April 8, 2018, by and between Senmiao Technology Limited and Sichuan XW Bank Co., Ltd., incorporated herein by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on April 12, 2018List of Subsidiaries*
| | | | 14.123.1 | | Code of Ethics, incorporated herein by reference to Exhibit 14.1 to the Amendment No.2 to Registration Statement on Form S-1 filed with the SEC on December 29, 2017Independent registered public accounting firm’s consent*
| | | | 21.131.1 | | List of Subsidiaries, incorporated herein by reference to Exhibit 21.1 to the Registration Statement on Form S-1 filed with the SEC on October 30, 2017
| | | | 31.1 | | Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | | | | 31.2 | | Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | | | | 32.1 | | Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | | | | 32.2 | | Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | | | | 101.INS | | XBRL Instance Document* | | | | 101.SCH | | XBRL Taxonomy Extension Schema* | | | | 101.CAL | | XBRL Taxonomy Calculation Linkbase* | | | | 101.DEF | | XBRL Definition Linkbase Document* | | | | 101.LAB | | XBRL Taxonomy Label Linkbase* | | | | 101.PRE | | XBRL Definition Linkbase Document* |
| | | 104. | | Cover Page Interactive Data File* |
* Filed herewith ** Furnished herewith SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | Date: June 29, 2018July 12, 2023 | SENMIAO TECHNOLOGY LIMITED | | | | | By: | /s/ Xin ChenXi Wen | | Xin ChenName: | Xi Wen | | Title: | Chief Executive Officer | | | (Principal Executive Officer) |
| By: | /s/Rong Zhu | | Rong ZhuBy: | /s/ Xiaoyuan Zhang | | Name: | Xiaoyuan Zhang | | Title: | Chief Financial Officer | | | (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name | Name | Position | Position | | Date | | | | | | /s/ Xin Chen Xi Wen | | Chief Executive Officer, and | | June 29, 2018 | Xin Chen | | (Principal Executive Officer) | | | | | | | | /s/ Rong Zhu | | Chief Financial Officer and Director | | June 29, 2018 | Rong Zhu | | (Principal Financial and Accounting Officer) | | | | | | | | /s/ Xi Wen | | President and Chairman of the Board | | June 29, 2018July 12, 2023 | Xi Wen | | | | | | | | | | /s/ Xiaoyuan Zhang | | Chief Financial Officer | | July 12, 2023 | Xiaoyuan Zhang | | (Principal Financial and Accounting Officer) | | | | | | | | | | | | | /s/ Trent Davis | | Director | | June 29, 2018July 12, 2023 | Trent Davis | | | | | | | | | | /s/ Xiaojuan Lin | | Director | | June 29, 2018July 12, 2023 | Xiaojuan Lin | | | | | | | | | | /s/ Yulei Rao Sichun Wang | | Director | | June 29, 2018July 12, 2023 | Yulei RaoSichun Wang | | | | | | | | | | /s/ Xiang Hu Jie Gao | | Director | | June 29, 2018July 12, 2023 | Xiang HuJie Gao | | | | |
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