Item 1.
|
Financial Statements
|
SENMIAO TECHNOLOGY LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE
SHEETS
(Expressed in U.S. dollar, except for
the number of shares)
|
|
December 31, 2018
|
|
|
March 31, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,291,719
|
|
|
$
|
11,141,566
|
|
Accounts receivable
|
|
|
88,555
|
|
|
|
-
|
|
Prepayments, receivables and other assets
|
|
|
2,118,542
|
|
|
|
70,421
|
|
Escrow receivable due within one year
|
|
|
600,000
|
|
|
|
-
|
|
Due from a related party
|
|
|
66,453
|
|
|
|
-
|
|
Total Current Assets
|
|
|
12,165,269
|
|
|
|
11,211,987
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
63,930
|
|
|
|
8,872
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
1,556,920
|
|
|
|
1,953,223
|
|
Escrow receivable
|
|
|
-
|
|
|
|
1,200,000
|
|
Deposits for intangible assets
|
|
|
416,112
|
|
|
|
-
|
|
Total Assets
|
|
$
|
14,202,231
|
|
|
$
|
14,374,082
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Borrowings from financial institutions
|
|
$
|
213,877
|
|
|
$
|
-
|
|
Advances from customers
|
|
|
44,901
|
|
|
|
-
|
|
Accrued expenses and other liabilities
|
|
|
1,071,516
|
|
|
|
404,604
|
|
Due to stockholders
|
|
|
1,054,025
|
|
|
|
1,090,808
|
|
Due to related parties and affiliates
|
|
|
1,286,786
|
|
|
|
-
|
|
Total Current Liabilities
|
|
|
3,671,105
|
|
|
|
1,495,412
|
|
|
|
|
|
|
|
|
|
|
Borrowings from financial institutions, noncurrent
|
|
|
227,985
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,899,090
|
|
|
|
1,495,412
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Common stock (par value $0.0001 per share, 100,000,000 shares authorized;
25,879,400 shares issued and outstanding at December 31, 2018 and March 31, 2018)
|
|
|
2,588
|
|
|
|
2,588
|
|
Additional Paid-in capital
|
|
|
23,657,407
|
|
|
|
23,611,512
|
|
Accumulated deficit
|
|
|
(12,973,371
|
)
|
|
|
(10,481,669
|
)
|
Accumulated other comprehensive
loss
|
|
|
(386,524
|
)
|
|
|
(253,761
|
)
|
Total Stockholders’ Equity
|
|
|
10,300,100
|
|
|
|
12,878,670
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
3,041
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
10,303,141
|
|
|
|
12,878,670
|
|
Total Liabilities and Equity
|
|
$
|
14,202,231
|
|
|
$
|
14,374,082
|
|
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements
SENMIAO TECHNOLOGY LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in U.S. dollar,
except for the number of shares)
|
|
For the Three Months Ended
December 31,
|
|
|
For the Nine Months Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
209,857
|
|
|
$
|
152,538
|
|
|
$
|
406,391
|
|
|
$
|
335,498
|
|
Gross revenues
|
|
|
209,857
|
|
|
|
152,538
|
|
|
|
406,391
|
|
|
|
335,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(926,358
|
)
|
|
|
(288,620
|
)
|
|
|
(2,681,078
|
)
|
|
|
(960,349
|
)
|
Amortization of intangible assets
|
|
|
(60,488
|
)
|
|
|
(165,206
|
)
|
|
|
(233,576
|
)
|
|
|
(488,210
|
)
|
Total operating expenses
|
|
|
(986,846
|
)
|
|
|
(453,826
|
)
|
|
|
(2,914,654
|
)
|
|
|
(1,448,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(776,989
|
)
|
|
|
(301,288
|
)
|
|
|
(2,508,263
|
)
|
|
|
(1,113,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
14,936
|
|
|
|
71
|
|
|
|
25,841
|
|
|
|
1,921
|
|
Interest expense
|
|
|
(6,239
|
)
|
|
|
-
|
|
|
|
(6,239
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(768,292
|
)
|
|
|
(301,217
|
)
|
|
|
(2,488,661
|
)
|
|
|
(1,111,140
|
)
|
Net income attributable to noncontrolling interests
|
|
|
(3,041
|
)
|
|
|
-
|
|
|
|
(3,041
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to stockholders
|
|
|
(771,333
|
)
|
|
|
(301,217
|
)
|
|
|
(2,491,702
|
)
|
|
|
(1,111,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(26,063
|
)
|
|
|
207,125
|
|
|
|
(132,763
|
)
|
|
|
537,173
|
|
Comprehensive Loss
|
|
|
(797,396
|
)
|
|
|
(94,092
|
)
|
|
|
(2,624,465
|
)
|
|
|
(573,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: total comprehensive income attributable to noncontrolling interests
|
|
|
(3,041
|
)
|
|
|
-
|
|
|
|
(3,041
|
)
|
|
|
-
|
|
Total comprehensive loss attributable to stockholders
|
|
$
|
(794,355
|
)
|
|
$
|
(94,092
|
)
|
|
$
|
(2,621,424
|
)
|
|
$
|
(573,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
25,879,400
|
|
|
|
22,500,000
|
|
|
|
25,879,400
|
|
|
|
21,669,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss for the period
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.05
|
)
|
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements
SENMIAO TECHNOLOGY LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Expressed in U.S. dollar,
except for the number of shares)
|
|
For
the Nine Months Ended
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,488,661
|
)
|
|
$
|
(1,111,140
|
)
|
Adjustments to reconcile net loss to net cash used
in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
8,667
|
|
|
|
2,615
|
|
Amortization of intangible assets
|
|
|
233,576
|
|
|
|
488,210
|
|
Shares issued to three individuals for consulting services
|
|
|
-
|
|
|
|
99,550
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(65,861
|
)
|
|
|
-
|
|
Prepayments, receivables and other assets
|
|
|
(256,244
|
)
|
|
|
6,797
|
|
Due from a related party
|
|
|
(1,441
|
)
|
|
|
107,141
|
|
Accrued expenses and other liabilities
|
|
|
107,872
|
|
|
|
(10,818
|
)
|
Net Cash Used in Operating Activities
|
|
|
(2,462,092
|
)
|
|
|
(417,645
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(28,241
|
)
|
|
|
(412
|
)
|
Purchases of intangible assets
|
|
|
(421,022
|
)
|
|
|
-
|
|
Net Cash Used in Investing Activities
|
|
|
(449,263
|
)
|
|
|
(412
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds borrowed from stockholders
|
|
|
1,974,617
|
|
|
|
335,092
|
|
Repayments to stockholders
|
|
|
(1,900,000
|
)
|
|
|
-
|
|
Release of escrow receivable
|
|
|
600,000
|
|
|
|
-
|
|
Proceeds borrowed from related parties and affiliates
|
|
|
290,183
|
|
|
|
-
|
|
Repayments of noncurrent borrowings from financial institutions
|
|
|
(16,929
|
)
|
|
|
-
|
|
Cash acquired from acquisition
|
|
|
213,644
|
|
|
|
-
|
|
Net Cash Provided by Financing Activities
|
|
|
1,161,515
|
|
|
|
335,092
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(100,007
|
)
|
|
|
6,875
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(1,849,847
|
)
|
|
|
(76,090
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
11,141,566
|
|
|
|
161,292
|
|
Cash and cash equivalents at end of period
|
|
$
|
9,291,719
|
|
|
$
|
85,202
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
6,239
|
|
|
$
|
-
|
|
Cash paid for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash Transaction in Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Unpaid property and equipment purchases
|
|
$
|
-
|
|
|
$
|
-
|
|
IPO expenses paid by the Company’s stockholders
|
|
$
|
70,687
|
|
|
$
|
-
|
|
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1.
|
ORGANIZATION AND PRINCIPAL ACTIVITIES
|
Senmiao Technology Limited (the “Company”) is a U.S. holding company incorporated in the State
of Nevada on June 8, 2017. The Company operate its businesses in two segments: (i) online lending services through its variable
interest entity (“VIE”), Sichuan Senmiao Ronglian Technology Co., Ltd. (“Sichuan Senmiao”), in the People’s
Republic of China (“PRC” or “China”) which facilitates loan transactions between Chinese investors and
individual and small-to-medium-sized enterprise (“SME”) borrowers; and (ii) automobile transaction and financing services
focusing on the ride-hailing industry in China through its majority owned subsidiary, Hunan Ruixi Financial Leasing Co., Ltd. (“Hunan
Ruixi”), a PRC limited liability company and its VIE, Sichuan Jinkailong Automobile Leasing Co., Ltd. (“Jinkailong”).
The Company’s executive offices are located in Chengdu, Sichuan province, China. The Company undertakes substantially all
of its business activities in China through WFOE (as defined below), Hunan Ruixi. Jinkailong and Sichuan Senmiao.
On September 25, 2016, Sichuan Senmiao acquired a peer-to-peer (“P2P”) platform (including
website, internet content provider license, operating systems, servers, and management system) from Sichuan Chenghexin Investment
and Asset Management Co., Ltd. On July 28, 2017, the Company established a wholly-owned subsidiary, Sichuan Senmiao Zecheng Business
Consulting Co., Ltd. (“WFOE”) in China. Sichuan Senmiao was established in China in June 2014.
On September 18, 2017, the Company entered into a series of agreements (“VIE Agreements”)
with Sichuan Senmiao and its equity holders (the “Sichuan Senmiao Shareholders”) through WFOE to obtain control and
became the primary beneficiary of Sichuan Senmiao (the “Restructuring”). In connection with the Restructuring, as partial
consideration for the Sichuan Senmiao Shareholders’ commitment to perform their obligations under the VIE Agreements, the
Company issued an aggregate of 45,000,000 shares of its common stock to the Sichuan Senmiao Shareholders pursuant to certain subscription
agreements dated September 18, 2017.
On November 21, 2018, the Company entered
into an Investment and Equity Transfer Agreement (the “Investment Agreement”) with Hunan Ruixi and all the shareholders
of Hunan Ruixi (“Hunan Ruixi Shareholders”), pursuant to which the Company acquired from the Hunan Ruixi Shareholders
an aggregate of 60% of the equity interest of Hunan Ruixi for no consideration. The Company closed the acquisition on November
22, 2018 and made a working capital contribution of $6,000,000 to Hunan Ruixi, representing 60% of its registered capital, in accordance
with the Investment Agreement.
Hunan Ruixi holds a financial leasing license and anticipates to engage in automobile financial
leasing services and automobile sales in the first half of 2019. Hunan Ruixi also controls Jinkailong through its 35% equity interest
and a voting agreement with Jinkailong’s other shareholders. Jinkailong is an automobile transaction and financing services
company in China, which primarily targets the drivers in the ride-hailing service sector and facilitates automobile sales and financing
transactions for its clients and provides relevant after- transaction services to them.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1.
|
ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
|
The following diagram illustrates the
Company’s corporate structure, including its subsidiaries, and VIEs, as of the date of these financial statements:
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1.
|
ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
|
VIE Agreements with Sichuan Senmiao
According to the VIE Agreements, Sichuan
Senmiao is obligated to pay WFOE service fees equal to its net income. Sichuan Senmiao’s entire operations are controlled
by the Company. There are no unrecognized revenue-producing assets that are held by Sichuan Senmiao.
Each of the VIE Agreements is described
in details below:
Equity Interest Pledge Agreement
WFOE, Sichuan Senmiao and the Sichuan Senmiao Shareholders entered into an Equity Interest Pledge Agreement,
pursuant to which the 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 receive any dividends declared on the pledged equity interest of Sichuan
Senmiao. The Equity Interest Pledge Agreement terminates 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 entered by and among the Company, WFOE, Sichuan
Senmiao and each of Sichuan Senmiao Shareholders, WFOE will provide Sichuan Senmiao with complete technical support, business support
and related consulting services for 10 years ended September 18, 2027. The Sichuan Senmiao Shareholders and Sichuan Senmiao will
not engage any third party for the same or similar consultation services without WFOE’s prior consent. Further, the 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. WFOE may terminate the Exclusive Business Cooperation 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 entered by and among WFOE, Sichuan Senmiao and the Sichuan Senmiao
Shareholders, the Sichuan Senmiao Shareholders have granted WFOE an exclusive option to purchase at any time their equity interests
in Sichuan Senmiao at a purchase price equal to the capital paid by the Sichuan Senmiao Shareholders in whole or at a pro-rated
price for any partial purchase. The Exclusive Option Agreement terminates after 10 years ending September 18, 2027 but can be renewed
by WFOE at its discretion.
Powers of Attorney
Each of the Sichuan Senmiao Shareholders has signed a power of attorney (the “Power of Attorney”),
pursuant to which, each of the Sichuan Senmiao Shareholders has authorized WFOE to act as his or her exclusive agent and attorney
with respect to all rights of such individual as a shareholder of Sichuan Senmiao, including but not limited to: (a) attending
shareholders’ meetings; (b) exercising all the shareholder’s rights that shareholders are entitled to under PRC laws
and the Articles of Association of Sichuan Senmiao, including but not limited to voting, sale, transfer, pledge and disposition
of the equity interests of Sichuan Senmiao,; and (c) designating and appointing 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 filings to the U.S.
Securities and Exchange Commission (“SEC”) and other regulatory reports in a timely fashion.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1.
|
ORGANIZATION AND PRINCIPAL ACTITIVIES (CONTINUED)
|
VIE Agreements with Sichuan Senmiao
(continued)
The Company has concluded that it should consolidate the financial statements with Sichuan Senmiao because
it is Sichuan Senmiao’s primary beneficiary based on the Power of Attorney from the Sichuan Senmiao Shareholders, who assigned
their rights as shareholders of Sichuan Senmiao to 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, directors, supervisors and senior management of Sichuan Senmiao. As a result, the Company, through its WFOE,
is deemed to hold all of the voting equity interests in Sichuan Senmiao. Pursuant to Exclusive Business Cooperation Agreement,
WFOE shall provide complete technical support, business support and related consulting services for 10 years. Though not explicit
in the VIE Agreements, the Company may provide financial support to Sichuan Senmiao to meet its working capital requirements and
capitalization purposes. The terms of the VIE Agreements and the Company’s plan to provide financial support to Sichuan Senmiao
were considered in determining that the Company is the primary beneficiary of Sichuan Senmiao. Accordingly, the financial statements
of Sichuan Senmiao are consolidated in the Company’s consolidated financial statements.
The Restructuring constituted a reorganization.
As all of the above mentioned companies are under common control, this series of transactions are considered as a reorganization
of the 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.
Voting Agreement with Jinkailong’s Other Shareholders
In addition to obtaining 35% equity interests in Jinkailong, Hunan Ruixi, Jinkailong and other Jinkailong’s
shareholders holding an aggregate of 65% equity interests entered into a voting agreement,
as
amended (the “Voting Agreement”), pursuant to which all other Jinkailong’s shareholders will vote
in concert with Hunan Ruixi on all fundamental corporate transactions in the event of a disagreement for a period of 20 years,
ending on August 25, 2038.
The Company has concluded that it should consolidate the financial statements with Jinkailong because
it is Jinkailong’s primary beneficiary based on the Voting Agreement. Though not explicit in the business cooperation agreement
by and among Jinkailong, Hunan Ruixi, and other shareholders of Hunan Ruixi, the Company may provide financial support to Jinkailong
to meet its working capital requirements and capitalization purposes. The terms of the Voting Agreement and the Company’s
plan to provide financial support to Jinkailong were considered in determining that the Company is the primary beneficiary of Jinkailong.
Accordingly, the financial statements of Jinkailong are consolidated in the Company’s consolidated financial statements.
Total assets and total liabilities of the
Company’s VIEs included in the Company’s unaudited condensed consolidated financial statements as of December 31, 2018
and March 31, 2018 are as follows:
|
|
December 31, 2018
|
|
|
March 31, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
Total assets
|
|
$
|
10,984,820
|
|
|
$
|
10,425,056
|
|
Total liabilities
|
|
$
|
5,533,128
|
|
|
$
|
1,413,485
|
|
Net
revenue, net income, operating, investing and financing cash flows of the VIEs that were included in the Company's consolidated
financial statements for the nine months ended
December 31
, 2018 and 2017 are as
follows:
|
|
For
the Nine Months Ended
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Net revenue
|
|
$
|
406,391
|
|
|
$
|
335,498
|
|
Net loss
|
|
$
|
(918,449
|
)
|
|
$
|
(1,011,590
|
)
|
Net Cash Used in Operating Activities
|
|
$
|
(1,151,386
|
)
|
|
$
|
(417,645
|
)
|
Net Cash Used in Investing Activities
|
|
$
|
(7,623
|
)
|
|
$
|
(412
|
)
|
Net Cash Provided by Financing Activities
|
|
$
|
2,355,660
|
|
|
$
|
335,092
|
|
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
(a)
|
Basis of presentation
|
The interim unaudited
condensed consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted
in the United States (“U.S. GAAP”).
The unaudited
interim financial information as of December 31, 2018 and for the three and nine months ended December 31, 2018 and 2017 have
been prepared without audit, pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information
and footnote disclosures, which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have
been omitted pursuant to those rules and regulations. The unaudited interim financial information should be read in conjunction
with the audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended March 31, 2018,
which was filed with the SEC on June 29, 2018.
In the opinion
of management, all adjustments (including normal recurring adjustments) necessary to present a fair statement of the Company’s
unaudited financial position as of December 31, 2018, its unaudited results of operations for the three and nine months ended
December 31, 2018 and 2017, and its unaudited cash flows for the nine months ended December 31, 2018 and 2017, as applicable,
have been made. The unaudited interim results of operations are not necessarily indicative of the operating results for the full
fiscal year or any future periods.
|
(b)
|
Basis of consolidation
|
The unaudited
condensed consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues
and expenses of the WFOE and Ruixi. All inter-company accounts and transactions have been eliminated in consolidation.
|
(c)
|
Foreign currency
translation
|
Transactions
denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates
prevailing on 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 on the date of the balance sheet. The
resulting exchange differences are recorded in the statement of operations.
The reporting
currency of the Company and its subsidiaries is U.S. dollars (“US$”) and the accompanying consolidated financial statements
have been expressed in US$, because that is the primary and functional currency where all entities operate.
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 the Company and its subsidiaries
are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Translation of
amounts from RMB into US$ has been made at the following exchange rates for the respective periods:
|
|
December 31, 2018
|
|
|
March 31, 2018
|
|
Balance sheet items, except for equity
accounts
|
|
|
6.8776
|
|
|
|
6.2807
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Items in the statements of operations
and comprehensive loss, and statements of cash flows
|
|
|
6.7008
|
|
|
|
6.7146
|
|
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosures of contingent assets and liabilities on the date of the financial statements, and the reported amounts
of revenue and expenses during the reporting period. 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 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. The following are some of the areas requiring significant judgments and estimates: determinations of the useful lives
and valuation of long-lived assets, estimates of allowances for doubtful accounts, valuation of deferred tax assets and estimated
fair value used in business acquisition.
|
(e)
|
Fair values of
financial instruments
|
Accounting 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. 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.
Level 1 inputs to the valuation methodology
are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs 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 inputs to the valuation methodology
are unobservable and significant to the fair value.
As of December 31, 2018 and March
31, 2018, financial instruments of the Company comprised primarily current assets and current liabilities including cash and
cash equivalents, accounts receivable, receivables and other assets, escrow receivables, due from a related party, borrowings
from financial institutions, other liabilities, due to stockholders and due to related parties, which approximate their fair
values because of the short-term nature of these instruments, and noncurrent liabilities of borrowings from financial
institutions, which approximate their fair values because of the stated loan interest rate to the rate charged by similar
financial institutions.
|
(f)
|
Business combinations
and noncontrolling 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 as 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 noncontrolling interests.
The excess of (i) the total costs of acquisition, fair value of the noncontrolling 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 noncontrolling 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 noncontrolling interests are also recorded
as noncontrolling interests in the Company's consolidated balance sheets and consolidated statements of operations and
comprehensive loss. Cash flows related to transactions with noncontrolling interests are presented under financing activities
in the unaudited condensed consolidated statements of cash flows.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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. Historically, the Company had one single operating and reportable segment,
namely the provision of an online lending services. During the three months ended December 31, 2018, the Company acquired Hunan
Ruixi and its VIE and 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 as set forth in Notes 1
and 14.
|
(h)
|
Cash and cash
equivalents
|
Cash and cash equivalents primarily consist
of bank deposits with original maturities of three months or less, which are unrestricted as to withdrawal and use.
|
(i)
|
Accounts receivable,
net
|
Accounts receivable are recorded
at the invoiced amount less an allowance for any uncollectible accounts and do not bear interest, which 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 against the
allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December
31, 2018, the Company determined no allowance for doubtful accounts was necessary for accounts receivable.
|
(j)
|
Property and equipment
|
Property and equipment primarily
consists of computer equipment, which is 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 is summarized as follows:
Computer equipment
|
2 - 5 years
|
Office equipment
|
3 - 5 years
|
Automobile
|
4 years
|
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 three and
nine months ended December 31, 2018 and 2017, there was no impairment of property and equipment.
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 unaudited condensed consolidated
income statements.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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 relationship
|
10 years
|
Software
|
5-7 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 three and
nine months ended December 31, 2018 and 2017, there was no impairment charge against intangible assets.
Basic loss per share is computed by dividing
net 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 loss per
share, net loss attributable to stockholders for basic loss per share is adjusted by the effect of dilutive securities, including
share-based awards, under the treasury stock method. Potentially dilutive securities, of which the amounts are insignificant,
have been excluded from the computation of diluted net loss per share if their inclusion is anti-dilutive.
The Company adopted ASC 606, Revenue from
Contracts with Customers (“ASC 606”), in the first quarter of 2018 using the modified retrospective approach. 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.
The Company has assessed the impact of
the guidance by reviewing its existing customer contracts and current accounting policies and practices to identify differences
that will result from applying the new requirements, including the evaluation of its performance obligations, transaction price,
customer payments, transfer of control and principal versus agent considerations. Based on the assessment, the Company concluded
that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of ASC 606
and therefore there was no material changes to the Company's unaudited condensed consolidated financial statements upon adoption
of ASC 606.
As of December 31, 2018, the Company
had outstanding contracts for automobile transaction and financing services amounting to $1,533,754, of which $764,575 is
expected to be completed within 12 months after December 31, 2018, and $769,179 were expected to be completed over 12 months
after December 31, 2018.
During the three and nine months ended
December 31, 2018 and 2017, the Company generated revenues primarily from transaction and service fees earned from online lending
services, facilitation fees earned from third party sales teams or automobile purchasers for facilitation of sales of automobiles,
service fees earned from automobile purchasers throughout the purchase process, management and guarantee fees provided for
automobile purchasers and service fees earned from other automobile transaction related services. The following table sets forth
the disaggregation of revenues for the three and nine months ended December 31, 2018 and 2017:
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
(m)
|
Revenue recognition (continued)
|
|
|
For
the Three Months Ended
December
31,
|
|
|
For
the Nine Months Ended
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online Lending Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Transaction
fees
|
|
$
|
80,564
|
|
|
$
|
141,014
|
|
|
$
|
261,450
|
|
|
$
|
307,142
|
|
- Service fees
|
|
|
10,557
|
|
|
|
11,524
|
|
|
|
26,205
|
|
|
|
28,356
|
|
Automobile Transaction and Financing Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Service fees from
automobile purchase services
|
|
|
70,654
|
|
|
|
-
|
|
|
|
70,654
|
|
|
|
-
|
|
- Facilitation fees from
automobile transaction
|
|
|
16,424
|
|
|
|
-
|
|
|
|
16,424
|
|
|
|
-
|
|
- Service fees from
management and guarantee services
|
|
|
21,332
|
|
|
|
-
|
|
|
|
21,332
|
|
|
|
-
|
|
- Other
Service fees
|
|
|
10,326
|
|
|
|
-
|
|
|
|
10,326
|
|
|
|
-
|
|
|
|
$
|
209,857
|
|
|
$
|
152,538
|
|
|
$
|
406,391
|
|
|
$
|
335,498
|
|
Online Lending Services
Transaction fees – Transaction fees
are paid by borrowers to the Company for the work the Company performs through its platform. The amount of these fees is based
upon the loan amount, maturity and the credit grade of borrowers. The fees charged to borrowers are paid upon (i) disbursement
of the proceeds for loans which accrue interest on a monthly basis or (ii) full payment of principal and interest of loans which
accrue interest on a daily basis. These fees are non-refundable upon the issuance of loan. The Company recognizes the revenue when
loans have been disbursed to borrowers or borrowers have repaid their principal or interest of loans.
Service fees — The Company charges
investors service fees on their actual investment payments. The Company generally receives the service fees upon the investors’
receipt of their investment returns. The Company recognizes the revenue when loans have been repaid and investors have received
their investment income.
Automobile Transaction and Financing
Services
Facilitation fee from automobile transaction
– Facilitation fees from automobile purchase services are paid by our customers including third-party sales teams or the
automobile purchasers for the facilitation of the sales of automobiles. The Company attracts automobile purchasers through third-party
sales teams or its own
sales department.
For the sales facilitated between third-party
sales teams and automobile purchasers, the Company charges the fees to the third-party sales teams, which derived from the commission
paid by the automobile purchasers to the third-party sales teams. The Company recognizes the revenue when the titles are transferred
to the owners. Relating to sales facilitated between automobile purchasers and dealers, the Company charges the fees to the automobile
purchasers. The Company recognizes the revenue when the titles are transferred to the owners. The amount of the fee is based on
the type of automobile and negotiation with each sales team or automobile purchaser. The fees charged to third-party sales teams
or automobile purchasers are paid when the transactions are consummated. These fees are non-refundable upon the delivery of automobiles.
Service fees from automobile purchase services– Services fees from automobile purchase services
are paid by automobile purchasers for a series of the services throughout the purchase process such as registration of license
plates and permits from the relevant government authorities, insurance referral, and assistance with applications to financial
institutions to finance the purchase. The amount of these fees is based on the total quoted price of the automobiles and relevant
services provided, actual expenditure to fulfill those services and other factors of the automobiles. The Company recognizes the
revenue when all the services are completed and the automobile is delivered to the purchaser.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
(m)
|
Revenue recognition (continued)
|
Service fees from management and
guarantee services – A majority of the Company’s customers are the drivers
who
provide ride-hailing services over an internet service platform, and such drivers are required to sign affiliation agreements
with the Company in order for them to be able to provide such services through the online platform. The Company will provide
them with management services during the affiliation period. Service fees for management and guarantee services are paid by
automobile purchasers on a monthly basis for the management and guarantee services provided during the affiliation
period. In addition, the Company provides guarantee on the lease/loan payments (including principal and interest) of certain
automobile purchasers under the financing agreements with financial institutions during the affiliation period. The Company
recognizes the revenue over the affiliation period when performance obligations are completed.
|
(n)
|
Selling, general and administrative expenses
|
Selling, general and administrative expenses
primarily consisted of employee salaries and benefits, office rental expenses, travel expenses, customer verification and credit
assessment costs and platform maintenance costs.
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 U.S. GAAP, the 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. Provision or benefits for income taxes consists of tax
estimated from taxable income plus deferred tax expense (benefits) if applicable.
Deferred tax is calculated 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 will 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 tax 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 December 31, 2018 and March 31,
2018. As of December 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.
Comprehensive loss includes net loss and
foreign currency adjustments. Comprehensive loss is reported in the consolidated statements of operations and comprehensive loss.
Accumulated other comprehensive loss, as presented on the unaudited condensed consolidated balance sheets are the cumulative foreign
currency translation adjustments. As of December 31, 2018, and March 31, 2018, the balance of accumulated other comprehensive
loss were $386,524 and $253,761, respectively.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Leases are classified as either capital
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 an asset and incurrence of an obligation at the inception of the lease. All other leases
are accounted for as operating leases expense and is included in the unaudited condensed consolidated statements of operations
on a straight-line basis over the term of the leases. The Company had no capital leases for the three and nine months ended December
31, 2018 and 2017.
|
(r)
|
Significant risks
and uncertainties
|
|
a.
|
Assets that potentially subject the
Company to significant concentration of credit risk primarily consist of cash and cash
equivalents. The maximum exposure of these assets to credit risk is their carrying amount
as of the balance sheet dates. On December 31, 2018, approximately $5,320,000 was deposited
with a bank in the United States which is insured by the U.S. government up to $250,000.
On December 31, 2018 and March 31, 2018, approximately $3,980,000 and $180,000, respectively,
were deposited in financial institutions located in mainland China, which were uninsured
by the government authority. To limit exposure to credit risk relating to deposits, the
Company primarily place cash deposits with large financial institutions in China which
management believes are of high credit quality.
|
The Company’s operations
are carried out in mainland China. Accordingly, the Company’s business, financial condition and results of operations may
be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s
economy. In addition, the Company’s business may be influenced by changes in government policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance abroad, rates and methods of taxation and other factors.
|
b.
|
In measuring the credit risk of guarantee services to automobile purchasers, the Company mainly
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 their
payments for more than three months. Thus, 100% allowances are recorded as a reserve against the balance due from automobile
purchasers and may have to provide accrual for additional liabilities. Management also periodically re-evaluates probability
of default of automobile purchasers to make adjustments in the allowance when necessary.
However, as the Company commenced the automobile transactions and financing services for less than one
year, there was no sufficient historic default data and other information to make an estimate on the expected credit losses. Historically,
most of the automobile purchasers would pay the Company their previous defaulted amounts within one to three months. As at December
31, 2018, the maximum contingent liabilities the Company exposed to would be $9,784,719 if all the automobile purchasers defaulted.
Automobiles are used as collaterals to secure the payment obligations of the automobile purchases under the financing agreements.
The Company estimated the fair market value of the collaterals to be approximately $8,497,000 as at December 31, 2018, based on
the market price and the useful life of such collaterals, which represent about 87% of the contingent liabilities.
The Company is also exposed to liquidity
risk, which may limit the Company’s ability to access capital resources and have liquidity to meet its commitments and business
needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary,
the Company will turn to other financial institutions and the stockholders to obtain short-term funds to meet the liquidity requirements.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
(r)
|
Significant risks and uncertainties(continued)
|
As of December 31, 2018, substantially
all of the Company’s operating activities and major assets and liabilities, except for the cash deposit of approximately
$5,320,000 in U.S. dollars, are denominated in RMB, which are not freely convertible into foreign currencies. All foreign exchange
transactions take place through either the Peoples’ Bank of China (“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
a payment application together with invoices and signed contracts. The value of RMB is subject to change in central government
policies and international economic and political developments affecting supply and demand in the China Foreign Exchange Trading
System market. When 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 significant affected.
It is possible that the VIE Agreements among Sichuan Senmiao, WFOE, and the Sichuan Senmiao Shareholders
would not be enforced in China if the PRC government or courts consider those contracts contravene PRC laws and regulations or
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’s consolidated financial statements. As a result, the Company’s
cash flows, financial position, and operating performance would be materially and adversely affected. The Company’s contractual
arrangements with Sichuan Senmiao, WFOE, and the Sichuan Senmiao Shareholders are approved and in place. Management believes that
such contracts are enforceable, and considers it is less likely that PRC regulatory authorities with jurisdiction over the Company’s
operations and contractual relationships would find the contracts unenforceable.
The Company's operations and businesses rely on the operations and businesses of its VIE, which holds
certain recognized revenue-producing assets including the platform, customer relationship and goodwill. The VIE also has an assembled
workforce, focused on customer verification and credit assessment, the costs of which are expensed as incurred. The Company’s
operations and businesses may be adversely impacted if the Company loses the ability to use assets held by its VIE.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
(s)
|
Recently issued
accounting standards
|
The Company adopted
ASC 606 in three and nine months ended December 31, 2018 using the modified retrospective approach. ASC 606, Revenue from Contracts
with Customers, 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.
The Company has
assessed the impact of the guidance by reviewing its existing customer contracts and current accounting policies and practices
to identify differences that will result from applying the new requirements, including the evaluation of its performance obligations,
transaction price, customer payments, transfer of control and principal versus agent considerations. Based on the assessment,
the Company concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams
in scope of Topic 606 and therefore there was no material changes to the Company's unaudited condensed consolidated financial
statements upon adoption of ASC 606.
In February 2016,
the Financial Accounting Standards Board (“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 and any interim periods
within those fiscal years beginning after December 15, 2018. Management is evaluating the effect on the Company’s unaudited
condensed consolidated financial statements.
In August 2018,
the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure
requirements on fair value measurements. The updated guidance will be effective for fiscal years and interim periods within those
fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company
is currently assessing the timing and impact of adopting the updated provisions to its unaudited condensed consolidated financial
statements.
The Company does
not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect
on the consolidated financial position, statements of operations and cash flows of the Company.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
3.
|
ACQUISITION
OF HUNAN RUIXI AND ITS VIE
|
On November 21, 2018, the Company entered into the Investment Agreement with Hunan Ruixi and the Hunan
Ruixi Shareholders. Pursuant to the Investment Agreement, among other things, the Company acquired from the Hunan Ruixi Shareholders
an aggregate of 60% of the outstanding equity interest in Hunan Ruixi for no consideration. The Company closed the acquisition
on November 22, 2018 and made a capital contribution of $6 million in Hunan Ruixi, representing 60% of the registered capital of
Hunan Ruixi. The Company will be entitled to vote and receive profits based on its equity interest ownership in Hunan Ruixi and
the right of first refusal for any issuance of new equity of Hunan Ruixi.
The acquisition
had been accounted for as a business combination and the results of operations of Hunan Ruixi have been included in the Company's
unaudited condensed consolidated financial statements from the acquisition date. The Company made estimates and judgments in determining
the fair value of acquired assets and liabilities, based on an independent valuation report and management's experiences with
similar assets and liabilities. The following table summarizes the fair values for major classes of assets acquired and liabilities
assumed at the date of acquisition:
|
|
Fair value
|
|
|
|
|
|
Net assets acquired (i)
|
|
$
|
45,895
|
|
Gain from acquisition of Hunan Ruixi and its subsidiary
|
|
|
-
|
|
Noncontrolling interests (ii)
|
|
|
-
|
|
Total purchase consideration
|
|
$
|
-
|
|
|
(i)
|
Net
assets acquired primarily include cash and cash equivalents of $213,645, other current
assets of $1,774,725, property and equipment of $36,384, other
current liabilities of $607,558 and borrowings from third parties of $1,439,750.
|
|
(ii)
|
Fair
value of the noncontrolling interests is estimated with reference to the purchase price
per share as of the acquisition date.
|
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
4
.
|
PREPAYMENTS,
RECEIVABLES AND OTHER ASSETS
|
As of December 31, 2018, and March 31,
2018, the prepayments, receivables and other assets were comprised of the following:
|
|
December 31, 2018
|
|
|
March 31, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Due from automobile purchasers*
|
|
$
|
1,634,168
|
|
|
$
|
-
|
|
Deposit
|
|
|
228,138
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
127,030
|
|
|
|
44,861
|
|
Loans to employees
|
|
|
-
|
|
|
|
2,718
|
|
Others
|
|
|
129,206
|
|
|
|
22,842
|
|
|
|
$
|
2,118,542
|
|
|
$
|
70,421
|
|
|
*
|
The balance due from automobile purchasers represented the
payment of automobiles and related insurances and taxes made on behalf of the automobile purchasers. The balance is expected
to be collected from the automobile purchasers in installments.
|
|
5.
|
INTANGIBLE
ASSETS, NET
|
As of December 31, 2018, and March 31,
2018, the intangible assets consisted of customer relationship, platform and software.
|
|
Useful life
|
|
December 31, 2018
|
|
|
March 31, 2018
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationship
|
|
10
|
|
$
|
383,159
|
|
|
$
|
419,573
|
|
Platform
|
|
7
|
|
|
4,103,195
|
|
|
|
4,493,151
|
|
Software
|
|
5-7
|
|
|
78,050
|
|
|
|
84,545
|
|
Intangible assets
|
|
|
|
|
4,564,404
|
|
|
|
4,997,269
|
|
Less: Accumulated amortization
|
|
|
|
|
(1,180,902
|
)
|
|
|
(1,043,871
|
)
|
Impairment
|
|
|
|
|
(1,826,582
|
)
|
|
|
(2,000,175
|
)
|
Intangible assets, net
|
|
|
|
$
|
1,556,920
|
|
|
$
|
1,953,223
|
|
Amortization expense totaled $60,488 and
$165,206 for the three months ended December 31, 2018 and 2017, respectively. Amortization expense totaled $233,576 and $488,210
for the nine months ended December 31, 2018 and 2017, respectively.
The following table sets forth the Company’s
amortization expenses for the twelve months ending December 31 of the following years:
|
|
Amortization
expenses
|
|
|
|
|
|
Twelve months ending December 31, 2019
|
|
$
|
303,579
|
|
Twelve months ending December 31, 2020
|
|
|
303,579
|
|
Twelve months ending December 31, 2021
|
|
|
303,579
|
|
Twelve months ending December 31, 2022
|
|
|
303,579
|
|
Twelve months ending December 31, 2023 and thereafter
|
|
|
342,604
|
|
|
|
$
|
1,556,920
|
|
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
6.
|
DEPOSITS
FOR INTANGIBLE ASSETS
|
As of December 31, 2018, the
balance of deposits for intangible assets of $416,112 represented the deposit paid for the development of software to be
used in the Company’s online lending platform. The balance will be recognized as intangible assets and amortized over
the estimated useful life upon the completion of installation and testing of the software.
|
7.
|
BORROWINGS
FROM FINANCIAL INSTITUTIONS, CURRENT AND NONCURRENT
|
As of December 31, 2018, and March 31,
2018, the balances of borrowings from certain financial institutions are comprised of the following.
|
|
December 31,
2018
|
|
|
March 31,
2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from financial institutions, current
|
|
$
|
213,877
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Borrowings from financial institutions, noncurrent
|
|
$
|
227,985
|
|
|
$
|
-
|
|
The borrowings from certain financial institutions represented the difference between the actual proceeds disbursed by the financial institutions to the VIE of Hunan Ruixi and the total principal to be responsible for and repaid by the automobile purchasers. The difference of $441,862 was the remaining balance of over-advanced payments by the financial institutions at December 31, 2018, of which $227,985 to be repaid over a period of 13 to 27 months with interest rates ranging between 6.2% and 8.1% per year. The current portion of $213,877 was classified as current liabilities.
The interest expense for the three months
and nine months ended December 31, 2018 was $2,993.
|
8.
|
ACCRUED EXPENSES AND OTHER LIABILITIES
|
|
|
December 31,
2018
|
|
|
March 31,
2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Accrued payroll and welfare
|
|
$
|
484,295
|
|
|
$
|
195,695
|
|
Loan repayments received on behalf of financial institutions (i)
|
|
|
298,660
|
|
|
|
-
|
|
Other payable (ii)
|
|
|
112,152
|
|
|
|
194,943
|
|
Accrued insurance expenses
|
|
|
98,583
|
|
|
|
-
|
|
Customer deposit
|
|
|
38,071
|
|
|
|
8,495
|
|
Accrued bank charges
|
|
|
20,507
|
|
|
|
|
|
Other tax payable
|
|
|
12,209
|
|
|
|
5,471
|
|
Accrued rental fees
|
|
|
7,039
|
|
|
|
-
|
|
|
|
$
|
1,071,516
|
|
|
$
|
404,604
|
|
|
(i)
|
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 as of December 31, 2018.
|
|
(ii)
|
The balance of other payable represented amount due to suppliers and vendors.
|
The Company has made employee benefit
contributions in accordance with relevant PRC regulations, including retirement insurance, unemployment insurance, medical insurance,
housing fund, work injury insurance and maternity insurance. The Company has recorded the contribution in salary and employee
charges when incurred. The contributions made by the Company were $26,501 and $11,296 for the three months ended December 31,
2018 and 2017, respectively. The contributions made by the Company were $66,459 and $26,236 for the nine months ended December
31, 2018 and 2017, respectively.
As of December 31, 2018, and March 31,
2018, the Company did not make adequate employee benefit contributions in the amount of $294,889 and $150,205. The Company accrued
the amount in accrued payroll and welfare.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Warrants
The registration statement relating to
the Company’s initial public offering (“IPO”) also included the underwriter’s common stock purchase warrants
to purchase 337,940 shares of common stock. Each five-year warrant entitles warrant holder to purchase one share of the Company’s
common stock at the price of $4.80 per share and is not exercisable for a period of 180 days from March 16, 2018. As of December
31, 2018, the underwriter has not exercised the warrants.
Restricted Stock Units
On July 31, 2018, the board of directors
of the Company approved the issuance of 5,000 restricted stock units (“RSUs”) to each of the five directors as stock
compensation for their services for the Company’s fiscal year ending March 31, 2019. Total RSUs granted to the five directors
were 25,000 for an aggregate fair value of $117,750. Pursuant to the Restricted Stock Unit Award Agreements (“Award Agreements”)
on August 3, 2018, the RSUs vest in four equal quarterly installments on August 3, 2018, April 1, 2019, July 1, 2019 and October
1, 2019 or in full upon the occurrence of a change in control of the Company, subject to the terms and conditions set forth in
the Award Agreements, provided that the director remains in service as a director 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) a change in control and (ii) the director’s cessation as a director of the Company due to a “separation of
service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, or the director’s death
or disability.
As of December 31, 2018, the first installment
of RSUs has vested and the Company accounted for the vested RSUs as an addition to both expenses and additional paid-in capital.
The fair value of the vested RSUs is calculated at the grant date market price of the Company’s common stock multiplying
by the number of vested shares.
A summary of RSU activity
for the nine months ended December 31, 2018 is as follows:
|
|
Number of Shares
|
|
|
Weighted-Average
Grant
Date Fair
Value
|
|
|
|
|
|
|
|
|
Balance of RSUs outstanding at March 31, 2018
|
|
|
-
|
|
|
|
-
|
|
Grants of RSUs
|
|
|
25,000
|
|
|
|
4.42
|
|
Vested RSUs
|
|
|
(6,250
|
)
|
|
|
4.42
|
|
Forfeited RSUs
|
|
|
(7,500)
|
|
|
|
4.42
|
|
Balance of unvested RSUs at December 31, 2018
|
|
|
11,250
|
|
|
$
|
4.42
|
|
Total compensation expense for the
three and nine months ended December 31, 2018 was approximately $0 and $27,625, respectively. Two directors ceased to serve
on the board since November 8, 2018, and as a result 7,500 RSUs were forfeited during the three and nine
months ended December 31, 2018. The Company has an aggregate of 11,250 of unrecognized RSUs as
of December 31, 2018 to be expensed over a weighted average period of nine months.
Equity Incentive Plan
At the 2018 Annual Meeting of Stockholders of the Company (“Annual Meeting”) 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. A committee consisting of at least two independent
directors appointed by the Board or in the absence of such a committee, the Board, 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 the date of this report, no awards have been granted under the plan.
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. The State of Nevada does not impose any state corporate
income tax.
On December 22, 2017, the Tax Cuts and
Jobs Act of 2017 (the “Tax Act”) was signed into law, which has made significant changes to the Internal Revenue Code.
Those 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 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 ended March 31, 2018, and 21% for subsequent fiscal years. Accordingly, the Company
reevaluated its deferred tax assets on net operating loss carryforward in the U.S and concluded there was no effect on the Company’s
income tax expenses as the Company has no deferred tax assets generated since inception.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
11.
|
INCOME TAXES (CONTINUED)
|
Additionally, 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 caused the Company to reevaluate all U.S. deferred income tax assets and liabilities
for temporary differences and net operating loss carryforwards and recorded one time income tax payable to be paid in 8 years.
However, this one-time transition tax has no effect on the Company’s income tax expenses as the Company has no undistributed
foreign earnings prior to December 31, 2018, because the Company has cumulative foreign losses as of December 31, 2018.
The Company’s net operating loss
for the nine months ended December 31, 2018 amounted to approximately $0.88 million. As of December 31, 2018, the Company’s
net operating loss carryforward for U.S. income taxes was approximately $1.07 million. The net operating loss carryforward is
available to reduce future years’ taxable income through year 2037. Management believes that the realization of the benefit
from this loss appears uncertain due to the Company’s operating history. Accordingly, the Company has recorded a 100% valuation
allowance on the deferred tax asset to reduce the deferred tax assets to zero on the consolidated balance sheets. As of December
31, 2018, and March 31, 2018, valuation allowances for deferred tax assets were approximately $0.23 million and $0.04 million,
respectively. Management reviews the valuation allowance periodically and makes changes accordingly.
PRC
WFOE and Sichuan Senmiao 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%.
During the nine months ended December
31, 2018 and 2017, there were no income taxes attributable to the operations in PRC. As of December 31, 2018, and March 31, 2018,
the Company had net operating loss carryforwards of $2,948,285 and $1,512,341, respectively, which will expire in 2023. The Company
reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset
will be fully realized. At December 31, 2018 and March 31, 2018, full valuation allowance is provided against the deferred tax
assets based upon management’s assessment as to their realization.
The tax effects of temporary differences
from continuing operations that give rise to the Company’s deferred tax assets are as follows:
|
|
December 31, 2018
|
|
|
March 31, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
Net operating loss carryforwards in the PRC
|
|
$
|
737,072
|
|
|
$
|
378,085
|
|
Net operating loss carryforwards in the U.S.
|
|
|
228,181
|
|
|
|
43,021
|
|
Less: valuation allowance
|
|
|
(965,253
|
)
|
|
|
(421,106
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company evaluates its valuation allowance
requirements at the end of each reporting period by reviewing all available evidence, both positive and negative, and considering
whether, based on the weight of that evidence, 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 net income (loss). 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.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
12.
|
RELATED PARTY TRANSACTIONS AND BALANCES
|
|
1)
|
Due from a related party
|
As of December 31, 2018, the balance
of $66,453 due from a related party represented the amount paid on behalf of the Zhejiang Chemi Car Leasing Co., Ltd.,
(“Zhejiang Chemi”) for defaulted loan installments from Zhejiang Chemi's customers and other daily operation
costs. Zhejiang Chemi’s general manager is the legal representative of Jinkailong. The balance was
non-interest bearing.
As of December 31, 2018, and March
31, 2018, the balance due to certain stockholders was $1,054,025 and $1,090,808, respectively. The balance is
unsecured, interest-free and due on demand.
|
3)
|
Due to related parties and affiliates
|
As of December 31, 2018, the balance
of $1,286,786 due to related parties comprised of $167,209 borrowings from two shareholders of the VIE of Hunan Ruixi. The
balance bears an interest rate of 9.1% per annum and is payable in 2019. The balance of $1,119,577 comprised borrowings from
the shareholders of the VIE of Hunan Ruixi, who obtained borrowings from the online P2P lending platform of Sichuan Senmiao
and then loaned the money to the VIE of Hunan Ruixi. The balance bears interest rates ranging from 2.1% to 14.2% per annum
and is due in the fiscal year of 2020. The interest expense for the three months and nine months ended December 31,
2018 was $3,246.
|
4)
|
Related party transactions
|
Management and pre-IPO stockholders of the Company have invested in loans through the platform using their
personal funds. The Company received service fees from its management and stockholders in the amount of $74 and $187, respectively,
for the three months ended December 31, 2018 and 2017 and $472 and $412, respectively, for the nine months ended December 31, 2018
and 2017.
In December 2017, the Company entered
into loan agreements with two stockholders, who agreed to grant lines of credit of approximating $955,308 and $159,218, respectively,
for five years. The lines of credit are non-interest bearing, effective from January 2017. During the three and nine months ended
December 30, 2018, the Company repaid $0 and $500,000, respectively, to one stockholder.
During the nine months ended December
31, 2018, the Company paid listing expenses and stamp taxes on behalf of two stockholders who agreed to pay part of the Company’s
expenses in connection with its IPO, in the amount of $70,687 and $7,881, respectively. During the three months ended December
31, 2018, the Company has not paid any listing expenses and stamp taxes on behalf of the stockholders. The Company accounted for
those expenses as a deduction against the amount due to the stockholders.
In the year end March 31, 2017, the Company
entered into two office lease agreements with one stockholder, both with the same term from January 1, 2017 to January 1, 2020.
For the three months ended December 31, 2018 and 2017, the Company paid $11,278 and $28,857, respectively, to the stockholder
for rental expenses. For the nine months ended December 31, 2018 and 2017, the Company paid $69,182 and $85,277, respectively,
to the stockholder for rental expenses.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
13.
|
COMMITMENTS AND CONTINGENCIES
|
During the nine months ended December
31, 2018, the Company terminated five lease agreements for its offices and three apartments expiring through January 20, 2020.
No penalties were levied on the termination of the lease agreements. In addition, the Company entered into new lease agreements
to lease its offices under seven lease agreements expiring through December 2023 and leased two apartments for management members
expiring in April 2019. The following table sets forth the Company’s lease obligations as of December 31, 2018 in future
periods:
|
|
Rental payments
|
|
Year ending December 31, 2019
|
|
$
|
300,004
|
|
Year ending December 31, 2020
|
|
|
297,694
|
|
Year ending December 31, 2021
|
|
|
191,969
|
|
Year ending December 31, 2022
|
|
|
141,229
|
|
Year ending December 31, 2023 and thereafter
|
|
|
39,973
|
|
|
|
$
|
970,869
|
|
Rental expenses totaled $47,149 and $33,080
for the three months ended December 31, 2018 and 2017, respectively. Rental expenses totaled $113,518 and $92,515 for the nine
months ended December 31, 2018 and 2017, respectively.
On December 29, 2018, Hunan Ruixi entered
into three purchase contracts with automobile dealers for the purchase of 140 automobiles in the aggregate purchase price of approximately
$1.2 million. These transactions will be completed in 2019.
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.
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 nine months ended December 31, 2018:
|
|
For the Nine Months
Ended December 31,
|
|
|
|
Online
Lending
Services
|
|
|
Automobile
Transactions
and
Financing Services
|
|
|
Unallocated
|
|
|
Consolidated
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
287,655
|
|
|
$
|
118,736
|
|
|
$
|
-
|
|
|
$
|
406,391
|
|
Loss from operations
|
|
$
|
(1,584,550
|
)
|
|
$
|
(7,997
|
)
|
|
$
|
(915,716
|
)
|
|
$
|
(2,508,263
|
)
|
Loss before income taxes
|
|
$
|
(1,583,630
|
)
|
|
$
|
(3,268
|
)
|
|
$
|
(901,763
|
)
|
|
$
|
(2,488,661
|
)
|
Net loss
|
|
$
|
(1,583,630
|
)
|
|
$
|
(3,268
|
)
|
|
$
|
(901,763
|
)
|
|
$
|
(2,488,661
|
)
|
Details of the Company's revenue by segment
are set out in Note 2(m).
As of December 31, 2018, the Company’s
total assets were comprised of $3,749,294 for online lending services, $4,341,305 for automobile transaction and financing services,
and $6,111,632 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.
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
15.
|
PARENT-ONLY FINANCIALS
|
SENMIAO TECHNOLOGY LIMITED
UNAUDITED CONDENSED BALANCE SHEETS
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,319,126
|
|
|
$
|
10,961,071
|
|
Prepayments, receivables and other assets
|
|
|
33,651
|
|
|
|
39,964
|
|
Due from investors
|
|
|
1,900,000
|
|
|
|
-
|
|
Escrow receivable due within
one year
|
|
|
600,000
|
|
|
|
-
|
|
Total Current Assets
|
|
|
7,852,777
|
|
|
|
11,001,035
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Escrow receivable
|
|
|
-
|
|
|
|
1,200,000
|
|
Deposit in intangible assets
|
|
|
230,000
|
|
|
|
-
|
|
Investment in subsidiaries
|
|
|
2,436,747
|
|
|
|
830,562
|
|
Total Assets
|
|
$
|
10,519,524
|
|
|
$
|
13,031,597
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
216,383
|
|
|
$
|
152,927
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Common stock (par value $0.0001 per share, 100,000,000 shares authorized;
25,879,400 shares issued and outstanding at December 31, 2018 and March 31, 2018)
|
|
|
2,588
|
|
|
|
2,588
|
|
Additional paid-in capital
|
|
|
23,657,407
|
|
|
|
23,611,512
|
|
Accumulated deficit
|
|
|
(12,973,371
|
)
|
|
|
(10,481,669
|
)
|
Accumulated other comprehensive
loss
|
|
|
(386,524
|
)
|
|
|
(253,761
|
)
|
Total Stockholders’ Equity
|
|
|
10,300,100
|
|
|
|
12,878,670
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
3,041
|
|
|
|
-
|
|
Total Equity
|
|
|
10,303,141
|
|
|
|
12,878,670
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
10,519,524
|
|
|
$
|
13,031,597
|
|
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
15.
|
PARENT-ONLY FINANCIALS (CONTINUED)
|
SENMIAO TECHNOLOGY LIMITED
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
|
|
For
the Nine Months Ended
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
(887,662
|
)
|
|
$
|
-
|
|
Other income, net
|
|
|
5,948
|
|
|
|
-
|
|
Equity of loss in subsidiaries
|
|
|
(1,606,947
|
)
|
|
|
-
|
|
Net loss
|
|
|
(2,488,661
|
)
|
|
|
-
|
|
Net income attributable to noncontrolling interest
|
|
|
(3,041
|
)
|
|
|
-
|
|
Foreign currency translation adjustments
|
|
|
(132,723
|
)
|
|
|
-
|
|
Comprehensive loss
|
|
$
|
(2,624,425
|
)
|
|
$
|
-
|
|
SENMIAO TECHNOLOGY LIMITED
CONDENSED STATEMENTS OF CASH FLOWS
|
|
For
the Nine Months Ended
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,488,661
|
)
|
|
$
|
-
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Equity of loss of subsidiaries
|
|
|
1,606,947
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepayments, receivables and other assets
|
|
|
6,313
|
|
|
|
-
|
|
Accrued expenses and other
liabilities
|
|
|
63,302
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash Flows provided by Operating Activities
|
|
|
(812,099
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Deposits in intangible assets
|
|
|
(230,000
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
(3,300,000
|
)
|
|
|
|
|
Cash Flows used in Investing Activities
|
|
|
(3,530,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Repayment of borrowing to stockholders
|
|
|
(1,900,000
|
)
|
|
|
-
|
|
Due to stockholders
|
|
|
154
|
|
|
|
-
|
|
Release of escrow receivable
|
|
|
600,000
|
|
|
|
-
|
|
Cash Flows used in Financing Activities
|
|
|
(1,299,846
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(5,641,945
|
)
|
|
|
-
|
|
Cash and cash equivalents, beginning of the period
|
|
|
10,961,071
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
5,319,126
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flows Information:
|
|
|
|
|
|
|
|
|
Income tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
IPO issuance costs net against additional paid-in
capital
|
|
$
|
6,526
|
|
|
$
|
-
|
|
IPO expenses paid by the Company’s stockholders
|
|
$
|
70,687
|
|
|
$
|
-
|
|
SENMIAO TECHNOLOGY LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
15.
|
PARENT-ONLY FINANCIALS (CONTINUED)
|
|
(a)
|
Basis of presentation
|
The unaudited condensed financial information
of the Company 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 subsidiary
and equity of loss in subsidiaries
|
The investment in subsidiary consists
of investments in WFOE and Hunan Ruixi. The equity losses in subsidiaries consist of equity loss in WFOE and Hunan Ruixi.
On September 18, 2017, the Company issued an aggregate of 45,000,000 shares of common stock to the Sichuan
Senmiao Shareholders. The Company recorded $4,500 for the issuance of the shares.
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 a result, the number of the Company’s issued and outstanding shares of common stock was reduced to 22,500,000.
The discussion and presentation of financial statements herein accounted for the Restructuring retroactively.
On March 16, 2018, the Company closed
its IPO 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 public offering price of the shares sold in the IPO 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.
On July 31, 2018, the board of directors
of the Company approved the issuance of 5,000 RSU to each of the five directors as stock
compensation for their services for the Company’s fiscal year ending March 31, 2019. Total RSUs granted to the five directors
were 25,000 for an aggregate fair value of $117,750. Pursuant to the Award Agreements signed by the Company and each director on
August 3, 2018, the RSUs vest in four equal quarterly installments on August 3, 2018, April 1, 2019, July 1, 2019 and October
1, 2019 or in full upon the occurrence of a change in control of the Company, subject to the terms and conditions set forth in
the Award Agreements, provided that the director remains in service as a director through the applicable vesting date. Total compensation
expense for the three and nine months ended December 31, 2018 was approximately $27,625.
Item 2.
|
Management’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 unaudited consolidated financial
statements and the notes thereto, which are included elsewhere in this report and our Annual Report on Form 10-K for the year ended
March 31, 2018 (the “Annual Report”) filed with SEC. Our financial statements have been prepared in accordance with
U.S. 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
We operate an online lending platform through our variable interest entity (“VIE”), Sichuan
Senmiao Ronglian Technology Co., Ltd. (“Sichuan Senmiao”), in the People’s Republic of China (“PRC”
or “China”) which facilitates loan transactions between Chinese investors and individual and small-to-medium-sized
enterprise (“SME”) borrowers. Additionally, we also provide auotmobile transaction and financing services primarily
to ride-hailing drivers through our majority owned subsidiary, Hunan Ruixi Financial Leasing Co., Ltd. (“Hunan Ruixi”),
a PRC limited liability company, and its VIE, Sichuan Jinkailong Automobile Leasing Co., Ltd. (“Jinkailong”). Our executive
offices are located in Chengdu, Sichuan province, China.
Our Online Lending Services
Through our platform, we offer quick and easy access to credit for borrowers and attractive investment
returns for investors. In September 2016, we acquired our online lending platform which had been in operation for two years prior
to the acquisition. Since the acquisition through December 31, 2018, we have facilitated loan transactions in an aggregate amount
of over RMB687 million (approximately US$103 million). As of December 31, 2018, we had an aggregate of 40,133 registered users
and a total of 3,239 investors and 2,694 borrowers 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 are mainly from referrals from
customers and business partners, our investors come from a variety of channels, including internet and our mobile applications,
promotion and marketing events, as well as referrals from our business partners.
Our revenues from online lending services are primarily generated from fees charged for our services in
matching investors with borrowers. We charge borrowers transaction fees for the work we perform through our platform and charge
our investors service fees on their actual investment returns. All of the loans facilitated through our platform have fixed interest
rates. The interest rates, transaction fees, service fees and other charges are all disclosed to the users of our platform.
Prior Business Model of Online Lending
Platform
Historically, our platform
was also accessible to creditors (“Creditor Partners”) who had extended loans to borrowers outside our platform and
assigned these loans on our platform to obtain interim financing before loan maturities. We generated revenue from transaction
fees from Creditor Partners in connection with the assignment of their loans on our platform.
In January 2018, we
discontinued the loan assignment services to Creditor Partners in preparation for our record-filing under the newly promulgated
regulations of the marketplace lending industry in China. To continue our relationship with these Creditor Partners, we signed
cooperation agreements with them pursuant to which they would introduce their customers with financing needs to us and provide
guaranty for them.
In February 2018, Sichuan
province (where we conduct a significant portion of our operations) issued local guidelines on the rectification and acceptance
of internet lending information intermediaries, which require guarantors for the loans facilitated by lending platforms to be guaranty
institutions or insurance companies that hold professional guaranty qualifications. Our Creditor Partners 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 Sichuan finance bureau in connection with their inspection of our operations,
we ceased our cooperation with our Creditor Partners in March 2018 and began to focus on facilitating loan transactions solely
between borrowers and investors on our platform.
As described further below under section “— Key Factors Affecting the Results of Operations,”
the recent promulgation of Chinese national, provincial and local regulations related to peer-to-peer lending platforms may require
us to cease our online lending services or change our business model as we seek to develop other sources of revenue and comply
with these regulations.
Recent Regulatory Developments for Online Lending Platforms
In August 2018, the
Office of the Leading Group for the Rectification and Inspection Acceptance of Risk of Peer-to-Peer Online Lending Intermediaries
(the “Leading Group”) issued the Notice on Launching Compliance Inspection on Peer-to-Peer Online Lending Information
Intermediaries (the “Inspection Notice”), and the Compliance Checklist for Online Lending Information Intermediaries
as specified in the Inspection Notice (the “Checklist”). The Inspection Notice requires each online lending information
intermediary to complete the following compliance inspections by the end of December 2018: self-inspection, inspection conducted
by local and national internet finance association and verification conducted by the rectification office in charge of online lending.
We submitted our self-inspection report pursuant to the Inspection Notice on October 15, 2018. We had
two on-site inspection from the Financial Office of the High and New Tech District of Chengdu on November 19, 2018 and from the
Financial Bureaus of Chengdu City and Sichuan Province on December 13, 2018, respectively. These inspections were satisfactory
to the relevant authorities and we did not receive any official regulatory letter requiring rectification of our business. However,
we may be required to make rectifications throughout the subsequent inspection process. There can be no assurance that our company
ultimately will be successful in passing the inspections by the competent authority. Furthermore, we cannot assure you when we
will be able to submit our filing application, and once submitted, whether such application will be accepted by the local financial
regulatory authorities or any other competent regulatory authorities as relevant laws and regulations continue to develop and evolve.
The delay in completing such record filing has had, and may continue to have, adverse impacts on our business growth. If we fail
to complete such compliance inspections or record-filing, we will not be able to obtain the relevant telecommunication service
license, in which event we may be forced to terminate our online lending information intermediary business.
In January 2019, relevant PRC governmental authorities issued Circular on the Classification and Disposal
of Risks of Online Lending Institutions and Risk Prevention (“Circular 175”). According to Circular 175, except for
large-scale peer-to-peer direct lending marketplaces that are strictly in compliance with all relevant laws and regulations and
have not demonstrated any high-risk characteristics, which are generally referred to as Normal Marketplaces, other marketplaces,
including shell companies with no substantive operation, small-scale marketplaces, marketplaces with high risks and marketplaces
that are unable to repay investors or otherwise unable to operate their businesses, shall exit the peer-to-peer lending industry
or cease operation. Normal Marketplaces shall cease operating those businesses that are not in compliance with laws and regulations.
Circular 175 also encourages certain Normal Marketplaces to convert into other types of online financing institutions such as online
small loan companies or loan facilitation platforms. Circular 175 provides that “small-scale marketplace” shall be
determined by each province taking into consideration a marketplace’s outstanding loan balance, number of lenders and other
factors. There is no guidance on the definition of “small-scale marketplaces” in Sichuan province as of the date of
this Report. If we are considered a small-scale marketplace under Circular 175 as determined by Sichuan province, we may have to
cease our online lending services or convert into other types of online financing institutions.
Key
Operating and Financial Metrics of Our Online Lending Platform
Our management regularly reviews a number of metrics to evaluate our business, measure our performance,
identify trends, formulate financial projections and make strategic decisions. The main metrics we consider and results for each
quarter in the past two years are set forth in the table below. For purposes of the below discussion, “standard loans”
refer to the loans facilitated through our platform between the borrowers and investors and “assigned loans” refer
to the loans assigned by our Creditor Partners.
|
|
For
the Three Months Ended
|
|
|
|
December
31, 2018
|
|
|
September
30, 2018
|
|
|
June
30,
2018
|
|
|
March 31,
2018
|
|
|
December
31, 2017
|
|
|
September
30, 2017
|
|
|
June
30,
2017
|
|
|
March 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Amount (Standard Loan)
|
|
$
|
6,108,126
|
|
|
$
|
3,914,800
|
|
|
$
|
6,489,923
|
|
|
$
|
19,943,097
|
|
|
$
|
10,776,692
|
|
|
$
|
12,142,615
|
|
|
$
|
5,834,087
|
|
|
$
|
2,493,794
|
|
Loan Amount (Assignment of Loan)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,840,155
|
|
|
$
|
13,025,964
|
|
|
$
|
3,100,300
|
|
|
$
|
-
|
|
Number of Investors
|
|
|
156
|
|
|
|
156
|
|
|
|
180
|
|
|
|
245
|
|
|
|
271
|
|
|
|
329
|
|
|
|
381
|
|
|
|
329
|
|
Number of Borrowers
|
|
|
47
|
|
|
|
36
|
|
|
|
65
|
|
|
|
364
|
|
|
|
2,043
|
|
|
|
289
|
|
|
|
160
|
|
|
|
26
|
|
Average Investment Amount
|
|
$
|
39,154
|
|
|
$
|
25,095
|
|
|
$
|
36,055
|
|
|
$
|
81,400
|
|
|
$
|
94,527
|
|
|
$
|
76,500
|
|
|
$
|
23,450
|
|
|
$
|
7,580
|
|
Average Borrowing Amount
|
|
$
|
129,960
|
|
|
$
|
108,744
|
|
|
$
|
99,845
|
|
|
$
|
54,789
|
|
|
$
|
12,539
|
|
|
$
|
87,088
|
|
|
$
|
55,841
|
|
|
$
|
95,915
|
|
Transaction Fees from borrowers
|
|
$
|
80,565
|
|
|
$
|
65,021
|
|
|
$
|
115,864
|
|
|
$
|
14,118
|
|
|
$
|
72,420
|
|
|
$
|
56,246
|
|
|
$
|
42,889
|
|
|
$
|
35,745
|
|
Transaction Fees from Creditor Partners
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,793
|
|
|
$
|
68,594
|
|
|
$
|
50,330
|
|
|
$
|
16,663
|
|
|
$
|
-
|
|
Service Fees from Investors
|
|
$
|
10,557
|
|
|
$
|
6,487
|
|
|
$
|
9,162
|
|
|
$
|
143,487
|
|
|
$
|
11,524
|
|
|
$
|
10,592
|
|
|
$
|
6,240
|
|
|
$
|
7,945
|
|
Loan Amount
The volume of standard loans for the three months ended March 31, 2018 was the highest among the presented
quarters, mainly attributable to our efforts in cooperation with Creditor Partners to attract more borrowers. The loans amount
for assigned loans increased in the three months ended September 30, 2017 as we started to facilitate assignment of loans from
Creditor Partners in the quarter ended June 30, 2017. However, we discontinued the offering of assigned loan products on our platform
since January 2018 to facilitate our record-filing in accordance with the Notice on the Rectification and Inspection Acceptance
of Risk of Online Lending Intermediaries by the PRC National Online Lending Rectification Office and the Interim Measures for the
Administration of Business Activities of Online Lending Information Intermediaries (the “Interim Measures”).
The standard loans for the three months ended June 30, 2018 decreased significantly from the three months
ended March 31, 2018, primarily due to the decrease in the number of borrowers as we ceased our cooperation with Creditor Partners
in March 2018 who previously referred borrowers to us and provided guarantee on their loans. Decrease in the volume of standard
loans continued during the three months ended September 30, 2018, primarily due to the decrease of number of borrowers as we focused
more on the compliance with new marketplace lending rules. However, the loan volume increased in the three months ended December
31, 2018 due to the increasing financing demand of SME borrowers to meet their cash requirements at the end of the year.
Number of Investors and Borrowers
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 to
us.
Moreover, we discontinued
the offering of assigned loan products on our platform in January 2018. We also continued to witness a decrease in number of borrowers
as a result of the discontinuation of our cooperation with Creditor Partners during the three months ended June 30, 2018 and September
30, 2018 and the shift of our focus from business expansion to compliance with new marketplace lending rules. Despite the high
demand of financing from the borrowers and the stable returns from our platform, the number of investors remained the same in the
three months ended December 31, 2018 as the prior quarter, because we reduced our marketing efforts for new investor acquisition
during this quarter.
Average Amounts
We have experienced significant and continuing increases 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 three months ended September 30, 2017. However, the average investment amounts kept decreasing during
the three months ended June 30, 2018 and September 30, 2018, primarily caused by decreases in the investment amount and the risk
diversification strategy adopted by the investors as the industry of online marketplace lending witnessed some serious default
during these periods. The average investment amount slightly increased during the three months ended December 31, 2018 which was
caused by the increase in financing demand from SME borrowers.
The decrease in average
borrowing amount for the three months ended December 31, 2017 was primarily due to increase in the percentage of
individual borrowers who borrowed lower principals from the platform than SMEs did. Caused by increased proportion of SMEs borrowers,
whose average loan amount was higher than individual loans, the average borrowing amounts for the three months ended June 30, 2018,
September 30, 2018 and December 31, 2018 continued to increase as compared with the previous quarters.
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
or any group of borrowers or investors. Therefore, we do not believe that our business operation or financial position is heavily
reliant upon any borrower or investor.
Key Factors Affecting Our Lending Platform Results of
Operations
In order to ensure the
steady development of internet finance, especially to control the risk of online marketplace lending and in response to ongoing
platform failures since the second quarter of 2018, the Checklist also requires the loan volume of each online lending information
intermediary during the inspection period shall not have significant increase compared to its transaction volume in June 2017.
As a result of the recent
regulatory development, in the three months ended December 31, 2018, we continued to focus on business compliance review and rectification
in order to complete our inspection and record-filing as a P2P lending information intermediary. As such, we did not actively expand
our business and endeavored to maintain the existing customer base. However, the increase in financing demand from SME borrowers
at the end of the year had driven an increase in loan transactions during this quarter.
We have adopted sales
and marketing strategies aiming to enhancing our brand image in the online marketplace lending industry and the financing industry
as a whole. Our sales and marketing efforts used to include event promotions, online marketing, user meetings and sales support.
As the Checklist has set limitation on our transaction volume during the inspection period, our users acquisition efforts have
been limited to advertising on our Websites and Wechat official account and issuance at press releases.
Below are
key metrics for each quarter during the past two years reflecting our efforts in retaining current users and attracting new users:
|
|
December 31, 2018
|
|
|
September 30, 2018
|
|
|
June 30,
2018
|
|
|
March 31,
2018
|
|
|
December 31, 2017
|
|
|
September 30, 2017
|
|
|
June 30,
2017
|
|
|
March 31, 2017
|
|
Reinvestment of existing investors
|
|
|
117
|
|
|
|
106
|
|
|
|
85
|
|
|
|
233
|
|
|
|
225
|
|
|
|
252
|
|
|
|
73
|
|
|
|
235
|
|
Reinvestment rate of existing investors
|
|
|
75.00
|
%
|
|
|
67.95
|
%
|
|
|
47.22
|
%
|
|
|
95.10
|
%
|
|
|
87.51
|
%
|
|
|
63.83
|
%
|
|
|
57.21
|
%
|
|
|
45.25
|
%
|
Number of new investors
|
|
|
4
|
|
|
|
23
|
|
|
|
95
|
|
|
|
12
|
|
|
|
17
|
|
|
|
77
|
|
|
|
308
|
|
|
|
94
|
|
Total number of investors
|
|
|
156
|
|
|
|
156
|
|
|
|
180
|
|
|
|
245
|
|
|
|
271
|
|
|
|
329
|
|
|
|
381
|
|
|
|
329
|
|
Average loan amount of each investor
|
|
$
|
39,154
|
|
|
$
|
25,095
|
|
|
$
|
36,055
|
|
|
$
|
81,400
|
|
|
$
|
94,527
|
|
|
$
|
76,500
|
|
|
$
|
23,450
|
|
|
$
|
7,580
|
|
Average number of total loans held by each investor
|
|
|
4.62
|
|
|
|
3.68
|
|
|
|
4.94
|
|
|
|
10.00
|
|
|
|
17.24
|
|
|
|
8.31
|
|
|
|
6.00
|
|
|
|
6.95
|
|
The table below shows key metrics pertaining
to each type of participants on our platform.
|
|
|
|
For
the Three Months Ended
|
|
|
|
|
|
December
31, 2018
|
|
|
September
30, 2018
|
|
|
June 30,
2018
|
|
|
March 31,
2018
|
|
|
December
31, 2017
|
|
|
September
30, 2017
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
Re-Borrowing rate of existing borrowers
|
|
Individuals
|
|
|
22
|
%
|
|
|
-
|
|
|
|
15
|
%
|
|
|
45
|
%
|
|
|
5
|
%
|
|
|
-
|
|
|
|
25
|
%
|
|
|
29
|
%
|
|
|
SMEs
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
10
|
%
|
|
|
43
|
%
|
|
|
28
|
%
|
|
|
50
|
%
|
|
|
19
|
%
|
|
|
0
|
%
|
|
|
Assigned loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
%
|
|
|
30
|
%
|
|
|
52
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Number of new borrowers
|
|
Individuals
|
|
|
4
|
|
|
|
6
|
|
|
|
25
|
|
|
|
209
|
|
|
|
1,775
|
|
|
|
1
|
|
|
|
3
|
|
|
|
2
|
|
|
|
SMEs
|
|
|
6
|
|
|
|
6
|
|
|
|
9
|
|
|
|
72
|
|
|
|
2
|
|
|
|
10
|
|
|
|
34
|
|
|
|
10
|
|
|
|
Assigned loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
196
|
|
|
|
218
|
|
|
|
114
|
|
|
|
0
|
|
Total number of borrowers
|
|
Individuals
|
|
|
9
|
|
|
|
6
|
|
|
|
26
|
|
|
|
256
|
|
|
|
1,775
|
|
|
|
1
|
|
|
|
4
|
|
|
|
10
|
|
|
|
SMEs
|
|
|
38
|
|
|
|
30
|
|
|
|
39
|
|
|
|
108
|
|
|
|
66
|
|
|
|
41
|
|
|
|
42
|
|
|
|
16
|
|
|
|
Assigned loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
202
|
|
|
|
247
|
|
|
|
114
|
|
|
|
0
|
|
Average loan amount of each borrower
|
|
Individuals
|
|
$
|
12,045
|
|
|
$
|
11,862
|
|
|
$
|
15,294
|
|
|
$
|
25,254
|
|
|
$
|
534
|
|
|
$
|
1,417
|
|
|
$
|
19,311
|
|
|
$
|
17,129
|
|
|
|
SMEs
|
|
$
|
130,097
|
|
|
$
|
128,121
|
|
|
$
|
156,212
|
|
|
$
|
124,156
|
|
|
$
|
148,930
|
|
|
$
|
296,127
|
|
|
$
|
137,068
|
|
|
$
|
145,157
|
|
|
|
Assigned loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
73,466
|
|
|
$
|
52,737
|
|
|
$
|
27,196
|
|
|
$
|
-
|
|
Total amount of loans
|
|
Individuals
|
|
$
|
72,267
|
|
|
$
|
71,169
|
|
|
$
|
397,635
|
|
|
$
|
6,534,271
|
|
|
$
|
947,315
|
|
|
$
|
1,417
|
|
|
$
|
77,244
|
|
|
$
|
171,285
|
|
|
|
SMEs
|
|
$
|
3,902,922
|
|
|
$
|
3,843,631
|
|
|
$
|
6,092,288
|
|
|
$
|
13,408,826
|
|
|
$
|
9,829,377
|
|
|
$
|
12,141,198
|
|
|
$
|
5,756,843
|
|
|
$
|
2,322,509
|
|
|
|
Assigned loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,840,155
|
|
|
$
|
13,025,964
|
|
|
$
|
3,100,300
|
|
|
$
|
-
|
|
As a result of the cessation of our relationship with our Credit Partners in March 2018, there was a significant
decline in revenue from individual borrowers for the three months ended September 30, 2018 and June 30, 2018. And in the three
months ended December 31, 2018, both the revenue from individual and SME borrowers slightly increased, due to the increase in the
loan volume while the rates of transaction fees and management fees remained stable. Fees from SME loans will continue to constitute
the major source of our revenue in 2019 before we effectively increase the number of individual borrowers.
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 in by our management and stockholders.
Quarter ended
|
|
Number of
Investments
|
|
|
Total Amount of
Investments
|
|
|
Average Amount of
Investment
|
|
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
|
|
June 30, 2018
|
|
|
27
|
|
|
$
|
105,970
|
|
|
$
|
3,925
|
|
September 30, 2018
|
|
|
38
|
|
|
$
|
10,050
|
|
|
$
|
265
|
|
December 31, 2018
|
|
|
4
|
|
|
$
|
5,092
|
|
|
$
|
1,273
|
|
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 our Company. To our knowledge, the unaffiliated third-party guarantors have not been compensated for providing
the guaranty to our borrowers. In the case of borrowers referred by our Creditor Partners, they 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. Due to the
local guidelines on the rectification and acceptance of internet lending information intermediaries by Sichuan province, we ceased
cooperation with our Creditor Partners and began to focus on loan transactions solely between borrowers and investors. Currently,
all the loans facilitated on our platform are unsecured.
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 in the past two years
are set forth in the table below.
Quarter Ended
|
|
Average Customer
Acquisition Cost Per Person
|
|
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
|
|
June 30, 2018
|
|
$
|
12.88
|
|
September 30, 2018
|
|
$
|
19.12
|
|
December 31, 2018
|
|
$
|
2.01
|
|
As compared with the quarter ended March 31, 2017, the average customer acquisition cost decreased for
the three months ended 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 our custodian bank; (ii) the implementation of our cost efficient
user acquisition strategy through cooperation with Resgreen Health Science & Technology Group Co., Ltd., a direct selling company
based in Changsha, China, with over a million users and (iii) a decrease in offline marketing expenses as a result of the Interim
Measures, which prohibits online peer-to-peer lending platforms from engaging in offline marketing. 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 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.
In light of various laws, regulations and rules to regulate the marketplace lending industry in China
promulgated by multiple PRC governmental authorities, in particular the requirement not to increase the transaction volume of our
platform, we reduced our spending on marketing and thereby caused the decrease in the average user acquisition cost for the three
months ended June 30, 2018. However, the average cost slightly increased in the three months ended September 30, 2018 because we
focused on compliance rather than launching new loan products to attract new customers, which brought less new investors to our
platform compared with the prior period. In the three months ended December 31, 2018, in order to comply with the new marketplace
lending rules, we significantly reduced our spending on marketing to attract new customers and the average customer acquisition
cost decreased to the lowest among all the quarters.
The regulatory environment for the marketplace lending industry in China is evolving and creates both
challenges and opportunities that could affect our results of operations. Most recently, multiple PRC government authorities have
published and promulgated various regulations and rules to further regulate the marketplace lending industry in China. See “Recent
Regulatory Developments” above and “Business — Regulations” in the Annual Report.
We have been closely tracking the development and implementation of new regulations and rules 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 regulations and rules, and we believe that such
timely compliance with these newly promulgated regulations and 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” in the Annual Report and the updated risk factors included in Part II of this Report.
For other factors affecting the results of operations of our online lending services, please refer to
“Risk Factors” in the Annual Report and the updated risk factors included in Part II of this report.
Our Automobile Transaction and Financing
Services
Acquisition of Hunan Ruixi
On November 21, 2018, we entered into an Investment and Equity Transfer Agreement (the “Investment
Agreement”) with Hunan Ruixi and all the shareholders of Hunan Ruixi (“Hunan Ruixi Shareholders”), pursuant to
which we acquired from the Hunan Ruixi Shareholders an aggregate of 60% of the equity interest of Hunan Ruixi for no consideration.
We closed the acquisition on November 22, 2018 and made a cash contribution of $6,000,000 to Hunan Ruixi, representing 60% of its
registered capital, in accordance with the Investment Agreement.
Hunan Ruixi holds
a financial leasing license and anticipates to engage in automobile financial leasing services and automobile sales in the
first half of 2019. Hunan Ruixi also controls Sichuan Jinkailong Automobile Leasing Co., Ltd. (“Jinkailong”), an
automobile transaction and financing services company in China, through its 35% equity interest and a voting agreement with
Sichuan Jinkailong's other shareholders, as amended (the “Voting Agreement”). Pursuant to the Voting Agreement,
all other Jinkailong’s shareholders have agreed, for a period of 20 years, to vote along with Hunan Ruixi on all the
fundamental corporate actions in the event of a disagreement. Though not explicit in the share purchase agreements between
Hunan Ruixi and Jinkailong, we may provide financial support to Jinkailong to meet its capital requirements. Based on
the Voting Agreement and our plan to provide financial support to Jinkailong, we determined that we are the primary
beneficiary of Jinkailong and therefore have consolidated Jinkailong’s financial statements into our financial
statements.
Jinkailong primarily targets the drivers in the ride-hailing service sector and facilitates automobile
sales and financing transactions for its clients and provides relevant after- transaction services to them. Jinkailong has established
a cooperative relationship with Didi Chuxing Technology Co., Ltd. (“Didi Chuxing”), a major transportation network
company in China, pursuant to which Jinkailong provides vehicle leasing and financing, insurance facilitation, affiliated vehicle
management, and other services for the large and rapidly expanding fleet of Didi Chuxing in Chengdu, Sichuan province. Jinkailong
has served over 760 ride-hailing drivers cumulatively since its inception in December 2016. Hunan Ruixi also entered into cooperation
agreements with Didi Chuxing in December 2018, pursuant to which Hunan Ruixi will source automobiles for and provide automobile
financing/leasing solutions to Didi Chuxing drivers in Changsha city, Hunan province. Our relationship with Didi Chuxing is crucial
to our business as it enables us to attract more automobile purchasers who are interested in working as Didi Chuxing drivers and
becoming affiliated with us.
As
a result of our acquisition of Hunan Ruixi, we are engaged in providing automobile transaction and financing services since November
2018.
Our
Automobile
Transaction and Financing Services
Through
Hunan Ruixi and Jinkailong, we facilitate automobile purchase transactions between dealers, our cooperative third party sales teams
and the automobile purchasers, primarily ride-hailing drivers. We provide sales venue and vehicle sourcing for the transactions.
We charge the dealers, third party sales teams and automobile purchasers a facilitation fee based on the type of vehicle and negotiation
with each dealer, third party sales team and purchaser, generally no more than $2,100 per automobile.
We
also provide a series of services for the purchasers throughout the automobile purchase transaction process, including registration
of license plates and permits from the relevant government authorities, insurance facilitation and assistance with applications
to financial institutions to finance the purchase. Our service fees are based on the total quoted price of the automobiles and
relevant services provided, our expenses to fulfill these services and other factors of the automobiles. Our service fees ranged
from $243 to $2,261 per vehicle.
We have established collaboration with a number of financial institutions, including commercial banks,
financial leasing companies as well as online peer-to-peer lending platforms, which finance the purchase of the automobiles by
our automobile purchasers through financing leasing agreements or loan agreements (the “Financing Agreements”). We
have facilitated 52 new automobile purchases with a total transaction amount of approximately $0.75 million (RMB5.0 million) (including
purchase price and related expenses) during the period from November 22, 2018, the acquisition of Hunan Ruixi, to December 31,
2018. We prepay the purchase price and expenses on behalf of the automobile purchasers when we provide purchase services and collect
all the advance payment and relevant services fees from the proceeds disbursed by the financial institutions upon the closing of
the financing and/or when the monthly installment payment made by automobile purchasers during the term of the Financing Agreements.
A majority of our customers are ride-hailing drivers of Didi Chuxing. As required by Didi Chuxing, all
automobiles used for ride-hailing services through Didi Chuxing’s platform must be affiliated with qualified management companies.
Our automobile purchasers, who are mostly Didi Chuxing drivers, typically become affiliated with us through affiliation agreements
pursuant to which we, 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. Our post-transaction management services include but
are not limited to, providing guarantee for the drivers’ obligations under the Financing Agreements, including principal
and interest, and assisting the drivers with the paperwork of ride-hailing service platforms. Our management and guarantee fees
are based on the costs of our services and the results of our preliminary credit assessment of the automobile purchasers. Our fees
average $995 per automobile for the affiliation period and are paid by the affiliated drivers on a monthly basis during the affiliation
period. As at December 31, 2018, the maximum contingent liabilities we were exposed would be $9,784,719 if all the automobile purchasers
defaulted.
We acquire customers for our automobile transaction and financing services through the network of third-party
sales teams and our own efforts including online advertising and billboard advertising. As of the date of this report, we have
serviced approximately 1,043 automobile transactions, including over 760 ride-hailing service cars.
Key Factors and Risks Affecting
Our
Automobile Transaction and Financing Services
Results
of Operations
Ability to Increase
the Automobile Purchaser Base
Our revenue growth has been largely driven by the expansion of our automobile purchaser base and the corresponding
increase in the amount of automobile transactions facilitated through us. We attract automobile purchasers primarily through online
advertising and billboard advertising, as well as
the
network
of different third party sales teams. We plan to strengthen our partnerships with
existing sales teams by improving the quality and variety of our services . We will also strengthen our marketing efforts through
our own team by employing more experienced staff and setting up more stores in Chengdu. As at December 31, 2018, we have 38
employees in our own sales department and have cooperated with six third party sales teams with more than 50 professionals.
Our Service Offerings
and Pricing
The growth of our revenue depends on our ability to
improve existing
solutions and services provided, continue identifying evolving business needs, refine our collaboration model with financial institutions
and provide value-added services to our customers.
The attraction of new automobile purchasers depends in part in our
collaboration with financial institutions to offer more attractive automobile financing solutions with competitive interest rates
to our automobile purchasers. Furthermore, our product designs affect the type of automobile purchasers we attract, which in turn
affects our financial performance. Our revenue growth also depends on our abilities to effectively price our services and the ability
to obtain relatively lower expenditure paid to dealers, insurance companies and other service providers, which enables us to attract
more customers and improve our profit margin.
Ability to Retain Existing Financial Institutions and Engage
New Financial Institutions
During
the period from our acquisition of Hunan Ruixi on November 22, 2018 to December 31, 2018, over 60% of the automobile purchasers
had financed their purchase of automobiles through Financing Agreements with financial institutions. As such, the growth of our
business is dependent on our ability to retain existing financial institutions and engage new financial institutions. We
have
established collaboration with multiple financial institutions and
plan to expand our collaboration
with more financial institutions to access lower interest rates and provide more financing sources to our customers. If an automobile
purchase does not get financed by any financial institution, we will have to prepay the purchase price and all related expenses,
which may cause liquidity issue if an increasing number of purchasers fail to get financing from the financial institutions. Our
collaborations with financial institutions may be affected by factors beyond our control, such as whether automobile financing
is perceived as an attractive asset class, bankruptcy of financial institutions, general economic conditions and the regulatory
environment. Our ability to increase the number of our cooperative financial institutions will enhance the overall stability and
sufficiency of funding for automobile transactions.
Ability
to Pay for the Expenditure in Advance
We
prepay the purchase price and all related expenses when we provide related services to the purchasers. Pursuant to the affiliation
agreement with the automobile purchaser, we collect the monthly installment payments (including principal and interest), our management
and guarantee services fee and our advance payment from the automobile purchaser. As at December 31, 2018, we had advanced payments
of $1.3 million (RMB9.0 million) for the automobile purchasers, which will be collected through proceeds disbursed from financial
institutions and installments on a monthly basis during the relevant affiliation periods.
The advance payment may increase our liquidity risk. Jinkailong has borrowed money from financial institutions
to fund the advance payment. After our Hunan Ruixi acquisition, we used part of the proceeds from our IPO and plan to obtain equity
and/or debt financing to pay for the expenditure related to automobile purchase. Our ability to pay for the expenditure in advance
will enhance the stability of our daily operation and lower the liquidity risk, and attract more customers.
Ability
to Collect Payments and Deal with Defaults Effectively
We collect the total monthly installment payments from automobile purchasers and repay financial institutions
on behalf of the purchasers every month. 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 under the Financing
Agreements. If a default occurs, we are required to make the monthly payments of the defaulted purchasers to the financial institution.
We manage the credit risk arising from the default of automobile purchasers by performing preliminary
credit checks on each automobile purchaser based on the ID and personal credit reporting from People’s Bank of China and
conducting ongoing monitoring of the installment collection. Our post-loan management department continuously monitors the payment
by each purchaser and send them payment reminders. We also keep close communication with our purchasers in particular the ride-hailing
drivers so that we can evaluate their financial conditions and provide them with assistance including the transfer of 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.
In addition, the automobile is used as collateral to secure the purchaser’s payment obligations
under the financial leasing arrangement. In the event of a default, we can track the automobile through an installed GPS system
and repossess and hand the automobile over to the financial institutions so that we can be released from our guarantee liability.
As
at December 31, 2018, we have an outstanding balance of installment payments receivable in the aggregate of $102,207 from automobile
purchasers. We did not record contingent liabilities as at December 31, 2018 as Jinkailong commenced the automobile transaction
and financing services for less than one year, there was no sufficient historical information for us to make an estimate. Historically
most of the defaulted
automobile purchasers
would pay us the default amounts within
one to three months. Therefore, as at December 31, 2018, we believe our credit risk is not material.
Automobile purchasers may default on their lease/loan payments to financial institutions for a number
of reasons outside of our control. If our
automobile
purchaser defaults, we may have to suffer losses or our reputation may be harmed.
Our ability
to collect repayments may also affect our relationships with financial institutions who may not finance the automobile transactions
of our customers if the default rate of our automobile purchasers is high.
Market
Opportunity and Government Regulations in China
The demand for our services depends on overall market conditions of the 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 merging online
platforms have created good opportunities for the development of the online ride-hailing service market. Based on the monitoring
of China E-Commerce Research Center, the number of online ride-hailing service users had reached 287 million by the end of 2017.
According to Bein & Company, the transaction value of China's online ride-hailing market in 2017 was larger than the total
of the rest of the world. It estimated that by 2020, China's online ride-hailing market will reach $72 billion. In the second half
of 2018, in addition to the leading online ride-hailing platforms such as Didi Chuxing and China Auto Rental, another nine auto-makers,
including FAW, Dongfeng, Changan, Volkswagen, Great Wall, Ford, Mercedes-Benz, SAIC and BMW, announced their plan to launch online
ride-hailing services.
The
online ride-hailing industry, also may be affected by, among other factors, the general economic conditions in China, in particular
in Sichuan and Hunan where our operations are primarily located. 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 the amount of the automobile transactions we provide services to 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,
o
n
July 28, 2016, seven ministries and commissions, including the Ministry of Transport, jointly promulgated the “
Interim
Measures for the Administration of Online Taxi Booking Business Operations and Services”
, which legalizes online ride-hailing
services such as Didi Chuxing and requires the ride-hailing services to meet the requirements set out by the measures and obtain
taxi-booking service licenses.
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
”.
On August 10, 2017, the Transportation Commission of Chengdu further issued the detailed guidance of “
Working Process
for the Online Appointment of Taxi Drivers Qualification Examination and Issuance
” and the “
Online Appointment
Taxi Transportation Certificate Issuance Process
”. According to these regulations and guidelines, three licenses /certificates
are required for operating the online ride-hailing business: (1) the ride-hailing service platform such as Didi Chuxing should
obtain the online reservation taxi operating license; (2) the automobiles used for online ride-hailing should obtain the online
reservation taxi transport certificate (“automobile certificate”); (3) the drivers should obtain the online reservation
taxi driver's license (“driver’s license”).
Our cooperation online platform, Didi Chuxing, has the online reservation taxi operating license in Chengdu.
However, about 38% of the cars used for online ride-hailing services which we provided management services to do not have the automobile
certificate and approximately 80% of our ride-hailing drivers have not obtained the driver’s license. 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. We are in the process of assisting the drivers to obtain
the required certificate and license. However, there is no guarantee that all of the drivers affiliated without us would be able
to obtain all the certificate and license. Our business and results of operations will be materially affected if our affiliated
drivers are suspended from providing ride-hailing services or imposed substantial fines.
We
will strive to comply with the existing laws, regulations and governmental policies relating to our industry and new laws and regulations
or changes under existing laws and regulations that may arise in the future.
Results of Operations for the Three Months Ended December
31, 2018 Compared to the Three Months Ended December 31, 2017
|
|
For
the Three Months Ended
December 31,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
Revenues
|
|
$
|
209,857
|
|
|
$
|
152,538
|
|
|
$
|
57,319
|
|
Gross revenues
|
|
|
209,857
|
|
|
|
152,538
|
|
|
|
57,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(926,358
|
)
|
|
|
(288,620
|
)
|
|
|
(637,738
|
)
|
Amortization of intangible assets
|
|
|
(60,488
|
)
|
|
|
(165,206
|
)
|
|
|
104,718
|
|
Total operating expenses
|
|
|
(986,846
|
)
|
|
|
(453,826
|
)
|
|
|
(533,020
|
)
|
Loss from operations
|
|
|
(776,989
|
)
|
|
|
(301,288
|
)
|
|
|
(475,701
|
)
|
Other income, net
|
|
|
14,936
|
|
|
|
71
|
|
|
|
14,865
|
|
Interest expense
|
|
|
(6,239
|
)
|
|
|
-
|
|
|
|
(6,239
|
)
|
Net Loss
|
|
$
|
(768,292
|
)
|
|
$
|
(301,217
|
)
|
|
$
|
(467,075
|
)
|
Revenues
Revenue increased by
$57,319, or 37.6% as compared with three months ended December 31, 2017. The leading contributor to the increase was the revenue
of $118,736 generated from our automobile transaction and financing services after the acquisition of Hunan Ruixi on November 22,
2018. However, the revenue from our online lending services decreased by $61,417 during the three months ended December 31, 2018
because we continued to focus on business compliance review and did not actively expand our business.
In the three months
ended December 31, 2018, revenue from our online lending services accounted for 43.4% of the total revenue while revenue from automobile
transaction and financing services accounted for 56.6%. The following table sets forth the breakdown of revenues by revenue source
for the three months ended December 31, 2018 and 2017:
|
|
For the Three Months Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Revenue from online lending services
|
|
$
|
91,121
|
|
|
$
|
152,538
|
|
- Transaction fees from borrowers
|
|
|
80,564
|
|
|
|
72,420
|
|
- Transaction fees from Creditor Partners
|
|
|
-
|
|
|
|
68,594
|
|
- Service fees from investors
|
|
|
10,557
|
|
|
|
11,524
|
|
|
|
|
|
|
|
|
|
|
Revenue from automobile transaction related services
|
|
$
|
118,736
|
|
|
$
|
-
|
|
- Service fees from automobile purchase services
|
|
|
70,654
|
|
|
|
-
|
|
- Facilitation fees from automobile transaction
|
|
|
16,424
|
|
|
|
|
|
- Service fees from automobile management and guarantee services
|
|
|
21,332
|
|
|
|
-
|
|
- Other service fees
|
|
|
10,326
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
209,857
|
|
|
$
|
152,538
|
|
Revenue from Automobile
Transaction and Financing Services
We generated revenue from automobile transaction and financing services from November 22, 2018, the acquisition
date of Hunan Ruixi, to December 31, 2018. The revenue from automobile transaction and financing services consist of facilitation
fees from automobile purchase, service fees from automobile purchase services, service fees from automobile management and guarantee
services and others, which accounted for 59.5%, 13.8%, 18.0% and 8.7% of the total revenue from automobile transaction related
services, respectively. In light of the huge market opportunity and rapid development of online ride-hailing service market, we
expect to witness a continuous increase in our revenue from automobile transaction and financing services for the next twelve months.
Revenue from Our
Online Lending Services
For the three months
ended December 31, 2018, we charged borrowers transaction fees ranging from 0.19% to 3.00% of the loan amount, which fees are paid
upon (i) disbursement of the proceeds for loans which accrue interest on a monthly basis or (ii) full payment of principal and
interest of loans which accrue interest on a daily basis. The transaction fee rate charged to borrowers vary based on the amount
and term of loan facilitated. We also charge our investors a service fee of 8.00% of the interest that investors receive and the
service fees are paid when the investors receive interest payments.
In light of Circular
175, we do not expect any increase in our revenue as the government is tightening the regulations of the online lending industry.
We witnessed a decrease in revenue during the three months ended December 31, 2018 as compared to the three months ended December
31, 2017. The analysis of such decrease is as follows:
Transaction Fees from Borrowers
The amount of transaction
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. During the three months ended December 31, 2018 and 2017, the transactions fees
from borrowers averaged 1.32% and 0.67% of the total loan amounts, respectively. The increase in the average transaction fee percentage
was primarily a result of higher transaction fee rate charged on loans that were no longer secured by guaranty due to cessation
of our cooperation with Creditor Partners in March 2018.
Transaction
fees from borrowers accounted for 88.41% and 47.48% of our total revenue from online lending platform for the three months ended
December 31, 2018 and 2017, respectively. Due to higher transaction fee rate, transaction fees earned from borrowers slightly increased
during the three months ended December 31, 2018 even the total loan amount decreased as compared with that for the same period
ended December 31, 2017.
Transaction Fees from Creditor Partners
We started loan transactions
with Creditor Partners for assigned loan in April 2017 and discontinued such transactions in January 2018. As a result, we did
not earn any transaction fees from Creditor Partners for the three months ended December 31, 2018.
Service Fees from Investors
Service fees charged
to investors are equal to 8.00% of the interest that investors receive, and are paid at the time of each interest payment. Service
fees from investors decreased as a result of the decrease in the amount of loans in the three months ended December 31, 2018 as
compared to the same period in 2017. Service fees from investors accounted for 11.59% of our total revenue from online lending
platform for the three months ended December 31, 2018, a decrease of 8.39% as compared to the same period in 2017, attributable
to the increase in transaction fees earned from borrowers.
We may adjust the interest
rates on the loan products based on market rates from time to time, which will likely affect the service fees we receive from investors.
Due to the promulgation of new regulations and rules, we do not expect an increase in revenue from matching services before we
effectively increase the number of individual borrowers. As a result, the service fee from investors will not witness a significant
increase as the service fee is directly related to the transaction volume.
Selling, General and Administrative
Expenses
Selling, general and administrative expenses primarily consist of salary and employee surcharge, office
rental expense, travel expenses, and platform maintenance cost. Selling, general and administrative expenses increased from $288,620
for the three months ended December 31, 2017 to $926,3
58
for the three months ended December 31, 2018, representing an increase of $637,738.
Selling, general and
administrative expenses for our online lending services increased by $187,252. The increase mainly consisted of an increase of
$183,323 in salary and employee benefits caused by the increase of employees in the three months ended December 31, 2018.
Selling, general and
administrative expenses for our automobile transaction and financing services was $120,590 for the period from the acquisition
of Hunan Ruixi to December 31, 2018, mainly consisting of $68,618 in salary and employee benefits and $51,972 in rental and other
office expenses.
Amortization of Intangible Assets
Intangible amortization for three months ended December 31, 2018 was $60,4
88
as compared to $165,206 for the three months ended December 31, 2017, representing a decrease of $104,718. The decrease was mainly
attributable to the decreased net book value of our online lending platform as a result of the impairment charges of $2,000,175
recorded against the platform for the year ended March 31, 2018.
Interest Expense
Interest expense for the three months ended December 31, 2018 was $6,239, generating from the borrowings
of Jinkailong from financial institutions and related parties following the acquisition of Hunan Ruixi through December 31, 2018.
Net Loss
As a result of the foregoing,
net loss for the three months ended December 31, 2018 was $768,292, representing an increase of $467,075 from net loss of $301,217
for the three months ended December 31, 2017. The net loss from our online lending services for the three months ended December
31, 2018 was $283,645, decreased by $17,572 as compared with the three months ended December 31, 2017. The net loss from our automobile
transaction and financing services for the period after the acquisition of Hunan Ruixi to December 31, 2018 was $3,268.
Results of Operations for the Nine Months Ended December
31, 2018 Compared to the Nine Months Ended December 31, 2017
|
|
For
the Nine Months Ended
December 31,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
Revenues
|
|
$
|
406,391
|
|
|
$
|
335,498
|
|
|
$
|
70,893
|
|
Gross revenues
|
|
|
406,391
|
|
|
|
335,498
|
|
|
|
70,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(2,681,078
|
)
|
|
|
(960,349
|
)
|
|
|
(1,720,729
|
)
|
Amortization of intangible assets
|
|
|
(233,576
|
)
|
|
|
(488,210
|
)
|
|
|
254,634
|
|
Total operating expenses
|
|
|
(2,914,654
|
)
|
|
|
(1,448,559
|
)
|
|
|
(1,466,095
|
)
|
Loss from operations
|
|
|
(2,508,263
|
)
|
|
|
(1,113,061
|
)
|
|
|
(1,395,202
|
)
|
Other income, net
|
|
|
25,841
|
|
|
|
1,921
|
|
|
|
23,920
|
|
Interest expense
|
|
|
(6,239
|
)
|
|
|
-
|
|
|
|
(6,239
|
)
|
Net Loss
|
|
$
|
(2,488,661
|
)
|
|
$
|
(1,111,140
|
)
|
|
$
|
(1,377,521
|
)
|
Revenues
Revenue increased by
$70,893, or 21.1% as compared with nine months ended December 31, 2017. The leading contributor to the increase was the revenue
of $118,736 generated from our automobile transaction and financing services from the acquisition of Hunan Ruixi to December 31,
2018. However, the revenue from our online lending services decreased by $47,843 due to the decrease of transaction volume as we
ceased our cooperation with Creditor Partners in March 2018 and we continued to focus on business compliance review and did not
actively expand our business.
In the nine months ended
December 31, 2018, revenue from our online lending services accounted for 70.8% of the total revenue while revenue from automobile
transaction and financing services accounted for 29.2%. The following table sets forth the breakdown of revenues by revenue source
for the nine months ended December 31, 2018 and 2017:
|
|
For the Nine Months Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Revenue from online lending services
|
|
$
|
287,655
|
|
|
$
|
335,498
|
|
- Transaction fees from borrowers
|
|
|
261,450
|
|
|
|
171,555
|
|
- Transaction fees from Creditor Partners
|
|
|
-
|
|
|
|
135,587
|
|
- Service fees from investors
|
|
|
26,205
|
|
|
|
28,356
|
|
|
|
|
|
|
|
|
|
|
Revenue from automobile transaction related services
|
|
$
|
118,736
|
|
|
$
|
-
|
|
- Service fees from automobile purchase services
|
|
|
70,654
|
|
|
|
-
|
|
- Facilitation fees from automobile transaction
|
|
|
16,424
|
|
|
|
|
|
- Service fees from automobile management services
|
|
|
21,332
|
|
|
|
-
|
|
- Other service fees
|
|
|
10,326
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
406,391
|
|
|
$
|
335,498
|
|
Revenue from Automobile
Transaction and Financing Services
We generated
revenue from automobile transaction and financing services from November 22, 2018, the acquisition date of Hunan Ruixi, to
December 31, 2018. The revenue from automobile transaction and financing services includes facilitation fees from
automobile purchase, service fees from automobile purchase services, service fees from automobile management and guarantee
services and others, which accounted for 59.5%, 13.8%, 18.0% and 8.7% of the total revenue from automobile transaction
related services. In light of the huge market opportunity and rapid development of online ride-hailing service market, we
expect to witness a continuous increase in our revenue from automobile transaction and financing services for the next twelve
months.
Revenue from Our
Online Lending Services
We generate revenues
from transaction fees from borrowers and service fees from investors by matching investors with borrowers on our platform. For
the nine months ended December 31, 2018, we charged borrowers transaction fees ranging from 0.19% to 3.00% of the loan amount,
which fees are paid upon (i) disbursement of the proceeds for loans which accrue interest on a monthly basis or (ii) full payment
of principal and interest of loans which accrue interest on a daily basis. The transaction fee rate charged to borrowers vary based
on the amount and term of loan facilitated. We also charge our investors a service fee of 8.00% of the interest that investors
receive and the service fee is paid when the investors receive interest payments.
We witnessed a decrease
in revenue during the nine months ended December 31, 2018 as compared with the nine months ended December 31, 2017 as more fully
discussed below:
Transaction Fees from Borrowers
The amount of transaction
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. During the nine months ended December 31, 2018 and 2017, the transactions fees from
borrowers averaged 1.58% and 0.60% of the total loan amounts, respectively. The increase in the average transaction fee percentage
was primarily a result of higher transaction fee rate charged on loans that were no longer secured by guaranty due to cessation
of our cooperation with Creditor Partners in March 2018.
Transaction fees from
borrowers accounted for 90.9% and 51.1% of our total revenue from the online lending platform for the nine months ended December
31, 2018 and 2017, respectively. Due to higher transaction fee rate, despite the decrease in the total loan amount, transaction
fees earned from borrowers still increased during the nine months ended December 31, 2018 as compared with that for the same period
ended December 31, 2017.
Transaction Fees from Creditor Partners
We started loan transactions
with Creditor Partners for assigned loan in April 2017 and discontinued such transactions in January 2018. As a result, we did
not earn any transaction fees from Creditor Partners during the nine months ended December, 2018 while we earned transaction fees
from Creditor Partners of $135,587 for the nine months ended December 31, 2017.
Service Fees from Investors
Service fees charged
to investors are equal to 8.00% of the interest that investors receive, and are paid at the time of each interest payment. Service
fees from investors decreased as a result of the decrease in the amount of loans in the nine months ended December 31, 2018 as
compared to the same period in 2017. Service fees from investors accounted for 9.1% of our total revenue for the nine months ended
December 31, 2018, a decrease of 0.6% in as compared to the same period in 2017, attributable to the continuous increasing in transaction
fees earned from borrowers.
We may adjust the interest
rates on the loan products based on market rates from time to time, which will likely affect the service fee we receive from investors.
Due to the promulgation of new regulations and rules, we do not expect an increase in our operation performance in the matching
services before we effectively increase the number of individual borrowers on our own. As a result, the service fee from investors
will not witness a significant increase as the service fee is directly related to the transaction volume.
Selling, General and Administrative
Expenses
Selling, general and administrative expenses primarily consisted of salary and employee surcharge, office
rental expense, travel expenses, and platform maintenance cost. Selling, general and administrative expenses increased from $960,349
for the nine months ended December 31, 2017 to $2,681,0
78
for the nine months ended December 31, 2018, representing an increase of $1,720,729.
Selling, general and
administrative expenses for our online lending platform services increased by $791,979. The increase mainly consisted of an increase
of $389,869 in salary and employee benefits caused by the increase of employees in the nine months ended December 31, 2018 and
an increase of $402,110 in other expenses mainly due to an increase of $256,608 in marketing expenses incurred in the second calendar
quarter of 2018.
Selling, general and
administrative expenses for our automobile transaction and financing services were $120,590 for the period from the acquisition
of Hunan Ruixi to December 31, 2018, mainly consisting of $68,618 in salary and employee benefits and $51,972 in rental and other
office expenses.
Amortization of Intangible Assets
Intangible
amortization for nine months ended December 31, 2018 was $233,5
76
as compared to $488,210 for the nine months ended December 31, 2017, representing a decrease of $254,634. The decrease was
mainly attributable to the decreased net book value of our online lending platform as a result of the impairment charges of
$2,000,175 recorded against the platform for the year ended March 31, 2018.
Interest expense
Interest expense for the nine months ended December 31, 2018 was $6,239, generating from the borrowings
of Jinkailong from financial institutions and related companies following the acquisition of Hunan Ruixi through December 31,
2018.
Net Loss
As a result of the foregoing,
net loss for the nine months ended December 31, 2018 was $2,488,661, representing an increase of $1,377,521 from net loss of $1,111,140
for the nine months ended December 31, 2017. The net loss from our online lending services for the nine months ended December 31,
2018 was $1,583,630, increased by $572,040 as compared with the nine months ended December 31, 2017. The net loss from our automobile
transaction and financing services for the period from the acquisition of Hunan Ruixi to December 31, 2018 was $3,268.
Liquidity and Capital Resources
To date, we have financed our operations primarily through proceeds from our IPO, pre-IPO stockholder
loans, and cash flow from operations.
On March 16, 2018, we
closed our IPO of 3,000,000 shares of common stock. On March 28, 2018, we 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 IPO 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 us, the aggregate net proceeds totaled approximately $12.2 million.
We had cash and cash equivalents of $9,291,719 as of December 31, 2018 as compared to $11,141,566 as of
March 31, 2018. We primarily hold our excess unrestricted cash in short-term interest-bearing bank accounts at financial institutions.
In December 2017, we entered into loan agreements with two stockholders, who agreed to grant lines of credit of approximating $955,308
and $159,218, respectively, to us for five years. The lines of credit are not interest-bearing, effective from January 2017.
We plan to use the proceeds from our IPO and anticipated cash flows from operating activities and, as
necessary, obtain equity and/or debt financing to expand our new automobile transaction and financing services in the next 12 months
from the date of this report.
However, there is a risk that we may face shortfalls in liquidity
and that we will be unable to obtain additional financing on commercially reasonable terms, if at all. If adequate funds are not
available, we may be unable to grow our business and may be required to reduce or refocus our operations, which could have a material
adverse effect on our company, our financial condition and our results of operations.
|
|
For the Nine Months Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Net Cash Used in Operating Activities
|
|
$
|
(2,462,092
|
)
|
|
$
|
(417,645
|
)
|
Net Cash Used in Investing Activities
|
|
|
(449,263
|
)
|
|
|
(412
|
)
|
Net Cash Provided by Financing Activities
|
|
|
1,161,515
|
|
|
|
335,092
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
(100,007
|
)
|
|
|
6,875
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
11,141,566
|
|
|
|
161,292
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
9,291,719
|
|
|
$
|
85,202
|
|
Cash Flow in Operating Activities
For the nine months
ended December 31, 2018, net cash used in operating activities was $2,462,092, which primarily comprised salary and employee surcharge
of $938,300, other operating costs of $1,526,993, and net advance payment for automobile purchase transactions of $236,409, partially
offset by revenue received of $239,610. The increase in net cash used in operating activities of $2,044,447 as compared to net
cash used in operating activities of $417,645 for the nine months ended December 31, 2017, primarily resulted from: (1) the increase
in net loss of $1,377,521; (2) net advance payment for automobile purchase transactions of $236,409; (3) the decrease of amortization
of intangible assets of $254,634; and (4) the decrease of revenue received of $95,888 and the non-cash effect from the decrease
of shares issued from consulting services of $99,550.
Cash Flow in Investing Activities
We had net cash used
in investing activities of $449,263 for the nine months ended December 31, 2018, which primarily consisted of the payment of $28,241
for the purchases of office equipment and the payment of $421,022 for the development of software to be used in our online lending
platform.
We had net cash used
in investing activities of $412 for the nine months ended December 31, 2017, which primarily consisted of the payment for
the purchases of office equipment.
Cash Flow in Financing Activities
For the nine months
ended December 31, 2018, the net cash provided by financing activities was mainly consisted of: (1) the release of the deposit
of $600,000 from the indemnification escrow account; (2) cash acquired from the acquisition of Hunan Ruixi and its VIE of $213,644,
partially offset by repayments to bank borrowings of $16,929; (3) short-term borrowings of $290,183 for the daily operation of
Jinkailong after the acquisition; (4) proceeds from stockholders loans of $1,974,617, partially offset by repayments to stockholders
of $1,900,000.
For the nine months
ended December 31, 2017, net cash provided by financing activities was mainly the proceeds from stockholder loans of $335,092.
Off-Balance Sheet Arrangements
We do not have any off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Inflation
We do not believe our
business and operations have been materially affected by inflation.
Critical Accounting Policies
We prepare our unaudited
consolidated financial statements in accordance with U.S GAAP. These accounting principles require us to make judgments, estimates
and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of
revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our past experience,
knowledge and assessments of current business and other conditions, our expectations regarding the future based on available information
and assumptions.
Other than disclosed
below, there have been no material changes during the nine months ended December 31, 2018 in our accounting policies from those
previously disclosed in the Company’s Annual Report for the fiscal year ended March 31, 2018.
The selection of critical
accounting policies, the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported
results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements.
We believe the following accounting policies involve the most significant assumptions and estimates used in the preparation of
our unaudited condensed consolidated financial statements.
|
(a)
|
Business combinations
and noncontrolling interests
|
We account for our business
combinations using the acquisition method of accounting in accordance with Accounting Standards Codification ("ASC")
805 "Business Combinations." The cost of an acquisition is measured as the aggregate of the acquisition date fair value
of the assets transferred to the sellers and liabilities incurred by us 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 noncontrolling interests. The excess
of (i) the total costs of acquisition, fair value of the noncontrolling 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, we 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 our non-wholly owned
subsidiaries, a noncontrolling interest is recognized to reflect portion of equity that is not attributable, directly or indirectly,
to us. The cumulative results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests
in our unaudited condensed consolidated balance sheets and consolidated statements of operations and comprehensive loss. Cash flows
related to transactions with noncontrolling interests are presented under financing activities in the consolidated statements of
cash flows.
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 our management team. Historically, we had one single operating and reportable segment,
namely the provision of an online lending services. During the three months ended December 31, 2018, we acquired Hunan Ruixi and
its VIE and evaluated how the CODM manages the businesses of us to maximize efficiency in allocating resources and assessing performance.
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
|
Software
|
|
5-7 years
|
Customer relationship
|
|
10 years
|
Separately identifiable
intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances 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.
We have adopted
ASC 606, since the first quarter of 2018 using the modified retrospective approach. 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.
We have assessed the
impact of the guidance by reviewing its existing customer contracts and current accounting policies and practices to identify differences
that will result from applying the new requirements, including the evaluation of its performance obligations, transaction price,
customer payments, transfer of control and principal versus agent considerations. Based on the assessment, we concluded that there
was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of ASC 606 and therefore
there was no material changes to the Company's unaudited condensed consolidated financial statements upon adoption of ASC 606.
During the three and
nine months ended December 31, 2018 and 2017, we generated revenues primarily from transaction and service fees earned from online
lending services, facilitation fees earned from third party sales teams or automobile buyers for facilitation of sales of automobiles,
service fees earned from automobile buyers thought the purchase process, management and guarantee fees provided for automobile
purchasers and service fees earned from other automobile transaction related services.
Online Lending Services
Transaction fees - Transaction
fees are paid by borrowers to us for the work we perform through its platform. The amount of these fees is based upon the loan
amount, maturity and the credit grade of borrowers. The fees charged to borrowers are paid upon (i) disbursement of the proceeds
for loans which accrue interest on a monthly basis or (ii) full payment of principal and interest of loans which accrue interest
on a daily basis. These fees are non-refundable upon the issuance of loan. The Company recognizes the revenue when loans have been
disbursed to borrowers or borrowers have repaid their principal or interest of loans.
Service fees - We charge
investors service fees on their actual investment payments. We generally receive the service fees upon the investors’ receipt
of their investment returns. We recognize the revenue when loans have been repaid and investor have received their investment income.
Automobile Transaction
and Financing Services
Facilitation
fee from automobile transaction
–
Facilitation fees
from automobile purchase services are paid by our customers including third-party sales teams or the automobile purchasers
for the facilitation of the sales of automobiles. We attract automobile purchasers through third-party sales teams or its own
sales department. For the sales facilitated between third-party sales teams and automobile purchasers, we charge the fees to
the third-party sales teams, which derived from the commission paid by the automobile purchasers to the third-party sales
teams. We recognize the revenue when the titles transfer to the owners. While for the sales facilitated between automobile
purchasers and dealers, we charge the fees to the automobile purchasers. We recognize the revenue when the titles transferred to
the owners. The amount of the fee is based on the type of automobile and negotiation with each sales team or automobile
purchaser. The fees charged to third-party sales teams or automobile purchasers are paid when the transactions are
consummated. These fees are non-refundable upon the delivery of automobiles.
Service fees from automobile
purchase services - Services fees from automobile purchase services are paid by automobile purchasers for a series of the services
throughout the purchase process such as registration of license plates and permits from the relevant government authorities, insurance
referral, and assistance with applications to financial institutions to finance the purchase. The amount of these fees is based
on the total quoted price of the automobiles and relevant services provided, actual expenditure to fulfill those services and other
factors of the automobiles. The Company recognizes the revenue when all the services are completed and the automobile is delivered
to the purchaser.
Service fees from management and guarantee services – A majority of the Company’s customers
are the drivers
who provide ride-hailing services over
an internet service platform, and such drivers are required to sign affiliation agreements with the Company in order for them s
to be able to provide such services through the online platform. The Company will provide them with management services during
the affiliation period. Service fees for management and guarantee services are paid by automobile purchasers on a monthly basis
for the management and guarantee services provided during the affiliation period. In addition, the Company provides guarantee on
the payments (including principal and interest) of certain automobile purchasers under the financing agreements with financial
institutions during the affiliation period. The Company recognizes the revenue over the affiliation period when performance obligations
are completed.