The accompanying notes are an
integral part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of the consolidated
financial statements.
The accompanying notes are an integral part of the consolidated
financial statements.
The following tables provides a reconciliation of cash, cash
equivalent and restricted cash reported within the statement of financial position that sum to the total of the same amounts shown
in the statement of cash flows:
The accompanying notes are an integral part of the consolidated
financial statements.
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 provides automobile transaction and
related services focusing on the ride-hailing industry in the People’s Republic of China (“PRC” or “China”)
through its wholly owned subsidiary, Yicheng Financial Leasing Co., Ltd., a PRC limited liability company (“Yicheng”),
and its majority owned subsidiary, Hunan Ruixi Financial Leasing Co., Ltd., a PRC limited liability company (“Hunan
Ruixi”), its wholly owned subsidiary, Hunan Ruixi Automobile Leasing Co., Ltd., a PRC limited liability company (“Ruixi
Leasing”), and its variable interest entity (“VIE”), Sichuan Jinkailong Automobile Leasing Co., Ltd., a
PRC limited liability company (“Jinkailong”).
As described further below, since October
2020, the Company also operates an online ride-hailing platform (known as Xixingtianxia)
through Hunan Xixingtianxia Technology Co., Ltd. , a PRC limited liability company (“XXTX”), which is a majority
owned subsidiary of Sichuan Senmiao Zecheng Business Consulting Co., Ltd., a PRC limited liability company and wholly-owned subsidiary
of the Company (“Senmiao Consulting”). The Company’s ride hailing platform enables qualified ride-hailing drivers
to provide application based transportation services in Chengdu, Changsha, Neijiang and Panzhihua, China.
Substantially all of the Company’s
operations are conducted in China.
The Company previously operated an online lending
platform in China through its VIE, Sichuan Senmiao Ronglian Technology Co., Ltd. (“Sichuan Senmiao”), which facilitated
peer-to-peer (“P2P”) loan transactions between Chinese investors and individual and small-to-medium-sized enterprise
borrowers. The Company ceased its online lending services business in October 2019.
Hunan Ruixi holds a business license for
automobile sales and financial leasing and has been engaged in automobile financial leasing services and automobile sales since
March 2019 and January 2019, respectively. Hunan Ruixi also controls Jinkailong through its 35% equity interest and voting agreements
with Jinkailong’s other shareholders. Jinkailong facilitates automobile sales and financing transactions for its clients,
who are primarily ride-hailing drivers and provides them operating lease and relevant after-transaction services. Yicheng has been
engaged in automobile sales since June 2019.
On July 4, 2020, Hunan Ruixi, Jinkailong
and the other shareholders of Jinkailong entered into an agreement (the “JKL Investment Agreement”) with Hongyi Industrial
Group Co., Ltd. (“Hongyi”). Pursuant to the JKL Investment Agreement, Jinkailong agreed to issue and Hongyi agreed
to subscribe for an approximately 27.03% equity interest in Jinkailong in consideration of RMB50 million (approximately $7.0 million)
(the “Investment”). The Investment will be made in two payments: (i) the first payment of RMB10 million (approximately
$1.4 million) was due no later than December 31, 2020 and (ii) the remaining RMB40 million (approximately $5.6 million) is due
within 30 days after the record-filing of the Investment has been made with the local PRC government and the other shareholders
of Jinkailong having made their respective capital contributions in full in cash, but no later than December 31, 2020. As a result,
Hunan Ruixi will be required to pay RMB3.5 million (approximately $0.5 million) to Jinkailong as a capital contribution. According
to the latest arrangement with Hongyi, the first payment of RMB10 million has been postponed and the total investment of RMB50
million will be made before March 31, 2021. As a result, as of December 31, 2020, neither Hunan Ruixi nor the other shareholders
of Jinkailong paid any capital contribution to Jinkailong, nor the record-filing of the Investment has been made with the local
PRC government. As of the issuance date of these unaudited condensed consolidated financial statements, Hongyi has not made the
payment.
The JKL Investment Agreement also provides
Hongyi certain shareholder rights, including, but not limited to, the right to receive any undistributed dividends, a right of
first refusal for any equity transfer from the other shareholders of Jinkailong, a tag-along right during the performance commitment
period, anti-dilution rights, redemption rights, subscription rights and priority in liquidation or dissolution of Jinkailong.
Specifically, pursuant to the redemption right provision in the JKL Investment Agreement, in the event that Jinkailong (i) fails
to become public through an initial public offering for a valuation of no less than RMB350 million (approximately $49.5 million)
or merge with a public company for a valuation of no less than RMB300 million (approximately $42.5 million) within the six months
following the performance commitment period, (ii) fails to achieve an accumulated net profit of RMB24 million (approximately $3.4
million) for the first two years of the performance commitment period or a net profit of RMB20 million (approximately $2.9 million)
for the third year of the performance commitment period, or (iii) has any material and adverse change to its core business, including
but not limited to being included in the list of dishonest persons and loss of over one third of its online ride-hailing taxi
operating licenses, as well as bankruptcy, liquidation or cessation of operations, Hongyi shall have the right to require certain
shareholders of Jinkailong (including Hunan Ruixi) to repurchase all of its equity interest in Jinkailong. Based on a repurchase
formula provided for in the JKL Investment Agreement, the maximum repurchase amount that Hunan Ruixi would be subject to is RMB28,320,000
(approximately $4.0 million).
On September 11, 2020, Senmiao Consulting entered into an Investment
Agreement relating to XXTX with all the original shareholders of XXTX, pursuant to which Senmiao Consulting will make an investment
of RMB3.16 million in XXTX in cash and obtain a 51% equity interest accordingly. On October 23, 2020, the registration procedures
for the change in shareholders and registered capital were completed and XXTX became a majority owned subsidiary of Senmiao Consulting.
As of the issuance date of these unaudited condensed consolidated financial statements, Senmiao Consulting has made a capital contribution
of RMB1.0 million (approximately $0.2 million) to XXTX and the remaining amount is expected to be paid before December 31, 2021.
As of December 31, 2020, XXTX had eight wholly owned subsidiaries and only one of them has operations.
In December 2020, Senmiao Consulting formed
a wholly owned subsidiary, Chengdu Kuneng Jiecheng Technology Co., Ltd. (“Kuneng”), with a registered capital
of RMB10 million (approximately $1.6 million) in Chengdu City, Sichuan Province. In December 2020, Hunan Ruixi and a third party
jointly formed a subsidiary, Chengdu Xichuang Technology Service Co., Ltd. (“Xichuang”), with a registered capital
of RMB200,000 (approximately $32,000) in Chengdu City, Sichuan Province. Hunan Ruixi holds 70% of the equity interests of Xichuang.
As of December 31, 2020, neither Kuneng nor Xichuang has commenced operating.
The following diagram illustrates the
Company’s corporate structure, including its subsidiaries, and VIEs, as of the issuance date of these unaudited condensed
consolidated financial statements:
VIE Agreements with Sichuan Senmiao
According to the VIE Agreements, Sichuan
Senmiao is obligated to pay Senmiao Consulting service fees equal to its net income. Sichuan Senmiao’s entire operations
are controlled by the Company. Although the Company discontinued Sichuan Senmiao’s online P2P lending services business
commencing in October 2019, the VIE Agreements remain in place, and such agreements are described in detail below:
Equity Interest Pledge Agreement
Senmiao Consulting, 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 Senmiao Consulting 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,
Senmiao Consulting 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, Senmiao Consulting, Sichuan Senmiao and each of Sichuan Senmiao Shareholders, Senmiao
Consulting 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 Senmiao Consulting’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. Senmiao Consulting 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 Senmiao Consulting, Sichuan Senmiao and the Sichuan Senmiao Shareholders, the Sichuan Senmiao Shareholders
have granted Senmiao Consulting 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 Senmiao Consulting
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 Senmiao Consulting 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.
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 Senmiao
Consulting, 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 Senmiao Consulting, is deemed to hold all of the voting
equity interests in Sichuan Senmiao. Pursuant to Exclusive Business Cooperation Agreement, Senmiao Consulting 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 accompanying unaudited condensed consolidated financial statements.
Voting Agreement with Jinkailong’s
Other Shareholders
Hunan Ruixi entered into two voting agreements
signed in August 2018 and February 2020, respectively, as amended (the “Voting Agreement”), with Jinkailong
and other Jinkailong’s shareholders holding an aggregate of 65% equity interests and obtained 35% equity interests in Jinkailong.
Pursuant to the Voting Agreements, all other Jinkailong’s shareholders will vote in concert with Hunan Ruixi on all fundamental
corporate transactions in the event of a disagreement for periods of 20 years and 18 years, respectively, ending on August 25,
2038.
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 Voting 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, management has determined that Jinkailong is a VIE and
the financial statements of Jinkailong are consolidated in the Company’s unaudited condensed 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, 2020 and March 31,
2020 are as follows:
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
345,944
|
|
|
$
|
247,671
|
|
Restricted Cash
|
|
|
5,190
|
|
|
|
-
|
|
Accounts receivable, net, current portion
|
|
|
667,467
|
|
|
|
66,768
|
|
Prepayments, other receivables and other assets, net
|
|
|
1,615,131
|
|
|
|
1,500,784
|
|
Other receivable- intercompany
|
|
|
1,334,567
|
|
|
|
2,211
|
|
Due from related parties
|
|
|
69,099
|
|
|
|
26,461
|
|
Current assets - discontinued operations (1)
|
|
|
668,663
|
|
|
|
1,363,972
|
|
Total current assets
|
|
|
4,706,061
|
|
|
|
3,207,867
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
510,856
|
|
|
|
317,427
|
|
Property and equipment, net - discontinued operations
|
|
|
3,540
|
|
|
|
3,895
|
|
Total property and equipment, net
|
|
|
514,396
|
|
|
|
321,322
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets, net
|
|
|
284,639
|
|
|
|
317,258
|
|
Operating lease right-of-use assets, net, related parties
|
|
|
11,090
|
|
|
|
50,213
|
|
Financing lease right-of-use assets, net
|
|
|
5,110,181
|
|
|
|
5,440,362
|
|
Accounts receivable, net, non-current
|
|
|
357,308
|
|
|
|
720,916
|
|
Total other assets
|
|
|
5,763,218
|
|
|
|
6,528,749
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,983,675
|
|
|
$
|
10,057,938
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Borrowings from financial institutions
|
|
$
|
426,715
|
|
|
$
|
226,753
|
|
Accounts payable
|
|
|
1,583
|
|
|
|
4,018
|
|
Advances from customers
|
|
|
42,332
|
|
|
|
34,374
|
|
Income tax payable
|
|
|
17,467
|
|
|
|
16,106
|
|
Accrued expenses and other liabilities
|
|
|
3,109,544
|
|
|
|
1,632,617
|
|
Other payable - intercompany
|
|
|
6,760,460
|
|
|
|
5,143,463
|
|
Due to related parties and affiliates
|
|
|
168,837
|
|
|
|
152,679
|
|
Operating lease liabilities
|
|
|
62,380
|
|
|
|
78,981
|
|
Operating lease liabilities - related parties
|
|
|
6,318
|
|
|
|
37,378
|
|
Financing lease liabilities
|
|
|
4,791,111
|
|
|
|
3,473,967
|
|
Current liabilities - discontinued operations (2)
|
|
|
2,661,279
|
|
|
|
7,561,603
|
|
Total current liabilities
|
|
|
18,048,026
|
|
|
|
18,361,939
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Borrowings from financial institutions, non-current
|
|
|
41,330
|
|
|
|
58,572
|
|
Operating lease liabilities, non-current
|
|
|
202,408
|
|
|
|
231,825
|
|
Operating lease liabilities, non-current - related parties
|
|
|
5,113
|
|
|
|
-
|
|
Financing lease liabilities, non-current
|
|
|
2,515,025
|
|
|
|
2,576,094
|
|
Total other liabilities
|
|
|
2,763,876
|
|
|
|
2,866,491
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
20,811,902
|
|
|
$
|
21,228,430
|
|
|
(1)
|
Includes intercompany receivables of $178,428 and $543,446 as of December 31, 2020 and March 31, 2020, respectively.
|
|
(2)
|
Includes intercompany payables of $35,912 and $402,406 as of December 31, 2020 and March 31, 2020, respectively.
|
Net
revenue, income (loss) from operations and net loss of the VIEs that were included in
the Company's unaudited condensed consolidated financial statements for the three and
nine months ended December 31, 2020 and 2019 are as follows:
|
|
For
the
Three Months Ended
|
|
|
For
the
Nine Months Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net
revenue from continuing operations
|
|
$
|
1,157,146
|
|
|
$
|
549,330
|
|
|
$
|
2,925,839
|
|
|
$
|
2,302,940
|
|
Net revenue from
discontinued operations
|
|
$
|
1,642
|
|
|
$
|
4,294
|
|
|
$
|
6,196
|
|
|
$
|
112,618
|
|
Income (loss)
from operations from continuing operations
|
|
$
|
(985,172
|
)
|
|
$
|
(53,999
|
)
|
|
$
|
(3,551,034
|
)
|
|
$
|
600,455
|
|
Loss from
operations from discontinued operations
|
|
$
|
(2,238
|
)
|
|
$
|
(206,234
|
)
|
|
$
|
(84,692
|
)
|
|
$
|
(1,001,493
|
)
|
Net Income (loss) from continuing operations
attributable to stockholders
|
|
$
|
(972,620
|
)
|
|
$
|
(116,991
|
)
|
|
$
|
(2,911,651
|
)
|
|
$
|
95,976
|
|
Net loss from discontinued
operations attributable to stockholders
|
|
|
(8,212
|
)
|
|
|
(4,094,558
|
)
|
|
|
(233,977
|
)
|
|
|
(4,870,090
|
)
|
Net loss attributable
to stockholders
|
|
$
|
(980,832
|
)
|
|
$
|
(4,211,549
|
)
|
|
$
|
(3,145,628
|
)
|
|
$
|
(4,774,114
|
)
|
In assessing the Company’s liquidity,
the Company monitors and analyzes its cash on-hand and its operating and capital expenditure commitments. The Company’s
liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. Debt financing
from financial institutions and equity financings have been utilized to finance the working capital requirements of the Company.
The Company’s business is capital
intensive. The Company’s management has considered whether there is substantial doubt about its ability to continue as a
going concern due to (1) recurring losses from operations, including net loss of approximately $8.6 million and $0.1 million from
continuing operations and discontinued operations, respectively, for the nine months ended December 31, 2020, (2) accumulated
deficit of approximately $30.9 million as of December 31, 2020; (3) the working capital deficit of approximately $5.6 million
as of December 31, 2020; (4) operating cash outflows of approximately $0.2 million and $1.6 million from continuing operations
and discontinued operations, respectively, for the nine months ended December 31, 2020 and (5) the purchase commitment of $8.3
million to be completed in 2021. Although the Company believes that it can realize its current assets in the normal course of
business, the Company’s ability to repay its current obligations will depend on the future realization of its current assets
and the future operating revenues generated from its operations.
On February 10, 2021, the Company completed
a registered direct offering of 5,072,465 shares of the Company’s common stock at $1.38 per share, pursuant to a securities
purchase agreement with certain accredited investors. As a result, the Company raised approximately $5.7 million, net of placement
agent fees and offering expenses, to support the Company’s working capital requirements.
After the completion of the registered
direct offering, the Company expects its working capital to change from a deficit of approximately $5.6 million to a positive working
capital of approximately $0.1 million. However, management has determined there is substantial doubt about its ability to continue
as a going concern. If the Company is unable to generate significant revenue, the Company may be required to cease or curtail its
operations. Management is trying to alleviate the going concern risk through the following sources:
|
●
|
the Company will continue to seek equity financing
to support its working capital;
|
|
|
|
|
●
|
other available sources of financing (including
debt) from PRC banks and other financial institutions; and
|
|
|
|
|
●
|
financial support and credit guarantee commitments
from the Company’s related parties.
|
In addition, pursuant to the JKL Investment
Agreement mentioned above, Hongyi agreed to subscribe for a 27.03% equity interest in Jinkailong in consideration of approximately
$7.0 million. Such investment from Hongyi will provide additional cash flow of approximately $7.0 million to support Jinkailong’s
working capital requirements. According to the latest arrangement with Hongyi, the first payment of $1.4 million has been postponed
and the total investment of $7.0 million will be made before March 31, 2021 and as of the issuance date of these unaudited condensed
consolidated financial statements, Hongyi has not made the payment.
Based on the above considerations, management
is of the opinion that the Company would not have sufficient funds to meet its working capital requirements and debt obligations
as they become due one year from the issuance date of these financial statements. However, there is no assurance that the Company
will be successful in implementing the foregoing plans or that additional financing will be available to the Company on commercially
reasonable terms, or at all. There are a number of factors that could potentially arise that could undermine the Company’s
plans, such as (i) the impact of the COVID-19 pandemic on the Company’s business and areas of operations in China, (ii) changes
in the demand for the Company’s services, (iii) PRC government policies, (iv) economic conditions in China and worldwide,
(v) competitive pricing in the automobile transaction and related service and ride-hailing industries, (vi) changes in the Company’s
relationships with key business partners, (vii) that financial institutions in China may not able to provide continued financial
support to the Company’s customers, and (viii) the perception of PRC-based companies in the U.S. capital markets. The Company’s
inability to secure needed financing when required could require material changes to the Company’s business plans and could
have a material adverse effect on the Company’s viability and results of operations.
3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Basis of presentation
|
The accompanying interim unaudited condensed
consolidated financial statements of the Company has been prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”).
The unaudited interim financial information
as of December 31, 2020 and for the three and nine months ended December 31, 2020 and 2019 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, 2020, which was filed
with the SEC on July 9, 2020.
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, 2020, its unaudited results of operations for the three and nine
months ended December 31, 2020 and 2019, and its unaudited cash flows for the nine months ended December 31, 2020 and 2019, 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 subsidiaries
and VIEs. 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 and VIEs is U.S. dollars (“US$”) and the accompanying unaudited condensed consolidated financial
statements have been expressed in US$. However, the Company maintains the books and records in its functional currency, Chinese
Renminbi (“RMB”), being the functional currency of the economic environment in which its operations are conducted.
In general, for consolidation purposes,
assets and liabilities of the Company and its subsidiaries whose functional currency is not the US$, are translated into US$,
using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the
period. The gains and losses resulting from translation of financial statements of the Company and its subsidiaries and VIEs are
recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Translation of amounts from RMB into US$
has been made at the following exchange rates for the respective periods:
|
|
December
31,
2020
|
|
|
March
31,
2020
|
|
Balance sheet items, except
for equity accounts
|
|
|
6.5306
|
|
|
|
7.0824
|
|
|
|
For the
Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Items in the statements of operations and comprehensive loss
|
|
|
6.6224
|
|
|
|
7.0600
|
|
|
|
For the
Nine Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Items in the statements of operations and comprehensive loss, and
statements of cash flows
|
|
|
6.8726
|
|
|
|
6.9620
|
|
In presenting the unaudited condensed
consolidated financial statements in accordance with U.S. GAAP, management make estimates and assumptions that affect the amounts
reported and related disclosures. Estimates, by their nature, are based on judgement and available information. Accordingly, actual
results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions using the currently
available information. Changes in facts and circumstances may cause 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 inputs into our judgments and estimates consider
the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Estimates are used
when accounting for items and matters including, but not limited to, revenue recognition, residual values, lease classification
and liabilities, finance lease receivables, inventory obsolescence, right-of-use assets, determinations of the useful lives and
valuation of long-lived assets and goodwill, estimates of allowances for doubtful accounts and prepayments, estimates of impairment
of intangible assets, valuation of deferred tax assets, estimated fair value used in business acquisitions, valuation of derivative
liabilities, allocation of fair value of derivative liabilities, issuance of common stock and warrants exercised and other provisions
and contingencies.
(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. The three levels of valuation hierarchy
are defined as follows:
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.
|
The following table sets forth by level
within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis
as of December 31, 2020 and March 31, 2020:
|
|
Carrying
Value at
December 31, 2020
|
|
|
Fair
Value Measurement at
December 31, 2020
|
|
|
|
(Unaudited)
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Derivative liabilities
|
|
$
|
1,043,430
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,043,430
|
|
|
|
Carrying
Value at
March 31, 2020
|
|
|
Fair
Value Measurement at
March 31, 2020
|
|
|
|
|
|
|
Level
1
|
|
|
Level 2
|
|
|
Level
3
|
|
Derivative liabilities
|
|
$
|
342,530
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
342,530
|
|
The following is a reconciliation of the
beginning and ending balance of the assets and liabilities measured at fair value on a recurring basis for the nine months ended
December 31, 2020 and for the year ended March 31, 2020:
|
|
For
the
Nine Months Ended
December 31,
2020
|
|
|
For
the
Year Ended
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Beginning balance
|
|
$
|
342,530
|
|
|
$
|
-
|
|
Derivative liabilities recognized at grant date on June 20, 2019
|
|
|
-
|
|
|
|
3,150,006
|
|
Derivative liabilities recognized at grant date on August 4, 2020
|
|
|
241,919
|
|
|
|
-
|
|
Change in fair value of derivative liabilities
|
|
|
1,443,784
|
|
|
|
(1,796,724
|
)
|
Fair value of Series B warrants exercised
|
|
|
-
|
|
|
|
(1,010,752
|
)
|
Fair value of Series A warrants exercised
|
|
|
(984,803
|
)
|
|
|
-
|
|
Ending balance
|
|
$
|
1,043,430
|
|
|
$
|
342,530
|
|
On June 21, 2019, the Company closed
a registered direct offering of an aggregate of 1,781,361 shares of common stock, and in connection therewith, issued to the investors
(i) for no additional consideration, Series A warrants to purchase up to an aggregate of 1,336,021 shares of common
stock, (ii) for nominal additional consideration, Series B warrants to purchase up to a maximum aggregate of 1,116,320
shares of common stock and (iii) placement agent warrants to purchase up to 142,509 shares of common stock.
On August 6, 2020, the Company completed
a public offering of 12,000,000 shares of the Company’s common stock at $0.50 per share (the “Offering Price”),
pursuant to an underwriting agreement with The Benchmark Company, LLC and Axiom Capital Management, Inc., as representatives of
the several underwriters (the “Underwriters”). On August 13, 2020, the Underwriters exercised their rights to purchase
an additional 1,800,000 shares of common stock at the Offering Price. In connection with the offering, the Company issued the
Underwriters, on a private placement basis, warrants to purchase up to 568,000 shares of common stock (the “Underwriters’
Warrants”). The Underwriters’ Warrants are exercisable for a period of five years commencing six months from August
4, 2020 at a price per share equal to 125% of the Offering Price and are exercisable on a “cashless” basis.
The strike price of the Company’s
Series A and Series B warrants, the placement agent warrants and the Underwriters’ Warrants are denominated in
US$ and the Company’s functional currency is RMB, therefore, those warrant shares are not considered indexed to the Company’s
own stock which should be classified as derivative liability.
The Company’s Series A and
Series B warrants, the placement agent warrants and the Underwriters’ Warrants are not traded in an active securities
market; therefore, the Company estimates the fair value to those warrants using the Black-Scholes valuation model on June 20,
2019 (the grant date), August 4, 2020 (the grant date), March 31, 2020 and December 31, 2020.
|
|
June 20, 2019
|
|
|
August 4, 2020
|
|
|
|
|
|
|
|
|
|
Placement
|
|
|
|
|
|
|
Series A
|
|
|
Series B
|
|
|
Agent
|
|
|
Underwriters’
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Warrants
|
|
# of shares exercisable
|
|
|
1,336,021
|
|
|
|
1,116,320
|
|
|
|
142,509
|
|
|
|
568,000
|
|
Valuation date
|
|
|
6/20/2019
|
|
|
|
6/20/2019
|
|
|
|
6/20/2019
|
|
|
|
8/4/2020
|
|
Exercise price
|
|
$
|
3.72
|
|
|
$
|
3.72
|
|
|
$
|
3.38
|
|
|
$
|
0.63
|
|
Stock price
|
|
$
|
2.8
|
|
|
$
|
2.8
|
|
|
$
|
2.8
|
|
|
$
|
0.51
|
|
Expected term (years)
|
|
|
4.00
|
|
|
|
1.00
|
|
|
|
4.00
|
|
|
|
5.00
|
|
Risk-free interest rate
|
|
|
1.77
|
%
|
|
|
1.91
|
%
|
|
|
1.77
|
%
|
|
|
0.19
|
%
|
Expected volatility
|
|
|
86
|
%
|
|
|
91
|
%
|
|
|
86
|
%
|
|
|
129
|
%
|
|
|
March
31, 2020
|
|
|
|
Series A
Warrants
|
|
|
Series B
Warrants
|
|
|
Placement
Agent
Warrants
|
|
# of shares exercisable
|
|
|
1,336,021
|
|
|
|
3,132
|
|
|
|
142,509
|
|
Valuation date
|
|
|
3/31/2020
|
|
|
|
3/31/2020
|
|
|
|
3/31/2020
|
|
Exercise price
|
|
$
|
1.50
|
|
|
$
|
0.0001
|
|
|
$
|
3.38
|
|
Stock price
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
Expected term (years)
|
|
|
3.22
|
|
|
|
0.22
|
|
|
|
3.22
|
|
Risk-free interest rate
|
|
|
0.30
|
%
|
|
|
0.11
|
%
|
|
|
0.30
|
%
|
Expected volatility
|
|
|
122
|
%
|
|
|
127
|
%
|
|
|
122
|
%
|
|
|
December
31, 2020
|
|
|
|
|
|
|
Placement
|
|
|
|
|
|
|
Series A
|
|
|
Agent
|
|
|
Underwriters’
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Warrants
|
|
# of shares exercisable
|
|
|
443,787
|
|
|
|
142,509
|
|
|
|
568,000
|
|
Valuation date
|
|
|
12/31/2020
|
|
|
|
12/31/2020
|
|
|
|
12/31/2020
|
|
Exercise price
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
0.63
|
|
Stock price
|
|
$
|
1.07
|
|
|
$
|
1.07
|
|
|
$
|
1.07
|
|
Expected term (years)
|
|
|
2.47
|
|
|
|
2.47
|
|
|
|
4.59
|
|
Risk-free interest rate
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.31
|
%
|
Expected volatility
|
|
|
133
|
%
|
|
|
133
|
%
|
|
|
133
|
%
|
As of December 31, 2020 and March 31,
2020, financial instruments of the Company comprised primarily current assets and current liabilities including cash and cash
equivalents, restricted cash, accounts receivable, inventories, finance lease receivables, prepayments, other receivables and
other assets, due from related parties, borrowings from financial institutions, accounts payable, advance from customers, lease
liabilities, accrued expenses and other liabilities, due to related parties and affiliates, and operating and financing lease
liabilities, which approximate their fair values because of the short-term nature of these instruments, and non-current liabilities
of borrowings from financial institutions, which approximate their fair values because of the stated loan interest rate to the
rate charged by similar financial institutions.
The non-current portion of accounts receivables,
finance lease receivables, and operating and financing lease liabilities were recorded at gross adjusted for the interest using
the effective interest rate method. The Company believes that the effective interest rates underlying these instruments approximate
their fair values because the Company used its incremental borrowing rate to recognize the present value of these instruments
as of December 31, 2020 and March 31, 2020.
Other than as listed above, the Company
did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value.
(f)
|
Business combinations and
non-controlling interests
|
The Company accounts for its business
combinations using the acquisition method of accounting in accordance with ASC 805 "Business Combinations." The cost
of an acquisition is measured 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 non-controlling interests. The excess of (i) the total costs
of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest
in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost
of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly
in the unaudited condensed 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 unaudited condensed consolidated income statements.
For the Company's non-wholly owned subsidiaries,
a non-controlling interest is recognized to reflect portion of equity that is not attributable, directly or indirectly, to the
Company. The cumulative results of operations attributable to non-controlling interests are also recorded as non-controlling interests
in the Company's unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of operations
and comprehensive loss. Cash flows related to transactions with non-controlling interests are presented under financing activities
in the unaudited condensed 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 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 year ended March 31, 2019, the Company acquired Hunan
Ruixi and Jinkailong. During the nine months ended December 31, 2020, the Company acquired XXTX. The Company evaluated how the
CODM manages the businesses of the Company to maximize efficiency in allocating resources and assessing performance. The Company
has discontinued the online P2P lending services segment and has only one segment in the periods after October 17, 2019.
(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. Cash and cash
equivalents also consist of funds received from automobile purchasers as payment for automobiles, related insurances and taxes
to be paid on behalf of the automobile purchasers, which funds were held at the third party platforms’ fund accounts and
which are unrestricted and immediately available for withdrawal and use.
Restricted
cash consists of fund held in the bank accounts of Jinkailong was frozen by a court order due to the default of Langyue Automobile
Services Co., Ltd. (“Langyue”), a prior business partner whom Jinkailong provided a guarantee to,
under the Master Contract (as defined below in Note 18). As of December 31, 2020, the freeze on all bank accounts,
except two accounts in a bank in the process of being unfrozen, have been released. The restricted cash of Jinkailong was RMB33,892
(approximately $5,190) as of December 31, 2020 and has been fully released on January 7, 2021.
In November 2016, the FASB issued ASU
No. 2016-18, Statement of Cash Flows (230): Restricted Cash. The amendments in this Update require that a statement of cash flows
explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash
or restricted cash equivalents. For public business entities, the amendments in this update are effective for fiscal years beginning
after December 15, 2017, and interim periods within those annual periods. Earlier adoption is permitted. The amendments in this
Update should be applied using a retrospective transition method to each period presented. The Company adopted this guidance in
all periods presented.
(j)
|
Accounts receivable, net
|
Accounts receivable are recorded at the
invoiced amount less an allowance for any uncollectible accounts and do not bear interest, and are due on demand. Management reviews
the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables.
Management also periodically evaluates individual customer’s financial condition, credit history and the current economic
conditions to make adjustments in the allowance when necessary. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2020 and March 31,
2020, allowance for doubtful accounts amounted to $79,355 and $379,689, respectively.
Inventories consist of automobiles which
are held primarily for sale and for leasing purposes, and are stated at lower of cost or net realizable value, as determined using
the weighted average cost method. Management compares the cost of inventories with the net realizable value and if applicable,
an allowance is made for writing down the inventory to its net realizable value, if lower than cost. On an ongoing basis, inventories
are reviewed for potential write-down for estimated obsolescence or unmarketable inventories which equals the difference between
the costs of inventories and the estimated net realizable value based upon forecasts for future demand and market conditions.
When inventories are written-down to the lower of cost or net realizable value, it is not marked up subsequently based on changes
in underlying facts and circumstances.
(l)
|
Finance lease receivables,
net
|
Finance lease receivables, which result
from sales-type leases, are measured at discounted present value of (i) future minimum lease payments, (ii) any residual
value not subject to a bargain purchase option as a finance lease receivables on its balance sheet and (iii) accrued interest
on the balance of the finance lease receivables based on the interest rate inherent in the applicable lease over the term of the
lease. Management also periodically evaluates individual customer’s financial condition, credit history and the current
economic conditions to make adjustments in the allowance when necessary. Finance lease receivables is charged off against the
allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December
31, 2020 and March 31, 2020, the Company determined no allowance for doubtful accounts was necessary for finance lease receivables.
As of December 31, 2020 and March 31, 2020, finance lease
receivables consisted of the following:
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Minimum lease payments receivable
|
|
|
1,566,517
|
|
|
|
1,606,230
|
|
Less: Unearned interest
|
|
|
(392,307
|
)
|
|
|
(412,975
|
)
|
Financing lease receivables, net
|
|
$
|
1,174,210
|
|
|
$
|
1,193,255
|
|
Finance lease receivables, net, current portion
|
|
$
|
672,960
|
|
|
$
|
459,110
|
|
Finance lease receivables, net, non-current portion
|
|
$
|
501,250
|
|
|
$
|
734,145
|
|
Future scheduled minimum lease payments for investments in
sales-type leases as of December 31, 2020 are as follows:
|
|
Minimum
future
|
|
|
|
payments
receivable
|
|
Twelve
months ending December 31, 2021
|
|
$
|
488,137
|
|
Twelve months ending
December 31, 2022
|
|
|
692,388
|
|
Twelve months ending
December 31, 2023
|
|
|
353,208
|
|
Twelve months ending
December 31, 2024
|
|
|
32,784
|
|
Total
|
|
$
|
1,566,517
|
|
(m)
|
Property and equipment,
net
|
Property and equipment primarily consist
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:
Categories
|
|
Useful life
|
Leasehold improvements
|
|
Shorter of the remaining lease terms or estimated useful lives
|
Computer equipment
|
|
2 - 5 years
|
Office equipment
|
|
3 - 5 years
|
Automobiles
|
|
3 - 5 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, 2020, the impairment for property and equipment was $10,342. For the three and nine months ended December 31, 2019, there was
no impairment recorded for 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 statements
of operations and comprehensive loss.
(n)
|
Intangible assets, net
|
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:
Categories
|
|
|
Useful life
|
Software
|
|
|
5-10 years
|
Online ride-hailing platform operating license
|
|
|
5 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, 2020 and 2019, there was no impairment of intangible assets.
Goodwill represents the excess of the
consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiaries at the date
of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate
impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is
immediately written off to its fair value and the loss is recognized in the consolidated statements of operations and comprehensive
income (loss). Impairment losses on goodwill are not reversed.
The Company reviews the carrying value
of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist annually or more
frequently if events and circumstances indicate that it is more likely than not that an impairment has occurred. The Company has
the opinion to access qualitative factors to determine whether it is necessary to perform the two-step in accordance with ASC
350-20. If the Company believes, as a result of the qualitative carrying amount, the two-step quantities impairment test described
below is required.
The first step compares the fair values
of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying
amount, goodwill is not considered to be impaired and the second step will not be required.
If the carrying amount of a reporting
unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting
unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business acquisition
with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit.
The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair
value of goodwill. Estimating fair value is performed by utilizing various valuation techniques, with the primary technique being
a discounted cash flow.
If impairment exists, goodwill is immediately
written off to its fair value and the loss is recognized in the consolidated statements of operations and comprehensive income
(loss). Impairment losses on goodwill are not reversed. For the nine months ended December 31, 2020 and 2019, no impairment was
recorded for goodwill.
(p)
|
Earnings (loss) per share
|
Basic earnings (loss) per share is computed
by dividing net income (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 income
(loss) per share, net income (loss) attributable to stockholders for basic earnings (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 earnings (loss) per share if their inclusion
is anti-dilutive.
(q)
|
Derivative liabilities
|
A contract is designated as an asset or
a liability and is carried at fair value on the Company’s balance sheet, with any changes in fair value recorded in the
Company’s results of operations. The Company then determines which options, warrants and embedded features require
liability accounting and records the fair value as a derivative liability. The changes in the values of these instruments are
shown in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss as “change in
fair value of derivative liabilities”.
The
Company recognized its revenue under Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC
606). ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue
and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity
to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that
it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
It also requires the Company to identify contractual performance obligations and determine whether revenue should be recognized
at a point in time or over time, based on when control of goods and services transfers to a customer.
To achieve that core principle, the Company
applies the five steps defined under ASC 606: (i) identify the contract(s) with a customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance
obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company accounts for a contract with
a customer when the contract is committed in writing, the rights of the parties, including payment terms, are identified, the
contract has commercial substance and consideration to collect is substantially probable.
As of December 31, 2020, the Company had
outstanding contracts for automobile transaction and related services amounting to $534,065, of which $316,715 is expected to be
completed within twelve months after December 31, 2020, and $217,350 is
expected to be completed after December 31, 2021.
Disaggregated information of revenues
by business lines are as follows:
|
|
For the
Three Months Ended
December 31,
|
|
|
For the
Nine Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Automobile Transaction and Related Services (Continuing Operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Revenues
from sales of automobiles
|
|
$
|
104,329
|
|
|
$
|
1,987,433
|
|
|
$
|
527,961
|
|
|
$
|
10,828,063
|
|
- Operating lease revenues
from automobile rentals
|
|
|
939,645
|
|
|
|
-
|
|
|
|
2,136,078
|
|
|
|
-
|
|
- Service fees from automobile
purchase services
|
|
|
18,968
|
|
|
|
352,351
|
|
|
|
179,545
|
|
|
|
1,609,361
|
|
- Facilitation fees from
automobile transactions
|
|
|
30
|
|
|
|
21,031
|
|
|
|
1,646
|
|
|
|
164,294
|
|
- Service fees from management
and guarantee services
|
|
|
41,523
|
|
|
|
128,893
|
|
|
|
315,124
|
|
|
|
313,548
|
|
- Financing revenues
|
|
|
74,155
|
|
|
|
44,149
|
|
|
|
178,589
|
|
|
|
105,413
|
|
- Other
service fees
|
|
|
155,365
|
|
|
|
211,722
|
|
|
|
532,384
|
|
|
|
622,750
|
|
Total
Revenues from Automobile Transaction and Related Services (Continuing Operations)
|
|
|
1,334,015
|
|
|
|
2,745,579
|
|
|
|
3,871,327
|
|
|
|
13,643,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online Ride-hailing Platform Services (Continuing Operations)
|
|
|
304,535
|
|
|
|
-
|
|
|
|
304,535
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online Lending Services (Discontinued Operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Transaction fees
|
|
|
56
|
|
|
|
1,160
|
|
|
|
2,572
|
|
|
|
72,394
|
|
- Service fees
|
|
|
1,586
|
|
|
|
3,134
|
|
|
|
3,624
|
|
|
|
24,990
|
|
-
Website development revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,234
|
|
Total
Revenues from Online Lending Services (Discontinued Operations)
|
|
|
1,642
|
|
|
|
4,294
|
|
|
|
6,196
|
|
|
|
112,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
1,640,192
|
|
|
$
|
2,749,873
|
|
|
$
|
4,182,058
|
|
|
$
|
13,756,047
|
|
Automobile transaction and related services
Sales of automobiles – The Company
generates revenue from sales of automobiles to the customers of Jinkailong and Hunan Ruixi. The control over the automobile is
transferred to the purchaser along with the delivery of automobile. The amount of the revenue is based on the sale price agreed
by Hunan Ruixi or Yicheng and the counterparties, including Jinkailong, who acts on behalf of its customers. The Company recognizes
revenues when the automobile is delivered and control is transferred to the purchaser at a point in time.
Service fees from automobile purchase
services – Services fees from automobile purchase services are paid by automobile purchasers for a series of the services
provided to them throughout the purchase process such as credit assessment, preparation of financing application materials, assistance
with closing of financing transactions, license and plate registration, payment of taxes and fees, purchase of insurance, installment
of GPS devices, ride-hailing driver qualification and other administrative procedures. The amount of these fees is based on the
sales price of the automobiles and relevant services provided. The Company recognizes revenue when all the services are completed
and the automobile is delivered to the purchaser at a point in time.
Facilitation fees from automobile transactions
– Facilitation fees from automobile purchase transactions are paid by the Company’s customers including third-party
sales teams or the automobile purchasers for the facilitation of the sales and financing 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. Relating to sales facilitated between automobile purchasers
and dealers, the Company charges the fees to the automobile purchasers. The Company recognizes revenue from facilitation fees
when the titles are transferred to the purchasers at a point in time. The amount of fees 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 before the automobile purchase transactions are consummated. These fees are non-refundable upon the delivery of automobiles.
Service fees from management and guarantee
services – Over 95% of the Company’s customers are online ride-hailing drivers. The drivers sign affiliation agreements
with the Company, pursuant to which the Company provides them with management and guarantee services during the affiliation period.
Service fees for management and guarantee services are paid by such automobile purchasers on a monthly basis for the management
and guarantee services provided during the affiliation period. The Company recognizes revenue over the affiliation period
when performance obligations are completed.
Financing revenues – Interest income
from the lease arising from the Company’s sales-type leases and bundled lease arrangements are recognized as financing revenues
over the lease term based on the effective rate of interest in the lease.
Operating lease revenues from automobile
rentals –The Company generates revenue from sub-leasing automobiles from some online ride-hailing drivers or leasing its
own automobiles. The Company recognizes revenue wherein the automobile is transferred to the leasee and the leasee has the ability
to control the asset, is accounted for under ASC Topic 842. Rental transactions are satisfied over the rental period. Rental periods
are short term in nature, generally are twelve months or less.
Online ride-hailing platform services
The Company generates revenue from providing services to online
ride-hailing drivers (“Drivers”) to assist them in providing transportation services to riders ("Riders")
looking for taxi/ride-hailing services. The Company earns commissions for each completed ride in an amount equal to the difference
between an upfront quoted fare and the amount earned by a Driver based on actual time and distance for the ride charged to the
Rider. As a result, the Company bears a single performance obligation in the transaction of connecting Drivers with Riders to facilitate
the completion of a successful transportation service for Riders. The Company recognizes revenue upon completion of a ride as the
single performance obligation is satisfied and the Company has the right to receive payment for the services rendered upon the
completion of the ride. The Company evaluates the presentation of revenue on a gross or net basis based on whether it controls
the service provided to the Rider and is the principal (i.e. “gross”), or it arranges for other parties to provide
the service to the Rider and is an agent (i.e. "net"). Since the Company is not primarily responsible for ride-hailing
services provided to Riders, it does not have inventory risk related to the services. Thus, the Company recognizes revenue at a
net basis.
Leases
On April 1, 2019, the Company adopted
ASU 2016-02, Leases (ASC Topic 842). This update, as well as additional amendments and targeted improvements issued in 2018 and
early 2019, supersedes existing lease accounting guidance found under ASC 840, Leases (“ASC 840”).
The accounting for lessors does not fundamentally change with this update except for changes to conform and align guidance to
the lessee guidance, as well as to the revenue recognition guidance in ASU 2014-09, Revenue from Contracts with Customers (ASC
Topic 606). Some of these conforming changes, such as those related to the definition of lease term and minimum lease payments,
resulted in certain lease arrangements, that would have been previously accounted for as operating leases, to be classified and
accounted for as sales-type leases with a corresponding up-front recognition of automobile sales revenue when the lessee obtained
control over the automobile.
The two primary accounting provisions
the Company uses to classify transactions as sales-type or operating leases are: (i) a review of the lease term to determine
if it is for the major part of the economic life of the underlying equipment (defined as greater than 75%); and (ii) a review
of the present value of the lease payments to determine if they are equal to or greater than substantially all of the fair market
value of the equipment at the inception of the lease (defined as greater than 90%). Automobile included in arrangements meeting
these conditions are accounted for as sales-type leases. Interest income from the lease is recognized in financing revenues over
the lease term. Automobile included in arrangements that do not meet these conditions are accounted for as operating leases and
revenue is recognized over the term of the lease.
The Company excludes from the measurement
of its lease revenues any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing
transaction and collected from a customer.
The Company considers the economic life
of most of the automobiles to be three to four years, since this represents the most common lease term for its automobiles and
the automobiles will be used for ride-hailing services. The Company believes three to four years is representative of the period
during which an automobile is expected to be economically usable, with normal service, for the purpose for which it is intended.
A portion of the Company’s direct
sales of automobile to end customers are made through bundled lease arrangements which typically include automobile, services
(automobile purchase services, facilitation services, and management and guarantee services) and financing components where the
customer pays a single negotiated fixed minimum monthly payment for all elements over the contractual lease term. Revenues under
these bundled lease arrangements are allocated considering the relative standalone selling prices of the lease and non-lease deliverables
included in the bundled arrangement and the financing components. Lease deliverables include the automobile and financing, while
the non-lease deliverables generally consist of the services and repayment of advanced fees made on behalf of its customers. The
Company considers the fixed payments for purposes of allocation to the lease elements of the contract. The fixed minimum monthly
payments are multiplied by the number of months in the contract term to arrive at the total fixed lease payments that the customer
is obligated to make over the lease term. Amounts allocated to the automobile and financing elements are then subjected to the
accounting estimates under ASC 842 to ensure the values reflect standalone selling prices. The remainder of any fixed payments
are allocated to non-lease elements (automobile purchase services, facilitation fees, and management and guarantee services),
for which these revenues are recognized in a manner consistent with the guidance for service fees from automobile purchase services,
facilitation fees from automobile transactions, and service fees from management and guarantee services as discussed above.
The Company’s lease pricing interest
rates, which are used in determining customer payments in a bundled lease arrangement, are developed based upon the local prevailing
rates in the marketplace where its customer will be able to obtain an automobile loan under similar terms from the bank. The Company
reassesses its pricing interest rates quarterly based on changes in the local prevailing rates in the marketplace. As of December
31, 2020, the Company's pricing interest rate was 6.0% per annum.
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. Provisions or benefits for income taxes consists of tax estimated from taxable income plus or
minus deferred tax expenses (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. In principle, deferred
tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it
is probable that taxable income will be utilized with prior net operating loss carried forwards 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 utilized. 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 any significant unrecognized uncertain
tax positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of December 31,
2020 and March 31, 2020. As of December 31, 2020, the calendar years ended December 31, 2015 through 2019 for the Company’s
PRC entities remain open for statutory examination by PRC tax authorities. The Company presents deferred tax assets and liabilities
as non-current in the balance sheet based on an analysis of each taxpaying component within a jurisdiction.
(t)
|
Comprehensive income (loss)
|
Comprehensive income (loss) includes net
loss and foreign currency adjustments. Comprehensive income (loss) is reported in the unaudited condensed consolidated statements
of operations and comprehensive income (loss). Accumulated other comprehensive income (loss), as presented on the unaudited condensed
consolidated balance sheets are the cumulative foreign currency translation adjustments.
Share-based awards granted to the Company’s
employees are measured at fair value on grant date and share-based compensation expense is recognized (i) immediately at
the grant date if no vesting conditions are required, or (ii) using the accelerated attribution method, net of estimated
forfeitures, over the requisite service period. The fair value of restricted shares is determined with reference to the fair value
of the underlying shares.
At each date of measurement, the Company
reviews internal and external sources of information to assist in the estimation of various attributes to determine the fair value
of the share-based awards granted by the Company, including but not limited to the fair value of the underlying shares, expected
life, expected volatility and expected forfeiture rates. The Company is required to consider many factors and make certain assumptions
during this assessment. If any of the assumptions used to determine the fair value of the share-based awards changes significantly,
share-based compensation expense may differ materially in the future from that recorded in the current reporting period.
On April 1, 2019, the Company adopted
ASU 2016-02, Leases (ASC Topic 842). This update supersedes existing lease accounting guidance found under ASC 840, and requires
the recognition of right-of-use (“ROU”) assets and lease obligations (“lease liabilities”) by lessees
for those leases currently classified as operating leases under existing lease guidance. Leases will be classified as either finance
or operating, with classification affecting the pattern of expense recognition. Short term leases with a term of twelve months
or less are not required to be recognized. Lessor accounting is generally the same under ASC 842 as compared to ASC 840 except
with an additional requirement to assess collectability to support classification as a direct financing lease. Also, in order
to derecognize the asset and record revenue, collection of payments due must be probable for sales-type leases and the lessees
of sales-type leases will need to obtain control over the leased asset.
The Company adopted the practical expedient
that allows lessees to treat the lease and non-lease components of a lease a single lease component. The impact of the adoption
of the ASC 842, as of April 1, 2019, the Company recognized $246,227 ROU assets and $247,325 lease liabilities, primarily
related to operating leases of facilities. The adoption of this standard resulted in the recording of operating lease assets and
operating lease liabilities as of April 1, 2019, with no related impact on the Company's unaudited condensed consolidated
statement of changes in stockholders' equity or unaudited condensed consolidated statements of operations and comprehensive loss.
Beginning in the year ended March 31,
2020, the Company entered into certain agreements as a lessor under which it leased automobiles for a short-term period (usually
under 12 months) to ride-hailing car service drivers. The Company also entered into certain agreements as a lessee to lease automobiles
and to conduct its automobiles rental operations. If any of the following criteria are met, the Company classifies the lease as
a finance lease (as a lessee) or as a direct financing or sales-type lease (both as a lessor):
|
·
|
The lease transfers ownership of the underlying asset to the
lessee by the end of the lease term;
|
|
·
|
The lease grants the lessee an option to purchase the underlying
asset that the Company is reasonably certain to exercise;
|
|
·
|
The lease term is for 75% or more of the remaining economic
life of the underlying asset, unless the commencement date falls within the last 25% of the economic life of the underlying
asset;
|
|
·
|
The present value of the sum of the lease payments equals or
exceeds 90% of the fair value of the underlying asset; or
|
|
·
|
The underlying asset is of such a specialized nature that it
is expected to have no alternative use to the lessor at the end of the lease term.
|
Leases that do not meet
any of the above criteria are accounted for as operating leases.
The Company combines lease
and non-lease components in its contracts under Topic 842, when permissible.
Finance and operating lease ROU assets
and lease liabilities are recognized at the adoption date of April 1, 2019 or the commencement date, whichever is earlier,
based on the present value of lease payments over the lease term. Since the implicit rate for the Company’s leases is not
readily determinable, the Company use its incremental borrowing rate based on the information available at the commencement date
in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would
have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and
over a similar term.
Lease terms used to calculate the present
value of lease payments generally do not include any options to extend, renew, or terminate the lease, as the Company does not
have reasonable certainty at lease inception that these options will be exercised. The Company generally consider the economic
life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. The Company has elected the
short-term lease exception, therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve
months or less. Its leases generally do not provide a residual guarantee. The finance or operating lease ROU asset also excludes
lease incentives. Lease expense is recognized on a straight-line basis over the lease term for operating lease. Meanwhile, the
Company recognizes the finance leases ROU assets and interest on an amortized cost basis. The amortization of finance ROU
assets is recognized on an accretion basis as amortization expense, while the lease liability is increased to reflect interest
on the liability and decreased to reflect the lease payments made during the period. Interest expense on the lease liability is
determined each period during the lease term as the amount that results in a constant periodic interest rate of the automobile
loans on the remaining balance of the liability.
The Company reviews the impairment of
its ROU assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of
its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not
be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from
the expected undiscounted future pre-tax cash flows of the related operations. The Company has elected to include the carrying
amount of finance and operating lease liabilities in any tested asset group and include the associated lease payments in the undiscounted
future pre-tax cash flows. For the three and nine months ended December 31, 2020, the Company recognized impairment loss of $31,641
and $111,864 on its finance lease ROU assets, respectively.
(w)
|
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, 2020 and March 31, 2020, approximately $1,122,000 and $2,600, respectively,
was deposited with a bank in the United States which is insured by the U.S. government up to $250,000. On December 31, 2020
and March 31, 2020, approximately $2,227,000 and $820,000, respectively, were deposited in financial institutions located
in mainland China, which were insured by the government authority. Under the Deposit Insurance System in China, an enterprise’s
deposits at one bank is insured for a maximum of approximately $70,000 (RMB500,000). 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 entirely in mainland
China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the social,
political, economic and legal environments in the PRC as well as by the general state of the PRC economy. In addition,
the Company’s business may be influenced by changes in PRC government laws, rules and policies with respect to, among
other matters, the response to the COVID-19 pandemic, anti-inflationary measures, currency conversion and remittance of currency
outside of China, rates and methods of taxation and other factors.
|
b.
|
In measuring the credit risk of accounts receivables due from
the automobile purchasers (the “customers”), the Company mainly reflects the “probability of default”
by the customer on its contractual obligations and considers the current financial position of the customer and the risk exposures
to the customer and its likely future development. However, as the Company only commenced the automobile transaction and related
services since November 2018, there was limited 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 previously defaulted amounts
within one to three months. As a result, the Company would provide full provisions on accounts receivable if the customers
default on repayments for over three months. As of December 31, 2020 and March 31, 2020, the Company provided an allowance
for doubtful accounts of $79,355 and $379,689, respectively. For the nine months ended December 31, 2020 and 2019, the Company
wrote off accounts receivable of $252,211 and $0, respectively, which represents due from automobile purchasers.
|
|
In measuring the credit risk of accounts receivables due from
the borrowers and investors who formally used the Company’s discontinued P2P lending platform (the “P2P customers”),
the Company mainly reflects the “probability of default” by the P2P customer on its contractual obligations and considers
the current financial position of the P2P customer and the risk exposures to the P2P customer and its likely future development.
Historically, most of the borrowers would pay the transaction fee within one year upon (i) disbursement of the proceeds for
loans or (ii) full payment of principal and interest of loan. Most of investors would pay the service fee within one year
upon receipt of their investment returns. On October 17, 2019, the Board approved the Plan for the Company to discontinue
and wind down its online lending services business. For the nine months ended December 31, 2020, no additional accounts receivable
were written-off.
|
As of December 31, 2020 and March 31,
2020, substantially all of the Company’s operating activities and major assets and liabilities, except for the cash deposit
of approximately $1,590,600 and $818,000, respectively, 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 People’s 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. RMB were appreciated
from 7.08 RMB into US$1.00 at March 31, 2020 to 6.53 RMB into US$1.00 at December 31, 2020.
The Company believes that the VIE Agreements
and the Voting Agreement are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system
could limit the Company’s ability to enforce these contractual arrangements.
The shareholders of Sichuan Senmiao are
also shareholders of the Company and therefore have no current interest in seeking to act contrary to the contractual arrangements.
However, if the shareholders of Sichuan Senmiao were to reduce their interest in the Company, their interests may diverge from
that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms.
However, the other shareholders of Jinkailong are not shareholders of the Company and there is a risk they may act in contrary
to the interests of the shareholders of the Company.
The Company cannot assure that when conflicts
of interest arise, the shareholders of Sichuan Senmiao or the other shareholders of Jinkailong will act in the best interests
of the Company or that conflicts of interests will be resolved in the Company’s favor. In addition, the Company’s
ability to control Sichuan Senmiao and Jinkailong via the VIE Agreements and Voting Agreement may not be as effective as direct
equity ownership.
Further, the VIE Agreements or the Voting
Agreement may 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. If the VIE Agreements or the Voting Agreement were found to be in violation
of any existing PRC laws and regulations, the PRC government could:
|
·
|
revoke the Company’s business and operating licenses;
|
|
·
|
require the Company to discontinue or restrict operations;
|
|
·
|
restrict the Company’s right to collect revenues;
|
|
·
|
block the Company’s websites;
|
|
·
|
require the Company to restructure the operations in such a
way as to compel the Company to establish a new enterprise, re-apply for the necessary licenses or relocate our businesses,
staff and assets;
|
|
·
|
impose additional conditions or requirements with which the
Company may not be able to comply; or
|
|
·
|
take other regulatory or enforcement actions against the Company
that could be harmful to the Company’s business.
|
(x)
|
Recently issued accounting standards
|
In June 2016, the FASB issued new
accounting guidance ASU 2016-13 for recognition of credit losses on financial instruments, which is effective January 1, 2020,
with early adoption permitted on January 1, 2019. The guidance introduces a new credit reserving model known as the Current
Expected Credit Loss (“CECL”) model, which is based on expected losses, and differs significantly from the incurred
loss approach used today. The CECL model requires measurement of expected credit losses not only based on historical experience
and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information and
will likely result in earlier recognition of credit reserves. In November 2019, the FASB issued ASU No. 2019-10, which
to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting
companies applying for credit losses standard. The new effective date for these preparers is for fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years. The Company has not yet adopted this update and it
will become effective on January 1, 2023 assuming the Company will remain eligible to be smaller reporting company. The Company
is currently evaluating the impact of this new standard on Company’s unaudited condensed consolidated financial statements
and related disclosures.
CECL adoption will have broad impact on the financial statements
of financial services firms, which will affect key profitability and solvency measures. Some of the more notable expected changes
include:
-
|
Higher allowance on financial guarantee reserve and finance
lease receivable levels and related deferred tax assets. While different asset types will be impacted differently, the expectation
is that reserve levels will generally increase across the board for all financial firms.
|
|
|
-
|
Increased reserve levels may lead to a reduction in capital
levels.
|
-
|
As a result of higher reserving levels, the expectation is that
CECL will reduce cyclicality in financial firms’ results, as higher reserving in “good times” will mean
that less dramatic reserve increases will be loan related income (which will continue to be recognized on a periodic basis
based on the effective interest method) and the related credit losses (which will be recognized up front at origination).
This will make periods of loan expansion seem less profitable due to the immediate recognition of expected credit losses.
Periods of stable or declining loan levels will look comparatively profitable as the income trickles in for loans, where losses
had been previously recognized.
|
In December 2019, the FASB issued
ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in this Update
simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments
also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning
after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of
the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which
financial statements have not yet been issued and (2) all other entities for periods for which financial statements have
not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect
any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects
early adoption must adopt all the amendments in the same period. The Company is currently evaluating the impact of this new standard
on Company’s unaudited condensed consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU
2020-06, “Debt – Debt Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts
in Entity’s Own Equity (Subtopic 815-40)”. The amendment in this Update is to address issues identified as a result
of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with
characteristics of liabilities and equity. For convertible instruments, the Board decided to reduce the number of accounting models
for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion
features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue
to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related
to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative
accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in
capital. The amendments in this Update are effective for public business entities that meet the definition of a Securities and
Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal
years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal
years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim
periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual
fiscal year. The Company does not believe the adoption of this ASU would have a material effect on the Company’s unaudited
condensed consolidated financial statements and related disclosures.
The Company does not believe other recently
issued but not yet effective accounting standards, if currently adopted, would have a material effect on the unaudited condensed
consolidated financial position, statements of operations and cash flows of the Company.
On September 11, 2020, Senmiao Consulting entered into an Investment
Agreement relating to XXTX with all the original shareholders of XXTX, pursuant to which Senmiao Consulting agreed to make an investment
of RMB3.16 million (approximately $0.5 million) in XXTX in cash in exchange for a 51% equity interest. On October 23, 2020, the
registration procedures for the change in shareholders and registered capital were completed and XXTX became a majority owned subsidiary
of Senmiao Consulting. As of the issuance date of these financial statements, Senmiao Consulting has made a capital contribution
of RMB1.0 million (approximately $0.2 million) to XXTX and the remaining amount is expected to be paid before December 31, 2021.
The Company operates a ride-hailing platform through XXTX.
The Company’s acquisition of XXTX
was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of XXTX based
upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. The Company estimated
the fair values of the assets acquired and liabilities assumed at the acquisition date in accordance with the business combination
standard issued by the FASB with the valuation methodologies using level 3 inputs, except for other current assets and current
liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets
acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including
valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been
expensed as incurred in general and administrative expense.
The following table summarizes the fair
value of the identifiable assets acquired and liabilities assumed on the acquisition date, which represents the net purchase price
allocation on the date of the acquisition of XXTX based on valuation performed by an independent valuation firm engaged by the
Company and translated the fair value from RMB to USD using the exchange rate on October 23, 2020 at the rate of USD 1.00 to RMB
6.69.
As of December 31, 2020, the Company acquired
$7,975 in cash, net of cash paid to XXTX in the acquisition of XXTX. The remaining purchase consideration of $0.3 million is expected
to be paid by the Company by December 31, 2021.
|
|
Fair value
|
|
Cash and cash equivalents
|
|
$
|
105,386
|
|
Other current assets
|
|
|
525,005
|
|
Plant and equipment
|
|
|
790
|
|
Intangible assets
|
|
|
265,536
|
|
Total assets
|
|
|
896,717
|
|
Total liabilities
|
|
|
(230,247
|
)
|
Net assets of XXTX
|
|
|
666,470
|
|
Less: fair value of non-controlling interest
|
|
|
(336,441
|
)
|
Fair value of net assets acquired
|
|
|
330,029
|
|
Goodwill
|
|
|
142,544
|
|
Total purchase consideration
|
|
$
|
472,573
|
|
5.
|
DISCONTINUED OPERATIONS
|
On October 17, 2019, the Board approved
the Plan under which the Company has discontinued and is winding down its online P2P lending services business. The Company determined
that the continued operation of its online P2P lending services business was not viable in light of the recently tightened regulations
on online peer-to-peer lending in China generally and the unofficial request from local regulator to reduce the Company’s
online peer-to-peer lending transaction volume on a monthly basis. The Company also determined that the discontinuation of its
online P2P lending services business would allow the Company to focus its resources on its automobile financing facilitation and
transaction business. In connection with the Plan, the Company ceased facilitation of loan transactions on its online lending
platform and assumed all the outstanding loans from investors on the platform. The decision and action taken by the Company of
discontinuing the online lending services business represented a major shift that will have a major effect on the Company’s
operations and financial results, which triggers discontinued operations accounting in accordance with ASC 205-20-45.
The fair value of discontinued operations,
determined as of October 17, 2019, includes estimated consideration expected to be received, less costs to sell. After consideration
of the determination of fair value of the discontinued operations including the assumption of all the outstanding loans from investors
on the platform, $143,668 of accounts receivable, $3,760,599 of other receivables, and $143,943 of prepayments for impaired intangible
assets were indicated as of the date the Company’s Board of Directors approved the winding down of the Company’s online
P2P lending services business on October 17, 2019, and the Company recognized $4,048,210 provision for doubtful accounts
as of September 30, 2019 in related to the Company’s online lending services business, while the Company did not recognize
any additional provision for doubtful accounts for the nine months ended December 31, 2020.
The following table sets forth the reconciliation
of the carrying amounts of major classes of assets and liabilities from discontinued operations in the unaudited condensed consolidated
balance sheet as of December 31, 2020 and the audited condensed consolidated balance sheet as of March 31, 2020.
Carrying amounts of major classes of assets included as
part of discontinued operations:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
10,139
|
|
Prepayments, other receivables and other
assets, net
|
|
|
490,235
|
|
|
|
816,441
|
|
Total current assets
|
|
|
490,235
|
|
|
|
826,580
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
7,884
|
|
|
|
11,206
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
498,119
|
|
|
$
|
837,786
|
|
Carrying amounts of major classes of liabilities included
as part of discontinued operations:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
2,578,550
|
|
|
$
|
4,204,012
|
|
Due to stockholders
|
|
|
48,960
|
|
|
|
182,095
|
|
Due to related parties and affiliates
|
|
|
-
|
|
|
|
76,286
|
|
Lease liabilities
|
|
|
-
|
|
|
|
53,899
|
|
Total current
liabilities
|
|
|
2,627,510
|
|
|
|
4,516,292
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,627,510
|
|
|
$
|
4,516,292
|
|
The following table sets forth the reconciliation
of the amounts of major classes of income and losses from discontinued operations in the unaudited condensed consolidated statements
of operations and comprehensive loss for three months and nine months ended December 31, 2020 and 2019.
|
|
For
the
Three Months Ended
|
|
|
For
the
Nine Months Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues
|
|
$
|
1,642
|
|
|
$
|
4,294
|
|
|
$
|
6,196
|
|
|
$
|
112,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(2,450
|
)
|
|
|
(387,895
|
)
|
|
|
(90,888
|
)
|
|
|
(1,387,059
|
)
|
Provision
for doubtful accounts
|
|
|
-
|
|
|
|
(3,998,953
|
)
|
|
|
-
|
|
|
|
(4,036,281
|
)
|
Amortization
of intangible assets
|
|
|
-
|
|
|
|
(3,866
|
)
|
|
|
-
|
|
|
|
(30,321
|
)
|
Impairments
of intangible assets and goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(264,958
|
)
|
Total
operating expenses
|
|
|
(2,450
|
)
|
|
|
(4,390,714
|
)
|
|
|
(90,888
|
)
|
|
|
(5,718,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued
operations
|
|
|
(808
|
)
|
|
|
(4,386,420
|
)
|
|
|
(84,692
|
)
|
|
|
(5,606,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses), net
|
|
|
236
|
|
|
|
(12,816
|
)
|
|
|
6,341
|
|
|
|
12,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before
income taxes
|
|
|
(572
|
)
|
|
|
(4,399,236
|
)
|
|
|
(78,351
|
)
|
|
|
(5,593,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to stockholders
|
|
$
|
(572
|
)
|
|
$
|
(4,399,236
|
)
|
|
$
|
(78,351
|
)
|
|
$
|
(5,593,627
|
)
|
6.
|
ACCOUNTS RECEIVABLE, NET
|
Accounts receivable include a portion
of bundled lease arrangements on fixed minimum monthly payments to be paid by the automobile purchasers arising from automobile
sales and services fees, net of unearned interest income, discounted using the Company’s lease pricing interest rates.
As of December 31, 2020 and March 31,
2020, accounts receivable were comprised of the following:
|
|
December 31,
|
|
|
March 31
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Receivables of automobile sales due from automobile purchasers
|
|
$
|
1,361,635
|
|
|
$
|
1,172,765
|
|
Receivables of service fees due from automobile purchasers
|
|
|
266,528
|
|
|
|
854,730
|
|
Receivables of online ride hailing fees from online ride-hailing drivers
|
|
|
121,091
|
|
|
|
-
|
|
Less: Unearned interest
|
|
|
(55,546
|
)
|
|
|
(105,083
|
)
|
Less: Allowance for doubtful accounts
|
|
|
(79,355
|
)
|
|
|
(379,689
|
)
|
Accounts receivable, net
|
|
$
|
1,614,353
|
|
|
$
|
1,542,723
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net, current portion
|
|
$
|
1,165,695
|
|
|
$
|
660,645
|
|
Accounts receivable, net, non-current portion
|
|
$
|
448,658
|
|
|
$
|
882,078
|
|
Movement of allowance for doubtful accounts
for the nine months ended December 31, 2020 and the fiscal year ended March 31, 2020 are as follows:
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Beginning balance
|
|
$
|
379,689
|
|
|
$
|
-
|
|
Addition
|
|
|
280,174
|
|
|
|
1,797,816
|
|
Recovery
|
|
|
(343,836
|
)
|
|
|
-
|
|
Write off
|
|
|
(252,211
|
)
|
|
|
(1,410,736
|
)
|
Translation adjustment
|
|
|
15,539
|
|
|
|
(7,391
|
)
|
Ending balance
|
|
$
|
79,355
|
|
|
$
|
379,689
|
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Automobiles (i)
|
|
$
|
428,503
|
|
|
$
|
1,000,675
|
|
(i)
|
As
of December 31, 2020, the Company owned 25 automobiles with a total value of $367,570 for operating lease, one automobile
with a value of $13,361 for financing lease, and three automobiles with a total value of $47,572 for either leasing or sale.
|
As of December 31, 2020 and March 31,
2020, management compared the cost of automobiles with their net realizable value and determined no inventory write-down was necessary
for these automobiles.
8.
|
PREPAYMENTS, OTHER RECEIVABLES AND OTHER ASSETS
|
As of December 31, 2020 and March 31,
2020, the prepayments, receivables and other assets were comprised of the following:
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Receivables from borrowers of online lending platform, net (i)
|
|
$
|
490,235
|
|
|
$
|
811,504
|
|
Due from automobile purchasers, net (ii)
|
|
|
936,122
|
|
|
|
1,385,352
|
|
Prepaid expenses (iii)
|
|
|
923,007
|
|
|
|
331,319
|
|
Receivables from aggregation platforms (iv)
|
|
|
412,086
|
|
|
|
-
|
|
Deposits (v)
|
|
|
411,857
|
|
|
|
489,638
|
|
Prepayments for automobiles (vi)
|
|
|
48,340
|
|
|
|
365,932
|
|
Value added tax (“VAT”) recoverable
|
|
|
130,096
|
|
|
|
146,964
|
|
Employee advances
|
|
|
19,516
|
|
|
|
11,937
|
|
Others
|
|
|
25,664
|
|
|
|
72,575
|
|
Total prepayments, receivables and other assets
|
|
|
3,396,923
|
|
|
|
3,615,221
|
|
Total prepayments, receivables and other assets - discontinued
operations
|
|
|
(490,235
|
)
|
|
|
(816,441
|
)
|
Total prepayments, receivables and
other assets - continuing operations
|
|
$
|
2,906,688
|
|
|
$
|
2,798,780
|
|
(i)
|
Receivables from borrowers of online lending platform, net
|
The balance of receivables from
borrowers of online lending platform represented the outstanding loans the Company assumed from investors on the Company’s
discontinued P2P lending platform, which will be collected from related borrowers. As of December 31, 2020 and March 31, 2020,
the Company recorded allowance of $3,907,189 and $3,688,800, respectively, against doubtful receivables.
(ii)
|
Due from automobile purchasers, net
|
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. As of December 31, 2020 and March 31,
2020, the Company recorded allowance of $30,632 and $347,954, respectively, against doubtful receivables. During the nine months
ended December 31, 2020 and 2019, the Company wrote off balance due from automobile purchasers of $270,442and $0, respectively,
while recovered allowance against the balance due from automobile purchasers of $43,173 and $0, respectively.
The balance of prepaid expense
represented automobile liability insurance premium for automobiles for operating lease and other miscellaneous expense such as
office lease, office remodel expense and etc. that will expire within one year.
(iv)
|
Receivables from aggregation platforms
|
The balance of receivables
from aggregation platforms represented the amount due from the collaborated aggregation platforms based on the confirmed billings,
which will be disbursed to the drivers who completed their rides through the Company’s online ride-hailing platform.
The balance of deposits mainly
represented the security deposit made by the Company to various financial institutions and Didi Chuxing Technology Co., Ltd.,
an online ride-hailing platform.
(vi)
|
Prepayments for automobiles
|
The balance represented amounts
advanced to dealers and a leasing company for automobiles and to other third parties for automobiles related taxes and insurances.
9.
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment consist of the
following:
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Leasehold improvements
|
|
$
|
192,672
|
|
|
$
|
177,659
|
|
Electronic devices
|
|
|
51,858
|
|
|
|
40,720
|
|
Office equipment, fixtures and furniture
|
|
|
92,139
|
|
|
|
79,271
|
|
Vehicles
|
|
|
1,115,829
|
|
|
|
320,949
|
|
Subtotal
|
|
|
1,452,498
|
|
|
|
618,599
|
|
Less: accumulated depreciation and amortization
|
|
|
(340,510
|
)
|
|
|
(138,192
|
)
|
Total property and equipment, net
|
|
|
1,111,988
|
|
|
|
480,407
|
|
Total property and equipment, net - discontinued operations
|
|
|
(7,884
|
)
|
|
|
(11,206
|
)
|
Total property and equipment, net
- continuing operations
|
|
$
|
1,104,104
|
|
|
$
|
469,201
|
|
Depreciation expense from continuing operations
for the three months ended December 31, 2020 and 2019 amounted to $69,276 and $32,276, respectively. Depreciation expense from
discontinued operations for the three months ended December 31, 2020 and 2019 amounted to $2,097 and $2,719, respectively.
Depreciation expense from continuing operations
for the nine months ended December 31, 2020 and 2019 amounted to $175,884 and $82,672, respectively. Depreciation expense from
discontinued operations for the nine months ended December 31, 2020 and 2019 amounted to $6,365 and $8,339, respectively.
10.
|
INTANGIBLE ASSETS, NET
|
Intangible assets consisted of the following:
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Software
|
|
|
794,698
|
|
|
|
791,216
|
|
Online ride-hailing platform operating licenses
|
|
|
280,188
|
|
|
|
-
|
|
Less: Accumulated amortization
|
|
|
(95,886
|
)
|
|
|
(13,595
|
)
|
Total intangible assets, net
|
|
$
|
979,000
|
|
|
$
|
777,621
|
|
Amortization expense from continuing operations
totaled $17,539 and $99 for the three months ended December 31, 2020 and 2019, respectively. Amortization expense from discontinued
operations totaled $0 and $3,851 for the three months ended December 31, 2020 and 2019, respectively.
Amortization expense from continuing operations
totaled $59,209 and $197 for the nine months ended December 31, 2020 and 2019, respectively. Amortization expense from discontinued
operations totaled $0 and $30,321 for the nine months ended December 31, 2020 and 2019, respectively.
The following table sets forth the Company’s
amortization expense for the next five years ending:
|
|
Amortization
expenses
|
|
Twelve months ending December
31, 2021
|
|
$
|
143,259
|
|
Twelve months ending December 31, 2022
|
|
|
143,261
|
|
Twelve months ending December 31, 2023
|
|
|
139,614
|
|
Twelve months ending December 31, 2024
|
|
|
134,399
|
|
Twelve months ending
December 31, 2025
|
|
|
99,717
|
|
Thereafter
|
|
|
318,750
|
|
Total
|
|
$
|
979,000
|
|
11.
|
BORROWINGS FROM FINANCIAL INSTITUTIONS, CURRENT AND NON-CURRENT
|
The borrowings from certain financial
institutions in China represented the short-term loans of $250,055 from a bank and the difference between the actual proceeds
disbursed by the financial institution to Jinkailong and the total amount of principal to be responsible for and repaid by the
automobile purchasers of $224,116 as of December 31, 2020. Such borrowings totaled $474,171 and $290,974 bearing interest rates
ranging between 6.2% and 8.1% per annum as of December 31, 2020 and March 31, 2020, respectively, of which $47,456 and $64,221,
respectively, is to be repaid over a period of 13 to 24 months.
The interest expense for the three months
ended December 31, 2020 and 2019 was $2,158 and $16,498, respectively. The interest expense for the nine months ended December
31, 2020 and 2019 was $37,698 and $37,827, respectively.
12.
|
ACCRUED EXPENSES AND OTHER LIABILITIES
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Payables to investors of online lending platform (i)
|
|
$
|
2,083,878
|
|
|
$
|
3,668,957
|
|
Accrued payroll and welfare
|
|
|
1,092,744
|
|
|
|
890,912
|
|
Deposits (ii)
|
|
|
1,694,397
|
|
|
|
543,843
|
|
Payables to drivers from aggregation platforms (iii)
|
|
|
888,103
|
|
|
|
-
|
|
Loan repayments received on behalf of financial institutions (iv)
|
|
|
853,344
|
|
|
|
374,535
|
|
Other payable (v)
|
|
|
152,705
|
|
|
|
83,810
|
|
Payables for expenditures on automobile transaction and related services
|
|
|
88,492
|
|
|
|
373,026
|
|
Accrued expenses
|
|
|
54,602
|
|
|
|
104,264
|
|
Other taxes payable
|
|
|
442,493
|
|
|
|
173,056
|
|
Total accrued expenses and other liabilities
|
|
|
7,350,758
|
|
|
|
6,212,403
|
|
Total accrued expenses and other liabilities - discontinued operations
|
|
|
(2,578,550
|
)
|
|
|
(4,204,012
|
)
|
Total accrued expenses and other liabilities - continuing operations
|
|
$
|
4,772,208
|
|
|
$
|
2,008,391
|
|
(i)
|
The balance of payables to investors of online lending platform
represented the outstanding loans from investors on the Company’s discontinued P2P lending platform, which was assumed by
the Company in connection with the Plan to discontinue its online lending services business.
|
(ii)
|
The balance of deposits represented the security deposit from
operating and finance lease customers to cover lease payment and related automobile expense in case the customers’ accounts
are in default. The balance is refundable at the end of the lease term, after deducting any missed lease payment and applicable
fee.
|
(iii)
|
The balance of payables to drivers from aggregation platforms
represented the amount the Company collected on behalf of drivers who completed their transaction through the Company’s online
ride-hailing platform base on the confirmed billings.
|
(iv)
|
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.
|
(v)
|
The balance of other payable represented amount due to suppliers
and vendors for operation purposes.
|
13.
|
EMPLOYEE BENEFIT PLAN
|
The Company has made employee benefit
plan in accordance with relevant PRC regulations, including retirement insurance, unemployment insurance, medical insurance, housing
fund, work injury insurance and maternity insurance.
The
contributions made by the Company were $61,262 and $74,518 for the three months ended December 31, 2020 and 2019, respectively,
for continuing operations of the Company. The contributions made by the Company were $16,886 and $61,447 for the three
months ended December 31, 2020 and 2019, respectively, for the Company’s discontinued operations.
The
contributions made by the Company were $130,427 and $169,458 for the nine months ended December 31, 2020 and 2019, respectively,
for continuing operations of the Company. The contributions made by the Company were $45,457 and $158,184 for the nine
months ended December 31, 2020 and 2019, respectively, for the Company’s discontinued operations.
As of December 31, 2020 and March 31,
2020, the Company did not make adequate employee benefit contributions in the amount of $290,552 and $170,856, respectively, for
continuing operations of the Company. As of December 31, 2020 and March 31, 2020, the Company did not make adequate employee
benefit contributions in the amount of $529,204 and $454,151, respectively, for discontinued operations of the Company. The Company
accrued the amount in accrued payroll and welfare.
Warrants
IPO Warrants
The registration statement relating to
the Company’s initial public offering also included the underwriters’ common stock purchase warrants to purchase 337,940
shares of common stock (“IPO Underwriter’s Warrants”). Each five-year warrant entitles warrant holder to purchase
one share of the Company’s common stock at the price of $4.80 per share and is not exercisable for a period of 180 days
from March 16, 2018. As of December 31, 2020, there were 37,940 IPO Underwriter’s Warrants outstanding.
Registered Direct Offering Warrants
The Company adopted the provisions of
ASC 815 on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered
indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in ASC 815. Warrants issued in
connection with the direct equity offering with exercise prices denominated in US dollars are no longer considered indexed to
the Company’s stock, as their exercise price is not in the Company’s functional currency (RMB), and therefore no longer
qualify for the scope exception and must be accounted for as a derivative. These warrants are classified as liabilities under
the caption “Derivative liabilities” in the unaudited condensed consolidated statements of balance sheets and recorded
at estimated fair value at each reporting date, computed using the Black-Scholes valuation model. Changes in the liability from
period to period are recorded in the unaudited condensed consolidated statements of operations and comprehensive loss under the
caption “Change in fair value of derivative liabilities.”
The Company allocated the proceeds received
between the common stock and warrants first to warrants based on the fair value on the date the proceeds were received with the
balance to common stock. The value of the warrants was determined using the Black-Scholes valuation model using the following
assumptions: volatility 86%; risk free interest rate 1.77%; dividend yield of 0% and expected term of 4 years of the Investor
Series A Warrants, 1 year of the Series B Warrants, and 4 years of the placement agent warrants. The volatility of the
Company’s common stock was estimated by management based on the historical volatility of its common stock, the risk free
interest rate was based on Treasury Constant Maturity Rates published by the U.S. Federal Reserve for periods applicable to the
expected life of the warrants. The expected dividend yield was based on the Company’s current and expected dividend policy
and the expected term is equal to the contractual life of the warrants. The value of the warrants was based on the Company’s
common stock closing price of $2.80 on June 20, 2019 which was the date the warrants were issued. Net proceeds were allocated
as the follows:
Warrants
|
|
$
|
3,150,006
|
|
Common stock
|
|
|
1,992,118
|
|
Total net proceeds
|
|
$
|
5,142,124
|
|
Subsequent to the initial recording, the
change in the fair value of the warrants, determined under the Black-Scholes valuation model, at each reporting date will result
in either an increase or decrease the amount recorded as liability, based on the fluctuations with the Company’s stock price
with a corresponding adjustment to other income (or expense). During the three and nine months ended December 31, 2020, the change
of fair value was a loss of $786,200 and $1,148,417, respectively, recognized in the accompanying unaudited condensed consolidated
statements of operations and comprehensive loss based on the increase in fair value of the liabilities since March 31, 2020.
During the three and nine months ended December 31, 2019, the change of fair value was a loss of $485,400 and a gain of $1,509,406,
respectively, was recognized in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss
based on the increase in fair value of the liabilities since granted. At December 31, 2020 and March 31, 2020, the fair value
of the derivative instrument totaled $506,143 and $342,530, respectively. The fair value of derivative instrument of $1,995,556
was allocated to additional paid-in-capital upon exercise of warrants as of the exercise date. Fair value of derivative instrument
was allocated as the following exercise date:
Exercised date
|
|
Fair value of
derivative instrument
allocated to additional
paid-in-capital
|
|
August 12, 2019
|
|
$
|
699,523
|
|
August 13, 2019
|
|
|
262,108
|
|
October 9, 2019
|
|
|
49,122
|
|
July 9, 2020
|
|
|
56,662
|
|
October 20, 2020
|
|
|
315,790
|
|
November 24, 2020
|
|
|
197,926
|
|
November 25, 2020
|
|
|
414,425
|
|
Total
|
|
$
|
1,995,556
|
|
Underwriters’ Warrants
The Company adopted the provisions of
ASC 815 on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered
indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in ASC 815. Warrants issued in
connection with the direct equity offering with exercise prices denominated in US dollars are no longer considered indexed to
the Company’s stock, as their exercise price is not in the Company’s functional currency (RMB), and therefore no longer
qualify for the scope exception and must be accounted for as a derivative. The Underwriters’ Warrants are classified as
liabilities under the caption “Derivative liabilities” in the unaudited condensed consolidated statements of balance
sheets and recorded at an estimated fair value at each reporting date, computed using the Black-Scholes valuation model. Changes
in the liability from period to period are recorded in the unaudited condensed consolidated statements of operations and comprehensive
income (loss) under the caption “Change in fair value of derivative liabilities.”
The Company allocated the proceeds received
between the common stock and warrants first to warrants based on the fair value on the date the proceeds were received with the
balance to common stock. The value of the warrants was determined using the Black-Scholes valuation model using the following
assumptions: volatility 129%; risk free interest rate 0.19%; dividend yield of 0% and expected term of 5 years of the Underwriters’
Warrants. The volatility of the Company’s common stock was estimated by management based on the historical volatility of
the Company’s common stock, the risk free interest rate was based on Treasury Constant Maturity Rates published by the U.S.
Federal Reserve for periods applicable to the expected life of the warrants (0.51), the expected dividend yield was based on the
Company’s current and expected dividend policy and the expected term is equal to the contractual life of the warrants. The
value of the warrants was based on the closing price of the Company’s common stock of $0.51 on August 4, 2020, which was
the date the warrants were issued. Net proceeds were allocated as the follows:
Warrants
|
|
$
|
241,919
|
|
Common stock
|
|
|
5,856,378
|
|
Total net proceeds
|
|
$
|
6,098,297
|
|
Subsequent to the initial recording, the
change in the fair value of the warrants, determined under the Black-Scholes valuation model, at each reporting date will result
in either an increase or decrease the amount recorded as liability, based on the fluctuations with the Company’s stock price
with a corresponding adjustment to other income (or expense). During the three and nine months ended December 31, 2020, the change
of fair value was a loss of $244,643 and $295,367, respectively, recognized in the accompanying income statement based on the increase
in fair value of the liabilities since issuance. At December 31, 2020, the fair value of the derivative instrument totaled $537,287.
The Company has warrants outstanding as
follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Average
Exercise
|
|
|
Remaining
Contractual
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Price
|
|
|
Life
|
|
Balance,
March 31, 2019
|
|
|
37,940
|
|
|
|
37,940
|
|
|
$
|
4.80
|
|
|
|
3.96
|
|
Granted
|
|
|
2,594,850
|
|
|
|
2,594,850
|
|
|
$
|
3.70
|
|
|
|
4.00
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(1,113,188
|
)
|
|
|
(1,113,188
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance, March 31,
2020
|
|
|
1,519,602
|
|
|
|
1,519,602
|
|
|
$
|
1.76
|
|
|
|
3.21
|
|
Granted
|
|
|
568,000
|
|
|
|
568,000
|
|
|
$
|
0.63
|
|
|
|
5.00
|
|
Forfeited
|
|
|
(3,132
|
)
|
|
|
(3,132
|
)
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(892,234
|
)
|
|
|
(892,234
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance,
December 31, 2020 (Unaudited)
|
|
|
1,192,236
|
|
|
|
1,192,236
|
|
|
$
|
1.07
|
|
|
|
5.33
|
|
Restricted Stock Units
On October 29, 2020, the Board approved
the issuance of an aggregate of 127,273 restricted stock units (“RSUs”) to directors, officers and certain employees
as stock compensation for their services for the year ending March 31, 2021. Total RSUs granted to these directors, officers and
employees were valued at an aggregate fair value of $140,000. These RSUs will vest in four equal quarterly installments on January
29, 2021, April 29, 2021, July 29, 2021 and October 29, 2021 or in full upon the occurrence of a change in control of the Company,
provided that the director, officer or the employee remains in service through the applicable vesting date. The RSUs will be settled
by the Company’s issuance of shares of common stock in certificated or uncertificated form upon the earlier of (i) vesting
date, (ii) a change in control and (ii) termination of the services of the director, officer or employee due to a "separation
of service" within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, or the death or disability
of such director, officer or employee. As of December 31, 2020, no RSUs have been vested. As of the issuance date of issuance of
these unaudited condensed consolidated financial statements, the first installment of RSUs vested but has not been settled by the
Company. The Company expects to settle the vested RSUs by issuance of shares of common stock within 2021 and account for the vested
RSUs as an addition to both expenses and additional paid-in capital.
Equity Incentive Plan
At the 2018 Annual Meeting of Stockholders
of the Company held on November 8, 2018, the Company’s stockholders approved the Company’s 2018 Equity Incentive
Plan for employees, officers, directors and consultants of the Company and its affiliates. A committee consisting of at least
two independent directors appointed by the Board or in the absence of such a committee, the board of directors, will be responsible
for the general administration of the Equity Incentive Plan. All awards granted under the Equity Incentive Plan will be governed
by separate award agreements between the Company and the participants. As of December 31, 2020, the Company has granted an aggregate
of 303,788 RSUs and issued an aggregate of 169,015 shares upon settlement of vested RSUs under the Equity Incentive Plan.
2019 Registered Direct Offering
On April 15, 2019, the SEC declared effective the Company’s
Registration Statement on Form S-3, pursuant to which, along with the accompanying prospectus, the Company registered up to
$80,000,000 in aggregate principal amount of its common stock, preferred stock, debt securities, warrants, rights and/or units.
On June 21, 2019, the Company closed a registered direct offering of an aggregate of 1,781,360 shares of its common stock,
and in connection therewith, issued to the investors (i) for no additional consideration, Series A warrants to purchase
up to an aggregate of 1,336,021 shares of common stock and (iii) for nominal additional consideration, Series B warrants
to purchase up to a maximum aggregate of 1,116,320 shares of common stock. The Company sold the shares of common stock at a price
of $3.38 per share (the “Share Purchase Price”). The Company received gross proceeds from the offering of approximately
$6.0 million, and net proceeds from the offering of approximately $5.1 million after deducting estimated offering expenses payable
by the Company.
The Series A warrants are exercisable
immediately upon issuance at an exercise price of $3.72 per share and will expire on the fourth (4th) anniversary of the original
issue date. In the event that on December 20, 2019, the exercise price is greater than the Six Month Adjustment Price as
defined below, on the trading day immediately following December 20, 2019 (the “Six Month Measuring Date”), the
exercise price shall automatically adjust to the Six Month Adjustment Price (as adjusted for stock splits, stock dividends, stock
combinations, recapitalizations and similar events). Six Month Adjustment Price means the greater of (x) $1.50 (as adjusted
for any stock dividend, stock split, stock combination, reclassification or similar transaction) and (y) 100% of the quotient
of (I) the sum of the five lowest VWAPs of the common stock during the ten consecutive trading day period ending and including
the Six Month Measuring Date, divided by (II) five. All such determinations to be appropriately adjusted for any stock dividend,
stock split, stock combination, reclassification or similar transaction during such period. The exercise price of the Series A
warrant was adjusted pursuant to this formula from $3.72 to $1.50 per share on December 20, 2019. The Company used the adjusted
exercise price to value its derivative liability on its December 31, 2019 financial statements and reporting periods onwards
with changes in fair value of warrant liabilities from period to period are recorded in the unaudited condensed consolidated statements
of operations and comprehensive loss under the caption “Change in fair value of derivative liabilities”. The exercise
price of the Series A warrant was further adjusted to $0.50 per share on August 7, 2020 as a result of the Company’s issuance
of shares of common stock in its underwritten public offering in August 2020, which has been recorded in the financial statements
in the three months ended December 31, 2020. In addition, the exercise price of the placement agent warrants from the June 2019
registered direct offering was voluntarily adjusted by the Company from $3.72 to $0.50 per share on August 18, 2020.
The Series B warrants are pre-funded
warrants and were issued as a true-up with respect to the shares of common stock. The maximum aggregate number of shares of common
stock issuable upon exercise of the Series B warrants is 1,116,320. Initially, the Series B warrants shall not be exercisable
for any shares of common stock. In the event that on the fiftieth (50th) day after the closing date (the “Adjustment Measuring
Time”), the closing price of the common stock is less than the Share Purchase Price, then the number of shares of common
stock issuable upon exercise of the Series B warrants shall be adjusted (upward or downward, as applicable) to the greater
of (i) zero (0) and (ii) such aggregate number of shares of common stock equal to fifty percent (50%) of the difference
of (A) the quotient of (x) the Share Purchase Price divided by (y) the Market Price (as defined in Purchase Agreement)
as of the Adjustment Measuring Time, less (B) the aggregate number of shares of common stock issued to the investors at the
closing (as adjusted for share splits, share dividends, share combinations, recapitalizations and similar events). The exercise
price of the Series B warrant was adjusted from $3.72 to $0.0001 per share on August 12, 2019. The Company used
the adjusted exercise price to value its derivative liability on its September 30, 2019 financial statements and reporting period
onwards with changes in fair value of warrant liabilities from period to period are recorded in the unaudited condensed consolidated
statements of operations and comprehensive loss under the caption “Change in fair value of derivative liabilities. As of
December 31, 2020, the Company has issued an aggregate of 1,113,188 shares of common stock to certain investors in the June 2019
offering upon exercise of the pre-funded Series B warrants for a total consideration of $111.
Exercise of Warrants
On July 9, 2020, one of the holders of
Series A warrants exercised the warrants to purchase 50,000 shares of the Company’s common stock at an exercise price of
$1.50 per share generating gross proceeds of $75,000 to the Company.
On October 20, 2020, one of the holders
of Series A warrants exercised the warrants to purchase 337,500 shares of the Company’s common stock at an exercise price
of $0.5 per share generating gross proceeds of $168,750 to the Company.
On November 24, 2020, one of the holders
of Series A warrants exercised the warrants to purchase 171,894 shares of the Company’s common stock at an exercise price
of $0.5 per share generating gross proceeds of $85,947 to the Company.
On November 25, 2020, one of the holders
of Series A warrants exercised the warrants to purchase 332,840 shares of the Company’s common stock at an exercise price
of $0.5 per share generating gross proceeds of $166,420 to the Company.
Underwritten Public Offering and Exercise
of the Over-Allotment Option
On August 4, 2020, the Company entered
into an underwriting agreement with The Benchmark Company, LLC and Axiom Capital Management, Inc., as representatives of the Underwriters,
relating to an underwritten public offering of 12,000,000 shares of the Company’s common stock at the Offering Price. Pursuant
to the terms of the Underwriting Agreement, the Company granted the Underwriters a 45-day option to purchase up to an additional
1,800,000 shares of common stock to cover over-allotments, if any, at the Offering Price less the underwriting discounts and commissions.
An underwriting discount of 7% was applied to the Offering Price, except for shares of common stock purchased by certain existing
investors of the Company (the “Excluded Investors”), an underwriting discount of 6% was applied. On August 6, 2020,
the Company completed the underwritten offering. The net proceeds to the Company from this offering, after deducting the underwriting
discounts and commissions and other estimated offering expenses payable by the Company, were approximately $5.3 million.
On August 13, 2020, the Underwriters exercised
their over-allotment option to purchase an additional 1,800,000 shares of common stock at $0.50 per share. This transaction was
completed on August 13, 2020. Net proceeds from the exercise of the underwriters’ over-allotment option were approximately
$0.8 million net of underwriting discounts and commissions and offering expenses.
In connection with the underwritten offering,
the Company issued the Underwriters or their permitted designees, on a private placement basis, the Underwriters’ Warrants
to purchase up to 568,000 shares of common stock. These warrants are valid for a period of five years and exercisable commencing
six months from August 4, 2020 at a price per share equal to 125% of the Offering Price and are exercisable on a “cashless”
basis.
Common stock issued for consulting
services
On July 23, 2020, the Company entered
into a consulting agreement with FirsTrust China Ltd. (the “Consultant”), pursuant to which the Company engaged the
Consultant to provide certain management, operation and business development advisory services for a period of twelve months.
As compensation for the services, the Company agreed to issue the Consultant an aggregate of 500,000 shares of its common stock,
par value $0.0001. These shares were valued at $445,000, based on the closing price of the Company’s common stock on July
23, 2020 of $0.89 per share. Pursuant to the agreement, these shares issued to the Consultant are not subject to vesting or forfeiture,
and the Company has no recourse and no substantial disincentives against the Consultant if the services disrupt before the termination
or expiration of the service period. As a result, these shares issued to the Consultant should be expensed on the date of issuance.
For the three and nine months ended December 31, 2020, these shares was recorded as stock compensation of $0 and $445,000, respectively.
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 with tax rate of 21%. The State of Nevada does not
impose any state corporate income tax.
On December 22, 2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). 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 Tax Act also stablished the Global Intangible Low-Taxed Income (GILTI), a new inclusion rule affecting
non-routine income earned by foreign subsidiaries. For the nine months ended December 31, 2020 and 2019, the Company’s foreign
subsidiaries in China were operating at loss on a consolidated basis which resulted in no GILTI tax.
The Company’s net operating loss
from U.S for the nine months ended December 31, 2020 amounted to approximately $0.8 million. As of December 31, 2020, the Company’s
net operating loss carryforward for U.S. income taxes was approximately $4.0 million. The net operating loss carryforward will
not expire and is available to reduce future years’ taxable income, but limited to 80% of income until utilized. Management
believes that the utilization 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
unaudited condensed consolidated balance sheets. As of December 31 and March 31, 2020, valuation allowances for deferred
tax assets were approximately $0.84 million and $0.53 million, respectively. Management reviews the valuation allowance periodically
and makes changes accordingly.
PRC
Senmiao Consulting, Sichuan Senmiao, Hunan
Ruixi, Ruixi Leasing, Jinkailong, Yicheng, XXTX and its subsidiaries are subject to PRC Enterprise Income Tax (“EIT”)
on the taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is 25%.
Income taxes in the PRC are consist of:
|
|
For
the
Three Months ended
December 31,
|
|
|
For
the
Nine Months ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current
income tax expenses (benefit)
|
|
$
|
7,487
|
|
|
$
|
(72,648
|
)
|
|
$
|
14,464
|
|
|
$
|
155,722
|
|
Deferred
income tax expenses (benefit)
|
|
$
|
-
|
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
(122,772
|
)
|
Total
income tax expenses (benefit)
|
|
$
|
7,487
|
|
|
$
|
(72,648
|
)
|
|
$
|
14,464
|
|
|
$
|
32,950
|
|
As of December 31, 2020 and March 31,
2020, the Company’s PRC entities from continuing operations had net operating loss carryforwards of approximately $6.7 million
and $1.7 million, respectively, which will expire starting from 2023 and ending in 2024. In addition, allowance for doubtful accounts
must be approved by the Chinese tax authority prior to being deducted as an expense item on the tax return. The bad debt allowances
are incurred in Company’s PRC subsidiaries and VIEs which were operating at losses, the Company believes it is more likely
than not that its PRC operations will be unable to fully utilize its deferred tax assets related to the net operating loss carryforwards
in the PRC. As a result, the Company provided 100% allowance on all deferred tax assets on net operating loss carryforwards in
the PRC of $1,666,131 and $414,996 related to its operations in the PRC at December 31, 2020 and March 31, 2020, respectively
and provided 100% allowance on all deferred tax assets on allowance for doubtful account of $7,826 and $178,381 related to its
operations in the PRC at December 31, 2020 and March 31, 2020, respectively.
The tax effects of temporary differences
from continuing operations that give rise to the Company’s deferred tax assets and liabilities are as follows:
|
|
December
31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Net operating loss carryforwards
in the PRC
|
|
$
|
1,666,131
|
|
|
$
|
414,996
|
|
Net operating loss carryforwards in the U.S.
|
|
|
841,268
|
|
|
|
527,365
|
|
Allowance for doubtful account
|
|
|
7,826
|
|
|
|
178,381
|
|
Less: valuation
allowance
|
|
|
(2,515,225
|
)
|
|
|
(1,120,742
|
)
|
Deferred
tax assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Capitalized intangible
assets cost
|
|
|
45,146
|
|
|
|
-
|
|
Deferred tax liabilities,
net
|
|
|
45,146
|
|
|
|
|
|
As of December 31, 2020 and March 31,
2020, the Company’s PRC entities associated with the discontinued P2P lending operations had net operating loss carryforwards
of approximately $10.5 million and $8.8 million, respectively, which will expire in 2023 to 2024. 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, 2020 and March 31, 2020, 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 discontinued operations that give rise to the Company’s deferred tax assets are as follows:
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Net operating loss carryforwards in the PRC
|
|
$
|
2,636,245
|
|
|
$
|
2,206,673
|
|
Less: valuation allowance
|
|
|
(2,636,245
|
)
|
|
|
(2,206,673
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
16.
|
RELATED PARTY TRANSACTIONS AND BALANCES
|
1.
|
Related Party Balances
|
1)
|
Due from related parties
|
As of December 31, and March 31,
2020, balances due from related parties were $53,786 and $12,341, respectively, and represented operation costs of four related
parties paid by the Company on their behalf, amounts received by the Company on behalf of a related party for refund of insurance
claims, and amounts collected by a related party on behalf of the Company from the automobile purchasers, including certain installment
payments and facilitation fees. In addition, another $15,313 and $14,120 represents advances to the non-controlling shareholders
of Hunan Ruixi for operational purposes as of December 31, 2020 and March 31, 2020, respectively. The balances due from related
parties were all non-interest bearing and due on demand.
Due to stockholders comprised of amounts
payable to two stockholders named below and are unsecured, interest free and due on demand.
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Jun Wang
|
|
$
|
48,960
|
|
|
$
|
73,384
|
|
Xiang Hu
|
|
|
-
|
|
|
|
108,711
|
|
Total due to stockholders
|
|
$
|
48,960
|
|
|
$
|
182,095
|
|
Total due to stockholders – discontinued operations
|
|
|
(48,960
|
)
|
|
|
(182,095
|
)
|
Total due to stockholders –
continuing operations
|
|
$
|
-
|
|
|
$
|
-
|
|
3)
|
Due to related parties and affiliates
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Loan payable to related parties (i)
|
|
$
|
140,122
|
|
|
$
|
202,487
|
|
Others (ii)
|
|
|
28,715
|
|
|
|
26,478
|
|
Total due to related parties and affiliates
|
|
|
168,837
|
|
|
|
228,965
|
|
Total due to related parties and affiliates – discontinued
operations
|
|
|
-
|
|
|
|
(76,286
|
)
|
Total due to related parties and affiliates
– continuing operations
|
|
$
|
168,837
|
|
|
$
|
152,679
|
|
(i)
|
As of December 31, 2020 and March 31, 2020, the balances
represented borrowings from three related parties, which are unsecured, interest free and due in the fiscal year of 2021.
|
(ii)
|
As of December 31, 2020 and March 31, 2020, the balances
represented $28,715 and 26,478, respectively of payables to three other related parties for operational purposes. These
balances are interest free and due on demand.
|
Interest expense for the three months
ended December 31, 2020 and 2019 were $0 and $750, respectively. Interest expense for the nine months ended December 31, 2020
and 2019 were $0 and $28,772, respectively.
2.
|
Related Party Transactions
|
In December 2017, the Company entered
into loan agreements with two stockholders, who agreed to grant lines of credit of approximating $955,000 and $159,000, respectively,
to the Company for five years. The lines of credit are non-interest bearing, effective from January 2017. As of December
31, 2020, the outstanding balances due to these two stockholders in the discontinued operations were $48,960 and $0, respectively.
As of March 31, 2020, the outstanding balances in the discontinued operations to these two stockholders were $73,384 and
$108,711, respectively.
The Company entered into two office lease
agreements which were set to expire on January 1, 2020. On April 1, 2020, the two office leases were amended with a
leasing term from April 1, 2020 to March 31, 2023. As of December 31, 2020 and March 31, 2020, operating lease
right-of-use assets of these leases in the continuing operations amounted to $244,175 and $105,432, respectively. As of December
31, 2020 and March 31, 2020, current leases liabilities of these leases in the continuing operations amounted to $141,239
and $78,482, respectively. Non-current lease liabilities of these leases in the continuing operation amounted to $112,570 and
$0 as of December 31, 2020 and March 31, 2020, respectively. As of December 31, 2020 and March 31, 2020, current leases liabilities
of these leases in the discontinued operations amounted to $0 and $53,899, respectively. For the three months ended December 31,
2020 and 2019, the Company incurred $29,206 and $27,415, respectively, in rental expenses to this related party. For the nine
months ended December 31, 2020 and 2019, the Company incurred $87,617 and $82,246, respectively, in rental expenses to this related
party.
In November 2018, Hunan Ruixi entered
into an office lease agreement with Hunan Dingchentai Investment Co., Ltd. ("Dingchentai"), a company where one
of our independent directors serves as legal representative and general manager. The term of the lease agreement was from November 1,
2018 to October 31, 2023 and the rent was approximately $44,250 per year, payable on a quarterly basis. The original lease
agreement with Dingchentai was terminated on July 1, 2019. The Company entered into another lease with Dingchentai on substantially
similar terms on September 27, 2019. As of December 31, 2020 and March 31, 2020, operating lease right-of-use assets
of this lease in the continuing operations amounted $114,675 and $130,873, respectively. As of December 31, 2020, current leases
liabilities and non-current leases liabilities of this lease in the continuing operations amounted $70,383 and $66,451, respectively.
As of March 31, 2020, current leases liabilities and non-current leases liabilities of this lease in the continuing operations
amounted $73,173 and $88,349, respectively. For the three months ended December 31, 2020 and 2019, the Company incurred expense
of $11,080 and $20,725 in rent to Dingchentai, respectively. For the nine months ended December 31, 2020 and 2019, the Company
incurred $33,239 and $31,180, respectively, in rental expenses to this related party.
In June 2019 and January 2020,
the Company entered into two automobile maintenance services contracts with Sichuan Qihuaxin Automobile Services Co., Ltd and
Sichuan Yousen Automobile Maintenance Service Co., Ltd, which companies are controlled by one of the non-controlling shareholders
of Sichuan Jinkailong. During the three months ended December 31, 2020, the Company paid automobile maintenance fees of $0 and
$196,858 to those companies as mentioned above, respectively. During the nine months ended December 31, 2020, the Company
paid automobile maintenance fees of $29,469 and $360,927 to those companies as mentioned above, respectively.
Lessor
The Company's operating leases for automobile
rentals have rental periods that are typically short term, generally is twelve months or less. Revenue recognition section of
Note 3 (r), the Company discloses that revenue earned from automobile rentals, wherein an identified asset is transferred
to the customer and the customer has the ability to control that asset, is accounted for under Topic 842 upon adoption for the
year ended March 31, 2020. The Company did not have any automobile rentals operations prior to April 1, 2019, which
the Company would have accounted for such revenue under Topic 606 for the year ended March 31, 2019.
Lessee
As of December 31, 2020 and March 31,
2020, the Company has engaged in offices and showroom leases which were classified as operating leases. In addition, the Company
had automobiles leases which were classified as finance lease.
The
Company occupies various offices under operating lease agreements with a term shorter than twelve months which it elected not
to recognize lease assets and lease liabilities under ASC 842. Instead, the Company recognized the lease payments in profit or
loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those
payments is incurred.
The Company’s lease agreements do
not contain any material residual value guarantees or material restrictive covenants.
The Company recognized lease expense on
a straight-line basis over the lease term for operating lease. Meanwhile, the Company recognized the finance leases ROU assets
and interest on an amortized cost basis. The amortization of finance ROU assets is recognized on an accretion basis as amortization
expense, while the lease liability is increased to reflect interest on the liability and decreased to reflect the lease payments
made during the period. Interest expense on the lease liability is determined each period during the lease term as the amount
that results in a constant periodic interest rate of the automobile loans on the remaining balance of the liability.
The ROU and lease liabilities are determined
based on the present value of the future minimum rental payments of the lease as of the adoption date, using an effective interest
rate of 6.0%, which is determined using an incremental borrowing rate with similar term in the PRC. As of December 31, 2020, the
average remaining operating and finance lease term of its existing leases is 1.8 and 1.7 years, respectively.
Operating and finance lease expenses consist
of the following:
|
|
|
|
For
the
Three Months Ended
|
|
|
For
the
Nine Months Ended
|
|
|
|
Classification
|
|
December
31,
2020
|
|
|
December
31,
2019
|
|
|
December
31,
2020
|
|
|
December
31,
2019
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Operating
lease cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
expenses
|
|
Selling,
general and administrative
|
|
$
|
93,646
|
|
|
$
|
77,767
|
|
|
$
|
299,526
|
|
|
$
|
286,943
|
|
Finance lease
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of leased asset
|
|
Cost of revenue
|
|
|
758,091
|
|
|
|
-
|
|
|
|
1,524,439
|
|
|
|
-
|
|
Amortization
of leased asset
|
|
Selling,
general and administrative
|
|
|
382,727
|
|
|
|
-
|
|
|
|
1,455,527
|
|
|
|
-
|
|
Interest
on lease liabilities
|
|
Interest
expenses on finance leases
|
|
|
150,227
|
|
|
|
-
|
|
|
|
587,457
|
|
|
|
-
|
|
Total
lease expenses
|
|
|
|
$
|
1,384,691
|
|
|
$
|
77,767
|
|
|
$
|
3,866,949
|
|
|
$
|
286,943
|
|
Operating lease expenses from continuing
operations totaled $93,646 and $50,690 for the three months ended December 31, 2020 and 2019, respectively. Operating lease expenses
from discontinued operations totaled $0 and $27,077 for the three months ended December 31, 2020 and 2019, respectively. Operating
lease expenses from continuing operations totaled $299,526 and $202,751 for the nine months ended December 31, 2020 and 2019,
respectively. Operating lease expenses from discontinued operations totaled $0 and $84,192 for the nine months ended December
31, 2020 and 2019, respectively. Interest expenses on finance leases from continuing operations totaled $150,227 and $0 for the
three months ended December 31, 2020 and 2019, respectively. Interest expenses on finance leases from continuing operations totaled
$587,457 and $0 for the nine months ended December 31, 2020 and 2019, respectively.
The following table sets forth the Company’s
minimum lease payments in future periods:
|
|
Operating
lease
payments
|
|
|
Finance lease
payments
|
|
|
Total
|
|
Twelve months ending December 31, 2021
|
|
$
|
330,090
|
|
|
$
|
6,446,597
|
|
|
$
|
6,776,687
|
|
Twelve months ending December 31, 2022
|
|
|
251,513
|
|
|
|
1,972,364
|
|
|
|
2,223,877
|
|
Twelve months ending December 31, 2023
|
|
|
171,476
|
|
|
|
42,071
|
|
|
|
213,547
|
|
Twelve months ending December 31, 2024
|
|
|
48,322
|
|
|
|
-
|
|
|
|
48,322
|
|
Total lease payments
|
|
|
801,401
|
|
|
|
8,461,032
|
|
|
|
9,262,433
|
|
Less: discount
|
|
|
(66,105
|
)
|
|
|
(567,784
|
)
|
|
|
(633,889
|
)
|
Present value of lease liabilities
|
|
|
735,296
|
|
|
|
7,893,248
|
|
|
|
8,628,544
|
|
Less: Present value of lease liabilities – discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Present value of lease liabilities – continuing operations
|
|
$
|
735,296
|
|
|
$
|
7,893,248
|
|
|
$
|
8,628,544
|
|
18.
|
COMMITMENTS AND CONTINGENCIES
|
Purchase Commitments
On January 19, 2021, the
Company entered into a contract with an automobile dealer for the purchase of a total of 500 automobiles for an aggregate purchase
price of approximately $8,330,000. The purchase is expected to be completed by the end of 2021.
Contingencies
In measuring the credit risk of guarantee
services to automobile purchasers, the Company primarily reflects the “probability of default” by the automobile purchasers
on its contractual obligations and considers the current financial position of the automobile purchasers and its likely future
development.
The Company manages the credit risk of
automobile purchasers by performing preliminary credit checks of each automobile purchaser and ongoing monitoring every month.
By using the current credit loss model, management is of the opinion that the Company is bearing the credit risk to repay the
principal and interests to the financial institutions if automobile purchasers default on their payments for more than three months.
Management also periodically re-evaluates probability of default of automobile purchasers to make adjustments in the allowance
when necessary as the Company is the guarantor of the loans.
Contingent liabilities for automobile
purchasers
Historically, most of the automobile purchasers
would pay the Company their previous defaulted amounts within one to three months. In December 2019, a novel strain of coronavirus,
or COVID-19, surfaced and it has spread rapidly to many parts of China and other parts
of the world, including the United States. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure
of stores and facilities in China and elsewhere. Because substantially all of the Company’s operations are conducted
in China, the COVID-19 outbreak has materially and adversely affected, and may continue to affect, the Company’s business
operations, financial condition and operating results for 2020 and 2021, including but not limited to decrease in revenues, slower
collection of accounts receivables and additional allowance for doubtful accounts. Some of the Company’s customers exited
the ride-hailing business and tendered their automobiles to the Company for sublease or sale to generate income or proceeds to
cover payments owed to financial institutions and the Company. For the three and nine months ended December 31, 2020, the Company
recognized an estimated provision loss of approximately $17,000 and $119,000, respectively for the guarantee services because the
drivers who exited the ride-hailing business were not able to make the monthly payments.
As of December 31, 2020, the maximum contingent
liabilities the Company would be exposed to was approximately $14,898,000 (including approximately $202,000 related to the discontinued
P2P business), assuming all the automobile purchasers were in default. Automobiles are used as collateral to secure the payment
obligations of the automobile purchasers under the financing agreements. The Company estimated the fair market value of the collateral
to be approximately $10,561,000 as of December 31, 2020, based on the market price and the useful life of such collateral, which
represents approximately 70.9% of the maximum contingent liabilities. As of December 31, 2020, approximately $3,358,000, including
interests of $201,000, due to financial institutions, of all the automobile purchases we serviced were past due mainly due to
the COVID-19 epidemic in China.
Contingent liability of Jinkailong
On May 25, 2018, Chengdu Industrial Impawn
Co., Ltd (“Impawn”) signed a pledge and pawn contract (the “Master Contact”) with Langyue, pursuant to
which, Impawn shall provide loans to Langyue up to RMB20 million (approximately $2.9 million). In connection with the Master Contract,
Jinkailong entered into a guaranty with Impawn and agreed to provide guarantee on all the payments (including principal, interests,
compensations and other expenses) of Langyue jointly and severally with seven other guarantors, one of which is a shareholder
of Jinkailong. Langyue used RMB7,019,652 (approximately $1,003,000) of the loans from Impawn and re-loaned it to automobile purchasers
referred by Jinkailong from June 2018 to September 2018, which were also guaranteed by Jinkailong.
Langyue did not pay Impawn the monthly
installment of June 2020 timely. In July 2020, Impawn sent the Collection Letter and Notice to Langyue to demand payment of the
interest and penalty of RMB100,300 (approximately $14,330). On September 18, 2020, Impawn initiated a legal action with the People's
Court of Sichuan Pilot Free Trade Zone (the “Court”) for an order to collect and enforce the repayment of the total
outstanding principal, interest and penalty for an aggregate of RMB9,992,728 (approximately $1,428,000) and other expenses by
freezing all bank accounts of Langyue and all related guarantors. On October 14, 2020, the cash in the bank accounts of Jinkailong,
totaling RMB175,335 (approximately $25,050) was frozen by the Court and became restricted cash accordingly.
On December 24, 2020, Jinkailong, a shareholder
of Jinkailong and Impawn signed a settlement agreement (“Settlement Agreement”). Impawn agreed to release the pledge
of Jinkailong’s 75 automobiles, provided that Jinkailong and such shareholder repay an aggregate of RMB4,026,594 (approximately
$617,000) in monthly installments over 35 months. In addition, upon the initial payment of RMB600,000 (approximately $92,000) by
Jinkailong and such shareholder, Impawn will request the court to release the frozen bank accounts of Jinkailong. The Settlement
Agreement further provides that it does not release the guarantee obligations of Jinkailong and in the event Langyue’s loan
is not fully repaid at the end of the 35 months, Impawn reserves the right to pursue further actions against Jinkailong and such
shareholder for the outstanding balance of the loan. As of December 31, 2020, the original maximum contingent liabilities related
to the loans from Langyue to automobile purchasers which Jinkailong would be exposed to was approximately RMB2,787,000 (approximately
$427,000), which has been included in the amount of contingent liabilities of automobile purchasers as mentioned above. So Jinkailong
recorded the additional $93,000 for the gap between the total amount to be paid pursuant to the Settle Agreement and the remaining
principal of loans from Impawn as guarantee expenses in the unaudited condensed consolidated financial statements. Jinkailong will
collect monthly installment payments from online ride-hailing drivers who lease those 75 automobiles to repay for the remaining
balance of Impawns and recognize guarantee expenses if any. However, as Jinkailong has undertaken the joint and several liability
guarantee for all of Langyue’s loans from Impawn, Jinkailong may be required to pay all the outstanding balance of approximately
$1,428,000 to Impawn in the future.
As
of December 31, 2020, the freeze on all except two bank accounts was released. The restricted cash of Jinkailong was RMB33,892
(approximately $5,190) as of December 31, 2020 which was subsequently released on January 7, 2021.
From time to time, the Company may be
subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Except the contingent
liabilities for Langyue, other amounts accrued, as well as the total amount of reasonable possible losses with the respect to
such matters, individually and in the aggregate, are not deemed to be material to the interim unaudited condensed consolidated
financial statements.
2021 Registered Direct Offering
On February 10, 2021, the Company completed
a registered direct offering of 5,072,465 shares of the Company’s common stock at $1.38 per share, pursuant to a securities
purchase agreement with certain accredited investors. As a result, the Company raised approximately $5.7 million, net of placement
agent fees and offering expenses, to support the Company’s working capital requirements. In connection with the offering,
the Company issued the placement agent warrants to purchase up to 380,435 shares of its common stock. These warrants are exercisable
for a period of five years commencing 180 days from February 8, 2020 at a price of $1.38 per share and are exercisable on a “cashless”
basis.