Pony Group Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our results of operations and financial condition should be read together with our consolidated financial statements and the notes thereto and other financial information, which are included elsewhere in this Report. Our financial statements have been prepared in accordance with U.S. GAAP. In addition, our financial statements and the financial information included in this Report reflect our organizational transactions and have been prepared as if our current corporate structure had been in place throughout the relevant periods. Overview We were incorporated in the State of Delaware on January 7, 2019. We are a travel service provider. We currently provide car services to individual and group travelers. We currently offer carpooling, airport pick-up and drop-off, and personal driver services for travelers between Guangdong Province and Hong Kong. We collaborate with car fleet companies and charge a service fee by matching the traveler and the driver. Redefining the user experience, we aim to provide our users with comprehensive and convenient service offerings and become a one-stop travel booking resource for travelers. While network scale is important, we recognize that transportation happens locally. We currently operate in two markets – Guangdong Province and Hong Kong and plan to expand our offering in more oversea markets. Transfers of Cash to and from Our Subsidiaries Pony Group Inc is a holding company incorporated in Delaware with no material operations of its own, and we conduct our business through our indirectly wholly-owned subsidiaries, Pony HK, in Hong Kong and Universe Travel, in Shenzhen. We currently do not rely on dividends and other distributions on equity to be paid by our Hong Kong or Shenzhen subsidiaries to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our stockholders, to service any debt we may incur and to pay our operating expenses. Currently, substantially all of our operations are in Hong Kong from Pony HK and in Shenzhen from Universe Travel. Pony HK is the parent of a wholly-owned subsidiary, Universe Travel Culture & Technology Ltd., that is incorporated in the PRC. We do not intend to set up any subsidiary or enter into any contractual arrangements to establish a VIE structure with any entity in China. Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China (the “Basic Law”), providing Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, t wo systems”. The laws and regulations of the PRC do not currently have any material impact on any future transfer of cash either from us to Pony HK or from Pony HK to us and the investors in the U.S. In addition, there are no restrictions or limitations under the laws of Hong Kong imposed on the conversion of Hong Kong dollar or the Chinese Yuan into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S investors. We are permitted under the Delaware law to provide funding to our subsidiaries, including Pony HK and Universe Travel, through loans or capital contributions without restrictions on the amount of the funds. There are no significant restrictions or limitations on our ability to distribute earnings from our businesses, including our subsidiaries, to the U.S. investors. Specifically, under PRC laws and regulations, Universe Travel is a wholly foreign-owned enterprise in China. As such, Universe Travel may pay dividends only out of its accumulat ed after-tax profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. In addition, Pony HK is permitted under the laws of Hong Kong to provide funding to Pony Group Inc, the holding company incorporated in Hong Kong, and to Pony HK’s subsidiary, Universe Travel, a company incorporated in the PRC, through dividend or other distribution without restrictions on the amount of the funds. Further, Pony HK and Universe Travel currently intend to retain all available funds and future earnings, if any, for the operation and expansion of its business and does not anticipate declaring or paying any dividends in the foreseeable future As of the date of this Report, there has been no dividends, distributions or cash transfer between our holding company and our subsidiaries nor do we expect such dividends, distributions or cash transfers to occur in the foreseeable future among our holding company and its subsidiaries. Accordingly, we currently do not have, nor we anticipate to have in the future, cash management policies that dictate how funds are transferred between our holding company and its subsidiaries. 46 Moreover, there are no restrictions on foreign exchange or our ability to transfer cash between entities within our group, across borders, or to U.S. investors. However, the PRC government has significant authority to intervene or influence the China operations of an offshore holding company at any time, and such oversight may also extend to our Hong Kong operating company. We cannot assure you that the PRC government will not prevent us from transferring the cash we maintain in Hong Kong outside of Hong Kong, or restrict our ability to deploy our cash into business or to pay dividends. We could also be subject to limitations on the transfer or the use of our cash if we expand our business operations into China or conduct our operations in some other ways such that we become subject to PRC laws that regulate these activities. In addition, if Pony HK or Universe Travel incur debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distribu tions to us. To the extent cash and/or assets in the business is in Pony HK or Universe Travel, the cash and/or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on our ability or on our subsidiaries by the PRC government to transfer such cash and/or assets. As such, any limitation on our ability to transfer or use our cash could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. We have never paid or declared any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The declaration of dividends on any class of shares is within the discretion of our board of directors, subject to Delaware law, out of legally available funds, and will depend on the assessment of, among other factors, earnings, capital requirements and our operating and financial condition. None of our subsidiaries has made any dividends or distributions to us. Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. See “ Item 1A. Risk Factors - Risks Related to Our Business and Industry - We are not likely to pay cash dividends in the foreseeable future. .” Plan of Operations In January 2019, we started our Research and Development (“R&D”) project mobile Lets Go App (“App”) designed to have multi-language interface to attract users from the world, focusing on providing one-stop travel services to foreigners traveling in China, for both leisure and business. In April 2019, we rolled out basic version which supports carpooling, car rental, Airport Pick-up and/or Drop-off, etc., ready for download at Apple App store; the basic version has an interface in Chinese language only. In May 2019, we rolled out second version which has an enhanced interface in both Chinese and English language, supporting payment through PayPal. We intend to attract users from outside of China to use our App and expand our offerings on the App to serve as a one-stop shop to book tickets, reserve hotels, rent a car and hire an English speaking driver. Our goal is to grow to an international player in the travel service market. To accomplish such goal, we will cooperate with other businesses which have capital, marketing and technology resources or products. We expect to recruit more workforce and talents, and develop new technologies and products. Results of Operations For the Year Ended December 31, 2023 Compared to December 31, 2022 Revenue For the years ended December 31, 2023 and 2022, revenues were $177,570 and $114,288, respectively, with an increase of $63,282 over the same period in 2022. The increase was due to the Company’s increase efforts to attract technology development services from client since the fiscal year beginning2023. Technology development revenue increased in $37,369 in fiscal year 2023 compared with fiscal year 2022 as Universe Travel acquired three new clients which are Shenzhen Eryuechuer Culture & Technology., Ltd, Shenzhen Shangjia Electronic Technology., Ltd and Shenzhen Zhongke Hengjin Technology Co., Ltd Cost of Revenue Cost of Revenue for the years ended December 31, 2023 and 2022 were $96,107 and $77,043, respectively, with an increase of $19,064 over the same period in 2022. The increase of cost was mainly due to the increase of technology and development revenue of Universe Travel, thus the cost of revenue increased accordingly. 47 Gross Profit Gross profits were $81,463 and $37,245 for the years ended December 31, 2023 and 2022, respectively, an increase of $44,218 over the same period in 2022. The gross profit ratios were 45.9% and 32.6% for the years ended December 31, 2023 and 2022, respectively. The increase of gross profit ratio due to technology development service revenue increased in 2023, which have a higher gross profit. Operating Expenses Operating expenses for the years ended December 31, 2023 and 2022 were $229,301 and $322,787, respectively, with a decrease of $93,486 or 29.0% from the same period in 2022. The decrease was mainly due to lower service fees from OTC listings and other consulting services. Other Income (Expenses) Other income consists of interest income and exchange gain (loss). For the year ended December 31, 2023, the net other expense were $683 compared with net income of $1,514 for the same period in 2022. The change of other income (expenses) mainly due to the change of exchange rate. Liquidity and Capital Resources We suffered recurring losses from operations and have an accumulated deficit of $724,420 as of December 31, 2023. We had a cash balance of $16,578 and working capital deficit of $518,130 as of December 31, 2023. The Company has incurred losses of $148,521 and $284,028 for the years ended December 31 2023 and 2022, respectively. The Company has not continually generated significant gross margins. Unless our operations generate a significant increase in gross margins and cash flows from operating activities, our continued operations will depend on whether we are able to raise additional funds through various sources, such as equity and debt financing, other collaborative agreements and/or strategic alliances. Our management is actively engaged in seeking additional capital to fund our operations in the short to medium term. Such additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term. Net cash used in operating activities for the year ended December 31, 2023 amounted to $152,949, compared to $321,340 net cash used in operating activities for the year ended December 31, 2022. Net cash used in operating activities mostly consist of net loss. The net loss for year ended December 31, 2023 and 2022 were $148,521 and $284,028, respectively. Net cash provided by financing activities for the year ended December 31, 2023 amounted to $129,676, compared to $78,045 for the same period in 2022. The net cash provided by financing activities were from shareholders who paid cost and other expenses on behalf of the Company. Going Concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. 48 In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (1) obtaining capital from the sale of its equity securities, (2) sales of the Company’s services, (3) short-term and long-term borrowings from banks, and (4) short-term borrowings from stockholders or other related parties (ies) when needed. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually to secure other sources of financing and attain profitable operations. Critical Accounting Policies and Estimates The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We continually evaluate our estimates, including those related to bad debts, the useful life of property and equipment and intangible assets, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of the financial statements. Accounts Receivable - The customers are required to make payments when they book the services, otherwise, the services will not be arranged. Sometimes, the Company extends credit to its group clients. The Company considers accounts receivable to be fully collectible at year-end. Accordingly, no allowance for doubtful accounts has been recorded. Revenue Recognition - The Company recognizes revenue in accordance with ASC 606. The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to achieve this core principle, which includes: (1) identifying contracts with customers, (2) identifying performance obligations within those contracts, (3) determining the transaction price, (4) allocating the transaction price to the performance obligation in the contract, which may include an estimate of variable consideration, and (5) recognizing revenue when or as each performance obligation is satisfied. Our sales arrangements generally ask customers to pay in advance before any services can be arranged. The company recognizes revenue when each performance obligation is satisfied. Documents and terms and the completion of any customer acceptance requirements, when applicable, are used to verify services rendered. The Company has no returns or sales discounts and allowances because services rendered and accepted by customers are normally not returnable. Car service We currently provide car services to individual and group travelers. We currently offer carpooling, airport pick-up and drop-off, and personal driver services for travelers between Guangdong Province and Hong Kong. We collaborate with car fleet companies and charge a service fee by matching the traveler and the driver. Redefining the user experience, we aim to provide our users with comprehensive and convenient service offerings and become a one-stop travel booking resource for travelers. When the traveler selects and initiates a car service request, an estimated service fee is displayed and the traveler can further decide whether to place the service request or not. Once the traveler places the ride service request and the Group accepts the service request, a car service agreement is entered into between the traveler and the Group. Upon completion of the car services, the Group recognizes ride hailing services revenues on a gross basis. Technological development and operation service Revenues from technological development service, including information technology system design and cloud platform development, revenue are recognized monthly by fixed amount based on the contract. From time to time, the Company enters into arrangement to provide technological support and maintenance service of applications to its customers. the Company’s efforts are expended evenly throughout the service period. The revenues for the technological support and maintenance service are recognized over the support and maintenance services period, usually from 3 months to one year. The Company’s contracts have a single performance obligation and are primarily on a fixed-price basis. No significant returns, refund and other similar obligations during each reporting period. Cost of revenue – For car services, cost of revenues, which are directly related to revenue generating transactions, primarily consists of driver earnings and driver incentives. For technological development and operation service, cost of revenue includes of the salaries of development department and the service fee paid to third party. Off-Balance Sheet Arrangements As of December 31, 2023 , we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 49