Senmiao Technology Ltd 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 are a provider of automobile transaction and related services, connecting auto dealers, financial institutions, and consumers, who are mostly existing and prospective ride-hailing drivers affiliated with different operators of online ride-hailing platforms in the People’s Republic of China (“PRC” or “China”). We provide automobile transaction and related services through our wholly owned subsidiaries, Yicheng and Corenel, our majority owned subsidiary, Hunan Ruixi and its VIE, Jinkailong. Since October 2020, we have been operating an online ride-hailing platform through XXTX. Our platform enables qualified ride-hailing drivers to provide application based transportation services in Chengdu, Changsha and Guangzhou, China. Substantially all of our operations are conducted in China. Our Automobile Transaction and Related Services Our Automobile Transaction and Related Services are mainly comprised of (i) automobile operating lease where we provide car rental services to individual customers to meet their personal needs with lease term no more than twelve months; (ii) automobile sales where we procure new cars from dealerships and sell them to our customers in the automobile financing facilitation business; (iii) facilitation of automobile transaction and financing where we connect the prospective ride-hailing drivers to financial institutions to buy, or get financing on the purchase of, cars to be used to provide online ride-hailing services; and (iv) automobile financing where we provide our customers with auto finance solutions through financing leases. We started our facilitation services in November 2018, the sale of automobiles in January 2019, and financial and operating leasing in March 2019, respectively. Since November 22, 2018, the acquisition date of Hunan Ruixi, as of March 31, 2021, we have facilitated financing for an aggregate of 1,687 automobiles with a total value of approximately $24.65 million, sold an aggregate of 1,424 automobiles with a total value of approximately $13.8 million and delivered approximately 1,300 automobiles under operating leases and 131 automobiles under financing leases to customers, the vast majority of whom are online ride-hailing drivers. 73 The table below provides a breakdown of the number of vehicles sold or delivered under different leasing arrangements or managed/guaranteed by us and corresponding revenue generated for the years ended March 31, 2021 and 2020: For the Years Ended March 31 ， 2021 2020 Number of Vehicles Revenue* Number of Vehicles Revenue* Operating Leases 1,211 $ 3,435,000 557 $ 1,304,000 Sales 36 $ 487,000 1,176 $ 11,537,000 Facilitation 61 $ 189,000 1,315 $ 1,925,000 Financing Leases 131 $ 228,000 97 $ 164,000 Other Services >2,500 $ 919,000 >2,000 $ 726,000 * The number was rounded to the nearest thousand for disclosure purpose. Our operating leases, auto sales, auto financing and transaction facilitation, automobile management services and auto financial leasing accounted for approximately 65.3%, 9.3%, 3.6%, 5.4% and 4.3% of our total revenue from our automobile transactions and related services, respectively, for the year ended March 31, 2021 as compared to approximately 8.3%, 73.7%, 12.3%, 0.9% and 1.1% for the year ended March 31, 2020, respectively. Our Ride-Hailing Platform As part of our goal to provide an all-encompassing solution for online ride-hailing drivers as well as to increase our competitive strengths in an increasingly competitive online ride-hailing industry and to take advantage of the market potential, in October 2020, we began operating our own online ride-hailing platform in Chengdu. The platform (called Xixingtianxia) was owned and operated by XXTX, of which Senmiao Consulting acquired a 78.74% equity interest pursuant to a supplementary agreement to XXTX Investment Agreement with all the original shareholders of XXTX on February 5, 2021 (the “XXTX Increase Investment Agreement”). Pursuant to the XXTX Increase Investment Agreement, Senmiao Consulting agreed to make an investment of RMB40 million (approximately $60 million) in XXTX in cash in exchange for a 78.74% equity interest in XXTX. The registration procedures for the change in shareholders and registered capital of XXTX were completed on March 19, 2021. As the date of this Report, Senmiao Consulting has made capital contribution of RMB19.8 million (approximately $3.0 million) to XXTX and the remaining amount is expected to be paid before December 31, 2025. XXTX operates Xixingtianxia and holds a national online reservation taxi operating license. The platform is presently servicing online ride-hailing drivers in Chengdu, Changsha, Neijiang, Guangzhou, Nanchong and Panzhihua, China, providing them with a platform to view and take customer orders for rides. We currently collaborate with Gaode Map and Meituan, two well-known aggregation platforms in China. As described in the Section titled “ Recent Development ” above, we just entered into a cooperation agreement with a top online ride-hailing platform in June 2021. Under our collaboration, when a rider using the platform searches for taxi/ride-hailing services on the aggregation platform, the platform provides such rider a number of online ride-hailing platforms for selection, including ours and if our platform is selected by the rider, the order will then be distributed to registered drivers on our platform for viewing and acceptance. The rider may also simultaneously select multiple online ride-hailing platforms in which case, the aggregation platform will distribute the requests to different online ride-hailing platforms which they cooperate with, based on the number of available drivers using the platform in a certain area and these drivers’ historical performance, among other things. We generate revenue from providing services to online ride-hailing drivers to assist them in providing transportation services to the riders looking for taxi/ride-hailing services. We earn commissions for each completed order as the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider. We settle our commissions with the aggregation platforms on a weekly basis. The acquisition of XXTX has brought us a new stream of revenue and enhanced our goal of providing an all-encompassing solution for online ride-hailing drivers. We launched Xixingtianxia in specific markets within Chengdu in late October 2020, focusing on current driver customers. Since October 23, 2020, the acquisition date, to March 31, 2021, we have expanded marketing of our ride-hailing platform to a larger pool of potential drivers and riders in Chengdu, Changsha, Neijiang and Guangzhou through cooperation with certain local car rental companies and through offering attractive incentives and awards to drivers. 74 During the period from the acquisition date to March 31, 2021, approximately 4.4 million rides with gross fare of approximately $12.4 million were completed through Xixingtianxia and an average of over 6,000 ride-hailing drivers completed rides and earned income through Xixingtianxia (the “Active Drivers”) each month. We plan to expand our driver base for the platform and automobile rental business while strengthening the royalty of the drivers who both lease our cars and use our platform while expanding. During the period since the acquisition date to March 31, 2021, we achieved revenue of approximately $0.9 million from our Online Ride-hailing Platform Services, after taking into account approximately $1.8 million incentives paid by us to Active Drivers, which were recorded as a reduction to our revenue. We intend to focus on drivers who currently finance or lease vehicles through us but our platform is available to others. We plan to launch Xixingtianxia in more cities across China during 2021. Key Factors and Risks Affecting Results of Operations Ability to Increase Our Automobile Lessee and Active Driver Base Our revenue growth has been largely driven by the expansion of our automobile lessee base and the corresponding revenue generated from operating and financial leasing. After the acquisition of XXTX, our revenue growth also depends on the number of completed online ride-hailing orders on our platform, which largely depends on the number of Active Drivers who complete ride-hailing transactions on our platform. We acquire customers for our Automobile Transaction and Related Services, as well as for our Online Ride-hailing Platform Services, through the network of third-party sales teams, referral from online ride-hailing platforms and our own efforts including online advertising and billboard advertising. We also send out fliers and participate in trade shows to advertise our services. We plan to increase the number of our Active Drivers by expanding our platform to more cities during 2021 as well as marketing our platform to our existing and prospective automobile lessees. We expect the expansion of our Active Driver base to promote the growth of our automobile rental business because we offer automobile rental solutions/incentives specifically targeted at drivers using our platform. An effective cross-selling strategies between our automobile finance and leasing business and the newer online ride-hailing platform business is important to our expansion and revenue growth. We also plan to strengthen our marketing efforts through the collaboration with certain automobile dealers and through our own team by employing more experienced staffs and improving the quality and variety of our services. We also plan to continue to set up new service centers in the cities of Chengdu and Changsha during 2021. As of March 31, 2021, we had 60 employees in our own sales department and during the year ended March 31, 2021, we have cooperated with a total of 13 third-party sales teams with about 190 professionals in the aggregate. Management of Automobile Rentals Due to the fierce competition of online ride-hailing industry in Chengdu and the adverse impact from COVID-19 pandemic across mainland China, a significant number of online ride-hailing drivers exited the ride-hailing business and tendered their automobiles to us for sublease or sales in order to generate income/proceeds to cover their payments owed to the financial institutions and us. We have seen an increasing demand for short-term car rentals since the end of 2019, which remained stable during the three months ended March 31, 2021. The daily management and timely maintenance of leased automobiles will have a significant effect on the growth of our income from leasing automobiles in the next twelve months. The effective management of our automobiles through our proprietary system and experienced auto-management team could provide qualified automobiles to potential lessees, either for personal use or providing online ride-hailing services. As of March 31, 2021, we had one parking lot and 15 employees in Chengdu and one parking lot and four employees in Changsha for parking and management of automobiles for operating lease. During the year ended March 31, 2021, our average utilization of the automobiles for operating lease was approximately 79.1%. Our Service Offerings and Pricing The growth of our revenue depends on our ability to improve existing solutions and services provided, continue identifying evolving business needs, refine our collaborations with business partners and provide value-added services to our customers. The attraction of new automobile leasees depends on our leasing solutions with attractive rental price and flexible leasing terms. We have also adopted a stable pricing formula, considering the historical and future expenditure, remaining available leasing months and market price to determine our rental price for varied rental solutions. Furthermore, our product designs affect the type of automobile leases we attract, which in turn affects our financial performance. The attraction of new Active Drivers depends on the comprehensive income they could earn from our platform, which is mainly affected by the number orders distributed to them through our platform and the amount of our incentives paid to them. Our revenue growth also depends on our abilities to effectively price our services, which enables us to attract more customers and improve our profit margin. 75 Ability to Retain Existing Financial Institutions and Engage New Financial Institutions The growth of our business is dependent on our ability to retain existing financial institutions and engage new financial institutions. During the year ended March 31, 2021, we saw a significant decrease in the number of automobile financing facilitation transactions because of the shift of our business focus to automobile rental. Despite such decrease, we are exploring new collaboration methods with financial institutions in connection with our automobile rental business and for our purchase of NEVs in the next twelve months. Our collaborations with financial institutions may be affected by factors beyond our control, such as perception of automobile financing as an attractive asset, stability of financial institutions, general economic conditions and regulatory environment. To increase the number of our cooperative financial institutions and the availability of financing for our existing and new businesses will enhance the overall stability and sufficiency of funding for automobile transactions. Ability to Collect Payments on a Timely Basis We advance the purchase price of automobiles and all service expenses when we provide related services to the purchasers. We collect the receivables due from automobile purchasers from their monthly installment payments and repay financial institutions on behalf of the purchasers every month. As of March 31, 2021, we had accounts receivable of $1.4 million and advanced payments of approximately $0.5 million due from the automobile purchasers, which will be collected through installment payments on a monthly basis during the relevant affiliation periods. The efficiency of collection of the monthly installment payments has a material impact on our daily operation. Our risk and asset management department has set up a series of procedures to monitor the collection. The accounts receivable and advance payments may increase our liquidity risk. We have used the majority of the proceeds from our equity offerings and plan to seek equity and/or debt financings to pay for the expenditure related to the automobile purchase. To pay for the expenditure in advance will enhance the stability of our daily operation and lower the liquidity risk, and attract more customers. Ability to Manage Defaults and Potential Guarantee Liability Effectively We are exposed to credit risk as we are required by certain financial institutions to provide guarantee on the lease/loan payments (including principal and interests) of the automobile purchasers referred by us. If a default occurs, we are required to make the monthly payments on behalf of the defaulted purchasers to the financial institution. We manage the credit risk arising from the default of automobile purchasers by performing credit checks on each automobile purchaser based on the credit reports from People’s Bank of China and third party credit rating companies, and personal information including residence, ethnicity group, driving history and involvement in legal proceeding. Our risk department continuously monitors the payment by each purchaser and sends them payment reminders. We also keep close communication with our purchasers in particular the online ride-hailing drivers so that we can evaluate their financial conditions and provide them with assistance including the transfer of automobile to a new driver if they are no longer interested in providing ride-hailing services or are unable to earn enough income to make monthly lease/loan payments. In addition, automobiles are used as collateral to secure purchasers’ payment obligations under the financing arrangement. In the event of a default, we can track the automobile through an installed GPS system and repossess and handover the automobile over to the financial institution so that we can be released from our guarantee liability. However, if a financial institution initiates a legal proceeding to collect payments due from a defaulted automobile purchaser, we may be required to repay the defaulted amount as a guarantor. If we are unable to undertake the responsibility as a guarantor, our assets, such as cash and cash equivalents, may be frozen by the court if the financial institution successfully requests for an order to freeze our assets or bank accounts, which may adversely affect our operations. As of March 31, 2021, approximately $3,890,000, including interests of approximately $233,000, due to financial institutions, of all the automobile purchases we serviced were past due. Approximately 1,289 online ride-hailing drivers we serviced tendered their automobiles to us for sublease or sale and approximately 43 automobile purchasers that remained in the online ride-hailing business were late in their monthly installment payments as of March 31, 2021. In general, most of the defaulted automobile purchasers who want to remain in online ride-hailing business would pay the default amounts within one to three months. Our risk management department typically starts to interact with overdue purchasers if they have missed one monthly installment payment. However, if the balances are overdue for more than two months or the purchasers decide to exit the online ride-hailing business and sublease or sell their automobiles, we would fully record an allowance against receivables from those purchasers. As of March 31, 2021, we recognized an accumulated allowance against receivables of approximately $3,530,000 from these purchasers. For the year ended March 31, 2021, we also recognized an estimated provision loss of approximately $199,000 for the guarantee services as the drivers exited the online ride-hailing business and would no longer make the monthly repayments to us. By subleasing automobiles from these drivers, we believe we can cope with the defaults and control associated risks. 76 Further, the automobiles subject to our financing leases are not collateralized by us. As of March 31, 2021, the total value of non-collateralized automobiles was approximately $1,289,000. We believe our risk exposure of financing leasing is immaterial as we have experienced limited default cases and we are able to re-lease those automobiles to drivers under financing leases. Actual and Potential Impact of Ongoing Coronavirus (COVID-19) in China on Our Business Beginning in late 2019, an outbreak of a novel strain of coronavirus and related respiratory illness (which we refer to as COVID-19) was first identified in China and has since spread rapidly globally. The COVID-19 pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China and globally. In March 2020, the WHO declared COVID-19 a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because all of our business operations and our workforce are concentrated in China (where the virus first originated), our business, results of operations and financial condition have been adversely affected. Due to the lockdown policy and travel restrictions, the demand for ride-hailing services has been materially and adversely impacted in our areas of operation in China, which reduced the demand of our Automobile Transaction and Related Services. As a result, our revenue and income for the three months ended March 31, 2020 and the subsequent three months ended June 30, 2020 was negatively impacted to a significant extent. As the online ride-hailing markets in Chengdu and Changsha gradually recovered from the impact of COVID-19 since April 2020, our revenue for the three months ended September 30, 2020, three months ended December 31, 2020 and three months ended March 31, 2021 had an increase of approximately 21% , 43% and 73%, respectively, as compared with three months ended June 30, 2020. Our ability to collect the monthly installment payments from ride-hailing drivers during February and March 2020 was adversely impacted. Approximately 1,500 drivers delayed their monthly installments of February and March 2020, which resulted in a decrease in our monthly installment collection by $732,000 during February and March 2020. Since April 2020, the COVID-19 epidemic in China has been effectively controlled and the online ride-hailing markets in Chengdu and Changsha have been recovering. As of March 31, 2021, approximately 1,289 drivers exited the online ride-hailing business and tendered their automobiles to us for sublease or sale while approximately 43 drivers postponed their monthly installment payments. As a result, we recorded accumulated bad debt expenses of approximately $3,530,000. However, during the year ended March 31, 2021, there was an increase in our collection of monthly installments from automobile purchasers and operating lease as compared with the three months ended March 31, 2020, and the negative impact has been gradually alleviated. We will continue to closely monitor our collections. Our daily cash flow has also been adversely impacted as a result of the unsatisfied collection from the online ride-hailing drivers and our potential guarantee expenditure pursuant to the financing agreements we guaranteed. Our cash flow will continue to be adversely impacted if the online ride-hailing market in China recovers slower than anticipated. We anticipate having a larger cash outflow in our daily operations in the next twelve months (even greater than during the year ended March 31, 2021) as we expand our Online Ride-hailing Platform Services in more cities in China and incur more marketing and promotion expenses. Our cash flow situation may worsen if the COVID-19 pandemic reoccurs in China. In an effort to assist with our automobile purchasers, we negotiated with the financial institutions we cooperate with to extend the due dates for monthly payments that may be affected by the epidemic. Certain financial institutions agreed to grant a grace period of up to four months from February to May 2020 for qualified drivers. We commenced the operation of our online ride-hailing platform since late October 2020 and have witnessed the decrease in online ride-hailing orders in mid-December 2020, when Chengdu reported 14 confirmed COVID-19 cases and fewer people took ride-hailing trips as a result. The average daily rides completed through our platform decreased by approximately 15% compared to that before the reporting of the new COVID-19 cases in Chengdu and recovered a week later as the new confirmed cases in Chengdu were fully under control. Consequently, the income of our Automobile Transaction and Related Services customers who ran their business through the Didi platform also decreased during this period. Similarly, in early January 2021, Beijing reported three confirmed COVID-19 cases and one asymptomatic case involving drivers for Didi, a major transportation network company, which also resulted in the decrease in orders in the Didi platform in Beijing. Since mid-May 2021 to June 2021, Guangzhou has reported a series of confirmed and asymptomatic COVID-19 cases, the local government has ensured concrete and effective measures to fight against the resurgence, including suspending some traffic activities in certain medium-risk and high-risk areas in Guangzhou. The average daily rides completed through our platform decreased by approximately 40% compared to that before the reporting of the new COVID-19 cases in Guangzhou. 77 Recent local resurgences of COVID-19 cases in some areas did not have material negative impacts on the economy of China, so we expect that the impact brought by potential COVID-19 cases in the future may be limited as China has established plans to rapidly contain the spread of COVID-19 cases and minimize related economic losses. However, if the epidemic in China deteriorates during the year ending March 31, 2022, new confirmed COVID-19 cases in the regions where we operate our online ride-hailing platform may have significant negative impact on the demand for rides through online ride-hailing platforms, including our platform and our revenue from the Online Ride-hailing Platform Services may decrease. In addition, our automobile purchasers and lessees may be unable to generate sufficient income to make their monthly installment payments, which may create a significant risk of continuing default from our automobile purchasers or lessees. As a result, we may have to repay the defaulted amount as a guarantor or lose the monthly rental revenue. If we experience a widespread default by our automobile purchasers/lessees, our cash flow and results of operations will be materially and adversely affected. As a consequence, we could face shortfalls in liquidity without extra financing resources for the foreseeable future and lose the ability to grow our business or may even be required to scale down or restructure our operations. Any of these factors related to COVID-19 and other similar or currently unforeseen factors beyond our control could have an adverse effect on our overall business environment, cause uncertainties in the regions in China where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations. Ability to Manage and Grow New Online Ride-Hailing Business Due to the fierce competition of online ride-hailing industry in Chengdu and Changsha, our ability to increase our revenue over time may be limited if we focus only on our current Automobile Transaction and Related Services business model. As part of our strategy to provide an all-encompassing solution for online ride-hailing drivers, we have expanded our services to drivers through the operation of Xixingtianxia, our own online ride-hailing platform, which has brought us a new stream of revenue. We generate revenue from commissions earned from each completed order, which represent the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider. As the aggregation platforms distribute the demand orders to different online ride-hailing platforms, the flow of drivers in our area of operations is enhanced, leading to a higher probability that more ride orders will be distributed to our platform, which in turn will increase the revenue of the drivers who use our platform (and our revenue). This also allows us to attract more drivers to engage their online ride-hailing business on our platform. Through a series of promotion and effective daily management and training services, we expect our own online ride-hailing platform will offer us a stable revenue source which can also help grow our automobile financing and leasing business. Pursuant to the cooperation agreement signed with Didi for our Automobile Transaction and Related Services, we may be penalized by Didi, or our partnership with Didi may be terminated as we now operate a business competitive with Didi. However, the service fees we earned from Didi for automobile transaction and related services currently represent less than 0.1% of our total revenue. Therefore, we believe the termination of cooperation with Didi on automobile transaction and related services will not have a material influence on our business or results of operations. Ability to Compete Effectively Our business and results of operations depend on our ability to compete effectively. Overall, our competitive position may be affected by, among other things, our service quality and our ability to price our solutions and services competitively. We will set up and continuously optimize our own business system to improve our service quality and user experience. Our competitors may have more resources than we do, including financial, technological, marketing and others and may be able to devote greater resources to the development and promotion of their services. We will need to continue to introduce new or enhance existing solutions and services to continue to attract automobile dealers, financial institutions, car buyers, leasees, ride-hailing drivers and other industry participants. Whether and how quickly we can do so will have a significant impact on the growth of our business. 78 Market Opportunity and Government Regulations in China The demand for our services depends on overall market conditions of the online ride-hailing industry in China. The continuous growth of the urban population places increasing pressure on the urban transportation and the improvement of living standards has increased the market demand for quality travel in China. Traditional taxi service is limited, and the merging online platforms have created good opportunities for the development of the online ride-hailing service market. Based on the monitoring of China E-Commerce Research Center, the number of online ride-hailing service users had reached 333 million by the end of 2018, increased by 16% from 2017. According to Bain & Company, the transaction value of China's online ride-hailing market in 2017 was larger than the total of the rest of the world. It estimated that by 2021, the total transaction value of China's online ride-hailing market will reach $60 billion. The online ride-hailing industry is facing increasing competition in China and is attracting more capital investment. According to the MOT of the People’s Republic of China, as of May 31, 2021, approximately 234 online ride-hailing platforms have obtained booking taxi operating licenses and the total volume of online ride-hailing orders was approximately 800 million in May 2021 in China. Meanwhile, approximately 1.31 million online booking taxi transportation certificates and approximately 3.44 million online booking taxi driver's licenses were issued nationwide in China. According to the 47th Statistical Report on Internet Development published in February 2021, by the end of December 2020, the number of passengers of online ride-hailing in China was approximately 365 million, took approximately 36.9% of the total number of Chinese internet users. Since 2019, in addition to the traditional online ride-hailing platforms, automobile manufacturers, offline operation service companies, financial and map service providers, among others, have built cooperation relationships with each other to make the online ride-hailing industry a more aggregated industry. The online ride-hailing industry may also be affected by, among other factors, the general economic conditions in China. The interest rates and unemployment rates may affect the demand of ride-hailing services and automobile purchasers’ willingness to seek credit from financial institutions. Adverse economic conditions could also reduce the number of qualified automobile purchasers and online ride-hailing drivers seeking credit from the financial institutions, as well as their ability to make payments. Should any of those negative situations occur, the volume and value of the automobile transactions we service will decline, and our revenue and financial condition will be negatively impacted. In order to manage the rapidly growing ride-hailing service market and control relevant risks, on July 27, 2016, seven ministries and commissions in China, including the MOT, jointly promulgated the “Interim Measures for the Administration of Online Taxi Booking Business Operations and Services” (“Interim Measures”) and amended on December 28, 2019, which legalizes online ride-hailing services such as Didi and requires the online ride-hailing services to meet the requirements set out by the measures and obtain taxi-booking service licenses and take full responsibility of the ride services to ensure the safety of riders. On November 5, 2016, the Municipal Communications Commission of Chengdu City and a number of municipal departments jointly issued the “Implementation Rules for the Administration of Online Booking Taxi Management Services for Chengdu.” On August 10, 2017, the Transportation Commission of Chengdu further issued the detailed guidance “Working Process for the Online Booking Taxi Drivers Qualification Examination and Issuance” and the “Online Booking Taxi Transportation Certificate Issuance Process.” According to these regulations and guidelines, three licenses /certificates are required for operating the online ride-hailing business in Chengdu: (1) the ride-hailing service platform such as Didi should obtain the online booking taxi operating license; (2) the automobiles used for online ride-hailing should obtain the online booking taxi transportation certificate (“automobile certificate”); (3) the drivers should obtain the online booking taxi driver's license (“driver’s license”). On July 23, 2018, the General Office of Changsha Municipal People's Government issued the “Detailed Rules for the Administration of Online Booking Taxi Management Services for Changsha.” On June 12, 2019, the Municipal Communications Commission of Changsha City further issued “Transfer and Registration Procedures of Changsha Online Booking of Taxi.” According to the regulations and guidelines, to operate a ride-hailing business in Changsha requires similar licenses in Chengdu, except those automobiles used for online ride-hailing services are required to meet certain standards, including that the sales price (including taxes) is over RMB120,000 (approximately $17,000). In practice, Hunan Ruixi is also required to employ a safety administrator for every 50 automobiles used for online ride-hailing services and submit daily operation information of these automobiles such as traffic violation to the Transport Management Office of the Municipal Communications Commission of Changsha City every month. In addition to the national online reservation taxi operating license, XXTX and its subsidiaries also obtained the online reservation taxi operating license in Chengdu, Changsha, Neijiang, Panzhihua, Nanchong and Guangzhou, from June 2020 to March 2021, to operate the online ride-hailing platform services. And Didi, the online ride-hailing platform with whom we cooperate for our automobile transaction and related services, obtained the online reservation taxi operating license in Chengdu and Changsha in March 2017 and July 2018, respectively. 79 However, approximately 55% of our ride-hailing drivers had not obtained the driver’s license as of March 31, 2021 while all of the cars used for online ride-hailing services which we provided management services to have the automobile certificate. Without requisite automobile certificate or driver’s license, these drivers may be suspended from providing ride-hailing services, confiscated their illegal income and subject to fines of up to 10 times of their illegal income. Starting in December 2019, Didi began to enforce such limitation on drivers in Chengdu who have a driver’s license but operate automobiles without the automobile certificate. Furthermore, according to the Interim Measures, no enterprise or individual is allowed to provide information for conducting online ride-hailing services to unqualified vehicles and drivers. In December 2020, Chengdu Transportation Bureau has taken a series of investigations into actions violating the Interim Measures and imposed fines for such violations. Among the 226 cases, two cases involved drivers of our Xixingtianxia online ride-hailing platform who failed to obtain the ride-hailing driver’s licenses. As a result, we were fined RMB10,000. Pursuant to the Interim Measures, XXTX and its subsidiaries may be fined between RMB5,000 to RMB30,000 (approximately $714 to $4,300) for violations of the Interim Measures, including providing online ride-hailing platform services to unqualified drivers or vehicles. During the year ended March 31, 2021, we have been fined by approximately $36,000 by Traffic Management Bureaus in Chengdu and Changsha, of which, approximately $5,900 was further compensated by drivers or cooperated third parties. If we are deemed in serious violation of the Interim Measures, our Online Ride-hailing Platform Services may be suspended and the relevant licenses may be revoked by certain government authorities. We are in the process of assisting the drivers to obtain the required certificate and license both for our Automobile Transaction and Related Services and our Online Ride-hailing Platform Services. However, there is no guarantee that all of the drivers affiliated with us would be able to obtain all the certificates and licenses. Further, there is no assurance that each of the drivers who use our platform or the cars used by such drivers in providing ride-hailing services possess the requisite license or certificate. Our business and results of operations will be materially and adversely affected if our affiliated drivers are suspended from providing ride-hailing services or imposed substantial fines or if we are found to be in serious violation of the Interim Measures due to the drivers’ failure to obtain requite licenses and/or automobile certificates in connection with providing services through our platform. Our Discontinued Online P2P Lending Services We previously also operated an online lending platform through our VIE, Sichuan Senmiao, in China, which facilitated loan transactions between Chinese investors and individual and SME borrowers. Our revenues from online lending services were primarily generated from fees charged for our services in matching investors with borrowers. We charged borrowers transaction fees for the work we perform through our platform and charged our investors service fees on their actual investment returns. We ceased our online lending services in October 2019 to focus on our Automobile Transaction and Related Services. In connection with the plan adopted by our Board of Directors to discontinue and wind down our online P2P lending services business on October 17, 2019 (the “Plan”), we ceased facilitation of loan transactions on our online lending platform and assumed all the outstanding loans from investors on the platform. The aggregate balance of the loans we assumed was approximately $5.6 million. As of March 31, 2021, we have used cash generated from our Automobile Transaction and Related Services and payments collected from borrowers in the aggregate of approximately $4.3 million to repay platform investors and we expect to repay all of them by December 31, 2021, an extended due date agreed by the investors. However, if we could not generate enough cash flow to pay investors on time in accordance with the Plan, we may incur additional commitment liabilities in our financial statements during the following periods before we fully fulfill our Plan. Since December 31, 2019, we have treated the online lending business as discontinued operations and recognized receivables from borrowers and payables to investors of approximately $4.0 million in our financial statements accordingly. Based on recent repayments collected from borrowers, we also recognized bad debt expenses of approximately $3.8 million for those receivables and $0.3 million for accounts receivable and prepayment for intangible assets related to our online lending services. However, the amount and timing of the actual allowance for bad debt may change based on evidence of collectability of the subject loans during the execution of the Plan. As part of the Plan, we transferred certain employees who used to work on our online lending business, primarily the information technology staffs, to provide a new website design and development service for customers. 80 Results of Continuing Operations for the Year Ended March 31, 2021 Compared to the Year Ended March 31, 2020 For the Years Ended March 31, 2021 2020 Change Revenues $ 6,160,534 $ 15,655,575 $ (9,495,041 ) Cost of revenues (5,969,492 ) (12,280,238 ) 6,310,746 Gross profit 191,042 3,375,337 (3,184,295 ) Operating expenses Selling, general and administrative expenses (10,273,104 ) (5,496,955 ) (4,776,149 ) Recovery of (Provision for) doubtful accounts 28,358 (3,404,336 ) 3,432,694 Impairments of long-lived assets (130,839 ) (70,984 ) (59,855 ) Total operating expenses (10,375,585 ) (8,972,275 ) (1,403,310 ) Loss from operations (10,184,543 ) (5,596,938 ) (4,587,605 ) Other income (expenses), net 87,888 (45,347 ) 133,235 Interest expense (45,764 ) (96,624 ) 50,860 Interest expense on finance leases (733,202 ) (373,407 ) (359,795 ) Change in fair value of derivative liabilities (1,710,415 ) 1,796,724 (3,507,139 ) Loss before income taxes (12,586,036 ) (4,315,592 ) (8,270,444 ) Income tax expenses (14,627 ) (33,184 ) 18,557 Net loss $ (12,600,663 ) $ (4,348,776 ) $ (8,251,887 ) Revenues We started generating revenue from Automobile Transaction and Related Services from our acquisition of Hunan Ruixi on November 22, 2018. As described above, we acquired a new business that allows us to generate revenue from our Online Ride-hailing Platform Services, which brought us $0.9 million during the period from October 23, 2020 (the date we acquired the platform) to March 31, 2021. Revenue for the year ended March 31, 2021 decreased by $9,495,041, or approximately 61%, as compared with the year ended March 31, 2020. The decrease was mainly due to the decrease in the number of newly facilitated automobile purchases and automobiles sold. As a result of the fierce competition of online ride-hailing industry in Chengdu and Changsha and the adverse impact from COVID-19 pandemic across the mainland China, we experienced a sharp decrease in the number of newly facilitated automobile transactions. This resulted in a significant decrease in our revenue from Automobile Transaction and Related Services since January 2020 as compared with the prior year. Moreover, a significant number of online ride-hailing drivers exited the online ride-hailing business and tendered their automobiles to us in the three months ended March 31, 2020 as a result of less demand due to the public travel restrictions. In an effort to mitigate the negative impact on our daily cash flow resulting from the tendering of automobiles from drivers who exited the ride-hailing business during the epidemic period and develop a new income resource, we shifted our business focus to automobile rentals from facilitation of automobile transaction and financing. We had revenue of $3,434,615 from automobile rental during the year ended March 31, 2021, which partially offset the negative impact of the decrease in our revenue. The online ride-hailing market has gradually recovered since April 2020 as COVID-19 is generally under control in China and travel restrictions have been lifted by the Chinese government. As a result, the number of additional automobiles tendered to us by the ride-hailing drivers exiting the business decreased since the second quarter of the year ended March 31, 2021 as compared with prior quarters. The monthly installments we collected from our customers in the third and fourth quarters kept stable as compared with the second quarter for the year ended March 31, 2021. As we plan to focus more on our automobile rental and Online Ride-hailing Platform Services business, we expect our revenue from automobile rental income to continue to account for a majority of our revenues and revenue from our Online Ride-hailing Platform Services to increase over the next twelve months. We plan to take advantage of the expansion of our online ride-hailing platform to increase the utilization of our automobiles for operating leases, which would bring the increasing demand for short-term automobile rentals. 81 The following table sets forth the breakdown of revenues by revenue source for the years ended March 31, 2021 and 2020: For the Years Ended March 31, 2021 2020 Revenue from Automobile Transactions and Related Services $ 5,257,280 $ 15,655,575 - Revenues from sales of automobiles 487,426 11,536,691 - Operating lease revenues from automobile rentals 3,434,615 1,303,639 - Service fees from automobile management and guarantee services 285,427 141,527 - Financing revenues 227,599 164,391 - Service fees from automobile purchase services 187,295 1,726,717 - Facilitation fees from automobile transactions 1,663 197,815 - Other service fees 633,255 584,795 Revenue from Online Ride-hailing Platform Services 903,254 - Total Revenue $ 6,160,534 $ 15,655,575 Revenue from Automobile Transactions and Related Services Revenue from our Automobile Transaction and Related Services includes sales revenue of automobiles, operating lease revenues from automobile rentals, service fees from automobile management and guarantee services, financing revenues, service fees from automobile purchase services, and other services fees, which accounted for approximately 9.3%, 65.3%, 5.4%, 4.3%, 3.6% and 12.1%, respectively, of the total revenue from Automobile Transaction and Related Services during the year ended March 31, 2021. Meanwhile, sales revenue of automobiles, service fees from automobile purchase services, operating lease revenues from automobile rentals, facilitation fees from automobile purchase, service fees from automobile management and guarantee services, financing revenues and other services fees, which accounted for approximately 73.7%, 11.0%, 8.3%, 1.3%, 0.9%, 1.1% and 3.7%, respectively, of the total revenue from Automobile Transaction and Related Services during the year ended March 31, 2020. Sales of automobiles We generate revenues from sales of automobiles to the customers of Jinkailong, Hunan Ruixi and Chengdu Mashangchuxing Automobile Leasing Co., Ltd. (“Mashang Chuxing”) during the year ended March 31, 2021 and the year ended March 31, 2020. Sales of automobiles during the year ended March 31, 2021 decreased by $11,049,265 as compared with last year, mainly due to the decrease in the number of new automobile purchases, which was a result of the increased competition in the online ride-hailing market in Chengdu and Changsha, and the adverse impact of COVID-19 across mainland China and the shift of our business focus to automobile leasing. We sold an aggregate of 36 automobiles and 1,176 automobiles during the years ended March 31, 2021 and 2020, respectively. Operating lease revenues from automobile rentals We generate revenues from leasing our own automobiles, leased automobiles from third parties and sub-leasing automobiles tendered by online ride-hailing drivers with their authorization for a lease term of no more than twelve months. We leased over 1,200 automobiles with an average monthly rental income of $441 per automobile, resulting in a rental income of $3,434,615, for the year ended March 31, 2021. While we have leased approximately 560 automobiles with an average monthly rental income of $475 per automobile, resulting in a rental income of $1,303,639, for the year ended March 31, 2020. Service fees from automobile management and guarantee services The majority of our customers whom we provided automobile purchase services to are online ride-hailing drivers. They also entered into affiliation service agreements with us pursuant to which we provide them post-transaction management services and guarantee services. The increase of $143,900 was due to the increased number of automobiles which we provided management and guarantee services to during the year ended March 31, 2021 as compared with prior year, but offset by the increase in the accumulated number of tendered automobiles which were subsequently rented to ride-hailing drivers whom we charge rent rather than charging management and guarantee services fee. 82 Financing revenues We started our financial leasing business in March 2019 and began to generate interest income from providing financial leasing services to online ride-hailing drivers in April 2019. We charge the customers of our automobile financing facilitation services interest on their monthly payments which cover purchase price of automobile and our services fees and facilitation fees for terms of 36 or 48 months. We recognized a total interest income of $227,599 and $164,391 during the years ended March 31, 2021 and 2020, respectively. The increase of $63,208 was mainly attributed to the increase in the accumulated number of automobiles under financial leasing. Service fees from automobile purchase services We generate revenues from providing a series of automobile purchase services throughout the automobile purchase transaction process. Service fees from automobile purchase services had a significant decrease of $1,539,422 during the year ended March 31, 2021 as compared with last year, mainly due to the decrease in the number of facilitated new automobile purchases. We serviced 112 new automobile transactions, including purchase, financial leasing and operating leases, with service fees ranging from approximately $140 to $3,550 per automobile during the year ended March 31, 2021 while we serviced 1,315 new automobile purchases with service fees ranging from $89 to $3,600 per automobile during the year ended March 31, 2020. Facilitation fees from automobile transactions Facilitation fees from automobile transaction decreased by $196,152 during the year ended March 31, 2021 as compared with last year mainly due to the decrease in the number of facilitated new automobile purchases from 1,315 to 61 and the decreased average facilitation fee per automobile. As we shift our business focus to automobile rental, we waived the facilitation fee for new automobile purchasers during the nine March 31, 2021. Other service fees We generate other revenues such as commissions from insurance companies and other miscellaneous service fees charged to the automobile purchasers, which accounted for 76.6 %, and 23.4% of revenues from other service fees during the year ended March 31, 2021, respectively. We generate other revenues from commissions from insurance companies and other miscellaneous service fees charged to the automobile buyers, which accounted for 79.9%, and 20.1% of revenues from other service fees during the year ended March 31, 2020, respectively. The increase of $48,460 was mainly attributed to the increase of commissions from insurance and miscellaneous service fees as the total number of automobiles we served increased during the year ended March 31, 2021 as compared with last year. Revenue from Online Ride-hailing Platform Services We generate revenue from providing services to online ride-hailing drivers to assist them in providing transportation services to the riders looking for taxi/ride-hailing services and earn commissions for each completed order equal to the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider. During the period from October 23, 2020 to March 31, 2021, approximately 4.4 million rides were completed through our Xixingtianxia platform and we earned online ride-hailing platform service fees of $903,254, netting off approximately $1.8 million incentives paid to Active Drivers. Cost of Revenues Cost of revenues represents the costs of automobiles sold of $476,267, amortization, daily maintenance and insurance expense of automobiles leased to online ride-hailing drivers of $4,170,081, technical service charges and insurance of online ride-hailing platform services of $1,323,144. Cost of revenues decreased by $6,310,746, or approximately 51%, during the year ended March 31, 2021 as compared with last year, mainly due to the decrease in costs of automobiles sold of $10,834,202 as the number of automobiles sold decreased from 1,176 to 36, partially offset by the increase of $3,200,312 in costs of automobiles under operating leases and $1,323,144 in direct expense and technical service fees of Online Ride-hailing Platform Services, respectively, as a result of the commencement and expansion of those two businesses. 83 Gross Profit Gross profit decreased by $3,184,295, or approximately 94%, during the year ended March 31, 2021 as compared with last year mainly due to the decreased number of automobile sales and facilitated new automobile purchases. Gross profit generated from sales of automobiles decreased by $215,063 and other revenues with no cost of revenues decreased by $1,480,006 due to the significant decrease in the number of automobiles sold and facilitated new automobile purchases during the year ended March 31, 2021 as compared with last year. Meanwhile, we had gross loss of $1,069,336 from operating lease revenues from automobile rentals during the year ended March 31, 2021. The majority of those leased automobiles were tendered to us with overdue monthly installment payments to financial institutions. Therefore, the total amount of the amortization and daily maintenance expense of these automobiles were higher than the monthly rents generated. We have focused on our operating leases as a means of mitigating the impact from the return of automobiles by a substantial number of online ride-hailing drivers who exited the ride-hailing business as a result of COVID-19 and the intense competition in the online ride-hailing market in Chengdu and Changsha since 2020. Moreover, we had gross loss of $419,890 from our Online Ride-hailing Platform Services as we just started this new business in October 2020 and paid cash incentives to attractive drivers to our platform. Selling, General and Administrative Expenses Selling, general and administrative expenses primarily consist of salary and employee benefits, office rental expense, travel expenses, and other costs. Selling, general and administrative expenses increased from $5,496,955 for the year ended March 31, 2020 to $10,273,104 for the year ended March 31, 2021, representing an increase of $4,776,149, or approximately 87%. The increase was attributable to more employees hired for the operations of our businesses and the management of a significant number of automobiles tendered to us for sublease or sale due to the negative impact of COVID-19. The increase mainly consists of an increase of $972,164 in amortization of automobiles which were tendered to us but have not been sub-leased or sold, an increase of $1,858,927 in salary and employee benefits as the number of our employee increased from 181 to 275, an increase $1,049,461 in professional service fees such as financial, legal and market consulting, an increase of $887,493 in advertising and promotion, rental and other expenses, and slight increase of $8,105 in other office charges. Recovery of (Provision for) doubtful accounts As a result of the fierce competition in the online ride-hailing market in Chengdu and Changsha, and the negative impact of COVID-19, an aggregate of approximately 840 online ride-hailing drivers we serviced tendered their automobiles to us for sublease or sale and approximately 380 drivers postponed their monthly installment payments during the year ended March 31, 2020. Then we recognized provision for doubtful accounts of $2,657,442 and allowance for doubtful accounts of $746,894, respectively, for the year ended March 31, 2020 accordingly. However, the additional numbers of new drivers who tendered automobiles and postponed their monthly installment payments decreased by approximately 390 and approximately 340, respectively, during the year ended March 31, 2021 as compared with last year. We re-evaluated the possibility of collection of unsettled balances from those drivers and recovered allowance for doubtful accounts of $28,358 for those receivables during the year ended March 31, 2021. Impairments of Long-lived Assets For the years ended March 31, 2021 and March 31, 2020, we evaluated the future cash flow of our right-of-use assets and our own vehicles used for financing leases during their remaining useful life and recognized impairment loss of $130,839 and $70,984, respectively, for those assets that could not generate sufficient cash. Other Income (expense), net For the year ended March 31, 2021, we had other income of $87,888, mainly as a result of the receipt of a government subsidy of $147,000 from Sichuan Economic and Information Department for our initial public offering in 2018, and a special support fund of $80,000 for government industrial development from Chengdu Municipal people's Government. The income was offset by the guarantee expenses of $125,437 payable accrued to Impawn in order to deal with the frozen accounts of Jinkailong in December 2020.While we had miscellaneous expense of $45,347 in the same period in 2020. 84 Interest Expense and Interest Expense on Finance Leases Interest expense for the year ended March 31, 2021 was $45,764, resulting from the borrowings of Jinkailong from a financial institution for its working capital requirements. The decrease of $50,860 or approximately 53%, was due to the decrease in outstanding principal of loans obtained before 2019 and lower interest rate for the remaining principal. Interest expense on finance leases for year ended March 31, 2021 was $733,202, representing the interest expense accrued under financing leases for the leased automobiles tendered to us for sublease or sale by the online ride-hailing drivers who exited the ride-hailing business. Interest expense on finance leases increased by $359,795 as compared with last year, mainly due to the annual weighted average number of tendered automobiles increased approximately 77% than that in last year as the tendering incurred mainly since the second half of our fiscal year ended March 31, 2020. Change in Fair Value of Derivative Liabilities Warrants issued in our June 2019 and February 2021 registered direct offering and August 2020 underwritten public offering were classified as liabilities under the caption “Derivative Liabilities” in the consolidated balance sheet and recorded at estimated fair value at each reporting date, computed using the Black-Scholes valuation model. The change in fair value of derivative liabilities for the year ended March 31, 2021 was a loss of $1,710,415 in total. The loss was mainly due to our stock price as of March 31, 2021 was higher than the price on March 31, 2020, resulting a loss of $1,372,966 for the warrants issued in our June 2019 registered direct offering, a loss of $455,162 for the warrants issued in our August 2020 underwritten public offering. It was offset by a gain of $117,713 for the warrants issued in our February 2021 underwritten public offering. The change in fair value of derivative liabilities resulted in a gain of $1,796,724 for the year ended March 31, 2020, mainly due our stock price as of March 31, 2020 was lower than that on June 20, 2019, the date of issuance. Income Tax Expense Generally, our subsidiaries and consolidated VIEs in China are subject to enterprise income tax on their taxable income in China at a rate of 25%. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. Income tax expense of $14,627 and $33,184 for the years ended March 31, 2021 and 2020, respectively, represented the provision of enterprise income tax resulting from the taxable income of $58,508 from Hunan Ruixi, Jinkailong and Yicheng. Other subsidiaries and consolidated VIEs in China incurred cumulative losses and no tax expense were recorded. Net Loss As a result of the foregoing, net loss for the year ended March 31, 2021 was $12,600,663, representing an increase of $8,251,887 from net loss of $4,348,776 for the year ended March 31, 2020. Liquidity and Capital Resources We have financed our operations primarily through proceeds from our equity offerings, stockholder loans, commercial debt and cash flow from operations. We had cash and cash equivalents of $4,448,075 as of March 31, 2021 as compared to $833,888 as of March 31, 2020 for our continuing operations. We had no cash and cash equivalents as of March 31, 2021 as compared to $10,139 as of March 31, 2020 for our discontinued operations. We primarily hold our excess unrestricted cash in short-term interest-bearing bank accounts at financial institutions. On August 6, 2020, we closed an underwritten public offering of 12,000,000 shares at $0.50 per share for total gross proceeds of approximately $6.0 million. After deducting underwriting discounts and commissions and offering expenses payable by us, the aggregate net proceeds totaled approximately $5.3 million. In addition, the underwriters for the public offering exercised their over-allotment to purchase 1,800,000 shares of common stock at $0.50 per share, generating net proceeds of approximately $0.8 million after deducting underwriting discounts and commissions and offering expenses. On February 10, 2021, we closed a registered direct offering of 5,072,465 shares of our 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 our working capital requirements. On May 13, 2021, we closed a registered direct offering of 5,531,916 shares of our common stock at $1.175 per share, pursuant to a securities purchase agreement with certain accredited investors. As a result, the Company raised approximately $5.8 million, net of placement agent fees and offering expenses, to support our working capital requirements. 85 Our business is capital intensive and we have spent expenditure on developing our new business of Online Ride-hailing Platform Services and expanding automobile operating leasing during the year ended March 31, 2021. We have considered whether there is substantial doubt about our ability to continue as a going concern due to (1) recurring losses from operations, including net loss of approximately $12.6 million and $0.1 million from continuing operations and discontinued operations, respectively, for the year ended March 31, 2021, (2) accumulated deficit of approximately $34.1 million as of March 31, 2021; (3) the working capital deficit of approximately $5.9 million as of March 31, 2021; (4) net operating cash outflows of approximately $2.2 million and $1.7 million from continuing operations and discontinued operations, respectively, for the year ended March 31, 2021 and (5) the purchase commitment of $2.5 million. As of March 31, 2021, we have entered into two purchase contracts with an automobile dealer to purchase a total of 700 automobiles for the amount of approximately $11.6 million. Pursuant to the contracts, we are required to purchase 350 automobiles in cash with the amount of approximately $5.8 million. As of the date of this Report, 200 automobiles have been purchased in cash and delivered to us and the remaining purchase commitment of $2.5 million is to be completed before December 31, 2021. The remaining 350 automobiles purchase commitment with the amount of approximately $5.8 million shall be purchased with financing option through the dealer’s designated financial institutions. After the completion of the registered direct offering on May 13, 2021, our working capital deficiency was approximately $0.1 million in working capital deficiency. We have determined there is substantial doubt about its ability to continue as a going concern. If we are unable to generate significant revenue, we may be required to cease or curtail its operations. We are trying to alleviate the going concern risk through the following sources: ● we will continue to seek equity financing to support our working capital; ● other available sources of financing (including debt) from PRC banks and other financial institutions; and ● financial support and credit guarantee commitments from our related parties. Based on the above considerations, we think we will probably not having sufficient funds to meet our working capital requirements and debt obligations as they become due one year from the date of this Report, if we are unable to obtain additional financing. In addition, the the maximum contingent liabilities we would be exposed to was approximately $12.8 million as of March 31, 2021. However, there is no assurance that we will be successful in implementing the foregoing plans or that additional financial will be available to us on commercially reasonable terms, or at all. There are a number of factors that could potentially arise that could undermine our plans, such as (i) the impact of the COVID-19 pandemic on our business and areas of operations in China, (ii) changes in the demand for our services, (iii) PRC government policies, (iv) economic conditions in China and worldwide, (v) competitive pricing in the automobile transaction and related service and online ride-hailing industries, (vi) changes in our relationships with key business partners, (vii) that financial institutions in China may not able to provide continued financial support to our customers, and (viii) the perception of PRC-based companies in the U.S. capital markets. Our inability to secure needed financing when required could require material changes to our business plans and could have a material adverse effect on our viability and results of operations. For the Years Ended March 31, 2021 2020 Net Cash Used in Operating Activities $ (3,936,067 ) $ (6,447,664 ) Net Cash Used in Investing Activities (2,510,862 ) (963,416 ) Net Cash Provided by Financing Activities 10,259,777 3,431,797 Effect of Exchange Rate Changes on Cash and Cash Equivalents (208,800 ) (197,200 ) Cash and Cash Equivalents at Beginning of Year 844,027 5,020,510 Cash and Cash Equivalents at End of Year 4,448,075 844,027 Less: Cash and cash equivalents from discontinued operations - (10,139 ) Cash and cash equivalents from continuing operations, end of Year $ 4,448,075 $ 833,888 Cash Flow in Operating Activities For the year ended March 31, 2021, net cash used in operating activities was $3,936,067, which consists of the net cash used in operating activities of $2,219,672 from continuing operations and $1,716,395 from discontinued operations. The total net cash used in operating activities primarily comprised of salary and employee surcharge of $3,812,320, the payment of $1,712,028 to investors of the discontinued P2P platform, other operating costs of $3,795,567, and payment of $1,069,839 for maintenance fees, insurance and other costs for automobiles and related transactions, partially offset by revenue received of $6,175,280 and the net collection of $278,406 on automobiles used for financial lease to be collected within the lease terms. For the year ended March 31, 2020, net cash used in operating activities was $6,447,664, which consists of the net cash used in operating activities of $4,530,293 from continuing operations and $1,917,371 from discontinued operations. The total net cash used in operating activities primarily comprised of salary and employee surcharge of $2,519,541, other operating costs of $2,331,318, costs of $1,185,031 on automobiles used for financial lease to be collected within the lease terms, and payment of $11,872,377 for purchase of automobiles and related transactions, partially offset by revenue received of $11,460,604. Cash Flow in Investing Activities For the year ended March 31, 2021, we had net cash used in investing activities of $2,510,862, which consisted of the net cash used in investing activities of $2,508,578 from continuing operations and $2,284 from discontinued operations. The majority net cash used in investing was for the purchase of automobiles for operating lease purpose. For the year ended March 31, 2020, we had net cash used in investing activities of $963,416, which consisted of the net cash used in investing activities of $965,241 from continuing operations, partially offset by the net cash provided by of $1,825 from discontinued operations. The total net cash used in investing activities primarily consisted of: (1) the payment of $181,116, $262,763 and $49,537 for the purchases of leasehold improvements, vehicles and office equipment, respectively, and (2) the payment of $470,000 for the development of software used in our automobile transaction and related services. 86 Cash Flow in Financing Activities For the year ended March 31, 2021, we had net cash provided by financing activities of $10,259,777, which primarily consisted of: (1) total net proceeds of $11.8 million from our underwritten public offering in August 2020 and registered public offering in February 2021, and $683,046 from exercised warrants from investors, respectively; (2) borrowings from a financial institution of $572,035, partially offset by (4) principal payments made for finance lease liabilities of $2,230,765, (5) repayments of current borrowings from financial institutions and the insurance company of $529,288; and (5) repayments and loans to stockholders, related parties and affiliates of $77,453. For the year ended March 31, 2020, we had net cash provided by financing activities of $3,431,797, which consisted of the net cash provided by financing activities of $4,080,202 from continuing operations and the net cash of $648,405 from discontinued operations. The total net cash provided by financing activities primarily consisted of: (1) gross proceeds from our June 2019 Offering of $5.1 million; (2) release of escrow receivable of $600,000; (3) net proceeds from short-term borrowings from related parties and affiliates of $177,266 for the daily operation of Jinkailong, partially offset by (4) payments of finance lease liabilities to financial institutions of $975,958; (5) repayments of borrowings from financial institutions and third parties of $749,610; and (6) repayment of borrowings from stockholders of $817,294. Off-Balance Sheet Arrangements As of the date of this Report, we have the following off-balance sheet arrangements that are likely to have a future effect on our financial condition, revenues or expenses, results of operations and liquidity: · Purchase Commitments On January 19 and February 22, 2021, we entered into two purchase contracts with an automobile dealer to purchase a total of 700 automobiles for the amount of approximately $11.6 million. Pursuant to the contracts, we are required to purchase 350 automobiles in cash with the amount of approximately $5.8 million. The remaining 350 automobiles purchase commitment with the amount of approximately $5.8 million shall be purchased with financing option through the dealer’s designated financial institutions. As of the date of this Report, 200 automobiles have been purchased in cash and delivered to us. As we are in process of getting approval from the dealer’s designated financial institutions in financing the 350 automobiles’ purchase, there is no clear timing schedule for completing the remaining purchase commitment with this automobile dealer. However, we expect the purchase to be completed by the end of 2021. · Contingent Liabilities Contingent liabilities for automobile purchasers We are exposed to credit risk as we are required by certain financial institutions to provide guarantee on the lease/loan payments (including principal and interests) of the automobile purchasers referred by us. As of March 31, 2021, the maximum contingent liabilities the we would be exposed to was approximately $12,763,000 (including approximately $68,000 related to our discontinued P2P business), assuming all the automobile purchasers were in default, which may cause an increase in guarantee expense and cash outflow in financing activities. As March 31, 2021, approximately $3,890,000, including interests of $233,000, due to financial institutions, of all the automobile purchases we serviced were past due. 87 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 timely pay Impawn the monthly installment for June 2020. 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 in front of the Court for an order to collect and enforce the repayment of the total outstanding principals, interest and penalty for an aggregate of RMB9,992,728 (approximately $1,428,000) and other expenses by freezing all bank accounts of the Langyue and all related guarantors. On October 14, 2020, the cash in the bank of Jinkailong, with total amount of RMB175,335 (approximately $25,050) were 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 RMB4,026,593.66 (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. So Jinkailong recorded the additional $109,000 for the difference between the total amount to be paid pursuant to the Settle Agreement and the remaining principals of loans from Impawn as guarantee expenses in the consolidated financial statements. Jinkailong shall 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. As of March 31, 2021, the original maximum contingent liabilities related to the loans from Langyue to automobile purchasers which Jinkailong would be exposed to was approximately RMB2,163,000 (approximately $330,000), which has been included in the amount of contingent liabilities of automobile purchasers as mentioned above. 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 $1,346,000 to Impawn in the future. As of January 7, 2021, none of the bank accounts are restricted. Inflation We do not believe our business and operations have been materially affected by inflation. 88 Critical Accounting Policies We prepare our consolidated financial statements in accordance with U.S GAAP. These accounting principles require us to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our past experience, knowledge and assessments of current business and other conditions, our expectations regarding the future based on available information and assumptions. The selection of critical accounting policies, the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant assumptions and estimates used in the preparation of our consolidated financial statements. ( a) Use of estimates In presenting the 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 us to revise our estimates. we base our estimates on past experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Estimates are used when accounting for items and matters including, but not limited to, 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, estimates of allowances for doubtful accounts and prepayments, estimates of impairment of intangible assets and goodwill, 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. (b) 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 us. 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. (c) Property and equipment Property and equipment primarily consists of computer equipment, which is stated at cost less accumulated depreciation less any provision required for impairment in value. Depreciation is computed using the straight-line method with no residual value based on the estimated useful life. 89 (d) Goodwill 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 loss. Impairment losses on goodwill are not reversed. We review 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. We assess qualitative factors to determine whether it is necessary to perform the two-step in accordance with ASC 350-20. If we believe, as a result of the quantitative 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 loss. Impairment losses on goodwill are not reversed. (e) Derivative liabilities A contract is designated as an asset or a liability and is carried at fair value on a company’s balance sheet, with any changes in fair value recorded in a company’s results of operations. We then determine which options, warrants and embedded features require liability accounting and records the fair value as a derivative liability. The changes in the values of these instruments are shown in the accompanying consolidated statements of operations and comprehensive loss as “change in fair value of derivative liabilities”. (f) Revenue recognition We recognize our revenue under 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 us 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, we apply 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. We account 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. We have assessed the impact of the guidance by reviewing our existing customer contracts and current accounting policies and practices to identify differences that will result from applying the new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control and principal versus agent considerations. Based on the assessment, we concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of ASC 606 and therefore there was no material changes to our consolidated financial statements upon adoption of ASC 606. 90 Automobile Transaction and Related Services Sales of automobiles – We generate revenue from sales of automobiles to the customers of Jinkailong, Hunan Ruixi and Mashang Chuxing. The control over the automobile is transferred to the purchaser along with the delivery of automobiles. The amount of the revenue is based on the sale price agreed by Hunan Ruixi or Yicheng and the counterparties, including Jinkailong, who act on behalf of their customers. We recognize revenues when an automobile is delivered and control is transferred to the purchaser. Accounts receivable related to the revenue are being collected over 36 to 48 months. The interest component is included in the non-current portion of the accounts receivable. Operating lease revenues from automobile rentals – We generate revenue from sub-leasing automobiles from some online ride-hailing drivers or leasing our own automobiles. We recognize revenue wherein an 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. Service fees from management and guarantee services – Over 95% of our customers are online ride-hailing drivers. The drivers sign affiliation agreements with us, pursuant to which we provide 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. We recognize revenue over the affiliation period when performance obligations are completed. Financing revenues – Interest income from the lease arising from our sales-type leases and bundled lease arrangements is recognized in financing revenues over the lease term based on the effective rate of interest in the lease. 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. We recognize revenue when all the services are completed and an automobile is delivered to the purchaser at a point in time. Accounts receivable related to the revenue are being collected over 36 to 48 months. The interest component is included in the non-current portion of the accounts receivable. Facilitation fees from automobile transactions – Facilitation fees from automobile purchase transactions are paid by our customers including third-party sales teams or the automobile purchasers for the facilitation of the sales and financing of automobiles. We attract automobile purchasers through third-party sales teams or its own sales department. For the sales facilitated between third-party sales teams and automobile purchasers, we charge the fees to the third-party sales teams, which derived from the commission paid by the automobile purchasers to the third-party sales teams. Relating to sales facilitated between automobile purchasers and dealers, we charge the fees to the automobile purchasers. We recognize 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. Online ride-hailing platform service revenue We generate 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. We earn commissions for each completed order 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, we bear a single performance obligation in the transaction of connecting Drivers with Riders to facilitate the completion of a successful transportation service for Riders. We recognize revenue upon completion of a ride as the single performance obligation is satisfied and we have the right to receive payment for the services rendered upon the completion of the ride. We evaluate the presentation of revenue on a gross or net basis based on whether we control the service provided to the Rider and are the principal (i.e. “gross”), or we arrange for other parties to provide the service to the Rider and are an agent (i.e. “net”). Since we are not primarily responsible for ride-hailing services provided to Riders, nor do we have inventory risk related to the services, we recognize revenue at net basis. 91 Leases We account for leases in accordance with ASC 842. The two primary accounting provisions we use 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. For sales-type leases, we recognize sales equal to the present value of the minimum lease payments discounted using the implicit interest rate in the lease and cost of sales equal to carrying amount of the asset being leased and any initial direct costs incurred, less the present value of the unguaranteed residual. Interest income from 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. We exclude from the measurement of our lease revenues any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer. We consider the economic life of most of automobile to be three to five years, since this represents the most frequent contractual lease term for its automobile and the automobile will be used for online ride-hailing services. We believe three to five years is representative of the period during which the automobile is expected to be economically usable, with normal service, for the purpose for which it is intended. A portion of our direct sales of automobile to end customers are made through bundled lease arrangements which typically include automobile, services (automobile purchase services, facilitation fees, 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. We consider 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. Our lease pricing interest rates, which are used in determining customer payments in a bundled lease arrangement, are developed based upon the local prevailing rates in the marketplace where its customer will be able to obtain an automobile loan under similar terms from the bank. We reassess our pricing interest rates quarterly based on changes in the local prevailing rates in the marketplace. As of March 31, 2021, our pricing interest rate is 6.0% per annum. 92 (g) Share-based awards Share-based awards granted to the our 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, we review internal and external sources of information to assist in the estimation of various attributes to determine the fair value of the share-based awards granted by us, including but not limited to the fair value of the underlying shares, expected life, expected volatility and expected forfeiture rates. We are required to consider many factors and make certain assumptions during this assessment. If any of the assumptions used to determine the fair value of the share-based awards changes significantly, share-based compensation expense may differ materially in the future from that recorded in the current reporting period. (h) Leases We account for leases in accordance with ASC 842. Beginning in the year ended March 31, 2020, we entered into certain agreements as a lessor under which we leased automobiles to short-term (usually under twelve months) car service drivers. We also enter into certain agreements as a lessee to lease automobiles and to conduct our automobiles rental operations. If any of the following criteria are met, we classify 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. We combine lease and non-lease components in its contracts under Topic 842, when permissible. Finance and operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the implicit rate for our leases is not readily determinable, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that we would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and over a similar term. Lease terms used to calculate the present value of lease payments generally do not include any options to extend, renew, or terminate the lease, as we do not have reasonable certainty at lease inception that these options will be exercised. We generally consider the economic life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. We have elected the short-term lease exception, therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. Its leases generally do not provide a residual guarantee. The operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term. We review the impairment of our ROU assets consistent with the approach applied for our other long-lived assets. We review the recoverability of its long-lived assets when events or changes in circumstances occur 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. We have elected to include the carrying amount of operating lease liabilities in any tested asset group and include the associated operating lease payments in the undiscounted future pre-tax cash flows. 93 Item 7A. Quantitative and Qualitative Disclosures about Market Risk Not required for smaller reporting companies.