Item 1. Business
Item 1. Business
Overview
Senmiao is not a Chinese operating
company but a U.S. holding company incorporated in the State of Nevada on June 8, 2017. As a holding company with no material operations
of its own, Senmiao conducts a substantial majority of its operations through its operating entities established in the PRC, including
its subsidiaries and the equity investee company.
Since November 2018, we have
been providing automobile transaction and related services focusing on the online ride-hailing industry in the People’s Republic
of China (“PRC” or “China”) through our wholly owned subsidiaries, Yicheng and Corenel, and our majority owned
subsidiaries, Jiekai, and Hunan Ruixi, and its equity investee company, Jinkailong. Since October 2020, we have been operating an
online ride-hailing platform through XXTX, which is a wholly owned subsidiary of Senmiao Consulting. XXTX’s platform enables qualified
ride-hailing drivers to provide transportation services mainly in Chengdu, Changsha and other 20 cities in China as of the date of this
Report. Our business includes Automobile Transaction and Related Services (as defined herein below) and Online Ride-hailing Platform Services,
which constituted a series of services as follows:
Automobile Transactions and Related Services
Our automobile transaction
and related services (the “Automobile Transaction and Related Services”) are mainly comprised of (i) automobile operating
lease where we provide car rental services to individual customers to meet their personal needs with lease term no more than twelve months
(the “Auto Operating Leasing”); (ii) monthly services where we provide management
and related services to Partner Platforms and other companies and earn commission from them (the “ Auto
Commissions” ); (iii) automobile financing where we provide our customers with auto finance solutions through financing leases
(the “Auto Financing”); (iv) service fees from new energy vehicles (“NEVs”) leasing, automobile purchase and management
services where we charge NEVs lessees or automobile purchasers for a series of the services provided to them throughout the leasing or
purchase process based on the chosen product solutions, such as ride-hailing driver training, assisting with a series of administrative
procedures and other consulting services (the “NEVs and Purchase Services”); (v) auto management and guarantee services
provided to online ride-hailing drivers after the delivery of automobiles (the “Auto Management and Guarantee Services”);
(vi) automobile sales where we sell new purchased or used cars to our customers (the “Auto Sales”); and (vii) other
supporting services provided to online ride-hailing drivers. Our Operating Entities started the Purchase and NEVs Services, Auto Management
and Guarantee Services, and other supporting services in November 2018, the Auto Sales in January 2019, and Auto Operating Leasing and
Auto Financing in March 2019, respectively.
The following chart illustrates the constitution
of our automobile transactions and related services:
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Auto Operating Leasing
We, through our subsidiaries,
Hunan Ruixi, Corenel, Jiekai and equity investee company, Jinkailong (the “Auto Business Entities”) in China, have generated
revenue since March 2019 from operating lease services, where the Auto Business Entities lease their own automobiles, sublease automobiles
leased from third-parties or rendered from certain online ride-hailing drivers they served before with their authorization, to other individuals,
including new online ride-hailing drivers, for a lease term of no more than twelve months. We have shifted our business focus to automobile
leasing in accordance with the change of market condition and industry development since the year ended March 31, 2021. Hunan Ruixi is
and Jinkailong was authorized to sublease or sell these drivers’ automobiles in order to offset the repayments those drivers owed
to us and the financial institutions. We also purchase and lease NEVs for subleasing with rental periods of twelve months or less. Excluding
Jinkailong, our other Auto Business Entities leased over 1,400 automobiles with an average monthly rental income of approximately $485
per automobile for the year ended March 31, 2024.
Auto Commissions
Our Auto Business Entities
generated monthly revenues from the management and related services provided to our Partner Platforms and other companies. We generated
revenues of $196,099 from the monthly services commissions during the year ended March 31, 2024.
Auto Financing
Hunan Ruixi began offering
auto financing services in March 2019. In a self-operated financing transaction, Hunan Ruixi is a lessor and a customer (i.e., online
ride-hailing driver) is a lessee. Hunan Ruixi offers to the customer a selection of automobiles that were purchased by Hunan Ruixi in
advance. The customer will choose the desirable automobile to be purchased and enter into a financing lease with Hunan Ruixi. During the
term of the financing lease, the customer will have use rights with respect to the automobile. Hunan Ruixi will obtain title to the automobile
upfront and retain such title during the term of the financing lease, as lessor. At the end of the lease term, the customer will pay a
minimal price and obtain full title of the automobile after the financing lease is repaid in full. In connection with the financing lease,
the customer will enter into a service agreement with Hunan Ruixi. We recognized a total interest income of $57,677 for the year ended
March 31, 2024.
NEVs and Purchase Services
Our Auto Business Entities
charge lease service fees to lessees who rent NEVs from us in Chengdu and Changsha. We also charge automobile purchasers services fees
for a series of the services provided to them throughout the purchase process such as credit assessment, installment of GPS devices, ride-hailing
driver qualification and other administrative procedures. The amount of services fees for NEVs leasing and purchase is based on the product
solutions. Excluding Jinkailong, our other Auto Business Entities had revenue of services of $45,231 from NEVs leasing and $36,637 from
automobile purchase, for the year ended March 31, 2024, respectively.
Auto Management and Guarantee Services
The management and guarantee
services of Hunan Ruixi are provided to online ride-hailing drivers after the delivery of automobiles, covering (i) management services
including, without limitation, ride-hailing driver training, assisting with purchase of insurances, insurance claims and after-sale automobile
services, handling traffic violations and other consulting services; and (ii) guarantee services for the obligations of online ride-hailing
drivers under their financing arrangement with financial institutions. The management and guarantee fees of Hunan Ruixi are based on the
costs of our services and the results of our credit assessment of the automobile purchasers. Hunan Ruixi had revenue of $16,246 from the
management and guarantee services for the year ended March 31, 2024.
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Auto Sales
Our Auto Business Entities
are also engaged in the sales of used-automobiles through Hunan Ruixi and the equity investee company, Jinkailong. Hunan Ruixi sold two
used-automobiles, resulting in an income of $8,822 during the year ended March 31, 2024.
Since November 22, 2018,
the acquisition date of Hunan Ruixi, and as of March 31, 2024, the Auto Business Entities have facilitated financing for an aggregate
of 312 automobiles with a total value of approximately $5.3 million, sold an aggregate of 1,516 automobiles with a total value of approximately
$14.5 million and delivered 1,892 automobiles under operating leases and 164 automobiles under financing leases to customers,
the vast majority of whom are online ride-hailing drivers.
Ride-Hailing Platform Services
As part of our goal to provide
an all-solution for online ride-hailing drivers as well as to increase our competitive power in an increasingly competitive online ride-hailing
industry and to take advantage of the market potential, in October 2020, we, through XXTX, began operating an online ride-hailing
platform (called Xixingtianxia) in Chengdu. Our ride hailing platform enables qualified ride-hailing drivers to provide application-based
transportation services in China. XXTX holds a national online reservation taxi operating license. The platform is presently servicing
ride-hailing drivers in 22 cities in China, including Chengdu, Changsha, Guangzhou and so on, providing them with a platform to view and
take customer orders for rides. XXTX currently collaborates with Gaode Map, a well-known aggregation platform in China on our ride-hailing
platform services. Under the collaboration, when a rider searches for taxi/ride-hailing services on the aggregation platform, the platform
provides such rider a number of online ride-hailing platforms for selection, including ours and if our platform is selected by the rider,
the order will then be distributed to registered drivers on our platform for viewing and acceptance. The rider may also simultaneously
select multiple online ride-hailing platforms, in which case, the aggregation platform will distribute the requests to different online
ride-hailing platforms which they cooperate with, based on the number of available drivers using the platform in a certain area and these
drivers’ historical performance, among other things. XXTX generates revenue from providing services to online ride-hailing drivers
to assist them in providing transportation services to the riders looking for taxi/ride-hailing services. XXTX earns commissions for each
completed order as the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for
the ride charged to the rider (the “Online Ride-hailing Platform Services”). XXTX settles its commissions with the aggregation
platforms on a weekly basis.
The following chart illustrates
our typical process of our ride-hailing platform services:
During the year ended March
31, 2024, approximately 4.9 million rides with gross fare of approximately $15.1 million were completed through Xixingtianxia and an average
of over 5,000 ride-hailing drivers completed rides and earned income through Xixingtianxia (the “Active Drivers”) each month.
During the year ended March 31, 2024, we earned online ride-hailing platform service fees of approximately $2.5 million, after netting
off approximately $0.3 million incentives paid to Active Drivers.
Our executive office is located
in Chengdu City, Sichuan Province, China. Substantially all of our operations are conducted in China. We plan to expand our driver base
for the platform and automobile rental business while strengthening the royalty of the drivers who both lease our cars and use our platform
while expanding, but our platform is available to others.
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Our Corporate History
Senmiao was incorporated in the State of Nevada on June 8, 2017. It
established a wholly owned subsidiary, Senmiao Consulting in China in July 2017. Sichuan Senmiao, a majority owned subsidiary of Senmiao
Consulting, was established in China in June 2014. Senmiao Consulting provided services to Sichuan Senmiao, pursuant to a series of contractual
arrangements (the “VIE Agreements”) with Sichuan Senmiao and each of its equity holders. Senmiao Consulting became the primary
beneficiary of Sichuan Senmiao. The contractual arrangements had been in place since the establishment of Senmiao Consulting (the “Restructuring”).
On March 23, 2022, shareholders with 94.5% equity interests of Sichuan Senmiao and Senmiao Consulting terminated the VIE Agreements. On
March 28, 2022, these shareholders further sold a total of 94.5% equity interests of Sichuan Senmiao to Senmiao Consulting with a total
consideration of zero due to continuous loss. Sichuan Senmiao became the majority owned subsidiary of Senmiao Consulting accordingly.
On September 25, 2016, Sichuan
Senmiao acquired a P2P platform (including website, internet content provider (“ICP”) registration, operating systems, servers,
management system, employees and users) from Sichuan Chenghexin Investment and Asset Management Co., Ltd. (“Chenghexin”),
which had established and operated the platform for two years prior to our acquisition (the “Acquisition”), for a total cash
consideration of RMB69,690,000 (approximately $10.1 million). Prior to the Acquisition, Sichuan Senmiao was a holding company that owned
a 60% equity interest in an equity investment fund management company. Sichuan Senmiao sold its 60% equity interest for a cash consideration
of RMB60 million (approximately $8.9 million) immediately following the Acquisition, in order to focus on the online marketplace lending
business. We ceased the online lending services business in October 2019.
On November 21, 2018, Senmiao
entered into an Investment and Equity Transfer Agreement (the “Investment Agreement”) with Hunan Ruixi and all the shareholders
of Hunan Ruixi, pursuant to which Senmiao acquired an aggregate of 60% of the equity interest of Hunan Ruixi with a consideration of zero.
Senmiao closed the acquisition on November 22, 2018 and agreed to make a cash contribution of $6,000,000 to Hunan Ruixi, representing
60% of its registered capital, in accordance with the Investment Agreement. On February 12, 2024, Senmiao, Hunan Ruixi and its other shareholders
entered into a Share Swap Agreement (the “Hunan Ruixi Share Swap Agreement”), pursuant to which, Senmiao purchased 5% equity
interest from other shareholders of Hunan Ruixi at a total purchase price of $472,815, payable in the Company’s shares of common
stock, par value $0.0001 per share at a per share price of the average closing price of a share of common stock reported on the Nasdaq
Capital Market for ten (10) trading days immediately preceding February 1, 2024. On February 27, 2024, the issuance of shares of the Company’s
common stock for this transaction has been completed and on March 28, 2024, the registration procedures for the change in shareholders
was completed. As of the date of this Report, Senmiao has made the cash contributions with aggregated amount of $6,000,000 to Hunan Ruixi.
Hunan Ruixi holds a business license for automobile sales and financial leasing and has been engaged in automobile financial leasing services
and automobile sales since March 2019 and January 2019, respectively.
Hunan Ruixi had a wholly
owned subsidiary, Ruixi Leasing, a PRC limited liability company formed in April 2018 with a registered capital of RMB10 million (approximately
$1.5 million). Ruixi Leasing had no operations and was dissolved in June 2022.
Hunan Ruixi also owns 35% equity
interest in Jinkailong and used to receive economic benefits of the remaining 65% equity interest through two voting agreements with other
shareholders of Jinkailong. On March 31, 2022, the voting agreements were terminated by other shareholders of Jinkailong and Hunan Ruixi.
As a result, Jinkailong ceased to be a VIE. Jinkailong is an automobile transaction and related services company in Chengdu City, Sichuan
Province, China, which primarily targets drivers in the ride-hailing service sector, focus on automobile operating lease, and facilitates
sales and financing transactions for its clients and provides relevant after-transaction services to them. Although Jinkailong was ceased
from our consolidation scope since March 31, 2022, Huana Ruixi, Corenel and Jiekai continuously provide automobile transaction and related
services similar to Jinkailong in Changsha and Chengdu.
In May 2019, Senmiao formed
its wholly owned subsidiary, Yicheng, with a registered capital of $50 million in Chengdu City, Sichuan Province, China. Yicheng obtained
its business licenses for automobiles sale and has engaged in the sales of automobiles since June 2019. Yicheng used to have a license
of financial leasing, which was terminated since June 2022. As of the date of this Report, Senmiao has made contributions in an aggregate
amount of $5,750,000 to Yicheng.
On September 11, 2020, Senmiao
Consulting entered into an Investment Agreement relating to XXTX with all the original shareholders of XXTX, pursuant to which Senmiao
Consulting would make an investment of RMB3.16 million (approximately $0.5 million) in XXTX in cash and obtain 51% equity interest accordingly.
As of the date of this Report, the Company had remit approximately full amount of investment to XXTX pertained to above mentioned XXTX
Investment Agreement. On October 23, 2020, the registration procedures for the change in shareholders and registered capital were completed
and XXTX became a majority owned subsidiary of Senmiao Consulting. On February 5, 2021, Senmiao Consulting and all the original shareholders
of XXTX entered into a supplementary agreement related to XXTX’s Investment agreement (the “XXTX Increase Investment Agreement”).
Under the XXTX Increase Investment Agreement, all the shareholders of XXTX agreed to increase the total registered capital of XXTX to
RMB50.8 million (approximately $7.40 million). Senmiao Consulting shall pay another investment amounted to RMB36.84 million (approximately
$5.36 million) in cash in exchange of additional 27.74% of XXTX’s equity interest. As of the date of this Report, the Company had
remitted approximately RMB36.60 million ($5.33 million) to XXTX pertained to above mentioned XXTX Increase Investment Agreement.
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On October 22, 2021, the Company,
Senmiao Consulting, XXTX and its other shareholders further entered into a Share Swap Agreement (the “XXTX Share Swap Agreement”),
pursuant to which the Company, through Senmiao Consulting, purchased all of the remaining equity interests the original shareholders held
in XXTX at a total purchase price of $3.5 million, payable in the Company’s shares of common stock, par value $0.0001 per share
at a per share price of the average closing price of a share of common stock reported on the Nasdaq Capital Market for ten (10) trading
days immediately preceding the date of the XXTX Share Swap Agreement. On November 9, 2021, the issuance of 533,167 (5,331,667 pre reverse
split) shares of the Company’s common stock for this transaction has been completed and on December 31, 2021, the registration procedures
for the change in shareholders was completed. As a result, XXTX became a wholly-owned subsidiary of Senmiao Consulting.
As of the date of this Report,
Senmiao Consulting has made a cumulative capital contribution of RMB40.41 million (approximately $5.60 million) to XXTX and the remaining
amount is expected to be paid before December 31, 2025. As of the date of this Report, XXTX had eight wholly owned subsidiaries and two
of them have operations.
In December 2020, Senmiao
Consulting formed a wholly owned subsidiary, Corenel, with a registered capital of RMB10.0 million (approximately $1.6 million) in Chengdu
City, Sichuan Province. Corenel is engaged in automobile operating lease since March 2021.
In April 2021, Senmiao
formed Senmiao Technology (Hong Kong), Ltd. (“Senmiao HK”), a limited liability company with a registered capital of
$10,000 in Hong Kong. We hold 99.99% of the equity interests of Senmiao HK. As of the date of this Report, Senmiao HK has no operations.
In March 2022, Corenel
and another company in Chengdu formed a subsidiary, Jiekai, with a registered capital of RMB500,000 (approximately $80,000) in Chengdu
City, Sichuan Province. Corenel holds 51% equity interests of Jiekai. Jiekai is engaged in automobile operating lease business since April
2022.
Our Corporate Structure
The following diagram illustrates
the Company’s corporate structure as of the date of this Report:
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Former Voting Agreements with Jinkailong’s
Other Shareholders
Hunan Ruixi entered into
two voting agreements signed in August 2018 and February 2020, respectively, as amended (the “Voting Agreements”),
with Jinkailong and other Jinkailong’s shareholders holding aggregate of 65% equity interest. Pursuant to the Voting Agreements,
all other Jinkailong’s shareholders will vote in concert with Hunan Ruixi on all fundamental corporate transactions in the event
of a disagreement for periods of 20 years and 18 years, respectively, ending on August 25, 2038.
On March 31, 2022, Hunan
Ruixi entered into an Agreement for the Termination of the Agreement for Concerted Action by Shareholders of Jinkailong (the “Termination
Agreement”), pursuant to which the Voting Agreements mentioned above shall be terminated as of the date of the Termination Agreement.
The termination will not impair the past and future legitimate rights and interests of all parties in Jinkailong. As a result of the Termination
Agreement, we no longer have a controlling financial interest in Jinkailong and have determined that Jinkailong was deconsolidated from
our consolidated financial statements effective as of March 31, 2022. However, as Hunan Ruixi still holds 35% equity interests in Jinkailong,
Jinkailong is our equity investee company since then. As of March 31, 2024, the paid-in capital of Jinkailong was zero.
Actual and Potential Impact of Coronavirus
(COVID-19) in China on Our Business
Impact on the Automobile Transactions and Related
Services
Our Automobile Transactions
and Related Services have been gradually recovering from the adverse impact of COVID-19 pandemic. As of March 31, 2024, 108 online ride-hailing
drivers Hunan Ruixi serviced rendered their automobiles to Hunan Ruixi. For the years ended March 31, 2024 and 2023, we recognized provision
for credit losses of $4,209 and $0, respectively, against receivables from these purchasers served by Hunan Ruixi. As most of the leasing
term of the automobiles we delivered in Changsha in prior periods has come to the end, during the year ended March 31, 2024, the number
of newly rendered automobiles decreased to 0 as compared with 7 during the year ended March 31, 2023. However, our daily cash flow will
be adversely impacted as a result of the unsatisfied collection from the online ride-hailing drivers and our potential guarantee expenditure
pursuant to the financing agreements we guaranteed. Our cash flow has been adversely impacted by local resurgences of COVID-19 in Chengdu,
Changsha and Guangzhou while China kept applying the zero-COVID policy control and prevention measures especially from September to November
2022, which had negative impact on the online ride-hailing market accordingly due to travel restriction. In addition, our automobile purchasers
and lessees may be unable to generate sufficient income to make their monthly rental, which shall have significant negative impact on
our revenue from automobiles leasing. 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.
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Impact on the Ride-Hailing Platform Services
XXTX commenced the operation
of its online ride-hailing platform since late October 2020 and have witnessed the decrease in online ride-hailing orders in July
2021, November 2021, February 2022, September 2022 and December 2022, when Chengdu, Changsha and Guangzhou reported several confirmed
COVID-19 cases, the local government usually ensured concrete and effective measures to fight against the resurgence, including suspending
some traffic activities in certain medium-risk and high-risk areas. Fewer people took ride-hailing trips as a result and the average daily
rides completed through our platform decreased and our income increased accordingly. Consequently, the income of our Automobile Transaction
and Related Services customers who ran their business through the online ride-hailing platforms also decreased during this period.
Any of these factors related
to COVID-19 and other similar or currently unforeseen factors beyond our control could have an adverse effect on our overall business
environment, causing uncertainties in the regions in China where we conduct business, and causing our business to suffer in ways that
we cannot predict and materially and adversely impact our business, financial condition and results of operations.
Customers
The significant majority
of our Operating Entities’ customers are online ride-hailing drivers. Due to the complexity and difficulty of obtaining registration
of various licenses required for driving an online ride-hailing car, our customers choose to lease automobile from us or become affiliated
with us who offer them a simplified and smooth process to obtain qualified cars for online ride-hailing. The automobile lessees typically
lease automobiles which meet the criteria of cars used for online ride-hailing for their own business in the industry. The automobile
purchasers typically become affiliated with Hunan Ruixi through affiliation agreements pursuant to which Hunan Ruixi, as a qualified management
company, provide them post-transaction management services during the affiliation period, which is usually the same as the term of the
Financing Agreements. The users of Xixingtianxia platform typically use it to view and take customer orders for rides.
Our Auto Business Entities
acquire customers through the network of sales teams from third-party and our related party, cooperated lease companies and our own efforts
including online advertising and billboard advertising. Our operating entities also send out fliers and participate in trade shows to
advertise our services. During the year ended March 31, 2024, we serviced over 2,000 customers for our Automobile Transaction and Related
Services. During the year ended March 31, 2024, approximately 4.9 million rides with gross fare of approximately $15.1 million were completed
through our platform orders.
Risk Management
To mitigate risk associate
with our Automobile Transaction and Related Services and Online Ride-hailing Platform Services, our operating entities conduct assessments
and evaluations of prospective online ride-hailing drivers and leases separately, including identity verification and background checks.
For an online ride-hailing platform driver who uses our platform as well as purchases or leases automobile from our Auto Business Entities,
the assessments typically involve two rounds from our subsidiaries who operate Automobile Transaction and Related Services and Online
Ride-hailing Platform Services, respectively. We believe our manual review and verification process is sufficient for the requirements
of our current operations.
Our Operating Entities conduct
an initial screening when they receive an application from a prospective automobile buyer/lessee based on credit reports from People’s
Bank of China (the “PBOC”) and third party credit rating companies, and personal information including residence, ethnicity
group, driving history and involvement in legal proceeding. An automobile buyer/lessee must meet the following preliminary criteria:
● be between 18-65 years old;
● reside in the mainland of China and have the local residential
identification;
● have a driving history of at least three years;
● not be subject to on-going legal proceedings or enforcement;
● not be listed on a national delinquent debtor’s list;
● the value of purchased automobile matches the income of the
candidate.
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Additionally, our Operating
Entities arrange a simple in-person interview with the applicant where we gather information on marital/family status, income, assets,
borrowing history and default history, if any. This interview is typically conducted by our operating entities’ risk management
staff who will verify the accuracy of information on the prospective driver by cross-checking information provided by the applicant with
other sources. Our Operating Entities will also assess the prospective customer’s potential repayment ability.
Applicants with any of the
follow attributes will be rejected:
● engaging in illegal or criminal activities;
● involvement in pornography, gambling, drug dealing and gangster
activities and experiences;
● engaging in usury lending; or
● providing fraudulent information.
Our Operating Entities also
conduct an assessment and evaluation when they receive an application from a prospective online ride-hailing driver. Under our online
ride-hailing platform’s standards, a qualified driver must meet certain minimum criteria:
● have obtained online booking taxi driver’s license
with age of 21 to 60 years old for males; 21 to 55 years old for females;
● have a driving history of at least three years with driving
license of (i) A1, A2, A3, B1, B2, C1 and C2 (referring to the different classes of driver’s license in China based on vehicle
types);
● must not have committed any hit-and-run accidents;
● have no record of dangerous driving, drug use, driving under
alcoholic influence, and violent crime;
● have no traffic violation of 12 demerit points or more in
any year of the past three years; and
● have not been investigated or disciplined for unlawfully
engaging in taxi services or other passenger transportation operations within the past five years.
XXTX’s online ride-hailing
platform also sets criteria for the automobiles used for online ride-hailing business, which need to be completed before the driver commences
to use the automobile for online ride-hailing business:
● has obtained online booking taxi transportation certificate
and be registered as “reserved taxi service” with less than 7 seats and local registered number; or in accordance with the
requirements by local government;
● has installed vehicle satellite positioning device and emergency
alarm device with driving record function;
● motor vehicle driving permit is still in use;
● has been covered with compulsory insurance for motor vehicle
traffic accident liability and compulsory insurance for third party liability of motor vehicle, and within the insurance period, or in
accordance with the requirements by local government;
● vehicle miles traveled is less than 600,000 km and the service
life is less than 8 years;
● other requirements by local government.
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As for the Cybersecurity
risk assessment as well as the mitigation measure taken by the Company, please refer to the discussion under Item 1C – Cybersecurity
for more details.
Post-Financing Services and Collection Monitor
The Drivers Management department
and Post Financing Management department of our Auto Business Entities are in charge of monitoring and managing monthly payments by the
purchaser/lessee. Every car purchased or leased through us has a GPS device installed, which helps us locate the car. Our Drivers Management
monitor the daily gross income of our served online ride-hailing drivers through our cooperated online ride-hailing platforms as well
as trace the location of each car at least every day. If there is any indicator such as the driver’s daily income is far behind
the average level or the trajectory is unusual, our Drivers Management department shall contact the driver immediately and deliver the
case to the Post Financing Management department to repose the car if necessary. The Drivers Management also monitor the daily using expenditures
of each car such as the traffic violations penalty and maintenance expenses once a week. The car shall be reposed if the accumulated amount
of those expenses exceeds the threshold. After a car is repossessed, our Auto Business Entities store it in a warehouse and later re-lease
it to new customers or dispose of the automobile in accordance with law and relevant contracts. If our Auto Business Entities are unable
to repossess collateral from a delinquent automobile purchaser/lessee, they may commence a lawsuit against such purchaser/lessee.
Competition
The online ride-hailing industry
in China is intensively competitive and full of rapid changes in technology, shifting user preferences and frequent introduction of new
services and products. There were approximately 300 automobile financing and leasing companies that provide automobile purchasing and
leasing services to online ride-hailing drivers in Chengdu and Changsha City as of June 2024. We face significant competition primarily
from companies that operate in Chengdu City, such as Sichuan Hengchuang Times Automobile Serving Co., Ltd., and Changsha Zitai Automobile
Leasing Co., Ltd.
Meanwhile, Didi Chuxing Technology
Co., Ltd. (“Didi”) takes over 80% market share of the online ride-hailing platforms in China according to the public information.
We choose to cooperate with well-known aggregation platforms to commence our online ride-hailing platform business rather than competing
with Didi directly. As of June 2024, there were approximately 100 companies who operate their own online ride-hailing platforms and have
established business relationships with Gaode in Chengdu and Changsha, our major operation cities and are engaged in the same business
as ours. We face significant competition primarily from platforms that have operation in Chengdu and Changsha City, such as Caocao, Robotaxi
and T3 Chuxing. We expect to have more cooperation with other aggregation platforms in the online ride-hailing industries to have more
competitive advantage in the industry.
Many of our competitors are
well-capitalized and offer discounted services, driver incentives, consumer discounts and promotions, innovative service and product offerings,
and alternative pricing models, which may be more attractive to consumers than those that we offer. Further, some of our current or potential
competitors have, and may in the future continue to have, greater resources and access to larger driver and consumer bases in a particular
geographic market. In addition, our competitors in certain geographic markets enjoy substantial competitive advantages such as greater
brand recognition, longer operating histories, better localized knowledge, and more supportive regulatory regimes. As a result, such competitors
may be able to respond more quickly and effectively than us in such markets to new or changing opportunities, technologies, consumer preferences,
regulations, or standards, which may render our products or offerings less attractive. In addition, future competitors may share in the
effective benefit of any regulatory or governmental approvals and litigation victories we may achieve, without having to incur the costs
we have incurred to obtain such benefits.
Regulations
This section sets forth a
summary of the most significant rules and regulations that affect our business activities in China or the rights of our stockholders
to receive dividends and other distributions from us.
Regulations Related to Cybersecurity, Information
Security and Confidentiality of User Information
PRC government authorities
have enacted laws and regulations with respect to Internet information security and protection of personal information from any abuse
or unauthorized disclosure. Internet information in China is regulated and restricted from a national security standpoint.
The
Ministry of Public Security of the People’s Republic of China (the “MPS”) has promulgated measures that prohibit
use of the Internet in ways that, among other things, result in leaks of government secrets or the spread of socially destabilizing content.
The MPS and its local counterparts have authority to supervise and inspect domestic websites to carry out its measures. Internet information
service providers that violate these measures may have their licenses revoked and their websites shut down.
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Cybersecurity and Information Security
For description of the historical
regulatory landscape of Cybersecurity and Information Security, please refer to pages 15 to 19 in our annual report on Form 10-K for the
fiscal year ended March 31, 2023 filed with the SEC on July 13, 2023, which is incorporate by reference herein.
On March 22, 2024, CAC adopted
Regulations to Promote and Standardize Cross-Border Data Flows. The new regulation optimizes and adjusts the outbound data transfer system,
including security assessment for outbound data transfer, cross-border transfer of personal information through concluding standard contract,
and personal information protection certification. The new regulations appropriately relax the conditions for cross-border flow of data
and narrow the scope of data outbound security assessment, so as to facilitate cross-border flow of data and reduce the compliance costs
of enterprises.
Personal Information Protection
The Several Provisions on
Regulating the Market Order of Internet Information Services, issued by the MIIT on December 29, 2011 and effective on March 15, 2012,
stipulate that internet information service providers may not collect any user personal information or provide any such information to
third parties without the consent of a user, unless otherwise stipulated by laws and administrative regulations. “User Personal
information” is defined as information relevant to the users that can lead to the recognition of the identity of the users independently
or in combination with other information. An internet information service provider must expressly inform the users of the method, content
and purpose of the collection and processing of such user personal information and may only collect such information as necessary for
the provision of its services. An internet information service provider is also required to properly store user personal information,
and in case of any leak or likely leak of the user personal information, the internet information service provider must take immediate
remedial measures and, in severe circumstances, make an immediate report to the telecommunications regulatory authority.
The Decision on Strengthening
the Protection of Online Information, issued by the SCNPC on December 28, 2012, and the Order for the Protection of Telecommunication
and Internet User Personal Information, issued by the MIIT on July 16, 2013, stipulate that any collection and use of user personal information
must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified
purposes, methods and scope. An internet information service provider must also keep such information strictly confidential, and is further
prohibited from divulging, tampering with or destroying any such information, or selling or proving such information to other parties.
An internet information service provider is required to take technical and other measures to prevent the collected personal information
from any unauthorized disclosure, damage or loss. Any violation of the above decision or order may subject the internet information service
provider to warnings, fines, confiscation of illegal gains, revocation of licenses, cancelation of filings, closedown of websites or even
criminal liabilities.
10
With respect to the security
of information collected and used by mobile apps, pursuant to the Announcement of Conducting Special Supervision against the Illegal Collection
and Use of Personal Information by Apps, which was issued by the CAC, the MIIT, the Ministry of Public Security, and the State Administration
for Market Regulation on January 23, 2019, app operators shall collect and use personal information in compliance with the Cybersecurity
Law and shall be responsible for the security of personal information obtained from users and take effective measures to strengthen personal
information protection. Furthermore, app operators shall not force their users to make authorization by means of default settings, bundling,
suspending installation or use of the app or other similar means and shall not collect personal information in violation of laws, regulations
or breach of user agreements. Such regulatory requirements were emphasized by the Notice on the Special Rectification of Apps Infringing
upon User’s Personal Rights and Interests, which was issued by MIIT on October 31, 2019. On November 28, 2019, the CAC, the MIIT,
the Ministry of Public Security and the State Administration for Market Regulation jointly issued the Methods of Identifying Illegal Acts
of Apps to Collect and Use Personal Information. This regulation further illustrates certain commonly seen illegal practices of app operators
in terms of personal information protection.
On March 12, 2021, the Secretary
Bureau of the CAC, the General Office of the MIIT, the General Office of the MPS and the General Office of the MSA jointly issued the
Provision on Scope of Necessary Personal Information for Common Types of Mobile Internet Applications, which prescribed the scope of necessary
personal information that may be collected by common applications, include map navigation applications, online car booking applications
and other 37 common applications. For online car booking applications, the necessary personal information includes cell phone numbers
of registered users; rider’s departure place, arrival place, location information, travel track and payment information such as
payment time, payment amount and payment channel. Applications shall not deny users’ access to the basic functional services if
the users do not agree to provide personal information outside those necessary ones.
On August 20, 2021, the SCNPC
promulgated the Personal Information Protection Law, which took effect on November 1, 2021. Pursuant to the Personal Information Protection
Law, “personal information” refers to any kind of information related to an identified or identifiable individual as electronically
or otherwise recorded and exclude anonymized information. The processing of personal information includes the collection, storage, use,
processing, transmission, provision, disclosure and deletion of personal information. The Personal Information Protection Law applies
to the processing of personal information of individuals within the territory of the PRC, as well as personal information processing activities
outside the territory of PRC, for the purpose of providing products or services to natural persons located within PRC, for analyzing or
evaluating the behaviors of natural persons located within PRC, or for other circumstances as prescribed by laws and administrative regulations.
A personal information processor may process the personal information of this individual only under the following circumstances: (i) where
consent is obtained from the individual; (ii) where it is necessary for the execution or performance of a contract to which the individual
is a party, or where it is necessary for carrying out human resource management pursuant to employment rules or collective contracts made
and executed in accordance with laws; (iii) where it is necessary for performing a statutory responsibility or statutory obligation; (iv)
where it is necessary in response to a public health emergency, or for protecting the life, health or property of a natural person in
the case of an emergency; (v) where the personal information is processed within a reasonable scope to carry out news reporting, supervision
by public opinions or any other activity for public interest purposes; (vi) where the personal information, which has already been disclosed
by the individual or otherwise legally disclosed, is processed within a reasonable scope; or (vii) any other circumstance as provided
by laws or administrative regulations. In principle, the consent of an individual must be obtained for the processing of his or her personal
information, except under the circumstances of the aforementioned items (ii) to (vii). Where personal information is to be processed based
on the consent of an individual, such consent shall be a voluntary and explicit indication of intent given by such individual on a fully
informed basis. If laws or administrative regulations provide that the processing of personal information shall be subject to a separate
consent or written consent of the individual concerned, such provisions shall prevail. In addition, the processing of the personal information
of a minor under 14 years old must obtain the consent by a parent or a guardian of such minor and the personal information processors
must adopt special rules for processing personal information of minors under 14 years old.
11
In the meantime, the PRC
regulatory authorities have also enhanced the supervision and regulation on cross-border data transmission. For example, on October 29,
2021, the Measures for the Security Assessment of Cross-border Data Transmission (Draft for Comment) were proposed by the CAC for public
comments, which require that any data processor providing important data collected and generated during operations within the PRC or personal
information that should be subject to security assessment according to law to an overseas recipient shall conduct security assessment.
The final Measures was promulgated on July 7, 2022 and was effective on September 1, 2022. The measures provide five circumstances, under
any of which data processors shall, through the local cyberspace administration at the provincial level, apply to the CAC for security
assessment of data cross-border transfer. These circumstances include: (i) where the data to be transferred to an overseas recipient are
personal information or important data collected and generated by operators of critical information infrastructure; (ii) where the data
to be transferred to an overseas recipient contain important data; (iii) where a personal information processor that has processed personal
information of more than one million people provides personal information overseas; (iv) where the personal information of more than 100,000
people or sensitive personal information of more than 10,000 people are transferred overseas accumulatively; or (v) other circumstances
under which security assessment of data cross-border transfer is required as prescribed by the CAC. As of the date of this Report, the
above measures have not been formally adopted, and substantial uncertainties still exist with respect to the enactment timetable, final
content, interpretation and implementation of these measures and how they will affect our business operation.
Our Chinese subsidiaries
and affiliates have incurred, and will continue to incur, significant expenses in an effort to comply with cybersecurity and information
security standards and protocols imposed by law, regulation, industry standards or contractual obligations to the date of this Report
in all material respects. However, changes in existing laws or regulations or adoption of new laws and regulations relating to cybersecurity
and information security, particularly any new or modified laws or regulations that require enhanced protection of certain types of data
or new obligations with regard to data retention, transfer or disclosure, could greatly increase the cost to us of providing our service
offerings, require significant changes to our operations or even prevent us from providing certain service offerings in jurisdictions
in which we currently operate or in which we may operate in the future.
Regulations Related to Online Ride-Hailing
Services
Our ride hailing business
is regulated by certain laws and regulations relating to online ride hailing services. As a ride hailing platform, we are required to
obtain permits for an online ride hailing business in the cities in China where we operate such a business, and specific licenses and
permits are also required for the drivers and vehicles on our platform engaged in our ride hailing business.
In order to manage the rapidly
growing online ride-hailing service market and control relevant risks, on July 27, 2016, seven ministries and commissions, including
the Ministry of Transport (the “MOT”), jointly promulgated the Interim Measures for the Administration of Online Taxi Booking
Business Operations and Services, which was amended on December 28, 2019 and November 30, 2022 , which legalizes online
ride-hailing services such as XXTX and requires the online ride-hailing services to meet the requirements set out by the Interim Measures
and obtain requisite service licenses and take full responsibility of the ride services to ensure the safety of riders. According to the
Interim Measures, (i) the competent transport department of the State Council shall be responsible for guiding the administration of online
ride hailing services nationwide, (ii) the competent transport department of the government of a province or an autonomous region shall
be responsible for guiding the administration of online ride hailing services within its respective administrative region, and (iii) the
competent transport department of a municipality directly under the central government, a city divided into districts, a county, or other
competent administrative department designated by the government shall be responsible for the specific administration of online ride hailing
service. Before carrying out online ride hailing services, an online ride hailing service platform must obtain a permit for the online
ride hailing business and complete the record filing of internet information services with the provincial communications administration
in the place of its enterprise registration. Such platform must be capable of exchanging and processing the relevant information and data
with its servers located within the PRC, establish a sound operational management system, work safety management system and service quality
assurance system, and fulfill other conditions as prescribed. Platforms that conduct the online ride hailing business without obtaining
the necessary permit may be subject to an order of correction, a warning by the local authority, a fine of RMB10,000 (US$1,384) to RMB30,000
(US$4,155), or even criminal liabilities if a violation constitutes a crime. Vehicles used for online ride hailing services must also
satisfy certain conditions in order to obtain the transportation permit for vehicles used for online ride hailing services, including,
among others, installation of satellite navigation system and emergency alarm devices, and meeting certain operational safety criteria.
The Interim Measures also impose certain requirements on drivers engaged in online ride hailing services, including, among others, a driving
experience of more than three years and no transport or driving related or violent criminal offense or violent crime record. Drivers must
meet the prescribed conditions and pass the relevant exams before they can obtain the driver’s license for online ride hailing services.
Platforms may be subject to an order of correction and a fine of RMB5,000 (US$692) to RMB10,000 (US$1,384), and in severe cases a fine
of RMB10,000 (US$1,384) to RMB30,000 (US$4,155), if the relevant vehicle or driver providing the online ride hailing services has not
obtained the applicable permit. Furthermore, the Interim Measures also provide that competent local governmental authorities may formulate
detailed implementing rules for their respective regions in accordance with the Interim Measures and in light of local conditions.
12
Following the promulgation
of the Interim Measures, various local governmental authorities have promulgated implementing rules to further stipulate the detailed
requirements for online ride hailing service platforms, vehicles and drivers, including the major cities of our operations. On November 5,
2016, the Municipal Communications Commission of Chengdu City and a number of municipal departments jointly issued the Implementation
Rules for the Administration of Taxi Management Services for Chengdu Network, which was replace by the one promulgated on July 26,
2021. On August 10, 2017, the Transportation Commission of Chengdu further issued guidelines on compliance requirements for online
ride-hailing businesses, including Working Process for the Online Appointment of Taxi Drivers Qualification Examination and Issuance and
Online Appointment Taxi Transportation Certificate Issuance Process. On November 28, 2016, Guangzhou Municipal People’s Government
promulgated Interim Measures for the Management of Online Ride Hailing Operation and Service in Guangzhou, as amended on November 14,
2019. On July 23, 2018, the General Office of Changsha Municipal People’s Government issued the “Detailed Rules for
the Administration of Online Booking Taxi Management Services for Changsha”. On June 12, 2019, the Municipal Communications Commission
of Changsha City further issued “Transfer and Registration Procedures of Changsha Online Booking of Taxi”. According to these
regulations and guidelines, three licenses or certificates are required for operating the online ride-hailing business: (1) online
ride-hailing service platforms such as XXTX is required to obtain the online reservation taxi operating license; (2) automobiles
used for online ride-hailing are required to obtain the online reservation taxi transport certificate (the “automobile certificate”);
(3) online ride-hailing drivers are required obtain the online reservation taxi driver’s license (the “driver’s license”).
Those regulations also stipulate a series of detailed requirements for the online ride-hailing platforms, drivers and automobiles in different
cities.
In addition to the national
online reservation taxi operating license, XXTX and its subsidiaries also obtained the local online reservation taxi operating license
in Chengdu and Changsha, the two major cities, and other 27 cities from April 2020 to June 2024, issued by local authorities, to operate
the online ride-hailing platform services. Without a requisite automobile certificate or driver’s license, ride-hailing drivers
may be suspended from providing online ride-hailing services, their illegal income may be confiscated and they may be subject to fines
amounting to RMB200 (US$28) to RMB2,000 (US$277) for each offense.
However, approximately 25%
of our online ride-hailing drivers had not obtained the driver’s license as of March 31, 2024 while all of the cars used for online
ride-hailing services which we provided management services to have the automobile certificate. Without requisite automobile certificate
or driver’s license, these drivers may be suspended from providing online ride-hailing services, confiscated their illegal income
and subject to fines of up to 10 times of their illegal income.
Furthermore, according to
the Interim Measures, no enterprise or individual is allowed to provide information form online ride-hailing services to unqualified vehicles
and drivers. During the year ended March 31, 2024, we have been fined by approximately $76,000 by Traffic Management Bureaus in Chengdu,
Changsha, Guangzhou and Tianjin, of which, approximately $30,000 was further compensated by drivers or cooperated third parties. If we
are deemed in serious violation of the Interim Measures, our Online Ride-hailing Platform Services may be suspended and the relevant licenses
may be revoked by certain government authorities. We are in the process of assisting the drivers to obtain the required certificate and
license, such as providing registered and training services. However, there is no guarantee that all of the drivers who run their online
ride-hailing business through our platform would be able to obtain all the certificates and licenses.
On February 7, 2022, the
MIIT, the MPS and several other governmental authorities jointly promulgated the Notice on Strengthening the Joint Supervision of the
Entire Chain of Online Ride Hailing Industry, which provides that the departments of transportation, telecommunications, public security,
human resources and social security, the People’s Bank of China, taxation, market regulation and internet information shall accelerate
the establishment of a collaborative supervision mechanism led by the transportation department for new forms of transportation at the
provincial and municipal levels, or the joint supervision mechanism. This notice requires relevant governmental authorities to optimize
service processes, strictly control industry access, and urge online ride hailing platforms not to grant access to drivers and vehicles
with no valid licenses. In case certain violations by online ride hailing platforms trigger the supervisions of various governmental authorities
or different provinces and have serious adverse impacts, the relevant authorities of the State Council may organize joint regulatory talks
and urge the online ride hailing platforms to rectify. If the online ride hailing platforms commit serious violations but refuse to rectify,
the relevant governmental authorities of the municipal level or above may initiate joint supervision and report such violations to the
inter-ministerial joint meeting mechanism, and the Ministry of Transport shall take the lead and work together with the CAC, the MIIT,
the MPS and other governmental authorities, or instruct their relevant local counterparts, to take measures in accordance with laws, including
ordering online ride hailing platforms to suspend services in the region, suspend the release of apps or take down the apps, etc. According
to this notice, the joint supervision mechanism shall apply to certain violations of laws and regulations by online ride hailing platforms,
which include (i) engaging in online ride hailing business or in a disguised form without obtaining the permit for online ride hailing
business; (ii) failing to secure that the vehicles and drivers providing services have relevant licenses and professional qualifications,
dispatching orders to drivers and vehicles that have not obtained the corresponding licenses, failing to transmit relevant data information
to online ride hailing supervision information exchange platform as required or other serious violations of laws and regulations occurring
in the process of operating online ride hailing business; (iii) low-price dumping, fraud, and unreasonably differential treatment of individuals
in terms of transaction conditions; (iv) endangering network security, data security, or infringing on the rights and interests of users’
personal information; (v) illegal operation of payment and settlement business; (vi) serious infringement of the labor security rights
and interests of the drivers; (vii) failure to pay taxes in accordance with the law; and (viii) other serious violations that endanger
public interests, disrupt social order, and affect social security and stability.
13
Regulations Related to Financial Leasing
In September 2013, the
Ministry of Commerce of the People’s Republic of China (the “MOFCOM”) issued the Administration Measures of Supervision
on Financing Lease Enterprises (the “Leasing Measures”), to regulate and administer the business operations of financial leasing
enterprises. According to the Leasing Measures, financial leasing enterprises are allowed to carry out financial leasing businesses in
such forms as direct lease, sublease, sale-and-lease-back, leveraged lease, entrusted lease and joint lease in accordance with the provisions
of relevant laws, regulations and rules. However, the Leasing Measures prohibit financial leasing enterprises from engaging in financial
businesses such as accepting deposits, and providing loans or entrusted loans. Without the approval from relevant authorities, financial
leasing enterprises may not engage in inter-bank borrowing and other businesses. In addition, financial leasing enterprises are prohibited
from carrying out illegal fund-raising activities in the name of financial leases. The Leasing Measures require financial leasing enterprises
to establish and improve their financial and internal risk control systems, and a financial leasing enterprise’s risk assets may
not exceed ten times that of its total net assets.
In April 2018, China Banking
and Insurance Regulatory Commission, currently known as the National Financial Regulatory Administration of China (the “NFRAC”)
took over the authority over supervision of financing lease companies from MOFCOM.
On May 26, 2020, NFRAC
issued the Interim Measures for Supervision and Administration of Financial Leasing Companies (the “Financial Leasing Measures”),
which clarified the business scope, the scope of the leased property and the prohibited business or activity of the financial leasing
company, as well as other business-related definitions, such as purchase, registration, retrieval and value management of financial leasing
products. Financial leasing companies may conduct some or all of the following businesses: (1) financial leasing business; (2) leasing
business; (3) purchase, disposal of residual value and repair of leased assets related to financial leasing and leasing business,
consulting of the leasing transaction, receipt of leasing deposit; (4) transfer of financial leases or leased assets or acceptance
of financial leases or leased assets transferred; (5) fixed income securities investment business. The measures have also discussed
certain regulatory standards, including the proportion of financial leasing assets, the proportion of fixed income securities investment
business, business concentration and so on. Financial leasing companies shall not conduct the following businesses or activities: (1) illegal
fund-raising, acceptance or disguised acceptance of deposits; (2) extension of loans or entrusted loans; (3) placements with
or from other financial leasing companies or in disguise; (4) financing or transferring assets through Internet Lending Information
Intermediaries, private equity funds; (5) other businesses or activities prohibited by laws and regulations, the NFRAC and local
financial regulatory authorities in provinces, autonomous regions and municipalities.
The Financial Leasing Measures
clarify and enumerate the scopes of the financing lease business activities, the leased properties and the activities prohibited to be
conducted by the financing lease companies, and set forth the regulatory indexes applicable to financing lease companies including, among
others, (i) the assets for financial leasing and other lease arrangements accounting for not less than 60% of the total assets of a financial
leasing company; (ii) the risk assets of a financing lease company not exceeding eight times of its total net assets, and the term “risk
assets” of a financing lease company refers to its total assets, net of cash, bank deposits, Chinese treasury bonds; (iii) the fixed-income
securities investment business carried out by a financial leasing company not exceeding 20% of its net assets. The Financial Leasing Measures
also requires financial leasing companies should comply with the following regulatory indicators: (1) degree of concentration of
single client financing, meaning the balance of all financial leasing business of a financial leasing company to a single lessee shall
not exceed 30% of its net assets; (2) degree of concentration of single group client financing, meaning the balance of all financial
leasing business of a financial leasing company to a single group shall not exceed 50% of its net assets; (3) ratio of a single related
client, meaning the balance of all financial leasing business of a financial leasing company to a related party shall not exceed 30% of
its net assets; (4) ratio of all related parties, meaning the balance of all financial leasing business of a financial leasing company
to all related parties shall not exceed 50% of its net assets, and (5) ratio of a single related shareholder, meaning the financing
balance to a single shareholder and all its related parties shall not exceed the shareholder’s capital contribution in the financial
leasing company, and at the same time meet the provisions of the measures on the ratio of a single related client. The NFRAC may make
adjustments to the above indicators according to regulatory needs.
Financial leasing companies
that were established before the implementation of the Interim Measures for the Supervision and Administration of Financial Leasing Companies
are required meet the requirements stipulated in the Measures within the transition period prescribed by the provincial local financial
supervision department. In principle, the transition period shall not exceed three years. Provincial local financial supervision departments
can appropriately extend the transition period arrangement according to the actual situation of specific industries.
14
The PRC Civil Code promulgated
by the National People’s Congress effective from January 1, 2021 regulates the civil contractual relationship among natural
persons, legal persons and other organizations. Chapter 15 of the PRC Civil Code sets forth related rules about financing lease contracts
including that financing lease contracts shall be in written form and normally include terms such as the name, quantity, specifications,
technical performance and inspection method of the leased property, the lease term, the composition, payment term, payment method and
currency of the rent and the ownership of the leased property upon expiration of the lease. The PRC Civil Code further provides that the
lessor and the lessee may agree on the ownership of the leased property upon expiry of the lease term. If the ownership of the leased
property is not or is not clearly agreed between the parties, and is still cannot be determined pursuant to the PRC Civil Code, the leased
property shall be owned by the lessor.
As of the date of this Report,
Hunan Ruixi, our proprietary financing lease subsidiary, has utilized our own capital to fund financing leases to automobile purchasers.
Hunan Ruixi has not complied with all the requirements stipulated under the Financial Leasing Measures and intends to rectify and to comply
with all the requirements stipulated under the Financial Leasing Measure during the transition period, failing which, Hunan Ruixi cannot
carry out financial leasing business.
Regulation Related to Financing Guarantee
Companies
The State Council of China
promulgated the Regulations on the Administration of Financing Guarantee Companies on August 2, 2017, and on April 2, 2018,
the NFRAC, together with several other governmental authorities, jointly adopted four supplemental rules over the Administration
of Financing Guarantee Companies: (i) the Administrative Measures for the Financing Guarantee Business Permit, (ii) Measures
for Measuring the Outstanding Amount of Financing Guarantee Liabilities, (iii) Administrative Measures for the Asset Percentages
of Financing Guarantee Companies and (iv) Guidelines on Business Cooperation between Banking Financial Institutions and Financing
Guarantee Companies, or the Four Supporting Measures of the Financing Guarantee Rules. In addition, the NFRAC, together with several other
governmental authorities, jointly issued the Supplementary Provisions on the Supervision and Administration of Financing Guarantee Companies
on October 9, 2019.
According to the above rules on
financing guarantee companies, or the Financing Guarantee Rules, “financing guarantee” refers to the activities that guarantors
provide guarantee to the guaranteed parties as to loans, bonds or other types of debt financing, including, among other things, the activities
whereby a guarantor provides guarantee for loans, online lending, financial leasing, commercial factoring, bill acceptance, letters of
credit or other forms of debt financing. “Financing guarantees companies” refer to companies legally established and engaged
in financing guarantee business. According to those rules, the establishment of a financing guarantee company is subject to the approval
by the competent government authority, and unless otherwise stipulated, no entity may operate financing guarantee business without such
approval. If any entity violates these regulations and operates financing guarantee business without approval, the entity may be subject
to penalties including ban or suspension of business, fines of RMB500,000 to RMB1,000,000, and confiscation of illegal gains, if any.
If the violation constitutes a criminal offense, criminal liability will be imposed in accordance with the law.
In connection with our historical
automotive financing facilitation business, Hunan Ruixi provided guarantees to our financing partners in connection with the financing
of the purchase of automobiles and such guarantee business is not our principal business, which had no significant impact on our operation
result. It is uncertain whether this practice would be deemed as operations in financing guarantee business. See “ Risk—Risks
Relating to Our Industry and Business—We are required to obtain certain licenses and permits for our business operations, and we
may not be able to obtain or maintain such licenses or permits. ”
Regulations Related to Value-Added Telecommunication
Business Certificates and Foreign Investment Restrictions
Among all of the applicable
laws and regulations, the Telecommunications Regulations of the People’s Republic of China, or the Telecom Regulations, promulgated
by the PRC State Council in September 25, 2000 and amended on July 29, 2014 and February 6, 2016, respectively, is the primary governing
law, and sets out the general framework for the provision of telecommunications services by domestic PRC companies. Under the Telecom
Regulations, telecommunications service providers are required to procure operating licenses prior to their commencement of operations.
The Telecom Regulations distinguish “basic telecommunications services” from “value-added telecommunications services”,
or “VATS”. VATS are defined as telecommunications and information services provided through public networks, and are further
divided into Class I VATS and Class II VATS. The Telecom Catalogue was issued as an attachment to the Telecom Regulations to categorize
telecommunications services as either basic or value-added. The Telecom Catalogue was most recently updated in June 2019, categorizing
online data and transaction processing, information services, among others, as Class II VATS.
15
The Administrative Measures
on Telecommunications Business Operating Licenses, promulgated by the MIIT in 2009 and most recently amended in July 2017, which set forth
more specific provisions regarding the types of licenses required to operate VATS, the qualifications and procedures for obtaining such
licenses and the administration and supervision of such licenses. Under these regulations, a commercial operator of VATS must first obtain
a VATS License, from the MIIT or its provincial level counterparts, otherwise such operator might be subject to sanctions including corrective
orders and warnings from the competent administration authority, fines and confiscation of illegal gains and, in the case of significant
infringements, the websites may be ordered to close.
According to the Special
Entry Management Measures (Negative List) for the Access of Foreign Investment (2021 version) and the Administrative Regulations on Foreign-Invested
Telecommunications Enterprises, which were most recently amended by the State Council on April 7, 2022 and took effect on May 1, 2022,
the equity interest of foreign investors in value-added telecommunications enterprises that are open for foreign investment according
to China’s WTO commitment may not exceed 50%, except as otherwise stipulated by the state. Foreign investment in entities holding
VATS Licenses for internet data center services, content delivery network services, domestic internet protocol virtual private network
services and internet access services, which are not open for foreign investment according to China’s WTO commitment, are generally
prohibited, except that qualified telecommunication service providers incorporated in Hong Kong or Macau may hold up to 50% equity interest
in such entities according to the Mainland and Hong Kong Closer Economic Partnership Agreement or the Mainland and Macao Closer Economic
Partnership Agreement, respectively. From May 1, 2022, the amended Administrative Regulations on Foreign-Invested Telecommunications Enterprises
canceled the qualification requirement on the primary foreign investor in a foreign invested value-added telecommunications enterprise
for having a good track record and operational experience in the value-added telecommunications industry as stipulated in the previous
version.
Meanwhile, the Circular of
Ministry of Industry and Information Technology Concerning Lifting Restrictions on the Proportion of Foreign Equity in Online Data Processing
and Transaction Processing Business (E-commerce) (the “Circular 196”), which was promulgated on June 19, 2015, provides that
foreign investors are permitted to invest up to 100% of the registered capital in a foreign-invested telecommunication enterprise engaging
in the operation of online data processing and transaction processing (E-commerce). However, foreign investors are only permitted to invest
up to 50% of the registered capital in a foreign-invested telecommunication enterprise that engages in the operation of Internet information
services. While Circular 196 permits foreign ownership, in whole or in part, of online data and deal processing businesses (E-commerce),
a sub-set of value-added telecommunications services, it is not clear whether our online ride-hailing platform would be deemed as online
data and deal processing. See “ Risk Factors — Risks Related to Doing Business in China — We
may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies,
and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business
and results of operations. ”
Regulations Related to Internet Advertising
The Measures for Administration
of Internet Advertising (the “Internet Advertising Measures”), were adopted by the MSA and became effective on May 1, 2023.
The Internet Advertising Measures regulate Internet advertising activities. According to the Internet Advertising Measures, Internet advertisers
are responsible for the authenticity of the content of advertisements. The identity, administrative license, cited information and other
certificates that advertisers are required to obtain in publishing Internet advertisements shall be true and valid. Internet advertisements
shall be distinguishable and prominently marked as “advertisements” in order to enable consumers to identify them as advertisements.
Publishing and circulating advertisements through the Internet shall not affect the normal use of the Internet by users. It is not allowed
to induce users to click on the content of advertisements by any fraudulent means, or to attach advertisements or advertising links in
the emails without permission. The Internet Advertising Measures also impose several restrictions on the forms of advertisements and activities
used in advertising. “Internet advertising” as defined in the Internet Advertising Measures refers to commercial advertisements
that directly or indirectly promote goods or services through websites, web pages, Internet applications or other Internet media in various
forms, including texts, pictures, audio clips and videos. Where Internet advertisements are not identifiable and marked as “advertisements”,
a fine of not more than RMB100,000 (US$13,840) may be imposed in accordance with Advertising Law. A fine ranging from RMB5,000 (US$692)
to RMB30,000 (US$4,155) may be imposed for any failure to provide a prominently marked “CLOSE” button to ensure “one-click
closure”. Advertisers who induce users to click on the content of advertisements by fraudulent means or without permission, attach
advertisements or advertising links in the emails shall be imposed a fine ranging from RMB5,000 (US$692) to RMB30,000 (US$4,155). Our
marketplace is in the process of complying with the new Internet Advertising Measures during our advertising activities.
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Regulations Related to Company Establishment,
Dividend Distribution and Foreign Investment
The establishment, operation
and management of corporate entities in China is governed by the Company Law of the PRC (the “Company Law”), which was issued
by the SCNPC and was last amended in December 2023 and will come into effect as from July 1, 2024. The Company Law applies to both PRC
domestic companies and foreign-invested companies. All of our subsidiaries in China are subject to the Company Law. According to the Company
Law, companies established in the PRC are either limited liability companies or joint stock limited liability companies.
The establishment procedures, approval procedures, registered capital
requirements, foreign exchange matters, accounting practices, taxation and labor matters of a wholly foreign-owned enterprise are regulated
by the Foreign Investment Law and the Implementing Rules of the PRC Foreign Investment Law (the “Implementing Rules”), which
was approved by the National People’s Congress of China in March 2019 and December 2019, respectively. The PRC Foreign Investment
Law and the Implementing Rules both took effect on January 1, 2020 and replaced three major previous laws on foreign investments in China,
namely, the Sino-foreign Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise
Law, and their respective implementing rules. According to these regulations, foreign-invested enterprises in the PRC may only pay dividends
out of their accumulated profit, if any, determined in accordance with PRC accounting standards and regulations. However, relevant PRC
laws and regulations permit payments of dividends by the Group’s entities incorporated in the PRC only out of their retained earnings,
if any, as determined in accordance with PRC accounting standards and regulations. A PRC company is required to set aside general reserves
of at least 10% of its after-tax profit, until the cumulative amount of such reserves reaches 50% of its registered capital unless the
provisions of laws regarding foreign investment provide otherwise. As of March 31, 2024, the total respective registered capital of all
the Company’s direct subsidiaries was approximately RMB513 million (approximately $71.1 million).
In addition, PRC companies
may allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion.
These reserves and employee welfare and bonus funds are not distributable as cash dividends. A PRC company may not distribute any profits
until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable
profits from the current fiscal year.
As of March 31, 2024, most
of the Company’s subsidiaries incorporated in the PRC have suffered accumulated loss and the Company concluded all the subsidiaries
did not have abilities to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances. Furthermore,
even though the Company currently does not require any such dividends, loans or advances from the PRC entities for working capital and
other funding purposes, the Company may in the future require additional cash resources from them due to changes in business conditions,
to fund future acquisitions and development, or merely to declare and pay dividends or distributions to its shareholders
Except for the above, there
is no other restriction under PRC laws and regulations for PRC companies on use of proceeds generated by the Group’s subsidiaries
to satisfy any obligations of the Company, as long as the PRC companies completed all required procedures, including the tax payment certification
and tax declaration.
The investment activities
in China of foreign investors are also governed by the Foreign Investment Law and the Implementing Rules. Pursuant to the Foreign Investment
Law, “foreign investments” refer to investment activities conducted by foreign investors (including foreign natural persons,
foreign enterprises or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances:
(i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign investors
obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the PRC, (iii) foreign
investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified
in laws, administrative regulations, or as stipulated by the State Council. The Implementing Rules introduce a see-through principle and
further provide that foreign-invested enterprises that invest in the PRC are also governed by the PRC Foreign Investment Law and the Implementing
Rules.
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The Foreign Investment Law
and the Implementing Rules provide that a system of pre-entry national treatment and negative list shall be applied for the administration
of foreign investment, where “pre-entry national treatment” means that the treatment given to foreign investors and their
investments at market entry stage is no less favorable than that given to domestic investors and their investments, and “negative
list” means the special administrative measures for foreign investment’s entry to specific fields or industries, which will
be proposed by the competent investment department of the State Council in conjunction with the competent commerce department of the State
Council and other relevant departments, and be reported to the State Council for promulgation, or be promulgated by the competent investment
department or competent commerce department of the State Council after being reported to the State Council for approval. Foreign investments
beyond the negative list will be granted national treatment. Foreign investors shall not invest in the prohibited fields as specified
in the negative list, and foreign investors who invest in the restricted fields shall comply with the special requirements on the shareholding,
senior management personnel, etc. In the meantime, relevant competent government departments will formulate a catalogue of industries
for which foreign investments are encouraged according to the needs for national economic and social development, to list the specific
industries, fields and regions in which foreign investors are encouraged and guided to invest.
The current industry entry
clearance requirements governing investment activities in the PRC by foreign investors are set out in two categories, namely the Special
Entry Management Measures (Negative List) for the Access of Foreign Investment (2021 version), or the 2021 Negative List, as promulgated
by the National Development and Reform Commission (the “NDRC”) and the MOFCOM on December 27, 2021 and taking effect on January
1, 2022, and the Encouraged Industry Catalogue for Foreign Investment (2022 version) as promulgated by the NDRC and the MOFCOM on October
26, 2022 and taking effect on January 1, 2023. Industries not listed in these two catalogues are generally deemed “permitted”
for foreign investment unless specifically restricted by other PRC laws. Neither our Automobile Transaction and Related Services nor our
Online Ride-hailing Platform Services is listed in 2021 Negative List.
Meanwhile, the PRC Foreign
Investment Law provides that foreign-invested enterprises established according to the existing laws regulating foreign investment may
maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law. Furthermore,
the PRC Foreign Investment Law provides several protective rules and principles for foreign investors and their investments in the PRC,
including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions,
profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully
acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors;
governments at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with
laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto foreign-invested enterprises,
set market access restrictions and exit conditions, or intervene with the normal production and operation activities of foreign-invested
enterprises; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation
shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology
transfer is prohibited.
In addition, pursuant to
the Foreign Investment Law, the Implementing Rules, and the Information Reporting Measures for Foreign Investment jointly promulgated
by the MOFCOM and the MSA, which took effect on January 1, 2020, a foreign investment information reporting system was established and
foreign investors or foreign-invested enterprises must report investment information to competent commerce departments of the PRC government
through the enterprise registration system, the enterprise credit information publicity system and the foreign investment information
reporting system, and the relevant government authorities shall share such investment information to the competent commerce departments
in a timely manner. We are subject to these regulatory requirements.
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Regulations Relating to Vehicle Rental Services
Pursuant to the Administration
Measures for Operations and Services of Small and Micro Passenger Vehicles issued by the Ministry of Transport on December 20, 2020 and
last amended on August 11, 2021, rental business operators of small and micro passenger vehicles shall carry out record-filing procedures
with the city or county level counterparts of the Ministry of Transport where the business operations are conducted, within 60 days after
completing the relevant registration formalities with the local counterparts of the State Administration for Market Regulation, or within
60 days after establishing new service agencies to carry out relevant business activities. To qualify for the record filing procedures,
an applicant entity shall satisfy, among others, the following requirements: (i) being an independent legal person registered under the
PRC law; (ii) the vehicles used for rental business operations passing quality inspections, and the registered nature of these vehicles
being “rental”; (iii) having the business premises and management personnel eligible for the rental business; (iv) establishing
corresponding service institutions and having corresponding service capabilities locally; (v) developing comprehensive operation and management
systems, service procedures, safety management systems, and emergency response plans. Failure to complete the record-filing procedures
may subject the rental business operators of small and micro passenger vehicles to orders to rectify and fines ranging from RMB3,000 (US$416) to RMB10,000 (US$1,384). All vehicles used for our Auto Operating Leasing have obtained the required licenses and
completed the registration.
Regulations Related to Labor and Social
Security
Pursuant to the PRC Labor
Law, the PRC Labor Contract Law and the Implementing Regulations of the Employment Contracts Law, labor relationships between employers
and employees must be executed in written form. Wages may not be lower than the local minimum wage. Employers must establish a system
for labor safety and sanitation, strictly abide by state standards and provide relevant education to its employees. Employees are also
required to work in safe and sanitary conditions.
Under PRC laws, rules and
regulations, including the Social Insurance Law, the Interim Regulations on the Collection and Payment of Social Security Funds and the
Regulations on the Administration of Housing Accumulation Funds, employers are required to contribute, on behalf of their employees, to
a number of social security funds, including funds for basic pension insurance, unemployment insurance, basic medical insurance, occupational
injury insurance, maternity leave insurance and housing accumulation funds. These payments are made to local administrative authorities
and any employer who fails to contribute may be fined and ordered to pay the deficit amount. See “ Risk Factors — Risks
Related to Doing Business in China — Failure to make adequate contributions to various employee benefit plans as required
by PRC regulations may subject us to penalties. ”
Anti-money Laundering Regulation
The PRC Anti-money Laundering
Law, which became effective in January 2007, sets forth the principal anti-money laundering requirements applicable to financial
institutions, as well as non-financial institutions with anti-money laundering obligations, including the adoption of precautionary and
supervisory measures, establishment of various systems for client identification, retention of clients’ identification information
and transactions records, and reports on large transactions and suspicious transactions. According to the PRC Anti-money Laundering Law,
financial institutions subject to the PRC Anti-money Laundering Law include banks, credit unions, trust investment companies, stock brokerage
companies, futures brokerage companies, insurance companies and other financial institutions as listed and published by the State Council,
while the list of the non-financial institutions with anti-money laundering obligations will be published by the State Council. The PBOC
and other governmental authorities issued a series of administrative rules and regulations to specify the anti-money laundering obligations
of financial institutions and certain non-financial institutions, such as payment institutions. However, the State Council has not promulgated
the list of the non-financial institutions with anti-money laundering obligations.
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Regulation Related to the Payment Services of Non-financial Institutions
According to Measures for
the Administration of Payment Services of Non-Financial Institutions which were promulgated by PBOC on June 14, 2010, effective on
September 1, 2010 and amended on April 29, 2020, and Implementing Rules for the Measures for the Administration of Payment
Services of Non-Financial Institution which were promulgated by the PBOC, effective on December 1, 2010 and amended on June 2,
2020, the payment services provided by non-financial institutions refer to some or all of the following monetary capital transfer services
provided by the non-financial institutions as intermediary agencies between payers and payees: (1) payment through the internet;
(2) issuance and acceptance of prepaid cards; (3) bankcard acquiring; and (4) other payment services as determined by the
PBOC. Non-financial institutions which provide payment services shall obtain a “Payment Business License” and become a “payment
institution.” Payment Business License is valid for five years from the date of issuance. Payment institutions shall carry out business
activities in compliance with the scope of business approved by the Payment Business License, and shall not outsource any business, transfer,
lease, or lend its Payment Business License. Any non-financial institution or individual shall not directly or indirectly engage in payment
business without the approval of the PBOC.
On May 9, 2019, the
MOT, the PBOC, the NDRC, the MPS, the State Administration of Market Regulation (the “SAMR”) and NFRAC, jointly issued the
Measures for the Administration of User Funds in New Forms of Transport Business (Trial) (the “Trial Measures on Administration
of User Funds”) which became effective on June 1, 2019. According to the Trial Measures on Administration of User Funds, an
operating enterprise shall open a special deposit account for user deposits and a special deposit account for prepayments, respectively,
as are nationwide unique at the bank in the place of its registration in mainland China, and the bank where the special deposit accounts
are opened shall be the depository bank to preserve user funds.
Regulations on Intellectual Property
The PRC has adopted legislation
governing intellectual property rights, including copyrights, trademarks and patents. The PRC is a signatory to major international conventions
on intellectual property rights and is subject to the Agreement on Trade Related Aspects of Intellectual Property Rights as a result of
its accession to the World Trade Organization in December 2001.
The SCNPC amended the Copyright
Law in 2001, 2010 and 2020 to widen the scope of works and rights that are eligible for copyright protection. The amended, the Copyright
Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, there
is a voluntary registration system administered by the China Copyright Protection Center. To address copyright infringement related to
content posted or transmitted over the Internet, the National Copyright Administration and former Ministry of Information Industry jointly
promulgated the Administrative Measures for Copyright Protection Related to the Internet in April 2005. These measures became effective
in May 2005.
On December 20, 2001,
the SCNPC promulgated the new Regulations on Computer Software Protection, effective from January 1, 2002, and revised in 2013, which
are intended to protect the rights and interests of the computer software copyright holders and encourage the development of software
industry and information economy. In the PRC, software developed by PRC citizens, legal persons or other organizations is automatically
protected immediately after its development, without an application or approval. Software copyrights may be registered with the designated
agency and if registered, the certificate of registration issued by the software registration agency will be the primary evidence of the
ownership of the copyright and other registered matters. On February 20, 2002, the National Copyright Administration of the PRC introduced
the Measures on Computer Software Copyright Registration, which outline the operational procedures for registration of software copyright,
as well as registration of software copyright license and transfer contracts. The Copyright Protection Center of China is mandated as
the software registration agency.
The PRC Trademark Law, adopted
in 1982 and revised in 1993, 2001, 2013 and 2019, respectively, protects the proprietary rights to registered trademarks. The Trademark
Office under the SAIC handles trademark registrations and may grant a term of ten years for registered trademarks, which may be extended
for another ten years upon request. Trademark license agreements shall be filed with the Trademark Office for record. In addition, if
a registered trademark is recognized as a well-known trademark, the protection of the proprietary right of the trademark holder may reach
beyond the specific class of the relevant products or services.
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The Patent Law of the PRC
and its Implementation Rules provide for three types of patents: invention, utility model and design. The duration of a patent right
is either 10 years or 20 years from the date of application, depending on the type of patent right.
Domain names are protected
under the Administrative Measures on Internet Domain Names promulgated by the MIIT on August 24, 2017 and effective as of November 1,
2017. Our domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants
become domain name holders upon successful registration.
Regulations Related to Foreign Exchange
The principal regulations
governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, which were most recently amended in
August 2008. Payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions,
can usually be made in foreign currencies without prior approval from the State Administration of Foreign Exchange (“SAFE”)
by complying with certain procedural requirements. By contrast, approval from or registration with appropriate PRC authorities or banks
authorized by appropriate PRC authorities is required where RMB capital is to be converted into foreign currency and remitted out of China
to pay capital expenses.
SAFE promulgated the Notice
of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested
Enterprises (“Circular 19”), effective on June 1, 2015, in replacement of SAFE Circular 142 (the Circular on the Relevant
Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested
Enterprises. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital
of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans or the repayment
of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although Circular 19 allows RMB
capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments
within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested
company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such
capital to be used for equity investments in the PRC in actual practice. SAFE promulgated the Notice of the State Administration of Foreign
Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account (the “Circular 16”),
effective on June 9, 2016, which reiterates some of the rules set forth in Circular 19, but changes the prohibition against
using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted
loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 or Circular
16 could result in administrative penalties.
From 2012, SAFE has promulgated
several circulars to substantially amend and simplify the current foreign exchange procedure. Pursuant to these circulars, the opening
of various special purpose foreign exchange accounts, the reinvestment of RMB proceeds by foreign investors in the PRC and remittance
of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval
or verification of SAFE. In addition, domestic companies are no longer limited to extend cross-border loans to their offshore subsidiaries
but are also allowed to provide loans to their offshore parents and affiliates and multiple capital accounts for the same entity may be
opened in different provinces. SAFE also promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration
over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration
by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks
shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by
SAFE and its branches. In February 2015, SAFE promulgated SAFE Circular 13, which took effect on June 1, 2015. SAFE Circular
13 delegates the power to enforce the foreign exchange registration in connection with inbound and outbound direct investments under relevant
SAFE rules from local branches of SAFE to banks, thereby further simplifying the foreign exchange registration procedures for inbound
and outbound direct investments.
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On January 26, 2017,
SAFE issued the Notice of State Administration of Foreign Exchange on Improving the Check of Authenticity and Compliance to Further Promote
Foreign Exchange Control (the “SAFE Circular 3”), which stipulates several capital control measures with respect to the outbound
remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks
shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements;
and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover,
pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements,
and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.
On October 23, 2019, SAFE
promulgated the Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and
Investment, or Circular 28, which permits non-investment foreign-invested enterprises to use their capital funds to make equity investments
in China, with genuine investment projects and in compliance with effective foreign investment restrictions and other applicable laws.
However, as the Circular 28 was newly issued, there are still substantial uncertainties as to its interpretation and implementations in
practice.
Regulations Relating to Offshore Special
Purpose Companies Held by PRC Residents
SAFE promulgated the Circular
on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles
(the “SAFE Circular 37”) in July 2014 that requires PRC residents or entities to register with SAFE or its local branch
in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material
events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases
or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.
SAFE Circular 37 was issued
to replace SAFE Circular 75 (the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing
and Roundtrip Investments via Overseas Special Purpose Vehicles). SAFE further enacted the Notice on Further Simplifying and Improving
the Foreign Exchange Management Policies for Direct Investment (the “SAFE Circular 13”) effective from June 1, 2015,
which allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore
entity established for the purpose of overseas investment or financing. However, remedial registration applications made by PRC residents
that previously failed to comply with the SAFE Circular 37 continue to fall under the jurisdiction of the relevant local branch of SAFE.
In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the
PRC subsidiaries of that special purpose vehicle may be prohibited from distributing profits to the offshore parent and from carrying
out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute
additional capital into its PRC subsidiaries. Moreover, failure to comply with the various SAFE registration requirements described above
could result in liability under PRC law for evasion of foreign exchange controls.
See “ Risk Factors — Risks
Related to Doing Business in China — PRC regulations relating to offshore investment activities by PRC residents may
limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us or otherwise expose us or our
PRC resident beneficial owners to liability and penalties under PRC law .”
SAFE Regulations Relating to Employee Stock
Incentive Plans
On February 15, 2012,
SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock
Incentive Plans of Overseas Publicly-Listed Companies (the “Stock Option Rules”), which replaced the Application Procedures
of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plans or Stock Option Plans of Overseas
Publicly-Listed Companies issued by SAFE on March 28, 2007. Under the Stock Option Rules and other relevant rules and regulations,
PRC residents who participate in a stock incentive plan in an overseas publicly listed company are required to register with SAFE or its
local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified
PRC agent, which could be a PRC subsidiary of such overseas publicly listed company or another qualified institution selected by such
PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants.
Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options,
the purchase and sale of corresponding shares or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE
registration with respect to our share incentive plans if there are any material changes to the share incentive plans, the PRC agent or
the overseas entrusted institution or other material changes. In addition, SAFE Circular 37 provides that PRC residents who participate
in a share incentive plan of an overseas unlisted special purpose company may register with SAFE or its local branches before exercising
rights. See “ Risk Factors — Risks Related to Doing Business in China — Any failure to
comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants
or us to fines and other legal or administrative sanctions .”
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Regulations Related to Enterprise Income
Tax
Under the PRC Enterprise
Income Tax Law (the “EIT Law”), which became effective on January 1, 2008, an enterprise established outside the PRC
with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income
tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. In 2009, the State Administration
of Taxation (the “SAT”) issued the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises
as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies (the “SAT Circular 82”), which provides certain
specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated
offshore is located in China. Further to SAT Circular 82, in 2011, the SAT issued the Administrative Measures for Enterprise Income Tax
of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial) (the “SAT Bulletin 45”) to provide more guidance
on the implementation of SAT Circular 82.
According to SAT Circular
82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered a PRC resident enterprise
by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide
income only if all of the following conditions are met: (a) the senior management and core management departments in charge of its
daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination
or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its
board of directors and shareholders’ meetings are located or kept in the PRC; and (d) more than half of the enterprise’s
directors or senior management with voting rights habitually reside in the PRC.
Although SAT Circular 82
and SAT Bulletin 45 only apply to offshore-incorporated enterprises controlled by PRC enterprises or PRC enterprise groups and not those
controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect the SAT’s general position
on how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises,
regardless of whether they are controlled by PRC enterprises, individuals or foreigners.
The State Administration
of Taxation has promulgated several rules and notices to tighten the scrutiny over acquisition transactions in recent years, including
the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises (the “SAT
Circular 698”), the Notice on Several Issues Regarding the Income Tax of Non-PRC Resident Enterprises (the “SAT Circular 24”)
and the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises (the “SAT Bulletin
7”). Pursuant to these rules and notices, if a non-PRC resident enterprise transfers its equity interests in a PRC tax resident
enterprise, such non-PRC resident transferor must report to the tax authorities at the place where the PRC tax resident enterprise is
located and is subject to a PRC withholding tax of up to 10%. In addition, if a non-PRC resident enterprise indirectly transfers so-called
PRC Taxable Properties, referring to properties of an establishment or a place of business in China, real estate properties in China and
equity investments in a PRC tax resident enterprise, by disposition of the equity interests in an overseas non-public holding company
without a reasonable commercial purpose and resulting in the avoidance of PRC enterprise income tax, the transfer will be re-characterized
as a direct transfer of the PRC Taxable Properties and gains derived from the transfer may be subject to a PRC withholding tax of up to
10%. SAT Bulletin 7 has listed several factors to be taken into consideration by the tax authorities in determining if an indirect transfer
has a reasonable commercial purpose. However, regardless of these factors, an indirect transfer satisfying all the following criteria
will be deemed to lack a reasonable commercial purpose and be taxable in the PRC: (i) 75% or more of the equity value of the intermediary
enterprise being transferred is derived directly or indirectly from PRC Taxable Properties; (ii) at any time during the one year period
before the indirect transfer, 90% or more of the asset value of the intermediary enterprise (excluding cash) is comprised directly or
indirectly of investments in the PRC, or 90% or more of its income is derived directly or indirectly from the PRC; (iii) the functions
performed and risks assumed by the intermediary enterprise and any of its subsidiaries that directly or indirectly hold the PRC Taxable
Properties are limited and are insufficient to prove their economic substance; and (iv) the foreign tax payable on the gain derived from
the indirect transfer of the PRC Taxable Properties is lower than the potential PRC tax on the direct transfer of those assets. On the
other hand, indirect transfers falling into the scope of the safe harbors under SAT Bulletin 7 may not be subject to PRC tax. The safe
harbors include qualified group restructurings, public market trades and exemptions under tax treaties.
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Under SAT Bulletin 7 and
other PRC tax regulations, in the case of an indirect transfer, entities or individuals obligated to pay the transfer price to the transferor
must act as withholding agents and are required to withhold the PRC tax from the transfer price. If they fail to do so, the seller is
required to report and pay the PRC tax to the PRC tax authorities. If neither party complies with the tax payment or withholding obligations
under SAT Bulletin 7, the tax authority may impose penalties such as late payment interest on the seller. In addition, the tax authority
may also hold the withholding agents liable and impose a penalty of 50% to 300% of the unpaid tax on them. The penalty imposed on the
purchasers may be reduced or waived if the withholding agents have submitted the relevant materials in connection with the indirect transfer
to the PRC tax authorities in accordance with SAT Bulletin 7.
In January 2019, the SAT
issued Announcement on the Implementation of the Preferential Income Tax Reduction Policy for Small and Low Profit Enterprises (the “SAT
2019 Circular 2”). Pursuant to SAT 2019 Circular 2, from January 1, 2019 to December 31, 2021, for small low profit enterprises,
(i) the tax rate for the first RMB1 million the annual income does not exceed RMB1 million is 20% and the taxable income is 25% of the
annual taxable income; (ii) the tax rate for the portion of annual income that exceeds RMB1 million but does not exceed RMB3 million is
20% and the taxable income is 50% of the annual income. SAT 2019 Circular 2 also defines “small low profit enterprises” as
enterprises who are engaged in industries not restricted or prohibited and meet the three conditions of (i) annual taxable income of RMB3
million or lower, (ii) employees’ number of 300 or lower; and (iii) total assets of RMB50 million or lower. On March 18, 2022, the
SAT issued Announcement on the Further Implementation of the Preferential Income Tax Reduction Policy for Small and Low Profit Enterprises
(the “SAT 2022 Circular 13”). Pursuant to SAT 2022 Circular 13, the preferential income tax reduction policy for small low
profit enterprise shall be expanded from January 1, 2022 to December 31, 2024. During the calendar years ended December 31, 2022 and 2023,
all our subsidiaries in China met the three criteria and enjoyed the preferential tax rates.
Regulations Related to PRC Value-Added Tax
In March 2016, the Ministry
of Finance and the State Administration of Taxation further promulgated the Notice on Fully Promoting the Pilot Plan for Replacing Business
Tax by Value-Added Tax (“VAT”), which became effective on May 1, 2016. Pursuant to the pilot plan and relevant notices,
VAT is generally imposed in lieu of business tax in the modern service industries, including the value-added telecommunication services,
on a nationwide basis. VAT of a rate of 6% applies to revenue derived from the provision of some modern services. Certain small taxpayers
under PRC law are subject to reduced value-added tax at a rate of 3%. Unlike business tax, a taxpayer is allowed to offset the qualified
input VAT paid on taxable purchases against the output VAT chargeable on the modern services provided.
On April 4, 2018, the
Ministry of Finance and the State Administration of Taxation issued the Notice on Adjustment of VAT Rates, which came into effect on May 1,
2018. According to the abovementioned notice, the taxable goods previously subject to VAT rates of 17% and 11% respectively become subject
to lower VAT rates of 16% and 10% respectively starting from May 1, 2018. Furthermore, according to the Announcement on Relevant
Policies for Deepening Value-added Tax Reform jointly promulgated by the Ministry of Finance, the State Administration of Taxation and
the General Administration of Customs, which became effective on April 1, 2019, the taxable goods previously subject to VAT rates
of 16% and 10% respectively become subject to lower VAT rates of 13% and 9% respectively starting from April 1, 2019.
Pursuant to applicable PRC
regulations promulgated by the Ministry of Finance of China and the SAT, we are required to pay a VAT at a rate of 6% for our services
and 13% for our automobile sales, operating lease and financial leasing, with respect to revenues derived from the provision of Automobile
Transaction and Related Services. In addition, as part of the Chinese government’s effort to ease the burden of businesses affected
by COVID-19, the Ministry of Finance and the State Administration of Taxation temporarily reduced or exempted VAT on revenues derived
from the provision of certain transportation services from January 2020 to March 2021 and from January 1, 2022 to December 31, 2022. During
the fiscal year ended March 31, 2023, our revenues generated from our Online Ride-hailing Platform Services was exempted from duty since
April 1, 2022 to December 31, 2022. A taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output
VAT chargeable on the revenue from services provided.
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Regulations Related to Mergers and Acquisitions
On August 8, 2006, six
PRC regulatory agencies, including China Securities Regulatory Commission (the “CSRC”), promulgated the Regulations on Mergers
and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”), which became effective on September 8,
2006 and were amended on June 22, 2009. The M&A Rules, among other things, require offshore special purpose vehicles formed for
overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC domestic enterprises or individuals to
obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. On September 21, 2006,
the CSRC published a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval.
The M&A Rules, and other
recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that
could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require
that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise,
if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national
economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark
or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the SCNPC on August 30, 2007 and effective as of August 1,
2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared
by MOFCOM before they can be completed. In addition, on February 3, 2011, the General Office of the State Council promulgated a Notice
on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “Circular
6”), which officially established a security review system for mergers and acquisitions of domestic enterprises by foreign investors.
Further, on August 25, 2011, MOFCOM promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition
of Domestic Enterprises by Foreign Investors (the “MOFCOM Security Review Regulations”), which became effective on September 1,
2011, to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having
“national defense and security” concerns and mergers and acquisitions by which foreign Investors may acquire the “de
facto control” of domestic enterprises with “national security” concerns. Under the MOFCOM Security Review Regulations,
MOFCOM will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject
to security review. If MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit it to the Inter-Ministerial
Panel, an authority established under Circular 6 led by the NDRC and MOFCOM under the leadership of the State Council, to carry out the
security review. The regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts,
indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision
or official interpretation stating that the merger or acquisition of a company engaged in the marketplace lending business requires security
review.
Regulations Related to Overseas Listings
On February 17, 2023, the
CSRC promulgated the Overseas Listing Trial Measures (the “Trial Measures”), and relevant five guidelines on the application
of regulatory rules, which took effect from March 31, 2023, requiring Chinese domestic companies’ overseas offerings and listings
of equity securities be filed with the CSRC. On the same date, the CSRC circulated Supporting Guidance Rules No. 1 through No. 5, Notes
on the Trial Measures, Notice on Administration Arrangements for the Filing of Overseas Listings by Domestic Enterprises and relevant
CSRC Answers to Reporter Questions, or collectively, the Guidance Rules and Notice, on CSRC’s official website. The Trial Measures
clarify the scope of overseas offerings and listings by Chinese domestic companies which are subject to the filing and reporting requirements
thereunder, and provide, among others, that Chinese domestic companies that have already directly or indirectly offered and listed securities
in overseas markets prior to the effectiveness of the Overseas Listing Trial Measures shall fulfil their filing obligations and report
relevant information to the CSRC within three working days after conducting a follow-on offering of equity securities on the same overseas
market, and follow the relevant reporting requirements within three working days upon the occurrence and public disclosure of any specified
circumstances provided thereunder, including (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory
agencies or other relevant competent authorities; (iii) change of listing status or transfer of listing segment and (iv) voluntary or
mandatory delisting. In addition, where the main business of an issuer undergoes material change after overseas offering and listing,
and is therefore beyond the scope of business stated in the filing documents, such issuer shall follow the relevant reporting requirements
within three working days after occurrence of the changes. Any future securities offerings and listings outside mainland China by Chinese
domestic companies, including but not limited to follow-on offerings, secondary listings and going private transactions, will be subject
to the filing with the CSRC under the Overseas Listing Trial Measures. For violations of these provisions or measures, the competent Chinese
authorities may impose administrative regulatory measures, such as orders for correction, warnings, fines, and may pursue legal liability
in accordance with law.
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The Trial Measures, together with the Guidance Rules and Notice prescribe
that, amongst others: (1) criteria to determine whether an issuer will be required to go through the filing procedures under the Trial
Measures; (2) exemptions from immediate filing requirements for issuers including those that have already been listed in foreign securities
markets, including U.S. markets, prior to the effective date of the Trial Measures, but these issuers shall still be subject to filing
procedures if they conduct refinancing or are involved in other circumstances that require filing with the CSRC; (3) a negative list of
types of issuers banned from listing or offering overseas, such as issuers whose affiliates have been recently convicted of bribery and
corruption; (4) issuers’ compliance with web security, data security, and other national security laws and regulations; (5) issuers’
filing and reporting obligations, such as obligation to file with the CSRC after it submits an application for initial public offering
to overseas regulators, and obligation after offering or listing overseas to file with the CSRC after it completes subsequent offerings
and to report to the CSRC material events including change of control or voluntary or forced delisting of the issuer; and (6) the CSRC’s
authority to fine both issuers and their relevant shareholders for failure to comply with the Trial Measures, including failure to comply
with filing obligations or committing fraud and misrepresentation.
The Overseas Listing Trial
Measures provide that if an issuer meets both of the following criteria, the overseas securities offering and listing conducted by such
issuer will be deemed as an indirect overseas offering and listing by PRC domestic companies: (i) 50% or more of any of the issuer’s
operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most
recent fiscal year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are conducted
in mainland China, or its main place(s) of business are located in mainland China, or the majority of senior management staff in charge
of its business operations and management are PRC citizens or have their usual place(s) of residence located in mainland China. Where
an issuer submits an application for initial public offering to competent overseas regulators, such issuer must file with the CSRC within
three business days after such application is submitted.
The Trial Measures provide
the CSRC with power to warn, fine, and issue injunctions against both PRC domestic companies, their controlling shareholders, and their
advisors in listing or offering securities (collectively, the “Subject Entities”), as well as individuals directly responsible
for these Subject Entities (the “Subject Individuals”). For failure to comply with the Trial Measures Negative List or the
Trial Measures Filing Obligations, or materially false or misleading statements in the filing and reporting required by the Trial Measures:
(1) PRC domestic companies, and their controlling shareholders if the controlling shareholders induced the PRC domestic companies’
failure to comply, severally, may face warnings, injunctions to comply, and fines between RMB1 million and RMB10 million ($138,408 and
$1,384,083); the Subject Individuals in these entities may severally, face warnings and fines between RMB0.5 million and RMB5 million
($69,204 and $692,040). (2) Advisors in listing or offering securities that failed to dutifully advise the PRC domestic companies and
their controlling shareholders in complying with the Trial Measures and caused such failures to comply can face warnings and fines between
RMB0.5 million and 5 million ($69,204 and $692,040); the Subject Individuals in these advisor entities may, severally, face warnings
and fines between RMB0.2 million and RMB2 million ($27,682 and $276,820).
Furthermore, on February
24, 2023, the CSRC, together with certain other PRC governmental authorities, promulgated the Provisions on Strengthening Confidentiality
and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Revised Confidentiality and Archives
Administration Provisions, which took effect on March 31, 2023. According to the Revised Confidentiality and Archives Administration Provisions,
Chinese companies that directly or indirectly conduct overseas offerings and listings, shall strictly abide by the relevant laws and regulations
on confidentiality when providing or publicly disclosing, either directly or through their overseas listed entities, documents and materials
to securities services providers such as securities companies and accounting firms or overseas regulators in the process of their overseas
offering and listing. In the event such documents or materials contain state secrets or working secrets of government agencies, the Chinese
companies shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department
at the same level with the approving authority. In the event that such documents or materials, if divulged, will jeopardize national security
or public interest, the Chinese companies shall strictly fulfill relevant procedures stipulated by applicable national regulations. The
Chinese companies shall also provide a written statement of the specific state secrets and sensitive information provided when providing
documents and materials to securities companies and securities service providers, and the securities companies and securities service
providers shall properly retain such written statements for inspection. According to the Revised Confidentiality and Archives Administration
Provisions, where overseas securities regulators or relevant competent authorities request to inspect, investigate or collect evidence
from Chinese domestic companies concerning their overseas offering and listing or their securities firms and securities service providers
that undertake securities business for such Chinese domestic companies, such inspection, investigation and evidence collection must be
conducted under the cross-border regulatory cooperation mechanism, and the CSRC or competent authorities of the Chinese government will
provide necessary assistance pursuant to bilateral and multilateral cooperation mechanism.
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Human Capital
As of the date of this Report,
we had a total of 55 full-time employees including three executive officers, 45 employees in our Automobile Transaction and Related Services
segment and 7 employees in our Online Ride-hailing Platform Services segment.
The following table sets
forth the breakdown of our employees by function in our Automobile Transaction and Related Services segment:
Function
Number of
Employees
Management
2
Legal & Risk Management
9
Operations
7
Marketing
4
Drivers & Automobile Management and Services
7
Technology
2
Human Resources & Administration
7
Finance and Accounting
6
Internal Control and Audit
1
Total
45
The following table sets
forth the breakdown of our employees by function in our Online Ride-hailing Platform Services segment:
Function
Number of
Employees
Management
2
Operations
3
Finance and Accounting
2
Total
7
All of our employees are
based in the cities of Chengdu, Changsha and Guangzhou, where our main operations are located.
We believe we offer our employees
competitive compensation packages and work environment that encourages initiative and is based on merit, and as a result, we have generally
been able to develop and maintain our human capital, including attracting and retaining qualified personnel and a stable core management
team.
As required by PRC regulations,
we participate in various government statutory employee benefit plans, including social insurance funds, namely a pension contribution
plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan and
a housing provident fund. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the
salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.
We have not made adequate employee benefit payments, and may be required to make up the contributions for these plans as well as to pay
late fees and fines. See “ Risk Factors — Risks Related to Doing Business in China — Failure
to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties. ”
We are subject to and comply with PRC regulations regarding labor and social security. See “ Regulations – Regulations Related
to Labor and Social Security .”
We enter into standard labor
and confidentiality agreements with each of our employees. We believe that we maintain a good working relationship with our employees,
and we have not experienced any major labor disputes.
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Seasonality
We have observed seasonal
trends or patterns in revenues related to our Automobile Transaction and Related Services. Because of the PRC National Holiday in October,
New Year’s Day, and the traditional Lunar New Year in January or February, there is a seasonal decrease in the demand of automobile
purchase/leasing in certain months during the six months ended March 31 (our third and fourth fiscal quarter). We also expect to experience
seasonality in our Online Ride-hailing Platform Services, which may differ from the one in our Automobile Transaction and Related Services.
For example, we expect to experience higher user traffic during the Chinese National holiday due to the strong demand in the tourism.
Other seasonal trends that may affect us or China’s online ride-hailing industry generally may develop, and current seasonal trends
may become more extreme, all of which would contribute to fluctuations in our results of operations.
Our results of operations
in future quarters or years may fluctuate and deviate from the expectations of our investors, and any occurrence that disrupts our business
during any particular quarters could have a disproportionately material adverse effect on our liquidity and results of operations.
Research and Development
With an aim to standardize
our transaction process and achieve higher operating efficiency, we are developing an integrated information system for our Automobile
Transaction and Related Services. The system comprises modules for procurement, qualification assessment, delivery and post-transaction
management which covers the whole transaction process. We have completed the development of certain functions such as information entry
and delivery which are being tested by us. We launched the system in March 2020 and keep upgrading the system to support our business
expansion. We are also in the progress of developing the managing system for online ride-hailing platform, and the comprehensive management
system which could link all key information between Automobile Transaction and Related Services and Online Ride-hailing Platform Services
for our internal manage purpose.
Intellectual Property
We regard our trademarks,
domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on PRC trademark
and trade secret law and confidentiality, invention assignment and non-compete agreements with our employees and others to protect our
proprietary rights. We own 19 software copyrights and 53 trademarks. We have two trademark applications pending at the PRC Trademark
Office. We have also registered numerous domain names, including www.51ruixi.com, www.91xixing.com/, 91xixingcd.com, www.coreneltech.com,
www.senmiaotech.com and senmiaotechir.com. The information on our websites is not part of, or incorporated in, this Report.
Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology. Monitoring unauthorized use
of our technology is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation of our
technology. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in
substantial costs and diversion of our resources.
In addition, third parties
may initiate litigations against us alleging infringement of their proprietary rights or respond to our litigations declaring their non-infringement
of our intellectual property rights. In the event of a successful claim of infringement and our failure or inability to develop non-infringing
technology or license the infringed or similar technology on a timely basis, our business could be harmed. Moreover, even if we are able
to license the infringed or similar technology, license fees could be substantial and may adversely affect our results of operations.
See “ Risk Factors — Risks
Related to Our Business — We may not be able to prevent others from unauthorized use of our intellectual property,
which could harm our business and competitive position.” and “— We may be subject to intellectual property infringement
claims, which may be expensive to defend and may disrupt our business and operations .”
Insurance
We consider our insurance
coverage to be adequate as we have in place all the mandatory insurance policies required by Chinese laws and regulations and in accordance
with the commercial practices in our industry. The Auto Business Entities have obtained accident insurance and commercial liability insurance,
which are mandatory, on all the automobiles they purchased for sales, leasing or financing and pass on the costs of such insurance to
their customers in the sale/leasing/financing transaction. We also maintain the mandatory insurance with respect to carrier’s liability
in connection with our Online Ride-hailing services. We provide social security insurance including pension insurance, unemployment insurance,
work-related injury insurance and medical insurance for our employees. We do no maintain any property insurance policies, business interruption
insurance or general third-party liability insurance, nor do we maintain product liability insurance or key-man insurance. We consider
our insurance coverage to be sufficient for our business operations in China.
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