Item 7. Management’s Discussion and Analysis
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion
and analysis of our results of operations and financial condition should be read together with our consolidated financial statements and
the notes thereto and other financial information, which are included elsewhere in this Report. Our financial statements have been prepared
in accordance with U.S. GAAP. In addition, our financial statements and the financial information included in this Report reflect our
organizational transactions and have been prepared as if our current corporate structure had been in place throughout the relevant periods.
Overview
We are a provider of automobile
transaction and related services, connecting auto dealers and consumers, who are mostly existing and prospective ride-hailing drivers
affiliated with different operators of online ride-hailing platforms in the People’s Republic of China (“PRC” or “China”).
We provide automobile transaction and related services through our wholly owned subsidiary, Chengdu Corenel Technology Limited, a PRC
limited liability company (“Corenel”), and our majority owned subsidiaries, Chengdu Jiekai Technology Ltd. (“Jiekai”),
and Hunan Ruixi Financial Leasing Co., Ltd. (“Hunan Ruixi”), a PRC limited liability company. Since October 2020, we also
operate an online ride-hailing platform through Hunan Xixingtianxia Technology Co., Ltd. (“XXTX”), a wholly-owned subsidiary
of Sichuan Senmiao Zecheng Business Consulting Co., Ltd., our wholly-owned subsidiary (“Senmiao Consulting”). Our platform
enables qualified ride-hailing drivers to provide application-based transportation services mainly in Chengdu, Changsha and other 20 cities
in China. Substantially all of our operations are conducted in China.
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Our Automobile Transactions and Related Services
Our Automobile Transaction
and Related Services are mainly comprised of (i) automobile operating lease where we provide car rental services to individual customers
to meet their personal needs with lease term no more than twelve months (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 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. We started our facilitation
and supporting services in November 2018, the sale of automobiles in January 2019, and financial and operating leasing in March 2019,
respectively.
Since November 22,
2018, the acquisition date of Hunan Ruixi, and as of March 31, 2024, we 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.
The table below provides
a breakdown of the number of vehicles sold or delivered under different leasing arrangements or managed/guaranteed by us and corresponding
revenue generated for the years ended March 31, 2024 and 2023:
For the Years Ended
March 31 ，
2024
2023
Number of
Number of
Vehicles
Revenue*
Vehicles
Revenue*
Auto Operating Leasing
1,492
$ 3,831,000
1,802
$ 3,453,000
Auto Commissions
—
$ 196,000
—
$ 179,000
Auto Financing
164
$ 58,000
144
$ 42,000
Auto Sales
2
$ 9,000
43
$ 243,000
Other Services
>860
$ 226,000
>1,000
$ 456,000
During the year ended March
31, 2024, our Auto Operating Leasing, Auto Commissions, Auto Financing, Auto Sales and other services income accounted for approximately
88.7%, 4.5%, 1.3%, 0.2% and 5.3% of our total revenue from our automobile transactions and related services, respectively, while our Auto
Operating Leasing, Auto Commissions, Auto Financing, Auto Sales, and other services income accounted for approximately 79.0%, 4.1%, 1.0%,
5.6% and 10.3% for the year ended March 31, 2023, respectively.
Our Ride-Hailing Platform Services
As part of our goal to provide
an all-round 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 began operating our own online ride-hailing platform
in Chengdu. The platform (called Xixingtianxia) was owned and operated by XXTX, of which Senmiao Consulting acquired the 100% equity interest
pursuant to a series of investment and supplementary agreements. As of the filing date of this Report, Senmiao Consulting has made accumulated
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.
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XXTX operates Xixingtianxia
and holds a national online reservation taxi operating license. The platform is presently servicing online ride-hailing drivers in 22
cities in China, including Chengdu, Changsha and so on, providing them with a platform to view and take customer orders for rides. We
currently collaborate with Gaode Map, a well-known aggregation platform in China on our ride-hailing platform services. Under our collaboration,
when a rider uses the platform to search 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.
XXTX settles its commissions with the aggregation platforms on a weekly basis.
Meanwhile, in order to strengthen
our market position in certain cities, during the year ended March 31, 2024, our subsidiaries, Hunan Ruixi and Jiekai, cooperated with
other online ride-hailing platforms (“Partner Platforms”), such as Hunan DiDi Technology Co., Ltd., Chengdu Anma Zhixing Technology
Co., Ltd. , Sichuan Peitu Kuaixing Technology Co., Ltd. and Chongqing Yiqizhao
Technology Co., Ltd. Chengdu Branch, whereby the online ride-hailing requests and orders shall be completed on Partner Platforms utilizing
the network of cars and drivers of us while Hunan Ruixi and Jiekai earned rental income from drivers and earned commissions from Partner
Platforms.
Since December 2023, in order
to improve the efficiency of XXTX’s daily operation and profitability, XXTX has engaged Anhui Lianma Technology Co., Ltd. (“Anhui
Lianma”), a third-party to co-operate the online ride-hailing platform by outsourcing certain daily operation work to Anhui Lianma
in most of cities it operates platform in XXTX and Anhui Lianma will jointly share the operational profits, with the specific calculation
method being defined in the cooperation agreement.
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 approximately 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.
During the year ended March
31, 2023, approximately 6.1 million rides with gross fare of approximately $19.9 million were completed through Xixingtianxia and an average
of over 5,100 Active Drivers each month. During the year ended March 31, 2023, we earned online ride-hailing platform service fees of
approximately $3.7 million, netting off approximately $0.5 million incentives paid to Active Drivers.
We plan to maintain 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.
Key Factors and Risks Affecting Results of Operations
Ability to Increase Our Automobile Lessee and Active Driver Base
Our revenue growth has been
largely driven by the expansion of our automobile lessee base and the corresponding revenue generated from operating and financial leasing,
as well as the number of completed online ride-hailing orders on our platform, which largely depends on the number of Active Drivers who
complete ride-hailing transactions on our platform. We acquire customers for our Automobile Transaction and Related Services, as well
as for our Online Ride-hailing Platform Services, through the network of third-party sales teams, referral from online ride-hailing platforms
and our own efforts including online advertising and billboard advertising. We also send out fliers and participate in trade shows to
advertise our services. We plan to maintain the number of our Active Drivers by marketing our platform to our existing and prospective
automobile lessees in the cities we now operate in. We expect the expansion of our Active Driver base to promote the growth of our automobile
rental business because we offer automobile rental solutions/incentives specifically targeted at drivers using our platform and the Partner
Platforms. An effective cross-selling strategies between our automobile leasing business and Online Ride-hailing Platform Services business
is important to our expansion and revenue growth. We also plan to strengthen our marketing efforts through the collaboration with certain
automobile dealers and through our own team by employing more experienced staff, sharing market resources with our equity investee company,
and improving the quality and variety of our services. As of March 31, 2024, we had 5 employees in our own sales department.
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Management of Automobile Rentals
Due to the fierce competition
of online ride-hailing industry in those cities we operate in, we have witnessed a high turn-over rate on the short-term car rentals during
the year ended March 31, 2024. To meet the demand in Chengdu and Changsha, we have purchased and leased automobiles from third parties
for our operating lease. The daily management and timely maintenance of leased automobiles will have a significant effect on the growth
of our income from leasing automobiles in the next twelve months. The effective management of our automobiles through our proprietary
system and experienced auto-management team could provide in-time delivery and qualified automobiles to potential lessees, either for
personal use or providing online ride-hailing services. As of March 31, 2024, for parking and management of automobiles for operating
lease, we had one parking lot, an exhibition hall and 4 employees in Changsha, and we also share the parking lot with our equity investee
company, Jinkailong in Chengdu. During the years ended March 31, 2024 and 2023, the average utilization of the automobiles for operating
lease was approximately 79.7% and 64.9%, respectively.
Our Service Offerings and Pricing
The growth of our revenue
depends on our ability to improve existing solutions and services provided, continue identifying evolving business needs, refine our collaborations
with business partners and provide value-added services to our customers. The attraction of new automobile leases depends on our leasing
solutions with attractive rental price and flexible leasing terms. We have also adopted a series of pricing formulas to adopt the market
changes, considering the historical and future expenditure, remaining available leasing months and market price to determine our rental
price for varied rental solutions. Furthermore, our product designs affect the type of automobile leases we attract, which in turn affect
our financial performance. The attraction of new Active Drivers depends on the comprehensive income they could earn from our own or cooperated
platform, which is mainly affected by the number of orders distributed to them through our platform and the amount of the incentives paid
to them from platforms. Our revenue growth also depends on our abilities to effectively price our services, which enables us to attract
more customers and improve our profit margin.
Ability to Retain Key Business Cooperators
Historically, we have set
up a series of strategy and business relationships with certain affiliates of some famous and leading companies of NEVs manufacturers,
online ride-hailing platforms, local NEVs leasing companies, and travel service providers to develop our Automobile Transaction and Related
Services and Online Ride-hailing Platform Services. We earned commission or services fee from them, purchased and leased automobiles for
our business at a favorable price. The close relationships have provided us with the necessary capacity to support the development of
our online ride-hailing platform and leasing business. To retain these valuable cooperators and continuously explore opportunities to
collaborate with them in more areas is important to us to have considerable resources to support the exploration and expansion of our
business into new cities.
Ability to Collect Receivables on a Timely Basis
For receivables from
Auto Operating Leasing, we usually settle the rental income with each online ride-hailing driver monthly based on the product
solutions they chose. In accordance with the development of the operating lease business, our Partner Platforms, such as Gaode,
agree to temporarily “lock-up” the fares of the rides which Active Drivers earn from the platform to ensure the timely
collection of its rental receivables from those Active Drivers. As of March 31, 2024, we had accounts receivable of operating lease
of approximately $19,000 in total. Besides, during the year ended March 31, 2024, we settled our commissions with the Partner
Platforms for our online ride-hailing platform services and automobile rental income on a monthly basis. As of March 31, 2024, we
had accounts receivable of online ride-hailing service fees of approximately $14,000 in total. We used to advance the purchase price
of automobiles and all service expenses when we provide related services to the purchasers. We collect the receivables due from
automobile purchasers from their monthly installment payments during the relevant affiliation periods. As of March 31, 2024, we had
accounts receivable of approximately $3,000 and advanced payments of approximately $3,000 due from the historical automobile
purchasers.
The efficiency of collection
of the monthly and weekly payments has a material impact on our daily operation. Our risk and asset management department has set up a
series of procedures to monitor the collection from drivers. Our business department has also set up a stable and close relationship with
cooperated platform to ensure the timely collection of commissions. The accounts receivable and advance payments may increase our liquidity
risk. We have used the majority of the proceeds from our equity offerings and plan to seek equity and/or debt financings to pay for the
expenditure related to the automobile purchase. To pay for the expenditure in advance will enhance the stability of our daily operation
and lower the liquidity risk, and attract more customers.
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Ability to Manage Defaults and Potential Guarantee Liability Effectively
We manage the credit risk
arising from the default of automobile purchasers and lessees by performing credit checks on each automobile purchaser or lessee based
on the credit reports from People’s Bank of China and third-party credit rating companies, and personal information including residence,
ethnicity group, driving history and involvement in legal proceeding. Our risk department continuously monitors the payment by each purchaser
and sends them payment reminders. We also keep monitoring the daily gross fare earned by the online ride-hailing drivers, who are our
majority customers and run their business through our online ride-hailing platform during the year ended March 31, 2024. We do this so
that we can evaluate their financial conditions and provide them with assistance including the transfer of automobile to a new driver
if they are no longer interested in providing ride-hailing services or are unable to earn enough income to make monthly lease/loan payments.
In addition, certain
automobiles are used as collateral to secure purchasers’ payment obligations under the financing arrangements in prior years.
As of March 31, 2024, Hunan Ruixi did not have any guarantee liabilities due to financial institutions while accumulated 108 online
ride-hailing drivers we serviced rendered their automobiles to Hunan Ruixi for sublease or sale. In general, most of the defaulted
automobile purchasers who want to remain in online ride-hailing business would pay the default amounts within one to three months.
Our risk management department typically starts to interact with overdue purchasers if they have missed one monthly installment
payment. However, if the balances are overdue for more than two months or the purchasers decide to exit the online ride-hailing
business and sublease or sell their automobiles, we would fully record allowance for credit losses against receivables from those
purchasers. 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. For the years ended March 31, 2024 and 2023, we recognized
approximately $500 and $7,300, respectively, expenses for the guarantee services as the drivers exited the online ride-hailing
business and would no longer make the monthly repayments to us. During the years ended March 31, 2024 and 2023, 19 and 86 rendered
automobiles have been sold, 7 and 49 rendered automobiles have been sub-leased to other customers, respectively. By selling and
subleasing automobiles, we believe we can cope with the defaults and control associated risks.
Further, the automobiles
subject to our financing leases are not collateralized by us. As of March 31, 2024, the total value of non-collateralized automobiles
was approximately $255,000. We believe our risk exposure of financing leasing is immaterial as we have experienced limited default cases
and we are able to re-lease those automobiles to drivers under financing leases.
Actual Impact of Coronavirus (COVID-19) in China on Our Business
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 we serviced rendered their automobiles to 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. On the other hand, the number of the completed orders through our online ride-hailing
platform had significant decrease in December 2022 due to the infection peak after China lifted the prevention and control of COVID-19.
Our cash flow had been adversely
impacted by local resurgences of COVID-19 in Chengdu, Changsha and Guangzhou while the COVID-19 measures in China kept applying the current
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.
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.
Ability to Manage and Maintain Ride-Hailing Business
Due to the fierce competition
of online ride-hailing industry in Chengdu and Changsha, our ability to increase our revenue over time may be limited if we focus only
on our current Automobile Transaction and Related Services business model. As part of our strategy to provide an all-encompassing solution
for online ride-hailing drivers, we have expanded our services to drivers through the operation of Xixingtianxia, our own online ride-hailing
platform. We generate revenue from commissions earned from each completed order, which represent the difference between an upfront quoted
fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider. As the aggregation platforms
distribute the demand orders to different online ride-hailing platforms, the flow of drivers in our area of operations is enhanced, leading
to a higher probability that more ride orders will be distributed to our platform, which in turn will increase the revenue of the drivers
who use our platform (and our revenue). This also allows us to attract more drivers to engage their online ride-hailing business on our
platform. Through a series of promotion and effective daily management and training services, we expect our own online ride-hailing platform
will offer us a stable revenue source which can also help grow our automobile financing and leasing business. Besides, we are dealing
with other trip platforms to attract more riders choosing their trip through our platform.
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Pursuant to the cooperation
agreement signed with Didi Chuxing Technology Co., Ltd. (“Didi”) for our Automobile Transaction and Related Services, we may
be penalized by Didi, or our partnership with Didi may be terminated as we now operate a business competitive with Didi. However, the
service fees we earned from Didi for automobile transaction and related services currently represent less than 0.1% of our total revenue.
Therefore, we believe that the risk of termination of cooperation with Didi on automobile transaction and related services will not have
a material influence on our business or results of operations.
If we could not maintain
the scale of the online ride-hailing drivers who use our platform which may cause we could not generate sufficient revenue and we may
have a larger cash outflow in our daily operations in the next twelve months. Our cash flow situation may worsen if the economy in China
does not improve as expected.
Ability to Compete Effectively
Our business and results
of operations depend on our ability to compete effectively. Overall, our competitive position may be affected by, among other things,
our service quality and our ability to price our solutions and services competitively. We will set up and continuously optimize our own
business system to improve our service quality and user experience. Our competitors may have more resources than we do, including financial,
technological, marketing and others and may be able to devote greater resources to the development and promotion of their services. We
will need to continue to introduce new or enhance existing solutions and services to continue to attract automobile dealers, financial
institutions, car buyers, lessees, ride-hailing drivers and other industry participants. Whether and how quickly we can do so will have
a significant impact on the growth of our business.
Market Opportunity and Government Regulations in China
The demand for our services
depends on overall market conditions of the online ride-hailing industry in China. The continuous growth of the urban population places
increasing pressure on the urban transportation and the improvement of living standards has increased the market demand for quality travel
in China. Traditional taxi service is limited, and the emerging online platforms have created good opportunities for the development of
the online ride-hailing service market. The market value is expected to increase from RMB354.7 billion in 2024 to RMB751.3 billion in
2028, owing to rising consumer demand for economical mobility options and an amplified penetration of shared mobility services, especially
in lower-tier cities. According to the 53th Statistical report on Internet Development in China published in March 2024 by the China Internet
Network Information Center (the “CNNIC”), the number of online ride-hailing service users had reached 528 million by the end
of December 2023, and took approximately 48.3% of the total number of Chinese internet users. In addition, in recent years, aggregation
platforms have gained rising significance in the shared mobility industry. According to Frost & Sullivan, the portion of ride hailing
orders fulfilled through aggregation platforms increased from 3.5% in 2018 to 30.0% in 2023, and is expected to further increase to 49.0%
by 2028. The online ride-hailing industry is also facing increasing competition in China and is attracting more capital investment. For
example, Dida Inc., Chenqi Technology Limited and CaoCao Inc. have filed their prospectuses to the Stock Exchange of Hong Kong Limited
in March 2024 and April 2024, respectively.
However, the participants
in the online ride-hailing industry are facing the increasingly fierce competitions. According to the Ministry of Transportation (the
“MOT”) of the People’s Republic of China, as of April 30, 2024, approximately 349 online ride-hailing platforms have
obtained booking taxi operating licenses and the total volume of online ride-hailing orders was approximately 897 million in April 2024
in China. Meanwhile, approximately 2.93 million online booking taxi transportation certificates and approximately 6.96 million online
booking taxi driver’s licenses were issued nationwide in China. Since 2023, the municipal transportation bureaus in a series of
cities in China have released operational dynamics and risk warnings for the online ride-hailing industry, stating that the online ride-hailing
market has become saturated. They remind enterprises and practitioners who intend to engage in online ride-hailing services should have
a detailed understanding of relevant regulations, conduct market research, fully consider changes in operating income due to factors such
as supply and demand, market conditions, fluctuations or continuous declines, objectively evaluate the actual income level of industry
practitioners, and make rational and prudent career choices.
The online ride-hailing industry
may also be affected by, among other factors, the general economic conditions in China. The interest rates and unemployment rates may
affect the demand of ride-hailing services and automobile purchasers’ willingness to seek credit from financial institutions. Adverse
economic conditions could also reduce the average income of individual and intensify the competition between platforms. The platforms
may spend more incentives and increase promotion activities to attract more riders and maintain sufficient online ride-hailing drivers
to provide transportation services to riders. Should any of those negative situations occur, the volume and value of the automobile transactions
we service will decline, and our revenue and financial condition will be negatively impacted.
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In order to manage the rapidly
growing ride-hailing service market and control relevant risks, on July 27, 2016, seven ministries and commissions in China, including
the MOT, jointly promulgated the “Interim Measures for the Administration of Online Taxi Booking Business Operations and Services”
(“Interim Measures”) and amended it 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 measures and obtain taxi-booking service
licenses and take full responsibility of the ride services to ensure the safety of riders.
On November 5, 2016, the
Municipal Communications Commission of Chengdu City and a number of municipal departments jointly issued the “Implementation Rules
for the Administration of Online Booking Taxi Management Services for Chengdu”, which was abolished and replaced by the updated
version issued on July 26, 2021. On August 10, 2017, the Transportation Commission of Chengdu further issued the 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. According to these regulations and guidelines, three licenses /certificates are required for operating the online ride-hailing
business in Chengdu and Guangzhou: (1) the ride-hailing service platform such as XXTX should obtain the online booking taxi operating
license; (2) the automobiles used for online ride-hailing should obtain the online booking taxi transportation certificate (“automobile
certificate”); (3) the drivers should obtain the online booking taxi driver’s license (“driver’s license”).
Besides, all the new cars used for online ride-hailing in Chengdu should be NEVs since July 2021.
On July 23, 2018, the General
Office of Changsha Municipal People’s Government issued the “Detailed Rules for the Administration of Online Booking Taxi
Management Services for Changsha.” On June 12, 2019, the Municipal Communications Commission of Changsha City further issued “Transfer
and Registration Procedures of Changsha Online Booking of Taxi.” According to the regulations and guidelines, to operate a ride-hailing
business in Changsha requires similar licenses in Chengdu, except those automobiles used for online ride-hailing services are required
to meet certain standards, including that the sales price (including taxes) is over RMB120,000 (approximately $17,000). In practice, Hunan
Ruixi is also required to employ a safety administrator for every 50 automobiles used for online ride-hailing services and submit daily
operation information of these automobiles such as traffic violation to the Transport Management Office of the Municipal Communications
Commission of Changsha City every month. On November 28, 2016, Guangzhou Municipal People’s Government also promulgated Interim
Measures for the Management of Online Ride Hailing Operation and Service in Guangzhou, as amended on November 14, 2019.
In addition to the national
online reservation taxi operating license, XXTX and its subsidiaries also obtained the online reservation taxi operating license 29 cities,
including Chengdu, Changsha, Guangzhou, Tianjin, Shenyang, Harbin, Changchun, Nanchang, Xining, Daoxian, two cities in Shandong, Guangxi
Province and Zhejiang, respectively, three cities in Guizhou Province, seven cities in Jiangsu Province, other two cities in Hunan and
Guangdong Province, respectively, and other five cities in Sichuan Province from June 2020 to October 2023, to operate the online ride-hailing
platform services.
However, approximately 25%
of our ride-hailing drivers have not obtained the driver’s license for online ride-hailing services as of March 31, 2024 while all
of the cars used for online ride-hailing services which we provided management services have the automobile certificate. Without requisite
automobile certificate or driver’s license, these drivers may be suspended from providing ride-hailing services, confiscated their
illegal income and subject to fines of up to 10 times of their illegal income. Starting in December 2019, Didi began to enforce such limitation
on drivers in Chengdu who have a driver’s license but operate automobiles without the automobile certificate. Meanwhile, during
the year ended March 31, 2024, Gaode conducted several rounds of compliance checks in Chengdu and other cities. Gaode reduced the number
of orders dispatched to XXTX platform as it found certain drivers who provide their online ride-hailing services through our platform
without obtaining the driver’s licenses during the checking time. Accordingly, we have strengthened the drivers’ qualification
check, and the decrease in the number of drivers without licenses further resulted to the decrease in the number of orders completed through
XXTX platform. Thus, our revenue from online ride-hailing platform services decreased during the year ended March 31, 2024 as compared
with last year.
Furthermore, according to
the Interim Measures, no enterprise or individual is allowed to provide information for conducting online ride-hailing services to unqualified
vehicles and drivers. Pursuant to the Interim Measures, XXTX and its subsidiaries may be fined between RMB5,000 to RMB30,000 ($692 to $4,155) for violations of the Interim Measures, including providing online ride-hailing platform services to unqualified drivers
or vehicles. 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.
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We are in the process of
assisting the drivers to obtain the required certificate and license both for our Automobile Transaction and Related Services and our
Online Ride-hailing Platform Services. However, there is no guarantee that all of the drivers who run their online ride-hailing business
through our platform would be able to obtain all the certificates and licenses. Our business and results of operations shall be materially
and adversely affected if our affiliated drivers are suspended from providing ride-hailing services or imposed substantial fines or if
we are found to be in serious violation of the Interim Measures due to the drivers’ failure to obtain requite licenses and/or automobile
certificates in connection with providing services through our platform. For example, from September 2023 to December 2023, Gaode has
performed a series of compliance check aiming at driver’s license in several cities, including Chengdu and Guangzhou, which caused
the decrease in the number of completed orders through our platform and the decrease in our online ride-hailing platform services accordingly.
The Chinese government has
exercised and continued to exercise substantial control over virtually every sector of the Chinese economy through regulation and state
ownership. For example, the Chinese cybersecurity regulator announced on July 2, 2021 that it had begun an investigation of Didi and two
days later ordered that the company’s app be removed from smartphone app stores. We believe that our current operations are in compliance
with the laws and regulations of the Chinese cybersecurity regulator. However, the Company’s operations could be adversely affected,
directly or indirectly, by existing or future laws and regulations relating to its business or industry.
Results of Operations for the year ended March 31, 2024 Compared
to the year ended March 31, 2023
For the Years Ended
March 31,
2024
2023
Change
Revenues
$ 6,814,428
$ 8,082,514
$ (1,268,086 )
Cost of revenues
(5,253,857 )
(6,590,001 )
1,336,144
Gross profit
1,560,571
1,492,513
68,058
Operating expenses
Selling, general and administrative expenses
(4,115,436 )
(6,142,447 )
2,027,011
Provision for credit losses
(1,725,746 )
(1,487,889 )
(237,857 )
Impairments of inventories
—
(3,085 )
3,085
Stock-based compensations
(444,300 )
—
(444,300 )
Total operating expenses
(6,285,482 )
(7,633,421 )
1,347,939
Loss from operations
(4,724,911 )
(6,140,908 )
1,415,997
Other income, net
315,450
664,001
(348,551 )
Interest expense
(17,630 )
—
(17,630 )
Interest expense on finance leases
(29,088 )
(25,675 )
(3,413 )
Change in fair value of derivative liabilities
212,949
1,711,889
(1,498,940 )
Loss before income taxes
(4,243,230 )
(3,790,693 )
(452,537 )
Income tax benefit
9,016
—
9,016
Net loss
$ (4,234,214 )
$ (3,790,693 )
$ (443,521 )
Revenues
We started generating revenue
from Automobile Transaction and Related Services from our acquisition of Hunan Ruixi on November 22, 2018 and revenue from online ride-hailing
platform services from our acquisition of XXTX on October 23, 2020, respectively.
Revenue for the year ended
March 31, 2024 decreased by $1,268,086, or approximately 16%, as compared with the year ended March 31, 2023. The decrease was mainly
due to the decrease of revenues from online ride-hailing platform services resulted from the decrease in orders caused by the market competition,
and partly offset by the increase of operating lease revenues from automobile rentals as a result of the expansion and our continuous
“efficiency - improving” strategy of this business.
As we have focused on our
automobile rental and Online Ride-hailing Platform Services business, we expect revenue from our online ride-hailing platform services
and automobile rental to continuously account for a majority of our revenues. We plan to provide a series of product solutions to sustain
and further increase the number of our automobiles for operating leases.
79
The following table sets forth the breakdown of
revenues by revenue source for the years ended March 31, 2024 and 2023:
For the Years Ended
March 31,
2024
2023
Revenue from automobile transactions and related services
$ 4,320,031
$ 4,372,569
- Operating lease revenues from automobile rentals
3,831,037
3,453,392
- Monthly services commissions
196,099
179,241
- Financing revenues
57,677
41,738
- Service fees from NEVs leasing
45,231
350,510
- Service fees from automobile purchase services
36,637
33,585
- Service fees from management and guarantee services
16,246
40,158
- Revenues from sales of automobiles
8,822
243,065
- Other service fees
128,282
30,880
Revenue from online ride-hailing platform services
2,494,397
3,709,945
Total Revenue
$ 6,814,428
$ 8,082,514
Revenue from Automobile Transactions and Related Services
Revenue from our automobile
transaction and related services mainly includes operating lease revenues from automobile rentals, monthly services commissions, financing
revenues, service fees from NEVs leasing, service fees from automobile purchase services, service fees from automobile management and
guarantee services, sales revenue of automobiles, and other services fees, which accounted for approximately 88.7%, 4.5%, 1.3%, 1.0%,
0.8%, 0.4%, 0.2% and 3.1%, respectively, of the total revenue from automobile transaction and related services during the year ended March
31, 2024. Meanwhile, operating lease revenues from automobile rentals, service fees from NEVs leasing, monthly services commissions, financing
revenues, service fees from automobile purchase services, service fees from automobile management and guarantee services, sales revenue
of automobiles and other services fees, which accounted for approximately 79.0%, 8.0%, 4.1%, 1.0%, 0.8%, 0.9%, 5.6% and 0.6%, respectively,
of the total revenue from automobile transaction and related services during the year ended March 31, 2023.
Operating lease revenues from automobile rentals
We generate revenues from
leasing our own automobiles, sub-leasing automobiles leased from third-parties or rendered by online ride-hailing drivers with their authorization
for a lease term of no more than twelve months. The increase of rental income of $377,645 or approximately 11% during the year ended March
31, 2024 was mainly due to the increased average utilization of the automobiles for operating lease increased from approximately 64.9%
to 79.7%. We leased over 1,400 automobiles with an average monthly rental income of approximately $485 per automobile, resulting in a
rental income of $3,831,037, including rental income of $34,742 from Jinkailong, for the year ended March 31, 2024. While we leased over
1,800 automobiles with an average monthly rental income of approximately $478 per automobile, resulting in a rental income of $3,453,392,
including rental income of $344,120 from Jinkailong, for the year ended March 31, 2023.
Monthly services commissions
We generated revenues of
$196,099 and $179,241 from the monthly management and related services provided to our Partner Platforms and other companies during the
years ended March 31, 2024 and 2023, respectively. The increase of $16,858 or approximately 9% was due to that we improved our qualities
of services and we had more Partner Platforms during the year ended March 31, 2024.
Financing revenues
We started our financial
leasing business in March 2019 and began to generate interest income from providing financial leasing services to ride-hailing drivers
in April 2019. We also charge the customers of our automobile financing facilitation services interest on their monthly payments which
cover purchase price of automobile and our services fees and facilitation fees for terms of 36 or 48 months. We recognized a total interest
income of $57,677 from an average monthly number of 33 automobiles and $41,738 from an average monthly number of 44 automobiles during
the years ended March 31, 2024 and 2023, respectively. The increase was due to the monthly payment we charged to customers for financial
leasing increased during the year ended March 31, 2024.
Service fees from NEVs leasing
We generated revenues of
$45,231 and $350,510 from leasing NEVs by charging leases service fees during the years ended March 31, 2024 and 2023, respectively. The
amount of services fees for NEVs leasing is based on its product solutions. The decrease of $305,279 or approximately 87% was mainly due
to that we adjusted our product solutions since January 2023, and more customers chose the solutions with no services fees for NEVs leasing.
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Service fees from automobile purchase services and Service fees
from automobile management and guarantee services
We generate revenues from
providing a series of automobile purchase services throughout the automobile purchase transaction process, including sales-type lease.
We had revenue from 22 automobiles purchase transaction during the year ended March 31, 2024 while we had revenue from 15 automobile purchase
services during the year ended March 31, 2023. As a result, the related service fees generated increased $3,052 from the year ended March
31, 2023 to the year ended March 31, 2024 .
T he
majority of our customers are online ride-hailing drivers. Some of them also entered into affiliation service agreements in prior periods
with us pursuant to which we provide them post-transaction management services and guarantee services. The decrease of $23,912 or approximately
60% was due to the decrease in the accumulated number of rendered automobiles which were subsequently rented to ride-hailing drivers whom
we charge rent rather than charging management and guarantee services fee. We had management and guarantee services for over 30 and 110
automobiles during the years ended March 31, 2024 and 2023, respectively.
Sales of automobiles
We sold two used-automobiles
with income of $8,822 during the year ended March 31, 2024. Meanwhile, we sold one new and 42 used automobiles with income of $243,065
during the year ended March 31, 2023.
Other service fees
We generate other revenues
from other miscellaneous service fees charged to our customers. Other services fees increased $97,402, was mainly due to the maintenance
fees of approximately $64,700 charged to our customers pursuant to certain new production solutions adopted during the year ended March
31, 2024.
Revenue from online ride-hailing platform services
We generate revenue from
providing services to online ride-hailing drivers to assist them in providing transportation service to the riders though our platform
and earn commissions for each completed order equal to the difference between an upfront quoted fare and the amount earned by a driver
based on actual time and distance for the ride charged to the rider since October 2020. During the year ended March 31, 2024, approximately
4.9 million rides with gross fare of approximately $15.1 million were completed through our Xixingtianxia platform and we earned online
ride-hailing platform service fees of $2,494,397, after netting off approximately $0.3 million incentives paid to Active Drivers. The
decrease was mainly due to fewer completed orders as a result of increased competition and compliance checks conducted by our platform
partner Gaode in Chengdu, during the year ended March 31, 2024.
During the year ended March
31, 2023, approximately 6.1 million rides with gross fare of approximately $19.9 million were completed through our Xixingtianxia platform
and we earned online ride-hailing platform service fees of $3,709,945, after netting off approximately $0.5 million incentives paid to
Active Drivers.
Cost of Revenues
Cost of revenues represents
(1) the amortization of ROUs, depreciation and rental cost of automobiles, daily maintenance and insurance expense of automobiles which
related to our Auto Operating Leasing of $3,384,761; (2) technical service charges, insurance and other expenses related to our Online
Ride-Hailing Platform Services of $1,858,557; and (3) costs of our Auto Sales of $10,539. Cost of revenues decreased by $1,336,144 or
approximately 20% during the year ended March 31, 2024 as compared with the same period in 2023, mainly due to the decrease of $591,096
in costs of automobiles under operating leases due to the decrease in the average daily maintenance and insurance expense of the automobiles
for operating lease as we used more NEVs in the year ended March 31, 2024, decrease of $436,676 in direct expense and technical service
fees of online ride-hailing platform services due to the decrease in the number of completed orders, and decrease of $308,372 in costs
of our Auto Sales as the number of automobiles sold decreased from 43 to 2. During the years ended March 31, 2024 and 2023, the costs
of automobiles under operating leases with amount of $472,848 and $509,904, respectively, was from one of our related parties.
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Gross Profit
We had gross profit of $1,559,463
and $1,492,513, respectively, during the years ended March 31, 2024 and 2023. The increase of $68,058 was mainly due to the increase in
gross profit in our operating lease, partially offset by the decrease in profit from online ride-hailing platform services and other services.
The following table sets forth the breakdown of gross profit (loss) by major revenue source for the years ended March 31, 2024 and 2023:
For the Years Ended
March 31,
2024
2023
- Auto Operating Leasing
$ 446,276
$ (522,465 )
- Other Automobile transaction and related Services
480,172
676,112
- Auto Sales
(1,717 )
(75,846 )
- Online Ride-Hailing Platform Services
635,840
1,414,712
Total Gross Profit
$ 1,560,571
$ 1,492,513
We had a gross profit of
$446,276 in our automobile operating leasing during the year ended March 31, 2024, which increased by $968,741 from a gross loss of $522,465
in the year ended March 31, 2023. The increase was mainly due to the increase in the average utilization of the automobiles for operating
lease from approximately 64.9% to 79.7% and the decrease in the average daily maintenance and insurance expense of the automobiles for
operating lease as we used more NEVs in the year ended March 31, 2024 as compared with the year ended March 31, 2023. We had a gross profit
of $635,840 in our online ride-hailing platform services during the year ended March 31, 2024, which decreased by $778,872 from a gross
profit of $1,414,712 in the year ended March 31, 2023. The decrease was attributable to the decrease of gross fare of rides completed
through our Xixingtianxia platform from approximately $6.1 million for the year ended March 31, 2023 to approximately $4.9 million for
the year ended March 31, 2024, respectively. The decrease of $195,940 in profit of other services was mainly due to the decrease of services
fees for NEVs leasing pursuant to our adjustment on product solutions.
Consequently, the overall gross profit margin increased to approximately
22.9% during the year ended March 31, 2024 from approximately 18.5% during the year ended March 31, 2023. The increase was mainly due
to the operating leasing had a gross profit margin of 11.6% during the year ended March 31, 2024 as compared with a gross loss (approximately
negative 15.1%) in the year ended March 31, 2023. It was partially offset by the decrease in the gross profit margin of online ride-hailing
platform services from approximately 38.1% during the year ended March 31, 2023 to approximately 25.5% during the year ended March 31,
2024.
Selling, General and Administrative Expenses
Selling, general and administrative
expenses primarily consist of salary and employee benefits, office rental expense, travel expenses, and other costs. Selling, general
and administrative expenses decreased from $6,142,447 for the year ended March 31, 2023 to $4,115,436 for the year ended March 31, 2024,
representing a decrease of $2,027,011, or approximately 33.0%. The decrease was attributable to our continuous control on costs and streamline
expenses during the year ended March 31, 2024. The decrease mainly consists of (1) a decrease of $1,220,672 in salary and employee benefits
as the average monthly number of our employees decreased from 175 to 97; (2) a decrease of $325,088 in rental and offices expenditure
as a result of reducing office rental and insurance charges during the year ended March 31, 2024; (3) a decrease of $125,586 in entertainment,
advertising and promotion as we cut down market promotion expenditure in accordance with the market change in the year ended March 31,
2024; (4) a decrease of $112,619 in amortization of automobiles which were rendered to us but have not been sub-leased as our ROUs have
been fully amortized; (5) a decrease of $98,309 in professional service fees such as financial, legal and market consulting; and (6) a
decrease in liquidated damages compensation of $86,250 for investors in November 2021 Private Placement incurred during the year ended
March 31, 2023 while no similar expenses during the year ended March 31, 2024.
Provision for credit losses
For the year ended March
31, 2024, we re-evaluated the possibility of collection of unsettled balances from customers/suppliers of our automobile transactions
and related services, and provided provision for credit losses of $1,703,563 against receivables from Jinkailong, $17,974 against the
security deposit not returned for over one year after the end of the cooperation, and $1,557 and $2,652 against receivable and other receivable
for unsettled balances from a historical customer, respectively. While we provided provision for credit losses of $1,484,495 and $3,394,
respectively, against receivables from Jinkailong and a customer we serviced who purchased our automobiles from Yicheng, during the year
ended March 31, 2023.
Impairments of inventories
For the years ended March
31, 2024 and 2023, we evaluated the net realizable value of our inventories and recognized an impairment loss of $0 and $3,085, respectively,
for certain automobiles for sale based on their selling price in the market.
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Stock-based compensation
In October 2023, we entered
into three different consulting and services agreements (the “Consulting Agreements”) with three consultants (the “Consultants”),
pursuant to which we engaged the Consultant to provide certain merger and acquisition consulting service, market research and business
development advisory services, and financial consulting services, respectively. We issued an aggregate of 1,500,000 shares of our common
stock in November 2023 to settle the compensation for the services and recorded $444,300 service expense during the year ended March 31,
2024.
Other income, net
For the year ended March 31,
2024, we had other income, net of $315,450, which primarily consist of the (1) penalty income of approximately $215,000 from the customers;
(2) income of approximately $35,000 from the disposal of our right-of-use assets and our own vehicles used for operating leases, (3) aggregate
subsidy from the local governments in Changsha and Chengdu of approximately $23,000; and the miscellaneous income of approximately $42,000.
For the year ended March 31, 2023, we had other income, net of $664,001, which primarily consist of the income of approximately $453,000
from the disposal of our right-of-use assets and our own vehicles used for operating leases; and the penalty income of approximately $211,000
from the customers.
Interest Expense and Interest Expense on Finance Leases
Interest expense for the
year ended March 31, 2024 was resulted from the borrowings of XXTX from a financial institution for its working capital turnover and Corenel
from a financial institution for its automobile commercial insurance by installment.
Interest expense on finance
leases for the years ended March 31, 2024 and 2023 was $29,088 and $25,675, respectively, representing the interest expense accrued under
financing leases for the leased automobiles Corenel leased from a third-party company, and the leased automobiles rendered to us for sublease
or sale by the online ride-hailing drivers who exited the ride-hailing business.
Change in Fair Value of Derivative Liabilities
Warrants issued in our registered
direct offerings that took place in September 2019, February 2021 and May 2021, and the August 2020 underwritten public offering, and
the November 2021 private placement were classified as liabilities under the caption “Derivative Liabilities” in the consolidated
balance sheet and recorded at estimated fair value at each reporting date, computed using the Black-Scholes valuation model. The change
in fair value of derivative liabilities for the year ended March 31, 2024 was a gain of $212,949 in total as our stock price as of March
31, 2024 was lower than the price as of March 31, 2023. The following table sets forth the breakdown of the gain in fair value of derivative
liabilities for the years ended March 31, 2024 and 2023:
For the Years Ended
March 31,
2024
2023
- June 2019 registered direct offering
$ 6
$ 12,432
- August 2020 underwritten public offering
5,231
36,131
- February 2021 registered direct offering
7,158
54,052
- May 2021 registered direct offering
87,424
662,767
- November 2021 private placement
113,130
946,507
Total Change in Fair Value of Derivative Liabilities
$ 212,949
$ 1,711,889
Income Tax benefit
Generally, our subsidiaries
are subject to enterprise income tax on their taxable income in China at a rate of 25%. The enterprise income tax is calculated based
on the entity’s global income as determined under PRC tax laws and accounting standards. For the year ended March 31, 2024, we had
deferred tax benefit of $29,222. Our current income tax of $20,206 represented the provision of enterprise income tax resulting from the
taxable income from Jiekai, while all other subsidiaries in China suffered losses thus no income tax expense was recorded for the year
ended March 31, 2024.
Net loss
As a result of the foregoing,
net loss for the year ended March 31, 2024 was $4,234,214, representing an increase of $443,521 from net loss of $3,790,693 for the year
ended March 31, 2023.
83
Liquidity and Going Concern
We have financed our operations
primarily through proceeds from our equity offerings, stockholder loans, commercial debt and cash flow from operations.
We had cash and cash equivalents
of $792,299 as of March 31, 2024 as compared to $1,610,090 as of March 31, 2023. We primarily hold our excess unrestricted cash in short-term
interest-bearing bank accounts at financial institutions.
Our business is capital intensive.
We have considered whether there is substantial doubt about our ability to continue as a going concern due to (1) the net loss of approximately
$4.2 million for the year ended March 31, 2024; (2) accumulated deficit of approximately $41.4 million as of March 31, 2024; (3) the working
capital deficit of approximately $2.7 million as of March 31, 2024; and (4) a purchase commitment of approximately $0.9 million for 100
automobiles. As of the filing date of this Report, we have entered into a purchase contract with an automobile dealer to purchase a total
of 100 automobiles in the amount of approximately $1.5 million, of which, approximately $0.6 million has been remitted as purchase prepayments.
The remaining purchase commitment of approximately $0.9 million shall be remitted in installment to be completed before March 31, 2025.
We do not believe that the
proceeds from our public offerings and our anticipated cash flows would be sufficient to meet our anticipated working capital requirements
and capital expenditures in the ordinary course of business for the next 12 months from the date of this Report. We have determined there
is substantial doubt about our ability to continue as a going concern. If we are unable to generate significant revenue, we may be required
to cease or curtail our operations. We are trying to alleviate the going concern risk through the following sources:
● equity financing to support
our working capital;
● other available sources of
financing (including debt) from PRC banks and other financial institutions; and
● financial support and credit
guarantee commitments from our related parties.
Based on the above considerations,
we are of the opinion that we will probably not have sufficient funds to meet our working capital requirements and debt obligations as
they become due one year from the filing date of this Report, if we are unable to obtain additional financing. However, there is no assurance
that we will be successful in implementing the foregoing plans or that additional capitals will be available to us on commercially reasonable
terms, or at all. There are a number of factors that could potentially arise that could undermine our plans, such as (i) changes in the
demand for our services, (ii) PRC government policies, (iii) economic conditions in China and worldwide, (iv) competitive pricing in the
automobile transaction and related service and ride-hailing industries, (v) changes in our relationships with key business partners, (vi)
that financial institutions in China may not able to provide continued financial support to our customers, and (vii) the perception of
PRC-based companies in the U.S. capital markets. Our inability to secure needed financing when required could require material changes
to our business plans and could have a material adverse effect on our viability and results of operations.
For the Years Ended
March 31,
2024
2023
Net Cash Provided by Operating Activities
$ 7,241
$ 557,837
Net Cash Provided by (Used in) Investing Activities
(569,608 )
320,528
Net Cash Used in Financing Activities
(168,340 )
(373,834 )
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
(84,747 )
(79,662 )
Cash, Cash Equivalents and Restricted Cash at Beginning of the Year
1,610,090
1,185,221
Cash, Cash Equivalents and Restricted Cash at End of the Year
$ 794,636
$ 1,610,090
Cash Flow in Operating Activities
For the years ended March
31, 2024 and 2023, net cash provided by operating activities was $7,241 and $557,837, respectively.
The decrease $550,596 in
net cash provided by operating activities for the year ended March 31, 2024 as compared with the year ended March 31, 2023 was primarily
attributable to (1) decrease of $982,471 in the change of prepayments, other receivables and other assets (both third parties and related
party); (2) increase of $443,521 in net loss; (3) decrease of $475,726 in depreciation of property and equipment and amortization of right-of-use
assets; (4) decrease of $560,695 in the change of accrued expenses and other liabilities (both third parties and due to a related party);
and (5) decrease of $309,314 in the change of inventories, partially offset by (5) increase of $1,498,940 in change of fair value of derivative
liabilities (decrease of related gains); (6) increase of $444,300 in stock-based compensation; (7) increase of $417,721 resulted from
decrease in the gain on disposal of equipment compared with last year and (8) increase of $237,857 resulted from increased provision for
credit losses compared with prior year.
84
Cash Flow in Investing Activities
For the year ended March
31, 2024, we had net cash used in investing activities of $569,608. The majority of net cash used in investing activities was for purchase
of automobiles for operating lease purpose of $671,679, which was partially offset by the proceeds from sales of the used-automobiles
and rendered automobiles of $102,071.
For the year ended March
31, 2023, we had net cash provided by investing activities of $320,528. The majority of net cash provided by investing activities was
for the proceeds from sales of the used-automobiles and rendered automobiles of $1,498,024, which was partially offset by the expenditures
on the licenses of $26,420 for online ride-hailing platforms in different cities in China and purchase of automobiles for operating lease
purpose of $1,151,076.
Cash Flow in Financing Activities
For the year ended March
31, 2024, we had net cash used in financing activities of $168,340, which primarily consisted of: (1) loans to related parties and affiliates
of $505,630, (2) principal payments made for finance lease liabilities of $215,443, (3) repayments of current borrowings from a financial
institution of $35,613, partially offset by (4) borrowings from a financial institution of $249,297; and (5) repayment from a related
party of $339,049.
For the year ended March
31, 2023, we had net cash used in financing activities of $373,834, which primarily consisted of: (1) principal payments made for finance
lease liabilities of $392,145, (2) repayments of current borrowings from a financial institution of $125,840, partially offset by (3)
repayment from related parties and affiliates of $144,151.
Off-Balance Sheet Arrangements
As of the filing date of
this Report, we have the following off-balance sheet arrangements that are likely to have a future effect on our financial condition,
revenues or expenses, results of operations and liquidity:
● Purchase Commitments
On September 23, 2022, we
entered into a purchase contract with an automobile dealer to purchase a total of 100 automobiles for the amount of approximately $1.5
million, of which approximately $0.6 million has been remitted as purchase prepayments, and we expect to fulfill the purchase commitment
before March 31, 2025.
● Contingent Liabilities
As of March 31, 2024, Jinkailong
is required by certain financial institutions to provide guarantee on the lease/loan payments (including principal and interests) of the
automobile purchasers referred by it in prior years. The maximum contingent liabilities Jinkailong would be exposed to was approximately
$2.9 million, assuming all the automobile purchasers were in default. As Hunan Ruixi holds 35% of equity interest of Jinkailong and has
not made any consideration towards to the investment, Hunan Ruixi will subject to the maximum amount of RMB3.5 million (approximately
$485,000) of which is equivalent to 35% of liabilities in case Jinkailong is liquidated in accordance with PRC’s company registry
compliance.
Inflation
We do not believe our business
and operations have been materially affected by inflation.
Critical Accounting Estimates
Our consolidated financial
statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements
and accompanying notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. We have identified certain accounting
estimates that are significant to the preparation of our financial statements. These estimates are important for an understanding of our
financial condition and results of operation. Certain accounting estimates are particularly sensitive because of their significance to
financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s
current judgments. We believe the following critical accounting estimates involve the most significant estimates and judgments used in
the preparation of our financial statements.
85
In presenting the consolidated
financial statements in accordance with U.S. GAAP, management make estimates and assumptions that affect the amounts reported and related
disclosures. Estimates, by their nature, are based on judgement and available information. Accordingly, actual results could differ from
those estimates. On an ongoing basis, management reviews these estimates and assumptions using the currently available information. Changes
in facts and circumstances may cause us to revise our estimates. we base our estimates on past experience and on various other assumptions
that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Estimates are used when accounting for items and matters including, but not limited to the critical accounting estimates as follows.
When reading our consolidated financial statements, you should consider
our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the
sensitivity of reported results to changes in conditions and assumptions. Our critical accounting policies and practices include the following:
(i) fair values of financial instruments, including derivative liabilities; (ii) accounts receivable, net; (iii) property and equipment,
net; (iv) intangible assets, net; (v) revenue recognition; and (vi) leases - lessee. See Note 3—Summary of Significant Accounting
Policies to our consolidated financial statements for the disclosure of these accounting policies. We believe the following accounting
estimates involve the most significant judgments used in the preparation of our financial statements.
(a) Derivative liabilities
A contract is designated
as an asset or a liability and is carried at fair value on a company’s balance sheet, with any changes in fair value recorded in
a company’s results of operations. We then determine which options, warrants and embedded features require liability accounting
and records the fair value as a derivative liability by using Black-Scholes model. The changes in the values of these instruments are
shown in the accompanying consolidated statements of operations and comprehensive loss as “change in fair value of derivative liabilities”.
(b) Allowance
for credit losses
In June 2016, the FASB issued
ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,”
which requires us to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through
net income. We adopted this guidance effective April 1, 2023. ASC 326 introduces an approach based on expected losses to estimate the
allowance for credit losses, which replaces the previous incurred loss impairment model. The adoption of this guidance did not have a
material impact on our consolidated financial statements. Accounts receivable are recognized and carried at original invoiced amount less
an estimated allowance for credit losses. We estimate the allowance for credit losses based on an analysis of the aging of accounts receivable,
assessment of collectability, including any known or anticipated economic conditions, customer-specific circumstances, recent payment
history and other relevant factors.
86
The balance of other receivables
is unsecured and is reviewed periodically to determine whether their carrying value has become impaired. We consider the balances to be
impaired if the collectability of the balances becomes doubtful. We use the individual specific
valuation method to estimate the allowance for uncollectible balances. The allowance is also based on management’s best estimate
of specific losses on individual exposures, as well as a provision on historical trends of collections and utilizations. Actual amounts
received or utilized may differ from management’s estimate of credit worthiness and the economic environment.
As of March 31, 2024 and 2023, the allowance for credit losses represented
approximately 4.3% and 0% of gross accounts receivable balances, respectively. The provision is recorded against accounts receivable balances,
with a corresponding charge recorded in the consolidated statements of operations and comprehensive loss. Delinquent account balances
are written-off against the allowance for credit losses after management has determined that the likelihood of collection is not probable.
Allowance for credit losses balances amounted to $1,545 and $0 as of March 31, 2024 and 2023, respectively for accounts receivable. Allowance
for credit losses balances amounted to $20,474 and $0 as of March 31, 2024 and 2023, respectively for deposits and other receivables.
Allowance for credit losses balances amounted to $3,099,701 and $1,481,036 as of March 31, 2024 and 2023, respectively, for amount due
from a related party.
(c) Leases - Lessee
Finance and operating lease
ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.
Since the implicit rate for our leases is not readily determinable, we use our incremental borrowing rate based on the information available
at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that
we would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and
over a similar term.
Lease terms used to calculate
the present value of lease payments generally do not include any options to extend, renew, or terminate the lease, as we do not have reasonable
certainty at lease inception that these options will be exercised. We generally consider the economic life of its operating lease ROU
assets to be comparable to the useful life of similar owned assets. We have elected the short-term lease exception; therefore, operating
lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. The leases generally do not provide
a residual guarantee. The finance or operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line
basis over the lease term for operating lease. Meanwhile, we recognize the finance leases ROU assets and interest on an amortized cost
basis. The amortization of finance ROU assets is recognized on a straight-line basis as amortization expense, while the lease liability
is increased to reflect interest on the liability and decreased to reflect the lease payments made during the period. Interest expense
on the lease liability is determined each period during the lease term as the amount that results in a constant periodic interest rate
of the automobile loans on the remaining balance of the liability.
We review the impairment
of our ROU assets consistent with the approach applied for our other long-lived assets. We review the recoverability of its long-lived
assets when events or changes in circumstances occur, indicating that the carrying value of the asset may not be recoverable. The assessment
of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax
cash flows of the related operations. We have elected to include the carrying amount of operating lease liabilities in any tested asset
group and include the associated operating lease payments in the undiscounted future pre-tax cash flows.
(d) Impairment of long-lived
assets
Long-lived assets, including property and equipment
and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant
adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not
be recoverable. We assess the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate
and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds
expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, we would
reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate,
to comparable market values. For the years ended March 31, 2024 and 2023, we did not recognize impairment
for property and equipment and intangible assets.
(e)
Valuation of deferred tax assets
Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not
required for smaller reporting companies.
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