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 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 majority owned subsidiaries, Chengdu Jiekai Yunli Technology Co., Ltd., a PRC
limited liability company and its subsidiary (“Jiekai”), and Hunan Ruixi Financial Leasing Co., Ltd., a PRC limited liability
company (“Hunan Ruixi”), and our former wholly owned subsidiary, Chengdu Corenel Technology Co., Ltd. a PRC limited liability
company (“Corenel”). Substantially all of our operations are conducted in China.
71
From October 2020 to August
2024, we also operated an online ride-hailing platform through Hunan Xixingtianxia Technology Co., Ltd. (“XXTX”), a former
wholly-owned subsidiary of Sichuan Senmiao Zecheng Business Consulting Co., Ltd., our wholly-owned subsidiary (“Senmiao Consulting”).
The platform enabled qualified ride-hailing drivers to provide application-based transportation services mainly in Chengdu, Changsha and
other 20 cities in China. As more fully discussed below under “– Our Discontinued Ride-Hailing Platform Services,” we
ceased our online ride-hailing Platform Services on August 20, 2024.
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) service fees
from new energy vehicles (“NEVs”) leasing where we charge NEVs lessees for a series of the services provided to them based
on the chosen product solutions (the “Service for NEVs Leasing”); (iii)service fees from automobile purchase for a series
of the services provided to purchasers throughout the purchase process based on the sales price of the automobiles and relevant services
provided (the “ Service for Automobile Purchase”) ;(iv) monthly services where we provide management and related services
to other online ride-hailing platforms we cooperated with (“Partner Platforms”) and other companies and earn commission from
them (the “Auto Commissions”); (v) automobile financing where we provide our customers with auto finance solutions through
financing leases (the “Auto Financing”); (vi) default expenses we charges to the lessees for early-termination the contracts
or other violation behaviors to the contracts (the “Default Revenue”); and (vii) other supporting services provided to customers,
including auto management and other related services (the “Auto Management Services”) and automobile sales (the “Auto
Sales”). 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, 2025, 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 2,116 automobiles under operating leases and 191 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 by us and corresponding revenue
generated for the years ended March 31, 2025 and 2024, respectively:
For the Years Ended
March 31,
2025
2024
Number of
Number of
Vehicles
Revenue*
Vehicles
Revenue*
Auto Operating Leasing
826
2,801,000
1,492
$ 3,831,000
Auto Commissions
—
145,000
—
$ 196,000
Auto Financing
60
93,000
60
$ 58,000
Other Services
>870
350,000
>860
$ 235,000
During
the year ended March 31, 2025, our Auto Operating Leasing, Auto Commissions, Auto Financing and other services income accounted for approximately
82.6%, 4.3%, 2.8%, and 10.3% of our total revenue from our automobile transactions and related services, respectively, while our Auto
Operating Leasing, Auto Commissions, Auto Financing, and other services income accounted for approximately 88.7%, 4.5%, 1.3%, and 5.5%
for the year ended March 31, 2024, respectively.
Our
Discontinued Online Ride-Hailing Platform Services
From
October 2020 to August 2024, we operated our own online ride-hailing platform in China. 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. XXTX operated Xixingtianxia and held a national online reservation taxi operating license, which served online ride-hailing
drivers in 22 cities in China, providing them with a platform to view and take customer orders for rides. XXTX generated 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 earned 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.
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Due to the fierce competition
of the online ride-hailing industry, XXTX had suffered loss in the past. Since December 2023, XXTX had 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. However, considering the changes in online ride-hailing industry
and development plan of the Company, on August 8, 2024, we entered into the Acquisition Agreement with the Purchaser, and certain other
parties thereto. Pursuant to the Acquisition Agreement, the Purchaser acquired all of the equity interests the XXTX at a total purchase
price of zero, while taking over certain liabilities of XXTX as defined in the Acquisition Agreement. On August 20, 2024, the acquisition
was completed and we ceased the online ride-hailing platform services.
Key
Factors and Risks Affecting Results of Operations
Ability to Increase Our Automobile Lessee
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.
We acquire customers for our Automobile Transaction and Related 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 customers by marketing our companies to our
existing and prospective automobile lessees in the cities we now operate in. We expect to keep promoting the growth of our automobile
rental business with automobile rental solutions/incentives specifically targeted at drivers using our Partner Platforms. An effective
cross-selling strategies between our automobile leasing business and our Partner Platforms 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, 2025, we had 3 employees in our own sales department.
Management
of Automobile Rentals
Due to the fierce competition
of online ride-hailing industry in those cities we operated in, we have witnessed a high turn-over rate on the short-term car rentals
during the year ended March 31, 2025. 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
stability and potential growth of our income from leasing automobiles in the next twelve months. The effective management, including maintaining
the high turn-over rate 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, 2025,
for parking and management of automobiles for operating lease, we had one parking lot and 3 employees in Changsha, and we also share the
parking lot with our equity investee company, Jinkailong in Chengdu. During the years ended March 31, 2025 and 2024, the average utilization
of the automobiles for operating lease was approximately 89.0% and 79.7%, 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 customers depends on the comprehensive income they
could earn from our own or Partner Platforms, 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.
73
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. We earned commissions or services fees 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.
Meanwhile,
in order to strengthen our market position in certain cities, our subsidiaries, Hunan Ruixi and Jiekai, have built up cooperation relationships
with 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.
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 the driver earned from the platform to ensure the timely collection
of our rental receivables from them. As of March 31, 2025, we had accounts receivable of operating lease of approximately $20,000 in
total. Besides, during the year ended March 31, 2025, we settled our commissions with the Partner Platforms for our online ride-hailing
platform services and automobile rental income on a monthly basis.
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 Partner Platforms 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.
Ability
to Manage Defaults 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 Partner Platforms during the year ended March 31, 2025. 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. We also charge default expenses from customers for their behaviors violated to the contracts.
74
Further, the automobiles
subject to our financing leases are not collateralized by us. As of March 31, 2025, the total value of non-collateralized automobiles
was close to the amount of finance lease receivables since it was on a straight-line basis. 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.
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 55th Statistical report on Internet Development in China published in January
2025 by the China Internet Network Information Center (the “CNNIC”), the number of online ride-hailing service users had
reached 539 million by the end of December 2024, and took approximately 48.7% 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. and Chenqi Technology Limited were listed on the Hong Kong Stock Exchange in June 2024,
and CaoCao Inc. have filed their prospectuses again to the Stock Exchange of Hong Kong Limited April 2025.
However,
the participants in the online ride-hailing industry are facing increasingly fierce competitions. According to the Ministry of Transportation
(the “MOT”) of the People’s Republic of China, as of April 30, 2025, approximately 382 online ride-hailing platforms
have obtained booking taxi operating licenses, representing an increase of approximately 9% as compared with the one as of April 30,
2024. And the total volume of online ride-hailing orders was approximately 727 million in April 2025 in China, representing a decrease
of approximately 12% as compared with the one as of April 30, 2024. Meanwhile, approximately 3.21 million online booking taxi transportation
certificates and approximately 7.48 million online booking taxi driver’s licenses were issued nationwide in China, representing
an increase of approximately 13% and 10% as compared with the ones as of March 31, 2024, respectively. 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. 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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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 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.
However, approximately 43%
of ride-hailing drivers who leased our automobiles or used our services have not obtained the driver’s license for online ride-hailing
services as of March 31, 2025 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. Meanwhile, during
the year ended March 31, 2025, Gaode conducted several rounds of compliance checks in Chengdu and other cities and reduced the number
of orders dispatched platforms that allowed drivers to provide services without appropriate licenses or certificates. We assisted drivers
to obtain the required certificate and license for our Automobile Transaction and Related Services. However, there was no guarantee that
all of the drivers who run their online ride-hailing business would be able to obtain all the certificates and licenses. These Partner
Platforms may not allow unqualified drivers who lease our automobiles to drive through these platforms, or reduce their commission income,
so that they may not be able to earn enough income from those Partner Platforms to pay our rental fees. Our business and results of operations
shall be materially and adversely affected if we could not serve qualified drivers or our served drivers are suspended from providing
ride-hailing services.
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 Continuing Operations for the year ended March 31, 2025 Compared to the year ended March 31, 2024
For the Years Ended
March 31,
2025
2024
Change
Revenues
$ 3,389,072
$ 4,320,031
$ (930,959 )
Cost of revenues
(2,539,269 )
(3,395,300 )
856,031
Gross profit
849,803
924,731
(74,928 )
Operating expenses
Selling, general and administrative expenses
(2,624,120 )
(3,130,213 )
506,093
Provision for credit losses
(2,093,199 )
(1,725,746 )
(367,453 )
Stock-based compensation
—
(444,300 )
444,300
Total operating expenses
(4,717,319 )
(5,300,259 )
582,940
Loss from operations
(3,867,516 )
(4,375,528 )
508,012
Other income, net
211,254
358,192
(146,938 )
Interest expense
—
(525 )
525
Interest expense on finance leases
(15,145 )
(29,088 )
13,943
Change in fair value of derivative liabilities
204,242
212,949
(8,707 )
Loss before income taxes
(3,467,165 )
(3,834,000 )
366,835
Income tax expense
—
(20,206 )
20,206
Net loss from continuing operations
$ (3,467,165 )
$ (3,854,206 )
$ 387,041
76
Revenues
We started generating revenue
from Automobile Transaction and Related Services from our acquisition of Hunan Ruixi on November 22, 2018. Revenue for the year ended
March 31, 2025 decreased by $930,959, or approximately 21.5%, as compared with the year ended March 31, 2024. The decrease was mainly
due to the decreased number of automobiles for operating lease.
As we focus on our automobile
rental business, we expect revenue from our 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.
The following table sets
forth the breakdown of revenues by revenue source for the years ended March 31, 2025 and 2024, respectively:
For the Years Ended
March 31,
2025
2024
Revenue from automobile transactions and related services
- Operating lease revenues from automobile rentals
$ 2,800,992
$ 3,831,037
- Service fees from NEVs leasing
184,625
45,231
- Monthly services commissions
145,227
196,099
- Default revenue
105,025
100,763
- Financing revenues
93,473
57,677
- Service fees from automobile purchase services
38,696
36,637
- Other service fees
21,034
52,587
Total Revenue
$ 3,389,072
$ 4,320,031
Revenue from our automobile
transaction and related services mainly includes operating lease revenues from automobile rentals, service fees from NEVs leasing, monthly
services commissions, default revenue, financing revenues, service fees from automobile purchase services, and other services fees, which
accounted for approximately 82.6%, 5.4%, 4.3%, 3.1%, 2.8%, 1.1% and 0.7%, respectively, of the total revenue during the year ended March
31, 2025. Meanwhile, operating lease revenues from automobile rentals, service fees from NEVs leasing, monthly services commissions, default
revenue, financing revenues, service fees from automobile purchase services and other services fees, which accounted for approximately
88.7%, 1.0%, 4.5%, 2.3%, 1.3%, 0.8% and 1.4%, respectively, of the total revenue during the year ended March 31, 2024.
Operating
lease revenues from automobile rentals
We generate revenues from
leasing our own automobiles and sub-leasing automobiles leased from third-parties and related parties or rendered by online ride-hailing
drivers with their authorization for a lease term of no more than twelve months. The decrease in rental income of $1,030,045 or approximately
26.9% during the year ended March 31, 2025 was mainly due to the decrease in the number of the automobiles leased for operating lease
as well as average monthly rental income per automobile. We leased 826 automobiles with an average monthly rental income of approximately
$410 per automobile, resulting in a rental income of $2,800,992, including rental income of $46,461 from Jinkailong and other related
parties, for the year ended March 31, 2025. 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.
77
Service
fees from NEVs leasing
We
generated revenues of $184,625 and $45,231 from leasing NEVs by charging leases service fees during the year ended March 31, 2025 and
2024, respectively. The amount of services fees for NEVs leasing were based on our product solutions timely in accordance which adjusted
with different market conditions.
Monthly
services commissions
We
generated revenues of $145,227 and $196,099 from the monthly management and related services provided to our Partner Platforms and other
companies during the years ended March 31, 2025 and 2024, respectively. The decrease of $50,872 or approximately 25.9% was due to decrease
in the number of the automobiles and drivers we served, who ran their business through the Partner Platforms.
Default
revenue
We
generated default revenues of $105,025 and $100,763 from the automobile lessee’s early-termination of the contracts or other
violation behaviors to the contracts during the years ended March 31, 2025 and 2024, respectively.
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 $93,473 from an average monthly number of 46 automobiles and $57,677 from an average monthly number
of 33 automobiles during the years ended March 31, 2025 and 2024, respectively. The increase was due to the monthly payment we charged
to customers and the average number of automobiles served for financial leasing increased during the year ended March 31, 2025.
Service
fees from automobile purchase services and Other Service fees
We generated revenues of
$38,696 and $36,637 from the automobile purchase services during the years ended March 31, 2025 and 2024, respectively. The increase was
due to the number of automobiles purchase transactions increased to 28 during the year ended March 31, 2025 from 22 in the same period
in 2024.
We
generate other revenues from other miscellaneous service fees charged to our customers during the years ended March 31, 2025 and 2024.
Other services fees mainly include the maintenance fees charged to our customers pursuant to certain new production solutions.
Cost
of Revenues
Cost of revenues represents
the amortization of ROUs, depreciation and rental cost of automobiles, daily maintenance and insurance expense of automobiles which related
to our Auto Operating Leasing. Cost of revenues decreased by $856,031 or approximately 25.2% during the year ended March 31, 2025 as compared
with the year ended March 31, 2024, mainly due to a decrease in the monthly average number of the automobiles leased from the third parties
for operating lease from 470 in the year ended March 31, 2024 to 293 in the year ended March 31, 2025. During years ended March 31, 2025
and 2024, we paid $114,368 and $472,848, respectively, to related parties for costs of automobiles under operating leases.
Gross
Profit
We
had gross profit of $849,803 and $924,731, respectively, during the years ended March 31, 2025 and 2024. The decrease of $74,928 was
mainly due to the decrease in gross profit from Auto Operating Leasing. The following table sets forth the breakdown of gross profit
by major revenue source for the years ended March 31, 2025 and 2024:
For the Years Ended
March 31,
2025
2024
- Auto Operating Leasing
$ 261,723
$ 435,737
- Other Automobile transaction and related Services
588,080
488,994
Total Gross Profit
$ 849,803
$ 924,731
78
We had a gross profit of
$261,723 from our Auto Operating Leasing during the year ended March 31, 2025, which decreased by $174,014 from a gross profit of $435,737
in the year ended March 31, 2024. The decrease was attributable to the decrease in average monthly rental income from approximately $485
for the year ended March 31, 2024 to approximately $410 for the year ended March 31, 2025, as well as a decrease in the number of the
automobiles leased for operating lease decreased from over 1,400 for the year ended March 31, 2024 to 826 for the year ended March 31,
2025. However, our overall gross margin slightly increased to approximately 25.1% for the year ended March 31, 2025 from approximately
21.4% for the year ended March 31, 2024 due to an increase in revenues from other services with much higher gross margin.
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 $3,130,213 for the year ended March 31, 2024 to $2,624,120 for the year ended March 31, 2025,
representing a decrease of $506,093, or approximately 16.2%. The decrease was attributable to our continuous control on costs and streamlined
expenses structure during the year ended March 31, 2025. The decrease mainly consisted of (1) a decrease of $337,946 in salary and employee
benefits as the average monthly number of our employees decreased from 56 for the year ended March 31, 2024 to 52 for the year ended March
31, 2025; and (2) a decrease of $158,958 in offices rental and charges in the year ended March 31, 2025.
Provision
for credit losses
We re-evaluated the possibility
of collection of unsettled balances from customers/suppliers of our automobile transactions and related services, and we provided provision
for credit losses of $2,093,199 against receivables from Jinkailong for the year ended March 31, 2025. We 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, for the year ended March 31, 2024.
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. We did not have similar transaction
during the year ended March 31, 2025.
Other
income, net
For the year ended March
31, 2025, we had other income, net of $211,254, which primarily consist of the (1) a gain of approximately $397,000 from deconsolidation
of XXTX; (2) penalty income of approximately $97,000 from the customers; partially offset by (3) a loss of $197,000 from the termination
of an automobiles purchase agreement; (4) the expense of approximately $78,000 for processing automobile violation fines; (5) the expense
of approximately $25,000 for liquidated damages and compensation fee for litigation; (6) the expense of approximately $20,000 from the
termination of our right-of-use assets for an exhibition hall we leased in Changsha; and (7) the miscellaneous other income, net of approximately
$37,000.
For the year ended March
31, 2024, we had other income, net of $358,192, which primarily consist of (1) penalty income of approximately $215,000 from the customers;
(2) the income of approximately $35,000 from the disposal of our right-of-use assets and our own vehicles used for operating leases;
(3) commission income of approximately $34,000 from an automobile supplier; (4) aggregate subsidy from the local governments in Changsha
and Chengdu of approximately $23,000; (5) income of approximately $18,000 from the additional deductions for input tax; and (6) the miscellaneous
income of approximately $33,000.
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Interest
Expense and Interest Expense on Finance Leases
We had no interest expense
for the year ended March 31, 2025, while the interest expense for the year ended March 31, 2024 was resulted from the borrowings of Corenel
from a financial institution for its automobile commercial insurance by installment.
Interest
expense on finance leases for the years ended March 31, 2025 and 2024 was $15,145 and $29,088, 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 June 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 years ended March 31, 2025 and 2024 was a gain of $204,242 and $212,949,
respectively. The following table sets forth the breakdown of the gain in fair value of derivative liabilities for the years ended March
31, 2025 and 2024:
For the Years Ended
March 31,
2025
2024
- June 2019 registered direct offering
$ —
$ 6
- August 2020 underwritten public offering
3,198
5,231
- February 2021 registered direct offering
4,114
7,158
- May 2021 registered direct offering
72,899
87,424
- November 2021 private placement
124,031
113,130
Total Change in Fair Value of Derivative Liabilities
$ 204,242
$ 212,949
Income
Tax Expense
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. All the subsidiaries
in China suffered losses and no tax expense was recorded for the years ended March 31, 2025, while we had current income tax of $20,206
represented the provision of enterprise income tax resulting from the taxable income from Jiekai for the year ended March 31, 2024.
Net
loss from continuing operations
As
a result of the foregoing, net loss from continuing operations for the year ended March 31, 2025 was $3,467,165, representing a decrease
of $387,041 from net loss of $3,854,206 for the year ended March 31, 2024.
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Results
of Discontinued Operations for the year ended March 31, 2025 Compared to the year ended March 31, 2024
For the Years Ended
March 31,
2025
2024
Revenues
$ 344,241
$ 2,494,397
Cost of revenues
(247,025 )
(1,858,557 )
Gross profit
97,216
635,840
Operating expenses
Selling, general and administrative expenses
(166,937 )
(985,223 )
Provision for credit losses
(173,278 )
—
Total operating expenses
(340,215 )
(985,223 )
Loss from operations
(242,999 )
(349,383 )
Other income (expenses), net
33,214
(42,742 )
Interest expense
(8,372 )
(17,105 )
Loss before income taxes
(218,157 )
(409,230 )
Income tax benefit
4,510
29,222
Net loss from discontinued operations
$ (213,647 )
$ (380,008 )
The
results of discontinued operations mainly consist of the financial figures of our former subsidiary, XXTX. As of August 20, 2024, we
deconsolidated XXTX and its business result was included in our online ride-hailing platform services before we deconsolidated its financial
figures.
Revenues
XXTX
generated revenue from providing services to online ride-hailing drivers to assist them in providing transportation service to the riders
though our platform and earned 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, 2025, approximately 0.6 million rides with gross fare of approximately $1.8 million were completed through our
Xixingtianxia platform and an average of over 2,100 ride-hailing drivers completed rides and earned income through Xixingtianxia (the
“Active Drivers”) each month. XXTX earned online ride-hailing platform service fees of $344,241, after netting off approximately
$32,000 incentives paid to Active Drivers.
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 an average of over 5,000 Active Drivers each month. XXTX earned online ride-hailing platform service fees
of $2,494,397, after netting off approximately $0.3 million incentives paid to Active Drivers.
Cost
of Revenues
Cost
of revenues from discontinued operations represents technical service charges, insurance and other expenses related to Online Ride-Hailing
Platform Services. During the year ended March 31, 2025, cost of revenues decreased as compared with the year ended March 31, 2024, mainly
due to the decrease in direct expense and technical service fees of online ride-hailing platform services due to the decrease in the
number of completed orders.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses from discontinued operations primarily consisted of (1) $64,734 in salary and employee benefits;
(2) $37,688 in depreciation of office equipment and amortization of intangible assets; (3) $31,499 in entertainment, advertising and
promotion; and (4) other miscellaneous expenses in the year ended March 31, 2025.
It
primarily consisted of (1) $425,623 in salary and employee benefits; (2) $399,385 in entertainment, advertising and promotion; (3) $100,342
in depreciation of office equipment and amortization of intangible assets; and (4) other miscellaneous expenses in the year ended March
31, 2024.
81
Provision
for credit losses
For
the year ended March 31, 2025, XXTX provided provision for credit losses of $173,278 against receivables from a prepaid software development
fee and a deposit due to the termination on the development which resulting from the discontinuing of the business.
Other
income(expense), net
For
the year ended March 31, 2025, XXTX had other income, net of $33,214, which primarily due to the miscellaneous other income in its daily
operations.
For
the year ended March 31, 2024, XXTX had other expense, net of $42,742, which primarily due to the miscellaneous other expense in its
daily operations.
Interest
Expense
Interest
expense from discontinued operations was resulted from the borrowings of XXTX from a financial institution for its working capital turnover.
Income
Tax Benefit
For the years ended March
31, 2025 and March 31, 2024, XXTX had deferred tax benefit of $4,510 and $29,222, respectively, resulted from deferred tax, while all
the subsidiaries of XXTX suffered losses for the years ended March 31, 2025 and 2024, no income taxes were recorded for the corresponding
period accordingly.
Net
loss from discontinued operations
As
a result of the foregoing, the net loss from discontinued operations for the year ended March 31, 2025 was $213,647. While the net loss
from discontinued operations for the year ended March 31, 2024 was $380,008.
Liquidity
and Going Concern
We have financed our operations
primarily through proceeds from our equity offerings, stockholder loans, commercial debt, borrowings from financial institutions and cash
flow from operations.
We
had cash and cash equivalents of $833,577 as of March 31, 2025 as compared to $737,719 as of March 31, 2024. 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 $3.7 million for the year ended March 31, 2025; (2) accumulated deficit of approximately $45.1
million as of March 31, 2025; (3) the working capital deficit of approximately $3.0 million as of March 31, 2025.
We do not believe that the
proceeds from our future 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.
82
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.
In addition, 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,
2025
2024
Net Cash Provided by Operating Activities
$ 500,303
$ 7,241
Net Cash Used in Investing Activities
(464,778 )
(569,608 )
Net Cash Used in Financing Activities
(123,720 )
(168,340 )
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
127,136
(84,747 )
Cash, Cash Equivalents and Restricted Cash at Beginning of the Year
794,636
1,610,090
Cash, Cash Equivalents and Restricted Cash at End of the Year
833,577
794,636
Less: Cash and cash equivalents from discontinued operations
—
(54,580 )
Cash, Cash equivalents and Restricted Cash from continuing operations, End of Year
$ 833,577
$ 740,056
Cash
Flow in Operating Activities
For the year ended March 31,
2025, net cash provided by operating activities was $500,303, which consisted of net cash inflows of $574,072 from continuing operations
and net cash outflows of $73,769 from discontinued operations. While for the year ended March 31, 2024, net cash provided by operating
activities was $7,241, which consisted of net cash inflows of $310,241 from continuing operations and net cash outflows of $303,000 from
discontinued operations.
The increase of $263,831 in
net cash provided by operating activities from continuing operations for the year ended March 31, 2025 as compared with the year ended
March 31, 2024 was primarily attributable to (1) decrease of $387,041 in net loss; (2) increase of $367,453 in the provision for credit
losses; (3) increase of $265,541 in the change of Operating lease liabilities (both third parties and related parties); (4) increase
of $210,973 in the change of other receivables due from related parties; (5) the loss of $196,777 from termination of automobiles purchase;
and partially offset by (6) non-incurrence of $444,300 in stock-based compensation in the year ended March 31, 2025 as compared with
it in the same period in 2024; (7) the gain of $397,003 from deconsolidation of XXTX; (8) decrease of $138,510 in the change of balance
due to related parties; (9) decrease of $107,702 in amortization of right-of-use assets; and (10) decrease of $96,024 in the change of
accounts receivable (both third parties and a related party).
Cash
Flow in Investing Activities
For the year ended March
31, 2025, we had net cash used in investing activities of $464,778, which consisted of the net cash outflows of $464,827 from continuing
operations and net cash inflows of $49 from discontinued operations. The majority of net cash used in investing activities from continuing
operations was (1) a loan to a related party of $336,397; (2) the cash of $143,589 released upon disposal of XXTX, (3) the purchase furniture
for office purpose of $1,602, partially offset by (4) the proceeds from sales of the used automobiles of $16,761.
For the year ended March
31, 2024, we had net cash used in investing activities of $569,608, which consisted of the net cash outflows of $569,767 from continuing
operations and net cash inflows of $159 from discontinued operations. The majority of net cash used in investing activities was $671,679
paid for the purchase of automobiles for operating lease purpose, and partially offset by the proceeds from sales of the used automobiles
and rendered automobiles of $101,912.
83
Cash
Flow in Financing Activities
For the year ended March
31, 2025, we had net cash used in financing activities of $123,720, which consisted of net cash outflows of $42,427 from continuing operations
and net cash outflows of $81,293 from discontinued operations. The majority of net cash used in financing activities from continuing operations consisted of:
(1) principal payments made for finance lease liabilities of $44,345; (2) repayments to a related party of $11,940; partially offset by
(3) repayments from a related party of $13,858. While the net cash used in financing activities from discontinued operations consisted of: (1) repayment of current borrowings to a financial
institution of $59,389; and (2) repayment to a related party of $21,904.
For the year ended March
31, 2024, we had net cash used in financing activities of $168,340, which consisted of the net cash outflows of $391,605 from continuing
operations and net cash inflows of $223,265 from discontinued operations. The net cash used in financing activities from continuing operations
primarily consisted of: (1) principal payments made for finance lease liabilities of $215,443; (2) repayments to related parties and affiliates
of $506,766; and (3) repayment of current borrowings to a financial institution of $8,445; partially offset by (4) repayment from a related
party of $339,049. While the net cash provided by financing activities from discontinued operations primarily attributable to the borrowings
from a financial institution of $249,297.
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 an automobile purchase agreement with a third party to purchase a total of 100 automobiles for the
amount of approximately $1.5 million, and we have terminated the purchase agreement on March 31, 2025. As of the filing date of this
Report, we have no purchase commitment.
●
Contingent Liabilities
Pursuant
to the Regulations of the State Council on Implementing the Management System for Registered Capital Registration in the Company Law
of the People’s Republic of China issued on July 1, 2024 (the “Registered Capital Registration Implementing Rules”), as Jinkailong
was registered and established before June 30, 2024, its shareholders should fully pay their unpaid subscribed capital before June 30,
2032. As of March 31, 2025, Hunan Ruixi holds 35% of equity interest of Jinkailong and has not made any payments towards to the investment
amounted to RMB3.5 million (approximately $482,000). According to the Registered Capital Registration Implementing Rules, Hunan Ruixi
shall pay the subscribed capital of Jinkailong before June 30, 2032.
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.
Since
the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates.
Some of our accounting policies require a higher degree of judgment than others in their application. The management determined there
were no critical accounting estimates.
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) revenue recognition; and (v) leases - lessee. See
Note 3—Summary of Significant Accounting Policies to our consolidated financial statements for the disclosure of these accounting
policies.
Item
7A. Quantitative and Qualitative Disclosures about Market Risk
Not
required for smaller reporting companies.
84