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Item 9A. Controls and Procedures

2023-07-13 compared with 2022-07-15 · 53 added, 98 removed, 453 unchanged (25% of the section changed)

11 unchanged sentences

● We are lacking adequate policies and procedures in internal audit function to ensure that our policies and procedures have been carried out as planned;

● We did not establish and perform periodic review and in-time recertification of unauthorized access to the financial system;

● We are lacking adequate policies and procedures in our data management, storage, backup and recovery, including IT or Cybersecurity risk and vulnerability assessment, annual disaster recovery drills were not established and performed, system firewall configurations were not properly set up;

● We did not establish and perform appropriate regular monitoring and testing on the security of our financial system, including lack of formal management of system change, user access and periodic review;

● We had deficiencies in our IT general controls, including lacking of IT policies and procedures, system monitoring, access and other managements, etc.

● We had deficiencies in our IT general controls regarding to the Logical Access Security, Change Management, IT Operations and Cybersecurity of our financial system and key application system, etc.

A material weakness is a deficiency, or a combination of deficiencies, within the meaning of PCAOB Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

During the year ended March 31, 2022, we have hired a new internal audit staff and are in the progress of improving our system security environment and conducting regular backup plans and penetration testing to ensure network and information security.

During the year ended March 31, 2023, we are in the progress of improving our system security environment and conducting regular backup plans and penetration testing to ensure network and information security.

We also kept refining the operational and financial system for our businesses to warn of risks and support management’s ability to make significant decisions.

4 unchanged sentences

(ii) Ameliorating our internal audit to assist with assessment of Sarbanes-Oxley compliance requirements and improvement of internal controls related to financial reporting;

(iii) improving our system security environment and conducting regular backup plan and penetration testing to ensure the network and information security;

(iv) improving our IT environment and daily management.

(iii) improving our IT environment and daily management.

Changes in Internal Control over Financial Reporting

9 unchanged sentences

Chief Financial Officer and Treasurer

Chief Technology Officer

Chief Operating Officer

16 unchanged sentences

Zhang is an intermediate accountant and a Certified Public Accountant of the Chinese Institute of Certified Public Accountants.

Chunhai Li has been serving as the Chief Technology Officer of the Company since July 20, 2017 and Chief Technology Officer of Sichuan Senmiao since September 2016.

Before joining Sichuan Senmiao, he was the Director of Research and Development of Beijing Huashengtiancheng Technology Co., Ltd.

from October 2014 to August 2016, where he was in charge of the development of bank data platform and team management.

Prior to that, he was the Director of Research and Development at Zhongkesanyang (Beijing) Technology Co., Ltd.

from February 2013 to September 2014, primarily responsible for the organization of the company and technology team as well as management of technology and operations.

From October 2007 to February 2013, he was the project manager for online banking at Beijing Yuxinyicheng Technology Co., Ltd., where he participated in and managed the online banking projects for many banks.

Li received his bachelor’s degree in computer science from University of Electronic Science and Technology of China.

Haitao Liu has been serving as the Chief Executive Officer of Sichuan Senmiao since August 1, 2018.

7 unchanged sentences

He also served as a civil servant in Chenghua District People’s Government of Chengdu from June 1993 to June 2000.

Liu received a master’s degree in EMBA (Finance) from Southwestern

University of Finance and Economics, a bachelor’s degree in Business Administration from Southwest Jiaotong University and an associate degree in Commercial Economy from Southwestern University of Finance and Economics in China.

Liu received a master’s degree in EMBA (Finance) from Southwestern University of Finance and Economics, a bachelor’s degree in Business Administration from Southwest Jiaotong University and an associate degree in Commercial Economy from Southwestern University of Finance and Economics in China.

Xiaojuan Lin has been a director of the Company since July 20, 2017.

52 unchanged sentences

Gao is qualified to serve on our board of directors due to her experience in business management, investment and finance.

Chunhai Li had been serving as the Chief Technology Officer of the Company since July 20, 2017 and Chief Technology Officer of Sichuan Senmiao since September 2016.

He resigned from these positions on March 31, 2023.

Family Relationships

3 unchanged sentences

However, the Board of Directors and the Nominating and Corporate Governance Committee believe that it is essential that the members of the Board of Directors represent diverse viewpoints.

In considering candidates for the Board of Directors, the Board of Directors and the Nominating and Corporate Governance Committee consider the entirety of each candidate’s credentials in the context of the factors mentioned above.

The Company is currently in compliance with the diversity requirements of Nasdaq Rule 5605(f) and 5606, with three female Asian directors and one male Asian director.

85 unchanged sentences

Wen’s salaries paid for his services as Chief Executive Officer of the Company, other executive officers received their salaries in Renminbi which were translated into U.S.

dollars at the average exchange rate used to translate statement of

operations items, which was RMB6.4178 to US$1.00 for the year ended March 31, 2022 and RMB6.7960 to US$1.00 for the year ended March 31, 2021.

(3) On September 10, 2020, Mr.

Haitao Liu tendered his voluntary resignation as Chief Executive Officer of Sichuan Senmiao.

On the same date, the Board appointed Mr.

Haitao Liu to serve as the Company’s Chief Operating Officer.

dollars at the average exchange rate used to translate statement of operations items, which was RMB6.8516 to US$1.00 for the year ended March 31, 2023 and RMB6.4178 to US$1.00 for the year ended March 31, 2022.

Chunhai Li resigned from his position as the Chief Technology Officer of the Company on March 31, 2023.

The Company shall pay him a compensation of $13,646.

Employment Agreements and Potential Payments Upon Termination

40 unchanged sentences

She is also entitled to participate in the Company’s equity incentive plans and other Company benefits, each as determined by the Board from time to time.

Her employment has an initial term of one year and is subject to successive,

automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the end of the applicable term.

Her employment has an initial term of one year and is subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the end of the applicable term.

Pursuant to the Zhang Agreement, the Company may terminate Ms.

1 unchanged sentence

In such case, Ms.

Zhang will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and her right to all other benefits will terminate, except as required by any applicable law.

Zhang will not be entitled to receive payment of

any severance benefits or other amounts by reason of the termination, and her right to all other benefits will terminate, except as required by any applicable law.

The Company may also terminate Ms.

13 unchanged sentences

The Zhang Agreement also contains customary restrictive covenants relating to confidentiality, non-competition and non-solicitation.

Chunhai Li, Chief Technology Officer

Li serves as Chief Technology Officer of the Company pursuant to an employment agreement dated July 20, 2017.

Chunhai Li, Former Chief Technology Officer

Li had served as Chief Technology Officer of the Company pursuant to an employment agreement dated July 20, 2017.

Under his employment agreement, Mr.

Li is entitled to an annual salary of $1.00 for his services Chief Technology Officer of the Company.

His employment has an initial term of one year and is subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the end of the applicable term.

We may terminate Mr.

Li’s employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties.

In such case, Mr.

Li will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and his right to all other benefits will terminate, except as required by any applicable law.

We may also terminate Mr.

Li’s employment without cause upon 30 days’ advance written notice.

In such case of termination by us, we are required to provide the following severance payments and benefits to him:

(1) a lump sum cash payment equal to 3 months of his base salary as of the date of such termination;

(2) a lump sum cash payment equal to a pro-rated amount of his target annual bonus for the year immediately preceding the termination, if any;

(3) payment of premiums for continued health benefits under the Company’s health plans for 3 months following the termination, if any;

and (4) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held by him.

Li may terminate his employment at any time with 30 days’ advance written notice if there is any significant change in his duties and responsibilities or a material reduction in his annual salary.

In such case, Mr.

Li will be entitled to receive compensation equivalent to three months of his base salary.

Li has agreed to hold, both during and after the termination of his employment agreement, in strict confidence and not to use, except as required in the performance of his duties in connection with the employment, any of our confidential information or proprietary information of any third party received by us and for which we have confidential obligations.

In addition, he has agreed to be bound by non-competition and non-solicitation restrictions during the term of his employment and for one year following termination of his employment.

Li also serves as Chief Technology Officer of Sichuan Senmiao pursuant to an employment agreement with Sichuan Senmiao for a term of three years ending September 11, 2022.

Pursuant to the renewed employment agreement with Sichuan Senmiao in

September 2019, Mr.

Li receives an annual salary of RMB374,004 (approximately US$53,835) for his services and is entitled to benefits under PRC government statutory employee benefit plans.

Haitao Liu, Chief Executive Officer of Sichuan Senmiao

Li was entitled to an annual salary of $1.00 for his services Chief Technology Officer of the Company.

Li also had served as Chief Technology Officer of Sichuan Senmiao pursuant to an employment agreement with Sichuan Senmiao for a term of three years ending September 11, 2022.

Pursuant to the renewed employment agreement with Sichuan Senmiao in September 2019, Mr.

Li received an annual salary of RMB374,004 (approximately US$53,835) for his services and is entitled to benefits under PRC government statutory employee benefit plans.

Li resigned from his position as the Chief Technology Officer of the Company and Chief Technology Officer of Sichuan Senmiao on March 31, 2023.

Haitao Liu, Chief Operating Officer

Liu serves as the Chief Executive Officer of Sichuan Senmiao pursuant to his employment agreement with Sichuan Senmiao, dated August 1, 2018.

26 unchanged sentences

They will also be reimbursed for reasonable, pre-approved expenses in connection with the performance of their services.

On October 29, 2020, the Board approved the issuance of an aggregate of 127,273 RSUs to directors, officers and certain employees as stock compensation for their services for the year ending March 31, 2021.

These RSUs will vest in four equal quarterly installments on January 29, 2021, April 29, 2021, July 29, 2021 and October 29, 2021 or in full upon the occurrence of a change in control of the Company, provided that the director, officer or the employee remains in service through the applicable vesting date.

The RSUs will be settled by the Company’s issuance of shares of common stock in certificated or uncertificated form upon the earlier of (i) vesting date, (ii) a change in control and (ii) termination of the services of the director, officer or employee due to a “separation of service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, or the death or disability of such director, officer or employee.

As of March 31, 2022, all installment of RSUs with an aggregate of 12,727 (127,273 pre reverse split) was vested and 9,545 (95,457 pre reverse split) was settled by the Company.

As of March 31, 2023, the Company has issued accumulated 259,925 RSUs to directors, of which,2,273 was vested but not settled by the Company.

During the year ended March 31, 2023, the Company did not issue RSUs to directors.

The Company accounted for the vested RSUs as expenses and charged to common stock.

The fair value of the vested RSUs is calculated at the grant date market price of the Company’s common stock multiplying by the number of vested shares.

Total compensation expense for the year ended March 31, 2022 was $140,000.

The Company expects to settle the vested RSUs by issuance of shares of common stock within December 2022.

28 unchanged sentences

Our audit committee charter details the policies and procedures relating to transactions that may present actual, potential or perceived conflicts of interest and may raise questions as to whether such transactions are consistent with the best interest of our company and our stockholders.

In December 2017, Sichuan Senmiao entered into loan agreements with two stockholders, who agreed to grant lines of credit of approximating $955,000 and $159,000, respectively, to Sichuan Senmiao for five years.

Related Parties’ Loans

In December 2017, Sichuan Senmiao entered into loan agreements with two of its former shareholders, who agreed to grant lines of credit of approximating $955,000 and $159,000, respectively, to Sichuan Senmiao for five years.

The lines of credit are non-interest bearing, effective from January 2017.

As of March 31, 2022, the outstanding balances due to these two stockholders in the discontinued operations were $18,886 and $0, respectively.

As of March 31, 2022, the loan due to one of former shareholder was fully settled.

As of March 31, 2023 and 2022, the outstanding balances due to the other one in the discontinued operations were $17,434 and $18,886, respectively.

In July 28, 2021 and August 17, 2021, Xi Wen, Chief Executive Officer and President of the Company, signed two Loan Agreements with Senmiao, under which Xi Wen agreed to lend $500,000 and $300,000 to the Company for its operation of business, with a term of six months and three months, respectively.

The loan is interest-free and may be repaid in advance.

As of March 31, 2022, the loans were fully settled.

During the year ended March 31, 2022, Hunan Ruixi and Yicheng had loans due from Jinkailong, our equity investee company, and had interest income of $450,889, which was eliminated in the loss of continuing operations of the consolidated financial statements of operations and comprehensive income (loss).

Related Parties’ Office Leasing

Senmiao Consulting entered into two office lease agreements with a shareholder of Sichuan Senmiao.

1 unchanged sentence

On April 1, 2020, the two office leases were amended with a leasing term from April 1, 2020 to March 31, 2023.

On March 1, 2021, Senmiao Consulting entered into an additional office lease with the shareholder, which was set to expire on February 1, 2026.

For the years ended March 31, 2022, we incurred $237,968 in rental expenses to the shareholder.

For the years ended March 31, 2023 and 2022, we incurred $177,414 and $237,968, respectively, in rental expenses to the shareholder.

In September 2019, Hunan Ruixi entered into an office lease agreement which was set to expire in October 2023 with Hunan Dingchentai Investment Co., Ltd.

(“Dingchentai”), a Company where one of our independent directors serves as legal representative and general manager.

(“Dingchentai”), a Company where one of our independent directors serves as legal representative

and general manager.

The rent was approximately $44,250 per year, payable on a quarterly basis.

For the year ended March 31, 2022, we incurred expense of $45,651 in rent to Dingchentai.

For the years ended March 31, 2023 and 2022, we incurred expense of $47,043 and $45,651, respectively, in rent to Dingchentai.

We had reached cooperation with Jinkailong, our equity investee company, that the drivers who leased automobile from Jinkailong completed their online ride-hailing requests and orders through our ride-hailing platform, and we will pay Jinkailong a certain promotion service fee.

During the years ended March 31, 2023 and 2022, we incurred promotion fee of $95,804 and $553,761 payable to Jinkailong.

respectively.

The decrease was in accordance with the decrease in the number of rides completed through XXTX.

During the years ended March 31, 2023, Corenel leased automobiles to Jinkailong and generated revenues of $344,120, while Jiekai leased automobiles from Jinkailong and had a rental cost of $509,904.

During the years ended March 31, 2022, Corenel and Yicheng leased automobiles to Jinkailong and generated revenues of $1,280,993.

In June 2019 and January 2020, our former VIE, Jinkailong, entered into two automobile maintenance services contracts with Sichuan Qihuaxin Automobile Services Co., Ltd and Sichuan Yousen Automobile Maintenance Service Co., Ltd, the companies which are controlled by one of the noncontrolling shareholder of Jinkailong.

During the year ended March 31, 2022, Jinkailong incurred automobile maintenance service fees of an aggregate of $942,581 to those companies, respectively.

The loan is interest-free and may be repaid in advance.

As of March 31, 2022, the loans were fully settled.

Director Independence

3 unchanged sentences

Principal Accountant Fees and Services.

Effective September 1, 2022, Friedman LLP, our then independent registered public accounting firm, combined with Marcum LLP and continued to operate as an independent registered public accounting firm.

On October 12, 2022, our Board of Directors approved the dismissal of Friedman LLP and the engagement of Marcum Asia CPAs LLP (“Marcum Asia”) to serve as our independent registered public accounting firm.

The services previously provided by Friedman LLP are now provided by Marcum Asia.

The following table shows the fees that we paid or accrued for the audit and other services provided by our independent registered public accounting firms for the fiscal years ended March 31, 2023 and 2022.

2 unchanged sentences

All Other Fees (4)

are normally provided by the independent registered public accounting firms in connection with statutory and regulatory filings or engagements for those fiscal years.

(1) This category consists of fees for professional services rendered by our principal independent registered public accountants for the audit of our annual financial statements, review of financial statements included in our quarterly reports and services that are normally provided by the independent registered public accounting firms in connection with statutory and regulatory filings or engagements for those fiscal years.

(2) This category consists of fees for assurance and related services by our independent registered public accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultations concerning financial accounting and reporting standards.

17 unchanged sentences

Certificate of Amendment to Articles of Incorporation of the Company, incorporated herein by reference to Exhibit 3.2 to the Amendment No.7 to Registration Statement on Form S-1 filed with the SEC on March 14, 2018

Certificate of Change of the Company filed with the State of Nevada on March 30, 2022, incorporated herein by reference to Exhibit 3.1 on the Current Report on Form 8-K filed by the Company with the SEC on April 6, 2022

Certificate of Correction filed with the State of Nevada on April 5, 2022, incorporated herein by reference to Exhibit 3.1 on the Current Report on Form 8-K filed by the Company with the SEC on April 6, 2022

Certificate of Amendment to Articles of Incorporation of the Company, on May 2, 2022, regarding the increase of authorized shares.*

Bylaws of the Company, incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed by the Company with the SEC on October 30, 2017.

Form of Series A Warrant, incorporated herein by reference to Exhibit 4.1 on the Current Report on Form 8-K filed by the Company with the SEC on June 18, 2019

Form of Series B Warrant, incorporated herein by reference to Exhibit 4.2 on the Current Report on Form 8-K filed by the Company with the SEC on June 18, 2019

Form of Placement Agent Warrant, incorporated herein by reference to Exhibit 4.3 on the Current Report on Form 8-K filed by the Company with the SEC on June 18, 2019

Description of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, incorporated herein by reference to Exhibit 4.4 on the Annual Report on Form 10-K filed by the Company with the SEC on July 9, 2020

3 unchanged sentences

Form of the Placement Agent’s Common Stock Purchase Warrant relating to the May 2021 offering, incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on May 11, 2021

Exclusive Business Cooperation Agreement, dated September 18, 2017, by and between Sichuan Senmiao Zecheng Business Consulting Co., Ltd.

and Sichuan Senmiao Ronglian Technology Co., Ltd., incorporated herein by reference to Exhibit 10.1 to the Amendment No.