Senmiao Technology Limited (the “Company”)
is a U.S. holding company incorporated in the State of Nevada on June 8, 2017. The Company provides automobile transaction
and related services focusing on the ride-hailing industry in the People’s Republic of China (“PRC” or “China”)
through its majority owned subsidiary, Hunan Ruixi Financial Leasing Co., Ltd. (“Hunan Ruixi”), a PRC limited
liability company, its wholly owned subsidiary, Hunan Ruixi Automobile Leasing Co., Ltd. (“Ruixi Leasing”), and
its variable interest entity (“VIE”), Sichuan Jinkailong Automobile Leasing Co., Ltd. (“Jinkailong”).
The Company previously operated an online lending platform in China through its VIE, Sichuan Senmiao Ronglian Technology Co., Ltd.
(“Sichuan Senmiao”), which facilitated peer-to-peer (“P2P”) loan transactions between Chinese investors
and individual and small-to-medium-sized enterprise borrowers. As described further below, the Company ceased its online lending
services business in October 2019.
On September 25, 2016, Sichuan Senmiao
acquired a P2P platform (including website, internet content provider license, operating systems, servers, and management system)
from Sichuan Chenghexin Investment and Asset Management Co., Ltd. On July 28, 2017, the Company established a wholly-owned
subsidiary, Sichuan Senmiao Zecheng Business Consulting Co., Ltd. (“Senmiao Consulting”) in China. Sichuan Senmiao
was established in China in June 2014. On September 18, 2017, the Company, through Senmiao Consulting, entered into a
series of agreements (“VIE Agreements”) with Sichuan Senmiao and its equity holders (the “Sichuan Senmiao Shareholders”)
to obtain control and became the primary beneficiary of Sichuan Senmiao (the “Restructuring”). In connection with the
Restructuring, as partial consideration for the Sichuan Senmiao Shareholders’ commitment to perform their obligations under
the VIE Agreements, the Company issued an aggregate of 45,000,000 shares of its common stock to the Sichuan Senmiao Shareholders
pursuant to certain subscription agreements dated September 18, 2017. The Company conducted its P2P business transactions
through the Sichuan Senmiao, the VIE. The P2P business was discontinued on October 17, 2019.
On October 17, 2019, the Board of
Directors of the Company (the “Board”) approved a plan (the “Plan”) prepared by the Company’s executive
officers for the Company to discontinue and wind down its online P2P lending services business. In connection with the Plan, the
Company ceased facilitation of loan transactions on its online lending platform and assumed all the outstanding loans from investors
on the platform. The decision and action taken by the Company to discontinue the online P2P lending services business represented
a major shift that had a material effect on the Company’s operations and financial results, which triggered discontinued
operations accounting in accordance with ASC 205-20-45. See Note 4 – discontinued operations.
On November 21, 2018, as part of its
entry into the automobile transaction business, the Company entered into an Investment and Equity Transfer Agreement (the “Investment
Agreement”) with Hunan Ruixi and all the shareholders of Hunan Ruixi (“Hunan Ruixi Shareholders”), pursuant to
which the Company acquired from the Hunan Ruixi Shareholders an aggregate of 60% of the equity interest of Hunan Ruixi. The Company
closed the acquisition on November 22, 2018 and agreed to make a cash contribution of $6,000,000 to Hunan Ruixi, representing
60% of its registered capital, in accordance with the Investment Agreement (Note 3). In June 30, 2019, the Company made the
full cash contributions in the aggregate amount of $6,000,000 to Hunan Ruixi.
Hunan Ruixi holds a business license for
automobile sales and financial leasing and has been engaged in automobile financial leasing services and automobile sales
since January 2019. Hunan Ruixi also controls Jinkailong through its 35% equity interest and voting agreements with Jinkailong’s
other shareholders. Jinkailong facilitates automobile sales and financing transactions for its clients, who are primarily ride-hailing
drivers and provides them relevant after-transaction services. In March 2019, Hunan Ruixi began its financing leasing operation.
In May 2019, the Company formed a
wholly owned subsidiary, Yicheng Financial Leasing Co., Ltd. (“Yicheng”), with a registered capital of $50 million
in Chengdu City, Sichuan Province. Yicheng obtained its business licenses for automobiles sale and financial leasing on May 5,
2019. Yicheng has been engaged in automobile sales since June 2019.
The following diagram illustrates the Company’s corporate
structure, including its subsidiaries, and VIEs, as of the date of these financial statements:
According to the VIE Agreements, Sichuan
Senmiao is obligated to pay Senmiao Consulting service fees equal to its net income. Sichuan Senmiao’s entire operations
are controlled by the Company. Although the Company discontinued Sichuan Senmiao’s online P2P lending services business commencing
in October 2019, the VIE Agreements remain in place, and such agreements are described in detail below:
Senmiao Consulting, Sichuan Senmiao and
the Sichuan Senmiao Shareholders entered into an Equity Interest Pledge Agreement, pursuant to which the Sichuan Senmiao Shareholders
pledged all of their equity interest in Sichuan Senmiao to Senmiao Consulting in order to guarantee the performance of Sichuan
Senmiao’s obligations under the Exclusive Business Cooperation Agreement as described below. During the term of the pledge,
Senmiao Consulting is entitled to receive any dividends declared on the pledged equity interest of Sichuan Senmiao. The Equity
Interest Pledge Agreement terminates when all contractual obligations under the Exclusive Business Cooperation Agreement have been
fully performed.
Pursuant to an Exclusive Business Cooperation
Agreement entered by and among the Company, Senmiao Consulting, Sichuan Senmiao and each of Sichuan Senmiao Shareholders, Senmiao
Consulting will provide Sichuan Senmiao with complete technical support, business support and related consulting services for
10 years ended September 18, 2027. The Sichuan Senmiao Shareholders and Sichuan Senmiao will not engage any third party for
the same or similar consultation services without Senmiao Consulting’s prior consent. Further, the Sichuan Senmiao Shareholders
are entitled to receive an aggregate of 20,250,000 shares of common stock of the Company under the Exclusive Business Cooperation
Agreement. Senmiao Consulting may terminate the Exclusive Business Cooperation Agreement at any time upon prior written notice
to Sichuan Senmiao and the Sichuan Senmiao Shareholders.
Pursuant to an Exclusive Option Agreement
entered by and among Senmiao Consulting, Sichuan Senmiao and the Sichuan Senmiao Shareholders, the Sichuan Senmiao Shareholders
have granted Senmiao Consulting an exclusive option to purchase at any time their equity interests in Sichuan Senmiao at a purchase
price equal to the capital paid by the Sichuan Senmiao Shareholders in whole or at a pro-rated price for any partial purchase.
The Exclusive Option Agreement terminates after 10 years ending September 18, 2027 but can be renewed by Senmiao Consulting
at its discretion.
Each of the Sichuan Senmiao Shareholders
has signed a power of attorney (the “Power of Attorney”), pursuant to which, each of the Sichuan Senmiao Shareholders
has authorized Senmiao Consulting to act as his or her exclusive agent and attorney with respect to all rights of such individual
as a shareholder of Sichuan Senmiao, including but not limited to: (a) attending shareholders’ meetings; (b) exercising
all the shareholder’s rights that shareholders are entitled to under PRC laws and the Articles of Association of Sichuan
Senmiao, including but not limited to voting, sale, transfer, pledge and disposition of the equity interests of Sichuan Senmiao;
and (c) designating and appointing the legal representative, chairperson, director, supervisor, chief executive officer and
other senior management members of Sichuan Senmiao. The Power of Attorney has the same term as the Exclusive Option Agreement.
The Company and Sichuan Senmiao entered
into a Timely Report Agreement, pursuant to which, Sichuan Senmiao agrees to make its officers and directors available to the Company
and promptly provide all information required by the Company so that the Company can make necessary filings to the U.S. Securities
and Exchange Commission (“SEC”) and other regulatory reports in a timely fashion.
The Company has concluded that it should
consolidate the financial statements with Sichuan Senmiao because it is Sichuan Senmiao’s primary beneficiary based on the
Power of Attorney from the Sichuan Senmiao Shareholders, who assigned their rights as shareholders of Sichuan Senmiao to Senmiao
Consulting, the Company’s wholly-owned subsidiary. These rights include, but are not limited to, attending shareholders’
meetings, voting on matters submitted for shareholder approval and appointing legal representatives, directors, supervisors and
senior management of Sichuan Senmiao. As a result, the Company, through Senmiao Consulting, is deemed to hold all of the voting
equity interests in Sichuan Senmiao. Pursuant to Exclusive Business Cooperation Agreement, Senmiao Consulting shall provide complete
technical support, business support and related consulting services for 10 years. Though not explicit in the VIE Agreements, the
Company may provide financial support to Sichuan Senmiao to meet its working capital requirements and capitalization purposes.
The terms of the VIE Agreements and the Company’s plan to provide financial support to Sichuan Senmiao were considered in
determining that the Company is the primary beneficiary of Sichuan Senmiao. Accordingly, the financial statements of Sichuan Senmiao
are consolidated in the accompanying unaudited condensed consolidated financial statements.
Hunan Ruixi entered into two voting agreements
signed in August 2018 and February 2020, respectively, as amended (the “Voting Agreement”), with Jinkailong
and other Jinkailong’s shareholders holding an aggregate of 65% equity interests and obtained 35% equity interests in Jinkailong.
Pursuant to the Voting Agreements, all other Jinkailong’s shareholders will vote in concert with Hunan Ruixi on all fundamental
corporate transactions in the event of a disagreement for periods of 20 years and 18 years, respectively, ending on August 25,
2038.
The Company has concluded that it should
consolidate the financial statements with Jinkailong because it is Jinkailong’s primary beneficiary based on the Voting Agreement.
Though not explicit in the Voting Agreement by and among Jinkailong, Hunan Ruixi, and other shareholders of Hunan Ruixi, the Company
may provide financial support to Jinkailong to meet its working capital requirements and capitalization purposes. The terms of
the Voting Agreement and the Company’s plan to provide financial support to Jinkailong were considered in determining that
the Company is the primary beneficiary of Jinkailong. Accordingly, management has determined that Jinkailong is a VIE and the financial
statements of Jinkailong are consolidated in the Company’s unaudited condensed consolidated financial statements.
Total assets and total liabilities of the
Company’s VIEs included in the Company’s unaudited condensed consolidated financial statements as of June 30,
2020 and March 31, 2020 are as follows:
Net revenue, loss
from operations and net loss of the VIEs that were included in the Company's unaudited condensed consolidated financial statements
for the three months ended June 30, 2020 and 2019 are as follows:
In assessing the Company’s liquidity,
the Company monitors and analyzes its cash on-hand and its operating and capital expenditure commitments. The Company’s liquidity
needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. Debt financing from
financial institutions and equity financings have been utilized to finance the working capital requirements of the Company.
Since January 2020,
all provinces across the mainland China have confirmed thousands of infection cases of the novel coronavirus (COVID-19). The epidemic
has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China, which has
significantly impacted the Chinese economy. In March 2020, the World Health Organization declared the COVID-19 as a pandemic.
The Company has resumed its operation since March 23, 2020 and its business, results of operations, and financial condition
have been adversely affected. The Company engages in providing automobile transaction and related service to ride hailing drivers.
Although the online ride-hailing market in Chengdu and Changsha is recovering slowly, the Company’s revenue and net loss
for the three months ended June 30, 2020 significantly decreased and increased, respectively, compared with the same period
in 2019.
The Company’s business is capital
intensive. The Company had accumulated deficit of approximately $25.7 million and negative working capital was approximately $6.8
million as of June 30, 2020, and negative operating cash flows of approximately $217,000 from continuing operations for the
three months ended June 30, 2020.
On July 4, 2020, Hunan Ruixi, Jinkailong
and the other shareholders of Jinkailong entered into an agreement (the “JKL Investment Agreement”) with Hongyi Industrial
Group Co., Ltd. (“Hongyi”). Pursuant to the JKL Investment Agreement, Jinkailong agreed to issue and Hongyi agreed
to subscribe for a 27.03% equity interest in Jinkailong in consideration of RMB50 million (approximately $7.0 million) (the “Investment”).
The Investment will be made in two payments: (i) the first payment of RMB10 million (approximately $1.4 million) is due no
later than September 30, 2020 and (ii) the remaining RMB40 million (approximately $5.6 million) is due within 30 days
after the record-filing of the Investment has been made with the local PRC government and the other shareholders of Jinkailong
having made their respective capital contributions in full in cash, but no later than December 31, 2020. As a result, Hunan
Ruixi will be required to pay RMB3.5 million (approximately $0.5 million) to Jinkailong as a capital contribution. Such investment
from Hongyi will provide additional cash flow of approximately $7.0 million to support the Company’s working capital need.
On August 6,
2020, the Company completed a public offering by the sales of 12,000,000 shares of the Company’s common stock at $0.50 per
share, pursuant to an underwriting agreement (the “Underwriting Agreement”) with The Benchmark Company, LLC and Axiom
Capital Management, Inc., as representatives of the several underwriters named therein (the “Underwriters”). As a result,
the Company raised approximately $5.3 million, net of underwriting discounts and commissions and offering expenses, to support
the Company’s working capital need.
Pursuant to the
Underwriting Agreement, on August 13, 2020, the Underwriters exercised their over-allotment option to purchase an additional 1,800,000
shares of common stock of the Company at $0.50 per share, generating proceeds of $0.8 million net of underwriters’ discounts
and commissions and offering expenses.
After the completion
of the public offering and assuming the consummation of the Investment, the Company expects its working capital to change from
a deficit of approximately $6.8 million to a positive working capital of approximately $6.3 million.
In addition, management has determined
that in order to continue to sustain its ability to support the Company’s working capital requirements, the Company will
consider supplementing its available sources of funds through the following:
Furthermore,
the Company also provides guarantee services to automobile purchasers. As of June 30, 2020, the maximum contingent liabilities
the Company would be exposed to was approximately $17,356,000 (including approximately $404,000 related to the discontinued P2P
business), assuming all the automobile purchasers were in default. Automobiles are used as collateral to secure the payment obligations
of the automobile purchasers under the financing agreements. The Company estimated the fair market value of the collateral to
be approximately $12,273,000 as of June 30, 2020, based on the market price and the useful life of such collateral, which
represents about 70.7% of the maximum contingent liabilities. Historically, the default rate from the automobile purchasers were
approximately 10% due to the impact of COVID-19 during the quarter ended March 31, 2020. The Company believes such rate will be
stabilized or lower as the economy in the PRC were gradually recovering and the contingent liabilities of the guarantee services
will not be significantly affected the Company’s cash flows.
Based on the above
considerations, management is of the opinion that the Company has sufficient funds to meet its working capital requirements and
debt obligations as they become due one year from the date of this report. However, there is no assurance that the Company will
be successful in implementing the foregoing plans or that additional financing will be available to the Company on commercially
reasonable terms, or at all. There are a number of factors that could potentially arise that could undermine the Company’s
plans, such as (i) the impact of the COVID-19 pandemic on the Company’s business and areas of operations in China, (ii) changes
in the demand for the Company’s services, (iii) PRC government policies, (iv) economic conditions in China and worldwide,
(v) competitive pricing in the automobile transaction and related service industry, (vi) the possibility that the Company’s
operating results could continue to deteriorate due to COVID-19 or otherwise, (vii) that financial institutions in China may not
able to provide continued financial support to the Company’s customers, and (viii) the perception of PRC-based companies
in the U.S. capital markets. The Company’s inability to secure needed financing when required could require material changes
to the Company’s business plan and could have a material adverse effect on the Company’s viability and results of operations.
The accompanying
interim unaudited condensed consolidated financial statements of the Company has been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”).
The unaudited
interim financial information as of June 30, 2020 and for the three months ended June 30, 2020 and 2019 have been prepared
without audit, pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information and footnote
disclosures, which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have been omitted
pursuant to those rules and regulations. The unaudited interim financial information should be read in conjunction with the
audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended March 31, 2020,
which was filed with the SEC on July 9, 2020.
In the opinion
of management, all adjustments (including normal recurring adjustments) necessary to present a fair statement of the Company’s
unaudited financial position as of June 30, 2020, its unaudited results of operations for the three months ended June 30,
2020 and 2019, and its unaudited cash flows for the three months ended June 30, 2020 and 2019, as applicable, have been made.
The unaudited interim results of operations are not necessarily indicative of the operating results for the full fiscal year or
any future periods.
The unaudited
condensed consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and
expenses of the subsidiaries and VIEs. All inter-company accounts and transactions have been eliminated in consolidation.
Transactions denominated
in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing on
the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are
translated into the functional currency using the applicable exchange rates on the date of the balance sheet. The resulting exchange
differences are recorded in the statement of operations.
The reporting
currency of the Company and its subsidiaries and VIEs is U.S. dollars (“US$”) and the accompanying unaudited condensed
consolidated financial statements have been expressed in US$. However, the Company maintains the books and records in its functional
currency, Chinese Renminbi (“RMB”), being the functional currency of the economic environment in which its operations
are conducted.
In general, for
consolidation purposes, assets and liabilities of the Company and its subsidiaries whose functional currency is not the US$, are
translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing
during the period. The gains and losses resulting from translation of financial statements of the Company and its subsidiaries
and VIEs are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’
equity.
Translation of
amounts from RMB into US$ has been made at the following exchange rates for the respective periods:
In presenting the unaudited condensed 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 the Company to revise its estimates. The Company bases its
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. The inputs into our judgments and estimates consider
the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Estimates are used
when accounting for items and matters including, but not limited to, revenue recognition, residual values, lease classification
and liabilities, finance lease receivables, inventory obsolescence, right-of-use assets, determinations of the useful lives and
valuation of long-lived assets, estimates of allowances for doubtful accounts and prepayments, estimates of impairment of intangible
assets, valuation of deferred tax assets, estimated fair value used in business acquisitions, valuation of derivative liabilities,
allocation of fair value of derivative liabilities issuance of common stock and warrants exercised and other provisions and contingencies.
Accounting Standards Codification (“ASC”)
Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments,
whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Topic 825 excludes
certain financial instruments and all nonfinancial assets and liabilities from its disclosure requirements. Accordingly, the aggregate
fair value amounts do not represent the underlying value of the Company. The three levels of valuation hierarchy are defined as
follows:
The following table sets forth by level
within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis
as of June 30, 2020 and March 31, 2020:
|
|
Carrying
Value at
June 30, 2020
|
|
|
Fair Value Measurement at
June 30, 2020
|
|
|
|
(Unaudited)
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level 3
|
|
Derivative
liabilities
|
|
$
|
625,510
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
625,510
|
|
|
|
Carrying
Value at
March 31, 2020
|
|
|
Fair Value Measurement at
March 31, 2020
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
$
|
342,530
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
342,530
|
|
The following is a reconciliation of the
beginning and ending balance of the assets and liabilities measured at fair value on a recurring basis for the three months ended
June 30, 2020 and for the year ended March 31, 2020:
|
|
For
the Three
Months Ended
June 30, 2020
|
|
|
For
the Year Ended
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Beginning balance
|
|
$
|
342,530
|
|
|
$
|
-
|
|
Derivative liabilities recognized at grant date on June 20, 2019
|
|
|
-
|
|
|
|
3,150,006
|
|
Change in fair value of derivative liabilities
|
|
|
282,980
|
|
|
|
(1,796,724
|
)
|
Fair value of Series B warrants exercised
|
|
|
-
|
|
|
|
(1,010,752
|
)
|
Ending balance
|
|
$
|
625,510
|
|
|
$
|
342,530
|
|
On June 21, 2019, the Company closed
a registered direct offering of an aggregate of 1,781,361 shares of common stock, and in connection therewith, issued to the investors
(i) for no additional consideration, Series A warrants to purchase up to an aggregate of 1,336,021 shares of common stock,
(ii) for nominal additional consideration, Series B warrants to purchase up to a maximum aggregate of 1,116,320 shares
of common stock and (iii) placement agent warrants to purchase up to 142,509 shares of common stock.
The strike price of the Company’s
Series A and Series B warrants and the placement agent warrants are denominated in US$ and the Company’s functional
currency is RMB, therefore, those warrant shares are not considered indexed to the Company’s own stock which should be classified
as derivative liability.
The Company’s Series A and Series B
warrants and the placement agent warrants are not traded in an active securities market; therefore, the Company estimates the fair
value to those warrants using the Black-Scholes valuation model on June 20, 2019 (the grant date), March 31, 2020 and
June 30, 2020.
|
|
June 20, 2019
|
|
|
|
Series A
Warrants
|
|
|
Series B
Warrants
|
|
|
Placement
Agent
Warrants
|
|
# of shares exercisable
|
|
|
1,336,021
|
|
|
|
1,116,320
|
|
|
|
142,509
|
|
Valuation date
|
|
|
6/20/2019
|
|
|
|
6/20/2019
|
|
|
|
6/20/2019
|
|
Exercise price
|
|
$
|
3.72
|
|
|
$
|
3.72
|
|
|
$
|
3.38
|
|
Stock price
|
|
$
|
2.80
|
|
|
$
|
2.80
|
|
|
$
|
2.80
|
|
Expected term (year)
|
|
|
4.00
|
|
|
|
1.00
|
|
|
|
4.00
|
|
Risk-free interest rate
|
|
|
1.77
|
%
|
|
|
1.91
|
%
|
|
|
1.77
|
%
|
Expected volatility
|
|
|
86
|
%
|
|
|
91
|
%
|
|
|
86
|
%
|
|
|
March
31, 2020
|
|
|
|
Series A
Warrants
|
|
|
Series B
Warrants
|
|
|
Placement
Agent
Warrants
|
|
# of shares exercisable
|
|
|
1,336,021
|
|
|
|
3,132
|
|
|
|
142,509
|
|
Valuation date
|
|
|
3/31/2020
|
|
|
|
3/31/2020
|
|
|
|
3/31/2020
|
|
Exercise price
|
|
$
|
1.50
|
|
|
$
|
0.0001
|
|
|
$
|
3.38
|
|
Stock price
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
Expected term (year)
|
|
|
3.22
|
|
|
|
0.22
|
|
|
|
3.22
|
|
Risk-free interest rate
|
|
|
0.30
|
%
|
|
|
0.11
|
%
|
|
|
0.30
|
%
|
Expected volatility
|
|
|
122
|
%
|
|
|
127
|
%
|
|
|
122
|
%
|
|
|
June 30, 2020
|
|
|
|
Series A
Warrants
|
|
|
Placement
Agent
Warrants
|
|
# of shares exercisable
|
|
|
1,336,021
|
|
|
|
142,509
|
|
Valuation date
|
|
|
06/30/2020
|
|
|
|
06/30/2020
|
|
Exercise price
|
|
$
|
1.50
|
|
|
$
|
3.38
|
|
Stock price
|
|
$
|
0.74
|
|
|
$
|
0.74
|
|
Expected term (year)
|
|
|
2.97
|
|
|
|
2.97
|
|
Risk-free interest rate
|
|
|
0.18
|
%
|
|
|
0.18
|
%
|
Expected volatility
|
|
|
121
|
%
|
|
|
121
|
%
|
As of June 30, 2020 and March 31,
2020, financial instruments of the Company comprised primarily current assets and current liabilities including cash and cash equivalents,
accounts receivable, inventories, finance lease receivables, prepayments, other receivables and other assets, due from related
parties, borrowings from financial institutions, accounts payable, advance from customers, lease liabilities, accrued expenses
and other liabilities, due to related parties and affiliates, and operating and financing lease liabilities, which approximate
their fair values because of the short-term nature of these instruments, and noncurrent liabilities of borrowings from financial
institutions, which approximate their fair values because of the stated loan interest rate to the rate charged by similar financial
institutions.
The noncurrent portion of accounts receivables,
finance lease receivables, and operating and financing lease liabilities were recorded at gross adjusted for the interest using
the effective interest rate method. The Company believes that the effective interest rates underlying these instruments approximate
their fair values because of the Company used its incremental borrowing rate to recognize the present value of these instruments
as of June 30, 2020 and March 31, 2020.
Other than as listed above, the Company
did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value.
(f)
|
Business combinations and non-controlling interests
|
The Company accounts for its business combinations
using the acquisition method of accounting in accordance with ASC 805 "Business Combinations." The cost of an acquisition
is measured as the aggregate of the acquisition date fair value of the assets transferred to the sellers and liabilities incurred
by the Company and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred.
Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date,
irrespective of the extent of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value
of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the
fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the
fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the unaudited condensed consolidated
income statements. During the measurement period, which can be up to one year from the acquisition date, the Company may record
adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the
measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recorded to the unaudited condensed consolidated income statements.
For the Company's non-wholly owned subsidiaries,
a non-controlling interest is recognized to reflect portion of equity that is not attributable, directly or indirectly, to the
Company. The cumulative results of operations attributable to non-controlling interests are also recorded as non-controlling interests
in the Company's unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of operations
and comprehensive loss. Cash flows related to transactions with non-controlling interests are presented under financing activities
in the unaudited condensed consolidated statements of cash flows.
Operating segments are reported in a manner
consistent with the internal reporting provided to the chief operating decision maker (the “CODM”), which is comprised
of certain members of the Company's management team. Historically, the Company had one single operating and reportable segment,
namely the provision of an online lending services. During the year ended March 31, 2019, the Company acquired Hunan Ruixi
and Jinkailong and evaluated how the CODM manages the businesses of the Company to maximize efficiency in allocating resources
and assessing performance. Consequently, the Company presents two operating and reportable segments as set forth in Note 3(p).
The Company has discontinued the online P2P lending services segment and has only one segment in the periods after October 17,
2019.
(h)
|
Cash and cash equivalents
|
Cash and cash equivalents primarily consist
of bank deposits with original maturities of three months or less, which are unrestricted as to withdrawal and use. Cash and cash
equivalents also consist of funds received from automobile purchasers as payment for automobiles, related insurances and taxes
to be paid on behalf of the automobile purchasers, which funds were held at the third party platforms’ fund accounts and
which are unrestricted and immediately available for withdrawal and use.
(i)
|
Accounts receivable, net
|
Accounts receivable are recorded at the
invoiced amount less an allowance for any uncollectible accounts and do not bear interest, and are due on demand. Management reviews
the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables.
Management also periodically evaluates individual customer’s financial condition, credit history and the current economic
conditions to make adjustments in the allowance when necessary. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2020 and March 31,
2020, allowance for doubtful accounts amounted to $380,597 and $379,689, respectively.
Inventories consist of automobiles which
are held primarily for sale and for leasing purposes, and are stated at lower of cost or net realizable value, as determined using
the weighted average cost method. Management compares the cost of inventories with the net realizable value and if applicable,
an allowance is made for writing down the inventory to its net realizable value, if lower than cost. On an ongoing basis, inventories
are reviewed for potential write-down for estimated obsolescence or unmarketable inventories which equals the difference between
the costs of inventories and the estimated net realizable value based upon forecasts for future demand and market conditions. When
inventories are written-down to the lower of cost or net realizable value, it is not marked up subsequently based on changes in
underlying facts and circumstances.
(k)
|
Finance lease receivables, net
|
Finance lease receivables, which result
from sales-type leases, are measured at discounted present value of (i) future minimum lease payments, (ii) any residual
value not subject to a bargain purchase option as a finance lease receivables on its balance sheet and (iii) accrued interest
on the balance of the finance lease receivables based on the interest rate inherent in the applicable lease over the term of the
lease. Management also periodically evaluates individual customer’s financial condition, credit history and the current
economic conditions to make adjustments in the allowance when necessary. Finance lease receivables is charged off against the
allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30,
2020 and March 31, 2020, the Company determined no allowance for doubtful accounts was necessary for finance lease receivables.
As of June 30, 2020 and March 31, 2020, finance lease
receivables consisted of the following:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Gross minimum lease payments receivable
|
|
$
|
1,665,003
|
|
|
$
|
1,606,230
|
|
Less: Amounts representing estimated executory costs
|
|
|
-
|
|
|
|
-
|
|
Minimum lease payments receivable
|
|
|
1,665,003
|
|
|
|
1,606,230
|
|
Less: Allowance for uncollectible minimum lease payments receivable
|
|
|
-
|
|
|
|
-
|
|
Net minimum lease payments receivable
|
|
|
1,665,003
|
|
|
|
1,606,230
|
|
Less: Unearned interest
|
|
|
(446,221
|
)
|
|
|
(412,975
|
)
|
Financing lease receivables, net
|
|
$
|
1,218,782
|
|
|
$
|
1,193,255
|
|
Finance lease receivables, net, current portion
|
|
$
|
548,438
|
|
|
$
|
459,110
|
|
Finance lease receivables, net, noncurrent portion
|
|
$
|
670,344
|
|
|
$
|
734,145
|
|
Future scheduled minimum lease payments
for investments in sales-type leases as of June 30, 2020 are as follows:
|
|
|
Minimum future
|
|
|
|
|
payments receivable
|
|
Twelve months ending June 30, 2021
|
|
|
$
|
596,230
|
|
Twelve months ending June 30, 2022
|
|
|
|
661,173
|
|
Twelve months ending June 30, 2023
|
|
|
|
346,022
|
|
Twelve months ending June 30, 2024
|
|
|
|
61,578
|
|
Total
|
|
|
$
|
1,665,003
|
|
(l)
|
Property and equipment, net
|
Property and equipment primarily consist of computer equipment,
which is stated at cost less accumulated depreciation less any provision required for impairment in value. Depreciation is computed
using the straight-line method with no residual value based on the estimated useful life. The useful life of property and equipment
is summarized as follows:
Categories
|
|
Useful life
|
Leasehold improvements
|
|
Shorter of the remaining lease terms or estimated useful lives
|
Computer equipment
|
|
2 - 5 years
|
Office equipment
|
|
3 - 5 years
|
Automobiles
|
|
3 - 4 years
|
The Company reviews property and equipment
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
An asset is considered impaired if its carrying amount exceeds the future net undiscounted cash flows that the asset is expected
to generate. If such asset is considered to be impaired, the impairment recognized is the amount by which the carrying amount of
the asset, if any, exceeds its fair value determined using a discounted cash flow model. For the three months ended June 30,
2020 and 2019, there was no impairment of property and equipment.
Costs of repairs and maintenance are expensed
as incurred and asset improvements are capitalized. The cost and related accumulated depreciation of assets disposed of or retired
are removed from the accounts, and any resulting gain or loss is reflected in the unaudited condensed consolidated income statements.
(m)
|
Intangible assets, net
|
Purchased intangible assets are recognized
and measured at fair value upon acquisition. Separately identifiable intangible assets that have determinable lives continue to
be amortized over their estimated useful lives using the straight-line method as follows:
Categories
|
|
|
Useful life
|
Software
|
|
|
5-10 years
|
Separately identifiable intangible assets
to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting
from the use of the asset and its eventual disposition. Measurement of any impairment loss for identifiable intangible assets is
based on the amount by which the carrying amount of the assets exceeds the fair value of the assets. For the three months ended
June 30, 2020 and 2019, there was no impairment of intangible assets.
Basic loss per share is computed by dividing
net loss attributable to stockholders by the weighted average number of outstanding shares of common stock, adjusted for outstanding
shares of common stock that are subject to repurchase.
For the calculation of diluted loss per
share, net loss attributable to stockholders for basic earnings loss per share is adjusted by the effect of dilutive securities,
including share-based awards, under the treasury stock method. Potentially dilutive securities, of which the amounts are insignificant,
have been excluded from the computation of diluted net loss per share if their inclusion is anti-dilutive.
(o)
|
Derivative liabilities
|
A contract is designated as an asset or
a liability and is carried at fair value on the Company’s balance sheet, with any changes in fair value recorded in the Company’s
results of operations. The Company then determines which options, warrants and embedded features require liability accounting
and records the fair value as a derivative liability. The changes in the values of these instruments are shown in the accompanying
unaudited condensed consolidated statements of operations and comprehensive loss as “change in fair value of derivative liabilities”.
The Company adopted ASC 606, Revenue from
Contracts with Customers (“ASC 606”) on April 1, 2018 using the modified retrospective approach. ASC 606 establishes
principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the
entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict
the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive
in exchange for those goods or services recognized as performance obligations are satisfied. It also requires the Company to identify
contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on
when control of goods and services transfers to a customer.
To achieve that core principle, the Company
applies the five steps defined under ASC 606: (i) identify the contract(s) with a customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance
obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company accounts for a contract with
a customer when the contract is committed in writing, the rights of the parties, including payment terms, are identified, the contract
has commercial substance and consideration to collect is substantially probable.
The Company has assessed the impact of
the guidance by reviewing its existing customer contracts and current accounting policies and practices to identify differences
that will result from applying the new requirements, including the evaluation of its performance obligations, transaction price,
customer payments, transfer of control and principal versus agent considerations. Based on the assessment, the Company concluded
that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of ASC 606 and
therefore there was no material changes to the Company's unaudited condensed consolidated financial statements upon adoption of
ASC 606.
As of June 30 2020, the Company had
outstanding contracts for automobile transaction and related services amounting to $910,915, of which $388,256 is expected to be
completed within twelve months after June 30, 2020, and $522,659 is
expected to be completed after June 30, 2021.
Disaggregated information of revenues by
business lines are as follows:
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Automobile Transaction and Related Services (Continuing Operations)
|
|
|
|
|
|
|
|
|
|
- Revenues from sales of automobiles
|
|
|
$
|
339,845
|
|
|
$
|
3,980,111
|
|
- Operating lease revenues from automobile rentals
|
|
|
|
408,479
|
|
|
|
-
|
|
- Service fees from automobile purchase services
|
|
|
|
85,539
|
|
|
|
656,326
|
|
- Facilitation fees from automobile transactions
|
|
|
|
1,600
|
|
|
|
101,499
|
|
- Service fees from management and guarantee services
|
|
|
|
112,558
|
|
|
|
86,815
|
|
- Financing revenues
|
|
|
|
42,030
|
|
|
|
14,143
|
|
- Other service fees
|
|
|
|
156,865
|
|
|
|
173,669
|
|
Total revenues from Automobile Transaction and Related Services (Continuing Operations)
|
|
|
|
1,146,916
|
|
|
|
5,012,563
|
|
|
|
|
|
|
|
|
|
|
|
Online Lending Services (Discontinued Operations)
|
|
|
|
|
|
|
|
|
|
- Transaction fees
|
|
|
|
1,013
|
|
|
|
56,975
|
|
- Service fees
|
|
|
|
1,067
|
|
|
|
13,544
|
|
- Website development revenue
|
|
|
|
-
|
|
|
|
11,358
|
|
Total revenues from Online Lending Services (Discontinued Operations)
|
|
|
|
2,080
|
|
|
|
81,877
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
$
|
1,148,996,
|
|
|
$
|
5,094,440
|
|
Automobile transaction and related services
Sales of automobiles – The Company
generates revenue from sales of automobiles to the customers of Jinkailong and Hunan Ruixi. The control over the automobile is
transferred to the purchaser along with the delivery of automobile. The amount of the revenue is based on the sale price agreed
by Hunan Ruixi or Yicheng and the counterparties, including Jinkailong, who acts on behalf of its customers. The Company recognizes
revenues when the automobile is delivered and control is transferred to the purchaser at a point in time.
Service fees from automobile purchase services
– Services fees from automobile purchase services are paid by automobile purchasers for a series of the services provided
to them throughout the purchase process such as credit assessment, preparation of financing application materials, assistance with
closing of financing transactions, license and plate registration, payment of taxes and fees, purchase of insurance, installment
of GPS devices, ride-hailing driver qualification and other administrative procedures. The amount of these fees is based on the
sales price of the automobiles and relevant services provided. The Company recognizes revenue when all the services are completed
and the automobile is delivered to the purchaser at a point in time.
Facilitation fees from automobile transactions
– Facilitation fees from automobile purchase transactions are paid by the Company’s customers including third-party
sales teams or the automobile purchasers for the facilitation of the sales and financing of automobiles. The Company attracts automobile
purchasers through third-party sales teams or its own sales department. For the sales facilitated between third-party sales teams
and automobile purchasers, the Company charges the fees to the third-party sales teams, which derived from the commission paid
by the automobile purchasers to the third-party sales teams. Relating to sales facilitated between automobile purchasers and dealers,
the Company charges the fees to the automobile purchasers. The Company recognizes revenue from facilitation fees when the titles
are transferred to the purchasers at a point in time. The amount of fees is based on the type of automobile and negotiation with
each sales team or automobile purchaser. The fees charged to third-party sales teams or automobile purchasers are paid before the
automobile purchase transactions are consummated. These fees are non-refundable upon the delivery of automobiles.
Service fees from management and guarantee
services – Over 95% of the Company’s customers are drivers of Didi Chuxing Technology Co., Ltd., the largest ride-hailing
service platform in China. The drivers sign affiliation agreements with the Company, pursuant to which the Company provides them
with management and guarantee services during the affiliation period. Service fees for management and guarantee services are paid
by such automobile purchasers on a monthly basis for the management and guarantee services provided during the affiliation
period. The Company recognizes revenue over the affiliation period when performance obligations are completed.
Financing revenues – Interest income
from the lease arising from the Company’s sales-type leases and bundled lease arrangements are recognized as financing revenues
over the lease term based on the effective rate of interest in the lease.
Operating lease revenues from automobile
rentals –The Company generates revenue from sub-leasing automobiles from some online ride-hailing drivers or leasing its
own automobiles. The Company recognizes revenue wherein the automobile is transferred to the leasee and the leasee has the ability
to control the asset, is accounted for under ASC Topic 842. Rental transactions are satisfied over the rental period. Rental periods
are short term in nature, generally are twelve months or less.
Leases
On April 1, 2019, the Company adopted
ASU 2016-02, Leases (ASC Topic 842). This update, as well as additional amendments and targeted improvements issued in 2018 and
early 2019, supersedes existing lease accounting guidance found under ASC 840, Leases (“ASC 840”). The
accounting for lessors does not fundamentally change with this update except for changes to conform and align guidance to the lessee
guidance, as well as to the revenue recognition guidance in ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606).
Some of these conforming changes, such as those related to the definition of lease term and minimum lease payments, resulted in
certain lease arrangements, that would have been previously accounted for as operating leases, to be classified and accounted for
as sales-type leases with a corresponding up-front recognition of automobile sales revenue when the lessee obtained control over
the automobile.
The two primary accounting provisions the
Company uses to classify transactions as sales-type or operating leases are: (i) a review of the lease term to determine if
it is for the major part of the economic life of the underlying equipment (defined as greater than 75%); and (ii) a review
of the present value of the lease payments to determine if they are equal to or greater than substantially all of the fair market
value of the equipment at the inception of the lease (defined as greater than 90%). Automobile included in arrangements meeting
these conditions are accounted for as sales-type leases. Interest income from the lease is recognized in financing revenues over
the lease term. Automobile included in arrangements that do not meet these conditions are accounted for as operating leases and
revenue is recognized over the term of the lease.
The Company excludes from the measurement
of its lease revenues any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing
transaction and collected from a customer.
The Company considers the economic life
of most of the automobiles to be three to four years, since this represents the most common lease term for its automobiles and
the automobiles will be used for ride-hailing services. The Company believes three to four years is representative of the period
during which an automobile is expected to be economically usable, with normal service, for the purpose for which it is intended.
A portion of the Company’s direct
sales of automobile to end customers are made through bundled lease arrangements which typically include automobile, services (automobile
purchase services, facilitation services, and management and guarantee services) and financing components where the customer pays
a single negotiated fixed minimum monthly payment for all elements over the contractual lease term. Revenues under these bundled
lease arrangements are allocated considering the relative standalone selling prices of the lease and non-lease deliverables included
in the bundled arrangement and the financing components. Lease deliverables include the automobile and financing, while the non-lease
deliverables generally consist of the services and repayment of advanced fees made on behalf of its customers. The Company considers
the fixed payments for purposes of allocation to the lease elements of the contract. The fixed minimum monthly payments are multiplied
by the number of months in the contract term to arrive at the total fixed lease payments that the customer is obligated to make
over the lease term. Amounts allocated to the automobile and financing elements are then subjected to the accounting estimates
under ASC 842 to ensure the values reflect standalone selling prices. The remainder of any fixed payments are allocated to non-lease
elements (automobile purchase services, facilitation fees, and management and guarantee services), for which these revenues are
recognized in a manner consistent with the guidance for service fees from automobile purchase services, facilitation fees from
automobile transactions, and service fees from management and guarantee services as discussed above.
The Company’s lease pricing interest
rates, which are used in determining customer payments in a bundled lease arrangement, are developed based upon the local prevailing
rates in the marketplace where its customer will be able to obtain an automobile loan under similar terms from the bank. The Company
reassesses its pricing interest rates quarterly based on changes in the local prevailing rates in the marketplace. As of June 30,
2020, the Company's pricing interest rate was 6.0% per annum.
Online
P2P Lending Services (Discontinued Operations)
Transaction fees – Prior to the Company’s
P2P lending business being discontinued on October 17, 2019, transaction fees were paid by borrowers to the Company for the
work the Company performed through its platform. The amount of these fees was based upon the loan amount and the maturity date
of the loan. The fees charged to borrowers were paid upon (i) disbursement of the proceeds for loans which accrued interest
on a monthly basis or (ii) full payment of principal and interest of loans which accrued interest on a daily basis. These
fees were non-refundable upon the issuance of loan. The Company recognized revenue when loan proceeds were disbursed to borrowers
or borrowers paid their principal and interest on loans.
Service fees – The Company charged
investors service fees on their actual return of investment (interest income). The Company generally received the service fees
upon the investors’ receipt of their investment returns. The Company recognized revenue when loans were repaid and investors
received their investment income.
Website development revenues – Revenue
allocated to website development services is recognized as the service is performed over time using the Company’s efforts
or inputs to the satisfaction of a performance obligation using an input measure method, under which the total value of revenue
is recognized on the basis of the percentage that total cost to date bears to the total expected costs. The Company considers labor
costs and related outsource labor costs for the input measurement as the best available indicator of the progress, pattern and
timing in which contract obligations are fulfilled.
Provisions for estimated losses, if any,
on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates.
In instances where substantive acceptance provisions are specified in customer contracts, revenues are deferred until all acceptance
criteria have been met. To date, the Company has not incurred a material loss on any contracts. However, as a policy, provisions
for estimated losses on such engagements will be made during the period in which a loss becomes probable and can be reasonably
estimated.
The Company generally does not enter into
arrangements with multiple deliverables for website development services contracts. If the deliverables have standalone value at
contract inception, the Company accounts for each deliverable separately.
Deferred income tax liabilities and assets
are recognized for the expected future tax consequences of temporary differences between the income tax basis and financial reporting
basis of assets and liabilities. Provisions or benefits for income taxes consists of tax estimated from taxable income plus or
minus deferred tax expenses (benefits) if applicable.
Deferred tax is calculated using the balance
sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent that it is probable
that taxable income will be utilized with prior net operating loss carried forwards using tax rates that are expected to apply
to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement,
except when it is related to items credited or charged directly to equity. 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
utilized. Current income taxes are provided for in accordance with the laws of the relevant tax authorities.
An uncertain tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. Penalties and interest incurred related to underpayment of income tax are classified as
income tax expense in the period incurred. The Company did not have any significant unrecognized uncertain tax positions or any
unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of June 30, 2020 and March 31,
2020. As of June 30, 2020, the calendar years ended December 31, 2015 through 2019 for the Company’s PRC entities
remain open for statutory examination by PRC tax authorities.
Comprehensive loss includes net loss and
foreign currency adjustments. Comprehensive loss is reported in the unaudited condensed consolidated statements of operations and
comprehensive loss. Accumulated other comprehensive loss, as presented on the unaudited condensed consolidated balance sheets are
the cumulative foreign currency translation adjustments.
Share-based awards granted to the Company’s
employees are measured at fair value on grant date and share-based compensation expense is recognized (i) immediately at the
grant date if no vesting conditions are required, or (ii) using the accelerated attribution method, net of estimated forfeitures,
over the requisite service period. The fair value of restricted shares is determined with reference to the fair value of the underlying
shares.
At each date of measurement, the Company
reviews internal and external sources of information to assist in the estimation of various attributes to determine the fair value
of the share-based awards granted by the Company, including but not limited to the fair value of the underlying shares, expected
life, expected volatility and expected forfeiture rates. The Company is required to consider many factors and make certain assumptions
during this assessment. If any of the assumptions used to determine the fair value of the share-based awards changes significantly,
share-based compensation expense may differ materially in the future from that recorded in the current reporting period.
On April 1, 2019, the Company adopted
ASU 2016-02, Leases (ASC Topic 842). This update supersedes existing lease accounting guidance found under ASC 840, and requires
the recognition of right-of-use (“ROU”) assets and lease obligations (“lease liabilities”) by lessees for
those leases currently classified as operating leases under existing lease guidance. Leases will be classified as either finance
or operating, with classification affecting the pattern of expense recognition. Short term leases with a term of twelve months
or less are not required to be recognized. Lessor accounting is generally the same under ASC 842 as compared to ASC 840 except
with an additional requirement to assess collectability to support classification as a direct financing lease. Also, in order to
derecognize the asset and record revenue, collection of payments due must be probable for sales-type leases and the lessees of
sales-type leases will need to obtain control over the leased asset.
The Company adopted the practical expedient
that allows lessees to treat the lease and non-lease components of a lease a single lease component. The impact of the adoption
of the ASC 842, as of April 1, 2019, the Company recognized $246,227 ROU assets and $247,325 lease liabilities, primarily
related to operating leases of facilities. The adoption of this standard resulted in the recording of operating lease assets and
operating lease liabilities as of April 1, 2019, with no related impact on the Company's unaudited condensed consolidated
statement of changes in stockholders' equity or unaudited condensed consolidated statements of operations and comprehensive loss.
Beginning in the year ended March 31,
2020, the Company entered into certain agreements as a lessor under which it leased automobiles for a short-term period (usually
under 12 months) to ride hailing car service drivers. The Company also entered into certain agreements as a lessee to lease automobiles
and to conduct its automobiles rental operations. If any of the following criteria are met, the Company classifies the lease as
a finance lease (as a lessee) or as a direct financing or sales-type lease (both as a lessor):
|
·
|
The lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
|
|
·
|
The lease grants the lessee an option to purchase the underlying asset that the Company is reasonably certain to exercise;
|
|
·
|
The lease term is for 75% or more of the remaining economic life of the underlying asset, unless the commencement date falls within the last 25% of the economic life of the underlying asset;
|
|
·
|
The present value of the sum of the lease payments equals or exceeds 90% of the fair value of the underlying asset; or
|
|
·
|
The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
|
Leases that do not meet
any of the above criteria are accounted for as operating leases.
The Company combines lease
and non-lease components in its contracts under Topic 842, when permissible.
Finance and operating lease ROU assets
and lease liabilities are recognized at the adoption date of April 1, 2019 or the commencement date, whichever is earlier,
based on the present value of lease payments over the lease term. Since the implicit rate for the Company’s leases is not
readily determinable, the Company use its 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 the Company 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 the Company does not
have reasonable certainty at lease inception that these options will be exercised. The Company generally consider the economic
life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. The Company has elected the
short-term lease exception, therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve
months or less. Its leases generally do not provide a residual guarantee. The 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, the
Company recognizes the finance leases ROU assets and interest on an amortized cost basis. The amortization of finance ROU
assets is recognized on an accretion 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.
The Company reviews the impairment of its
ROU assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its
long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable.
The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted
future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of finance and operating
lease liabilities in any tested asset group and include the associated lease payments in the undiscounted future pre-tax cash flows.
For the three months ended June 30, 2020 and 2019, the Company recognized impairment loss of $13,172 and $0, respectively,
on its finance lease ROU assets.
(u)
|
Significant risks and uncertainties
|
|
a.
|
Assets
that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents.
The maximum exposure of these assets to credit risk is their carrying amount as of the balance sheet dates. On June 30,
2020 and March 31, 2020, approximately $722 and $2,600, respectively, was deposited with a bank in the United States which
is insured by the U.S. government up to $250,000. On June 30, 2020 and March 31, 2020, approximately $503,000 and
$820,000, respectively, were deposited in financial institutions located in mainland China, which were insured by the government
authority. Under the Deposit Insurance System in China, an enterprise’s deposits at one bank is insured for a maximum of
approximately $70,000 (RMB500,000). To limit exposure to credit risk relating to deposits, the Company primarily place cash deposits
with large financial institutions in China which management believes are of high credit quality.
|
|
|
The Company’s operations are carried out entirely in mainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the social, political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. In addition, the Company’s business may be influenced by changes in PRC government laws, rules and policies with respect to, among other matters, the response to the COVID-19 pandemic, anti-inflationary measures, currency conversion and remittance of currency outside of China, rates and methods of taxation and other factors.
|
|
b.
|
In measuring the credit risk of accounts receivables due from the automobile purchasers (the “customers”), the Company mainly reflects the “probability of default” by the customer on its contractual obligations and considers the current financial position of the customer and the risk exposures to the customer and its likely future development. However, as the Company only commenced the automobile transaction and related services since November 2018, there was limited historic default data and other information to make an estimate on the expected credit losses. Historically, most of the automobile purchasers would pay the Company their previously defaulted amounts within one to three months. As a result, the Company would provide full provisions on accounts receivable if the customers default on repayments for over three months. As of June 30, 2020 and March 31, 2020, the Company provided an allowance for doubtful accounts of $380,597 and $379,689, respectively. For the three months ended June 30, 2020 and 2019, the Company wrote off accounts receivable of $110,828 and $0, respectively, which represents due from automobile purchasers.
|
|
|
In measuring the credit risk of accounts receivables due from the borrowers and investors
(the “P2P customers”), the Company mainly reflects the “probability of default” by the P2P customer
on its contractual obligations and considers the current financial position of the P2P customer and the risk exposures to the
P2P customer and its likely future development. Historically, most of the borrowers would pay the transaction fee within one
year upon (i) disbursement of the proceeds for loans or (ii) full payment of principal and interest of loan. Most
of investors would pay the service fee within one year upon receipt of their investment returns. On October 17, 2019,
the Board approved the Plan for the Company to discontinue and wind down its online lending services business. For the three
months ended June 30, 2020, no additional accounts receivable were written-off.
|
As of June 30, 2020 and March 31, 2020, substantially
all of the Company’s operating activities and major assets and liabilities, except for the cash deposit of approximately
$503,000 and $818,000, respectively, in U.S. dollars, are denominated in RMB, which are not freely convertible into foreign currencies.
All foreign exchange transactions take place through either the People’s Bank of China (“PBOC”) or other authorized
financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory
institutions requires a payment application together with invoices and signed contracts. The value of RMB is subject to change
in central government policies and international economic and political developments affecting supply and demand in the China Foreign
Exchange Trading System market. When there is a significant change in value of RMB, the gains and losses resulting from translation
of financial statements of a foreign subsidiary will be significant affected. As of June 30, 2020, RMB were appreciated from
7.08 RMB into US$1.00 at March 31, 2020 to 7.06 RMB into US$1.00 at June 30, 2020.
The Company believes that the VIE Agreements
and the Voting Agreement are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system
could limit the Company’s ability to enforce these contractual arrangements.
The shareholders of Sichuan Senmiao are
also shareholders of the Company and therefore have no current interest in seeking to act contrary to the contractual arrangements.
However, if the shareholders of Sichuan Senmiao were to reduce their interest in the Company, their interests may diverge from
that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms. However,
the other shareholders of Jinkailong are not shareholders of the Company and there is a risk they may act in contrary to the interests
of the shareholders of the Company.
The Company cannot assure that when conflicts
of interest arise, the shareholders of Sichuan Senmiao or the other shareholders of Jinkailong will act in the best interests of
the Company or that conflicts of interests will be resolved in the Company’s favor. In addition, the Company’s ability
to control Sichuan Senmiao and Jinkailong via the VIE Agreements and Voting Agreement may not be as effective as direct equity
ownership.
Further, the VIE Agreements or the Voting
Agreement may not be enforced in China if the PRC government or courts consider those contracts contravene PRC laws and regulations
or otherwise not enforceable for public policy reasons. If the VIE Agreements or the Voting Agreement were found to be in violation
of any existing PRC laws and regulations, the PRC government could:
|
·
|
revoke the Company’s business and operating licenses;
|
|
·
|
require the Company to discontinue or restrict operations;
|
|
·
|
restrict the Company’s right to collect revenues;
|
|
·
|
block the Company’s websites;
|
|
·
|
require the Company to restructure the operations in such a way as to compel the Company to establish a new enterprise, re-apply for the necessary licenses or relocate our businesses, staff and assets;
|
|
·
|
impose additional conditions or requirements with which the Company may not be able to comply; or
|
|
·
|
take other regulatory or enforcement actions against the Company that could be harmful to the Company’s business.
|
(v)
|
Recently issued accounting standards
|
In June 2016,
the FASB issued new accounting guidance ASU 2016-13 for recognition of credit losses on financial instruments, which is effective
January 1, 2020, with early adoption permitted on January 1, 2019. The guidance introduces a new credit reserving model
known as the Current Expected Credit Loss (“CECL”) model, which is based on expected losses, and differs significantly
from the incurred loss approach used today. The CECL model requires measurement of expected credit losses not only based on historical
experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information
and will likely result in earlier recognition of credit reserves. In November 2019, the FASB issued ASU No. 2019-10,
which to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller
reporting companies applying for credit losses standard. The new effective date for these preparers is for fiscal years beginning
after December 15, 2022, including interim periods within those fiscal years. The Company has not early adopted
this update and it will become effective on January 1, 2023 assuming the Company will remain eligible to be smaller reporting
company. The Company is currently evaluating the impact of this new standard on Company’s unaudited condensed consolidated
financial statements and related disclosures.
CECL adoption will have broad impact on the financial statements
of financial services firms, which will affect key profitability and solvency measures. Some of the more notable expected changes
include:
-
|
Higher allowance on financial guarantee reserve and finance lease receivable levels and related deferred tax assets. While different asset types will be impacted differently, the expectation is that reserve levels will generally increase across the board for all financial firms.
|
|
|
-
|
Increased reserve levels may lead to a reduction in capital levels.
|
-
|
As a result of higher reserving levels, the expectation is that CECL will reduce cyclicality in financial firms’ results, as higher reserving in “good times” will mean that less dramatic reserve increases will be loan related income (which will continue to be recognized on a periodic basis based on the effective interest method) and the related credit losses (which will be recognized up front at origination). This will make periods of loan expansion seem less profitable due to the immediate recognition of expected credit losses. Periods of stable or declining loan levels will look comparatively profitable as the income trickles in for loans, where losses had been previously recognized.
|
In December 2019, the FASB issued
ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in this Update
simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments
also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning
after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of
the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which
financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not
yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any
adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early
adoption must adopt all the amendments in the same period. The Company is currently evaluating the impact of this new standard
on Company’s unaudited condensed consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU
2020-06, “Debt – Debt Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts
in Entity’s Own Equity (Subtopic 815-40)”. The amendment in this Update is to address issues identified as a result
of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with
characteristics of liabilities and equity. For convertible instruments, the Board decided to reduce the number of accounting models
for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion
features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue
to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related
to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting
and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital.
The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange
Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is
permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal
years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company
does not believe the adoption of this ASU would have a material effect on the Company’s unaudited condensed consolidated
financial statements and related disclosures.
The Company does
not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect
on the unaudited condensed consolidated financial position, statements of operations and cash flows of the Company.
4.
|
DISCONTIUED OPERATIONS
|
On October 17, 2019, the Board approved
the Plan under which the Company has discontinued and is winding down its online P2P lending services business. The Company determined
that the continued operation of its online P2P lending services business was not viable in light of the recently tightened regulations
on online peer-to-peer lending in China generally and the unofficial request from local regulator to reduce the Company’s
online peer-to-peer lending transaction volume on a monthly basis. The Company also determined that the discontinuation of its
online P2P lending services business would allow the Company to focus its resources on its automobile financing facilitation and
transaction business. In connection with the Plan, the Company ceased facilitation of loan transactions on its online lending platform
and assumed all the outstanding loans from investors on the platform. The decision and action taken by the Company of discontinuing
the online lending services business represented a major shift that will have a major effect on the Company’s operations
and financial results, which triggers discontinued operations accounting in accordance with ASC 205-20-45.
The fair value of discontinued operations,
determined as of October 17, 2019, includes estimated consideration expected to be received, less costs to sell. After consideration
of the determination of fair value of the discontinued operations including the assumption of all the outstanding loans from investors
on the platform, $143,668 of accounts receivable, $3,760,599 of other receivables, and $143,943 of prepayments for impaired intangible
assets were indicated as of the date the Company’s Board of Directors approved the winding down of the Company’s online
P2P lending services business on October 17, 2019, and the Company recognized $3,977,848 provision for doubtful accounts as
of June 30, 2020 in related to the Company’s online lending services business, while the Company did not recognize any
additional provision for doubtful accounts for the three months ended June 30, 2020.
The following table sets forth the reconciliation
of the carrying amounts of major classes of assets and liabilities from discontinued operations in the unaudited condensed consolidated
balance sheets as of June 30, 2020.
Carrying amounts of major classes of assets included as part
of discontinued operations:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,033
|
|
|
$
|
10,139
|
|
Prepayments, other receivables and other assets, net
|
|
|
697,432
|
|
|
|
816,441
|
|
Total current assets
|
|
|
702,465
|
|
|
|
826,580
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
9,146
|
|
|
|
11,206
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
711,611
|
|
|
$
|
837,786
|
|
Carrying amounts of major classes of liabilities included
as part of discontinued operations:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
4,133,723
|
|
|
$
|
4,204,012
|
|
Due to stockholders
|
|
|
183,822
|
|
|
|
182,095
|
|
Due to related parties and affiliates
|
|
|
87,319
|
|
|
|
76,286
|
|
Lease liabilities
|
|
|
54,028
|
|
|
|
53,899
|
|
Total current liabilities
|
|
|
4,458,892
|
|
|
|
4,516,292
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
4,458,892
|
|
|
$
|
4,516,292
|
|
The following table sets forth the reconciliation
of the amounts of major classes of income and losses from discontinued operations in the unaudited condensed consolidated statements
of operations and comprehensive loss for three months ended June 30, 2020 and 2019.
|
|
For the Three Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues
|
|
$
|
2,080
|
|
|
$
|
81,877
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(88,438
|
)
|
|
|
(564,929
|
)
|
Amortization of intangible assets
|
|
|
-
|
|
|
|
(15,126
|
)
|
Total operating expenses
|
|
|
(88,438
|
)
|
|
|
(580,055
|
)
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(86,358
|
)
|
|
|
(498,178
|
)
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
704
|
|
|
|
19,075
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(85,654
|
)
|
|
|
(479,103
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to stockholders
|
|
$
|
(85,654
|
)
|
|
$
|
(479,103
|
)
|
5.
|
ACCOUNTS RECEIVABLE,
NET
|
Accounts receivable include a portion of
bundled lease arrangements on fixed minimum monthly payments to be paid by the automobile purchasers arising from automobile sales
and services fees, net of unearned interest income, discounted using the Company’s lease pricing interest rates.
As of June 30,
2020 and March 31, 2020, accounts receivable were comprised of the following:
|
|
June 30,
|
|
|
March 31
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Receivables of automobile sales due from automobile purchasers
|
|
$
|
1,149,341
|
|
|
$
|
1,172,765
|
|
Receivables of service fees due from automobile purchasers
|
|
|
839,288
|
|
|
|
854,730
|
|
Less: Unearned interest
|
|
|
(85,623
|
)
|
|
|
(105,083
|
)
|
Less: Allowance for doubtful accounts
|
|
|
(380,597
|
)
|
|
|
(379,689
|
)
|
Accounts receivable, net
|
|
$
|
1,522,409
|
|
|
$
|
1,542,723
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net, current portion
|
|
$
|
788,722
|
|
|
$
|
660,645
|
|
Accounts receivable, net, noncurrent portion
|
|
$
|
733,687
|
|
|
$
|
882,078
|
|
Movement of allowance for doubtful accounts
is as follows:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Beginning balance
|
|
$
|
379,689
|
|
|
$
|
-
|
|
Addition
|
|
|
110,828
|
|
|
|
1,797,816
|
|
Write off
|
|
|
(110,828
|
)
|
|
|
(1,410,736
|
)
|
Translation adjustment
|
|
|
908
|
|
|
|
(7,391
|
)
|
Ending balance
|
|
$
|
380,597
|
|
|
$
|
379,689
|
|
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Automobiles (i)
|
|
$
|
1,097,680
|
|
|
$
|
1,000,675
|
|
(i)
|
As of June 30, 2020, the Company owned one automobile with a value of $11,899 for financing lease, four automobiles with a total value of $37,427 for operating lease, and 77 automobiles with a total value of $1,048,354 for either leasing or sale.
|
As of June 30, 2020 and March 31, 2020, management
compared the cost of automobiles with their net realizable value and determined no inventory write-down was necessary for these
automobiles.
7.
|
PREPAYMENTS,
OTHER RECEIVABLES AND OTHER ASSETS
|
As of June 30, 2020 and March 31,
2020, the prepayments, receivables and other assets were comprised of the following:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Receivables from borrowers of online lending platform, net (i)
|
|
$
|
693,449
|
|
|
$
|
811,504
|
|
Due from automobile purchasers, net (ii)
|
|
|
1,098,334
|
|
|
|
1,385,352
|
|
Prepayments for automobiles (iii)
|
|
|
143,004
|
|
|
|
365,932
|
|
Deposits
|
|
|
488,984
|
|
|
|
489,638
|
|
Value added tax (“VAT”) recoverable
|
|
|
121,694
|
|
|
|
146,964
|
|
Prepaid expenses
|
|
|
472,460
|
|
|
|
331,319
|
|
Employee advances
|
|
|
18,215
|
|
|
|
11,937
|
|
Others
|
|
|
45,898
|
|
|
|
72,575
|
|
Total prepayments, receivables and other assets
|
|
|
3,082,038
|
|
|
|
3,615,221
|
|
Total prepayments, receivables and other assets - discontinued operations
|
|
|
(697,432
|
)
|
|
|
(816,441
|
)
|
Total prepayments, receivables and other assets - continuing operations
|
|
$
|
2,384,606
|
|
|
$
|
2,798,780
|
|
(i)
|
Receivables from borrowers of online lending platform, net
|
The balance of receivables from
borrowers of online lending platform represented the outstanding loans the Company assumed from investors on the platform, which
will be collected from related borrowers. As of June 30, 2020 and March 31, 2020, the Company recorded allowance of $3,697,624
and $3,688,800, respectively, against doubtful receivables.
(ii)
|
Due from automobile purchasers, net
|
The balance due from automobile
purchasers represented the payment of automobiles and related insurances and taxes made on behalf of the automobile purchasers.
The balance is expected to be collected from the automobile purchasers in installments. As of June 30, 2020 and March 31,
2020, the Company recorded allowance of $359,649 and $347,954, respectively, against doubtful receivables. During the three months
ended June 30, 2020 and 2019, the Company wrote off balance due from automobile purchasers of $17,784 and $0, respectively.
(iii)
|
Prepayments for automobiles
|
The balance represented amounts
advanced to dealers for automobiles and to other third parties for automobiles related taxes and insurances.
8.
|
PROPERTY AND
EQUIPMENT, NET
|
Property and equipment consist of the following:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Leasehold improvements
|
|
$
|
178,084
|
|
|
$
|
177,659
|
|
Electronic devices
|
|
|
44,109
|
|
|
|
40,720
|
|
Office equipment, fixtures and furniture
|
|
|
79,647
|
|
|
|
79,271
|
|
Vehicles
|
|
|
429,732
|
|
|
|
320,949
|
|
Subtotal
|
|
|
731,572
|
|
|
|
618,599
|
|
Less: accumulated depreciation and amortization
|
|
|
(198,556
|
)
|
|
|
(138,192
|
)
|
Total property and equipment, net
|
|
|
533,016
|
|
|
|
480,407
|
|
Total property and equipment, net - discontinued operations
|
|
|
(9,146
|
)
|
|
|
(11,206
|
)
|
Total property and equipment, net - continuing operations
|
|
$
|
523,870
|
|
|
$
|
469,201
|
|
Depreciation and amortization expense from
continuing operations for the three months ended June 30, 2020 and 2019 amounted to $58,085 and $22,672, respectively. Depreciation
and amortization expense from discontinued operations for the three months ended June 30, 2020 and 2019 amounted to $2,205
and $2,850, respectively.
9.
|
INTANGIBLE ASSETS,
NET
|
Intangible assets consisted of the following:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Platform
|
|
$
|
1,103,181
|
|
|
$
|
1,100,549
|
|
Software
|
|
|
815,471
|
|
|
|
815,315
|
|
Subtotal
|
|
|
1,918,652
|
|
|
|
1,915,864
|
|
Less: Accumulated amortization
|
|
|
(1,161,781
|
)
|
|
|
(1,138,243
|
)
|
Total intangible assets, net
|
|
$
|
756,871
|
|
|
$
|
777,621
|
|
Amortization expense from continuing operations
totaled $20,814 and $12 for the three months ended June 30, 2020 and 2019, respectively. Amortization expense from discontinued
operations totaled $0 and $15,140 the three months ended June 30, 2020 and 2019, respectively.
The following table sets forth the Company’s
amortization expense for the next five years ending:
|
|
|
Amortization
expenses
|
|
Twelve months ending June 30, 2021
|
|
|
$
|
83,263
|
|
Twelve months ending June 30, 2022
|
|
|
|
83,263
|
|
Twelve months ending June 30, 2023
|
|
|
|
83,263
|
|
Twelve months ending June 30, 2024
|
|
|
|
75,832
|
|
Thereafter
|
|
|
|
431,250
|
|
Total
|
|
|
$
|
756,871
|
|
10.
|
BORROWINGS FROM
FINANCIAL INSTITUTIONS, CURRENT AND NONCURRENT
|
The borrowings from certain financial institutions
in China represented the short-term loans from an insurance institution of $113,558 and the difference between the actual proceeds
disbursed by the financial institutions to Jinkailong and the total amount of principal to be responsible for and repaid by the
automobile purchasers of $269,350 as of June 30, 2020. Such borrowings totaled $382,908 and $290,974 bearing interest rates
ranging between 6.2% and 8.1% per annum as of June 30, 2020 and March 31, 2020, respectively, of which $52,226 and $64,221,
respectively, is to be repaid over a period of 13 to 24 months.
The interest expense for the three months
ended June 30, 2020 and 2019 was $20,648 and $10,238, respectively.
11.
|
ACCRUED EXPENSES AND OTHER LIABILITIES
|
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Payables to investors of online lending platform (i)
|
|
$
|
3,674,455
|
|
|
$
|
3,668,957
|
|
Accrued payroll and welfare
|
|
|
1,047,779
|
|
|
|
890,912
|
|
Other payable (ii)
|
|
|
169,057
|
|
|
|
83,810
|
|
Loan repayments received on behalf of financial institutions (iii)
|
|
|
449,033
|
|
|
|
374,535
|
|
Payables for expenditures on automobile transaction and related services
|
|
|
413,467
|
|
|
|
373,026
|
|
Accrued expenses
|
|
|
178,192
|
|
|
|
104,264
|
|
Deposits
|
|
|
884,827
|
|
|
|
543,843
|
|
Other taxes payable
|
|
|
213,772
|
|
|
|
173,056
|
|
Total accrued expenses and other liabilities
|
|
|
7,030,582
|
|
|
|
6,212,403
|
|
Total accrued expenses and other liabilities - discontinued operations
|
|
|
(4,133,723
|
)
|
|
|
(4,204,012
|
)
|
Total accrued expenses and other liabilities - continuing operations
|
|
$
|
2,896,859
|
|
|
$
|
2,008,391
|
|
(i)
|
The balance of payables to investors of online lending platform represented the outstanding loans from investors on the platform, which was assumed by the Company in connection with the Plan to discontinue its online lending services business.
|
(ii)
|
The balance of other payable represented amount due to suppliers and vendors for operation purposes.
|
(iii)
|
The balance of loan repayments received on behalf of financial institutions represented the loan repayments made by the automobile purchasers to financial institutions through the Company, which has not been paid to the financial institutions.
|
12.
|
EMPLOYEE
BENEFIT PLAN
|
The Company has made employee benefit plan
in accordance with relevant PRC regulations, including retirement insurance, unemployment insurance, medical insurance, housing
fund, work injury insurance and maternity insurance.
The contributions made by the Company were $30,675 and $42,912
for the three months ended June 30, 2020 and 2019, respectively, for continuing operations of the Company. The contributions
made by the Company were $9,849 and $51,079 for the three months ended June 30, 2020 and 2019, respectively, for the Company’s
discontinued operations.
As of June 30, 2020 and March 31,
2020, the Company did not make adequate employee benefit contributions in the amount of $197,265 and $170,856, respectively, for
continuing operations of the Company. As of June 30, 2020 and March 31, 2020, the Company did not make adequate employee
benefit contributions in the amount of $462,747 and $454,151, respectively, for discontinued operations of the Company. The Company
accrued the amount in accrued payroll and welfare.
Warrants
IPO Warrants
The
registration statement relating to the Company’s initial public offering also included the underwriters’ common stock
purchase warrants to purchase 337,940 shares of common stock (“Underwriter’s Warrants”). Each five-year warrant
entitles warrant holder to purchase one share of the Company’s common stock at the price of $4.80 per share
and is not exercisable for a period of 180 days from March 16, 2018. On March 15, 2019, the underwriters elected to exercise
300,000 Purchase Warrants on a cashless basis in exchange for common stock. On April 5, 2019, the Company issued a total of
65,855 shares of common stock to the underwriters as a result of the cashless exercise of 300,000 Underwriter’s Warrants.
As the date of June 30, 2020, there were 37,940 Underwriter’s Warrants outstanding.
Registered Direct Offering Warrants
The Company adopted the provisions of ASC
815 on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered
indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in ASC 815. Warrants issued in
connection with the direct equity offering with exercise prices denominated in US dollars are no longer considered indexed to the
Company’s stock, as their exercise price is not in the Company’s functional currency (RMB), and therefore no longer
qualify for the scope exception and must be accounted for as a derivative. These warrants are classified as liabilities under the
caption “Derivative liabilities” in the unaudited condensed consolidated statements of balance sheets and recorded
at estimated fair value at each reporting date, computed using the Black-Scholes valuation model. Changes in the liability from
period to period are recorded in the unaudited condensed consolidated statements of operations and comprehensive loss under the
caption “Change in fair value of derivative liabilities.”
The Company allocated the proceeds
received between the common stock and warrants first to warrants based on the fair value on the date the proceeds were
received with the balance to common stock. The value of the warrants was determined using the Black-Scholes valuation model
using the following assumptions: volatility 86%; risk free interest rate 1.77%; dividend yield of 0% and expected term of 4
years of the Investor Series A Warrants, 1 year of the Series B Warrants, and 4 years of the placement agent
warrants. The volatility of the Company’s common stock was estimated by management based on the historical volatility
of its common stock, the risk free interest rate was based on Treasury Constant Maturity Rates published by the U.S. Federal
Reserve for periods applicable to the expected life of the warrants. The expected dividend yield was based on the
Company’s current and expected dividend policy and the expected term is equal to the contractual life of the warrants.
The value of the warrants was based on the Company’s common stock closing price of $2.80 on the date the warrants were
issued. Net proceeds were allocated as the follows:
Warrants
|
|
$
|
3,150,006
|
|
Common stock
|
|
|
1,992,118
|
|
Total net proceeds
|
|
$
|
5,142,124
|
|
Subsequent to the initial recording, the
change in the fair value of the warrants, determined under the Black-Scholes valuation model, at each reporting date will result
in either an increase or decrease the amount recorded as liability, based on the fluctuations with the Company’s stock price
with a corresponding adjustment to other income (or expense). During the three months ended June 30, 2020, the change of fair
value was a loss of $282,980, recognized in the accompanying unaudited condensed consolidated statements of operations and comprehensive
loss based on the increase in fair value of the liabilities since March 31, 2020. During the three months ended June 30,
2019, the change of fair value was a loss of $3,396, recognized in the accompanying unaudited condensed consolidated statements
of operations and comprehensive loss based on the increase in fair value of the liabilities since granted. The fair value of derivative
instrument of $1,010,752 was allocated to additional paid-in-capital upon exercise of warrants as of the exercise date. At June 30,
2020 and March 31, 2020, the fair value of the derivative instrument totaled $625,510 and $342,530, respectively.
The Company has outstanding warrants as
following:
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Average
Exercise
|
|
|
Remaining
Contractual
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Price
|
|
|
Life
|
|
Balance, March 31, 2019
|
|
|
37,940
|
|
|
|
37,940
|
|
|
$
|
4.80
|
|
|
|
3.96
|
|
Granted
|
|
|
2,594,850
|
|
|
|
2,594,850
|
|
|
$
|
3.70
|
|
|
|
4.00
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(1,113,188
|
)
|
|
|
(1,113,188
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance, March 31, 2020
|
|
|
1,519,602
|
|
|
|
1,519,602
|
|
|
$
|
1.76
|
|
|
|
3.21
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(3,132
|
)
|
|
|
(3,132
|
)
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance, June 30, 2020 (Unaudited)
|
|
|
1,516,470
|
|
|
|
1,516,470
|
|
|
$
|
1.76
|
|
|
|
2.97
|
|
Equity Incentive Plan
At the 2018 Annual Meeting of Stockholders of the Company held
on November 8, 2018, the Company’s stockholders approved the Company’s 2018 Equity Incentive Plan for employees,
officers, directors and consultants of the Company and its affiliates. A committee consisting of at least two independent
directors appointed by the Board or in the absence of such a committee, the board of directors, will be responsible for the
general administration of the Equity Incentive Plan. All awards granted under the Equity Incentive Plan will be governed by separate
award agreements between the Company and the participants.
Registered Direct Offering
On April 15, 2019, the SEC declared
effective the Company’s Registration Statement on Form S-3, pursuant to which, along with the accompanying prospectus,
the Company registered up to $80,000,000 in aggregate principal amount of its common stock, preferred stock, debt securities, warrants,
rights and/or units. On June 21, 2019, the Company closed a registered direct offering of an aggregate of 1,781,361 shares
of its common stock, and in connection therewith, issued to the investors (i) for no additional consideration, Series A
warrants to purchase up to an aggregate of 1,336,021 shares of common stock and (iii) for nominal additional consideration,
Series B warrants to purchase up to a maximum aggregate of 1,116,320 shares of common stock. The Company sold the shares of
common stock at a price of $3.38 per share (the “Share Purchase Price”). The Company received gross proceeds from the
offering, before deducting estimated offering expenses payable by the Company, of approximately $6,000,000.
The Series A warrants are exercisable
immediately upon issuance at an exercise price of $3.72 per share and will expire on the fourth (4th) anniversary of the original
issue date. In the event that on December 20, 2019, the exercise price is greater than the Six Month Adjustment Price as defined
below, on the trading day immediately following December 20, 2019 (the “Six Month Measuring Date”), the exercise
price shall automatically adjust to the Six Month Adjustment Price (as adjusted for stock splits, stock dividends, stock combinations,
recapitalizations and similar events). Six Month Adjustment Price means the greater of (x) $1.50 (as adjusted for any stock
dividend, stock split, stock combination, reclassification or similar transaction) and (y) 100% of the quotient of (I) the
sum of the five lowest VWAPs of the common stock during the ten consecutive trading day period ending and including the Six Month
Measuring Date, divided by (II) five. All such determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination, reclassification or similar transaction during such period. The exercise price of the Series A warrant
was adjusted pursuant to this formula from $3.72 to $1.50 per share on December 20, 2019. The Company used the adjusted exercise
price to value its derivative liability on its December 31, 2019 financial statements and reporting periods onwards with changes
in fair value of warrant liabilities from period to period are recorded in the unaudited condensed consolidated statements of operations
and comprehensive loss under the caption “Change in fair value of derivative liabilities”. The exercise price of the
Series A warrant was further adjusted to $0.50 per share on August 7, 2020 as a result of the Company’s issuance of common
shares in its underwritten public offering in August 2020, which will be recorded in the financial statements in the three months
ended September 30, 2020. In addition, the exercise price of the placement agent warrants from the June 2019 registered direct
offering was voluntarily adjusted by the Company from $3.72 to $0.50 per share on August 18, 2020.
The Series B warrants are pre-funded
warrants and were issued as a true-up with respect to the shares of common stock. The maximum aggregate number of shares of common
stock issuable upon exercise of the Series B warrants is 1,116,320. Initially, the Series B warrants shall not be exercisable
for any shares of common stock. In the event that on the fiftieth (50th) day after the closing date (the “Adjustment Measuring
Time”), the closing price of the common stock is less than the Share Purchase Price, then the number of shares of common
stock issuable upon exercise of the Series B warrants shall be adjusted (upward or downward, as applicable) to the greater
of (i) zero (0) and (ii) such aggregate number of shares of common stock equal to fifty percent (50%) of the difference
of (A) the quotient of (x) the Share Purchase Price divided by (y) the Market Price (as defined in Purchase Agreement)
as of the Adjustment Measuring Time, less (B) the aggregate number of shares of common stock issued to the investors at the
closing (as adjusted for share splits, share dividends, share combinations, recapitalizations and similar events). The exercise
price of the Series B warrant was adjusted from $3.72 to $0.0001 per share on August 12, 2019. The Company used
the adjusted exercise price to value its derivative liability on its September 30, 2019 financial statements and reporting period
onwards with changes in fair value of warrant liabilities from period to period are recorded in the unaudited condensed consolidated
statements of operations and comprehensive loss under the caption “Change in fair value of derivative liabilities. As of
June 30, 2020, the Company has issued an aggregate of 1,113,187 shares of common stock to certain investors in the June 2019
offering upon exercise of the pre-funded Series B warrants for a total consideration of $111.
The United States of America
The Company is incorporated in the State
of Nevada in the U.S., and is subject to U.S. federal corporate income taxes with tax rate of 21%. The State of Nevada does not
impose any state corporate income tax.
On December 22, 2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act
imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings
are subject to U.S. taxation. The Tax Act also stablished the Global Intangible Low-Taxed Income (GILTI), a new inclusion rule affecting
non-routine income earned by foreign subsidiaries. For the three months ended June 30, 2020 and 2019, the Company’s
foreign subsidiaries in China cumulatively were operating at loss which resulted in no GILTI tax.
The Company’s net operating loss
for the three months ended June, 2020 amounted to approximately $0.3 million. As of June 30, 2020, the Company’s net
operating loss carryforward for U.S. income taxes was approximately $2.8 million. The net operating loss carryforward will not
expire and is available to reduce future years’ taxable income, but limited to 80% of income until utilized. Management believes
that the utilization of the benefit from this loss appears uncertain due to the Company’s operating history. Accordingly,
the Company has recorded a 100% valuation allowance on the deferred tax asset to reduce the deferred tax assets to zero on the
unaudited condensed consolidated balance sheets. As of June 30 and March 31, 2020, valuation allowances for deferred
tax assets were approximately $0.60 million and $0.53 million, respectively. Management reviews the valuation allowance periodically
and makes changes accordingly.
PRC
Senmiao Consulting, Sichuan Senmiao, Hunan
Ruixi, Ruixi Leasing, Jinkailong, and Yicheng are subject to PRC Enterprise Income Tax (“EIT”) on the taxable income
in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is 25%.
Income taxes in the PRC are consist of:
|
|
For the Three Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current income tax expenses
|
|
$
|
6,272
|
|
|
$
|
101,141
|
|
Deferred income tax benefits
|
|
|
-
|
|
|
|
-
|
|
Total income tax expenses
|
|
$
|
6,272
|
|
|
$
|
101,141
|
|
As of June 30, 2020 and March 31, 2020, the Company’s
PRC entities from continuing operations had net operating loss carryforwards of approximately $3.0 million and $1.7 million, respectively,
which will expire starting from 2023 and ending in 2024. In addition, allowance for doubtful accounts must be approved by the Chinese
tax authority prior to being deducted as an expense item on the tax return. The bad debt allowances are incurred in Company’s
PRC subsidiaries and VIEs which were operating at losses, the Company believes it is more likely than not that its PRC operations
will be unable to fully utilize its deferred tax assets related to the net operating loss carryforwards in the PRC. As a result,
the Company provided 100% allowance on all deferred tax assets on net operating loss carryforwards in the PRC of $743,473 and $414,996
related to its operations in the PRC at June 30, 2020 and March 31, 2020, respectively and provided 100% allowance on
all deferred tax assets on allowance for doubtful account of $180,386 and $178,381 related to its operations in the PRC at June 30,
2020 and March 31, 2020, respectively.
The tax effects of temporary differences
from continuing operations that give rise to the Company’s deferred tax assets are as follows:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Net operating loss carryforwards in the PRC
|
|
$
|
743,473
|
|
|
$
|
414,996
|
|
Net operating loss carryforwards in the U.S.
|
|
|
595,651
|
|
|
|
527,365
|
|
Allowance for doubtful account
|
|
|
180,386
|
|
|
|
178,381
|
|
Less: valuation allowance
|
|
|
(1,519,510
|
)
|
|
|
(1,120,742
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As of June 30, 2020 and March 31,
2020, the Company’s PRC entities associated with the discontinued P2P lending operations had net operating loss carryforwards
of approximately $9.2 million and $8.8 million, respectively, which will expire in 2023 to 2024. The Company reviews deferred tax
assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will be fully realized.
At June 30, 2020 and March 31, 2020, full valuation allowance is provided against the deferred tax assets based upon
management’s assessment as to their realization.
The tax effects of temporary differences
from discontinued operations that give rise to the Company’s deferred tax assets are as follows:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Net operating loss carryforwards in the PRC
|
|
$
|
2,307,018
|
|
|
$
|
2,206,673
|
|
Less: valuation allowance
|
|
|
(2,307,018
|
)
|
|
|
(2,206,673
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
15.
|
RELATED PARTY TRANSACTIONS
AND BALANCES
|
1.
|
Related Party Balances
|
1)
|
Due from related parties
|
As of June 30, 2020 and March 31,
2020, balances due from related parties were $32,189 and $12,341, respectively, and represented operation costs of four related
parties paid by the Company on their behalf, amounts received by the Company on behalf of a related party for refund of insurance
claims, and amounts collected by a related party on behalf of the Company from the automobile purchasers, including certain installment
payments and facilitation fees. In addition, another $14,153 and $14,120 represents advances to the non-controlling shareholders
of Hunan Ruixi for operational purposes as of June 30, 2020 and March 31, 2020, respectively. The balances due from related
parties were all non-interest bearing and due on demand.
This is comprised of amounts payable to
two stockholders and are unsecured, interest free and due on demand.
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Jun Wang
|
|
$
|
73,560
|
|
|
$
|
73,384
|
|
Xiang Hu
|
|
|
110,262
|
|
|
|
108,711
|
|
Total due to stockholders
|
|
$
|
183,822
|
|
|
$
|
182,095
|
|
Total due to stockholders – discontinued operations
|
|
|
(183,822
|
)
|
|
|
(182,095
|
)
|
Total due to stockholders – continuing operations
|
|
$
|
-
|
|
|
$
|
-
|
|
3)
|
Due to related parties and affiliates
|
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Loan payable to related parties (i)
|
|
$
|
211,305
|
|
|
$
|
202,487
|
|
Others (ii)
|
|
|
26,540
|
|
|
|
26,478
|
|
Total due to related parties and affiliates
|
|
|
237,845
|
|
|
|
228,965
|
|
Total due to related parties and affiliates – discontinued operations
|
|
|
(87,319
|
)
|
|
|
(76,286
|
)
|
Total due to related parties and affiliates – continuing operations
|
|
$
|
150,526
|
|
|
$
|
152,679
|
|
(i)
|
As of June 30, 2020 and March 31, 2020, the balances
represented borrowings from three related parties, which are unsecured, interest free and due in the fiscal year of 2021.
|
(ii)
|
As of June 30, 2020 and March 31, 2020, the balances represented $26,540 and 26,478, respectively of payables to three other related parties for operational purposes. These balances are interest free and due on demand.
|
Interest expense for the three months ended
June 30, 2020 and 2019 were $0 and $13,627, respectively.
2.
|
Related Party Transactions
|
In December 2017, the Company entered
into loan agreements with two stockholders, who agreed to grant lines of credit of approximating $955,000 and $159,000, respectively,
to the Company for five years. The lines of credit are non-interest bearing, effective from January 2017. As of June 30,
2020, the outstanding balances to these two stockholders in the discontinued operations were $110,262 and $73,560, respectively.
As of March 31, 2020, the outstanding balances in the discontinued operations to these two stockholders were $108,711 and
$73,384, respectively.
The Company entered into two office lease
agreements which were set to expire on January 1, 2020. On April 1, 2018, the two office leases were modified with the
leasing term from April 1, 2018 to March 31, 2021. As of June 30, 2020 and March 31, 2020, operating lease
right-of-use assets of these leases in the continuing operations amounted $79,850 and $105,432, respectively. As of June 30,
2020 and March 31, 2020, current leases liabilities of these leases in the continuing operations amounted $79,850 and $78,482,
respectively. As of June 30, 2020 and March 31, 2020, current leases liabilities of these leases in the discontinued
operations amounted $54,028 and $53,899, respectively. For the three months ended June 30, 2020 and 2019, the Company incurred
$26,996 and $27,971, respectively, to this related party in rental expenses.
In November 2018, Hunan Ruixi entered
into an office lease agreement with Hunan Dingchentai Investment Co., Ltd. ("Dingchentai"), a Company where one
of our independent directors serves as legal representative and general manager. The term of the lease agreement was from November 1,
2018 to October 31, 2023 and the rent was approximately $44,250 per year, payable on a quarterly basis. The original lease
agreement with Dingchentai was terminated on July 1, 2019. The Company entered into another lease with Dingchentai on substantially
similar terms on September 27, 2019. As of June 30, 2020 and March 31, 2020, operating lease right-of-use assets
of this lease in the continuing operations amounted $122,912 and $130,873, respectively. As of June 30, 2020, current leases
liabilities and non-current leases liabilities of this lease in the continuing operations amounted $63,746 and $79,648, respectively.
As of March 31, 2020, current leases liabilities and non-current leases liabilities of this lease in the continuing operations
amounted $73,173 and $88,349, respectively. For the three months ended June 30, 2020 and 2019, the Company incurred expense
of $10,234 and $10,604 in rent to Dingchentai, respectively.
In June 2019 and January 2020,
the Company entered into two automobile maintenance services contracts with Sichuan Qihuaxin Automobile Services Co., Ltd and Sichuan
Yousen Automobile Maintenance Service Co., Ltd, which companies are controlled by one of the non-controlling shareholders of Sichuan
Jinkailong. During the three months ended June 30, 2020, the Company paid automobile maintenance fees of $28,647 and $29,717
to those companies as mentioned above, respectively.
Lessor
The Company's operating leases for automobile
rentals have rental periods that are typically short term, generally is twelve months or less. Revenue recognition section of Note 3
(p), the Company discloses that revenue earned from automobile rentals, wherein an identified asset is transferred to the customer
and the customer has the ability to control that asset, is accounted for under Topic 842 upon adoption for the year ended March 31,
2020. The Company did not have any automobile rentals operations prior to April 1, 2019, which the Company would have accounted
for such revenue under Topic 606 for the year ended March 31, 2019.
Lessee
As of June 30, 2020 and March 31,
2020, the Company has engaged in offices and showroom leases which were classified as operating leases. In addition, the Company
had automobiles leases which were classified as finance lease.
The
Company occupies various offices under operating lease agreements with a term shorter than twelve months which it elected not to
recognize lease assets and lease liabilities under ASC 842. Instead, the Company recognized the lease payments in profit or loss
on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments
is incurred.
The Company’s lease agreements do
not contain any material residual value guarantees or material restrictive covenants.
The Company recognized lease expense on
a straight-line basis over the lease term for operating lease. Meanwhile, the Company recognized the finance leases ROU assets
and interest on an amortized cost basis. The amortization of finance ROU assets is recognized on an accretion 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.
The ROU and lease liabilities are determined
based on the present value of the future minimum rental payments of the lease as of the adoption date, using an effective interest
rate of 6.0%, which is determined using an incremental borrowing rate with similar term in the PRC. As of June 30, 3030, the
average remaining operating and finance lease term of its existing leases is 1.8 and 2.1 years, respectively.
Operating and finance lease expenses consist of following:
|
|
|
|
For the Three months Ended
|
|
|
|
Classification
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Operating lease cost
|
|
|
|
|
|
|
|
|
|
|
Lease expenses
|
|
Selling, general and administrative
|
|
$
|
106,196
|
|
|
$
|
82,738
|
|
Finance lease cost
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased asset
|
|
Cost of revenue
|
|
|
276,519
|
|
|
|
-
|
|
Amortization of leased asset
|
|
General and administrative
|
|
|
533,382
|
|
|
|
-
|
|
Interest on lease liabilities
|
|
Interest expenses on finance leases
|
|
|
226,177
|
|
|
|
-
|
|
Total lease expenses
|
|
|
|
$
|
1,142,274
|
|
|
$
|
82,738
|
|
Operating lease expenses from continuing
operations totaled $77,708 and $54,056 for the three months ended June 30, 2020 and 2019, respectively. Operating lease expenses
from discontinued operations totaled $28,488 and $28,682 for the three months ended June 30, 2020 and 2019, respectively.
Interest expenses on finance leases from continuing operations totaled $226,177 and $0 for the three months ended June 30,
2020 and 2019, respectively.
The following table sets forth the Company’s
minimum lease payments in future periods:
|
|
Operating
lease
payments
|
|
|
Finance lease
payments
|
|
|
Total
|
|
Twelve months ending June 30, 2021
|
|
$
|
298,527
|
|
|
$
|
5,180,989
|
|
|
$
|
5,479,516
|
|
Twelve months ending June 30, 2022
|
|
|
193,746
|
|
|
|
2,696,168
|
|
|
|
2,889,914
|
|
Twelve months ending June 30, 2023
|
|
|
124,638
|
|
|
|
378,618
|
|
|
|
503,256
|
|
Twelve months ending June 30, 2024
|
|
|
79,680
|
|
|
|
-
|
|
|
|
79,680
|
|
Twelve months ending June 30, 2025
|
|
|
6,320
|
|
|
|
-
|
|
|
|
6,320
|
|
Total lease payments
|
|
|
702,911
|
|
|
|
8,255,775
|
|
|
|
8,958,686
|
|
Less: discount
|
|
|
(59,718
|
)
|
|
|
(786,979
|
)
|
|
|
(846,697
|
)
|
Present value of lease liabilities
|
|
|
643,193
|
|
|
|
7,468,796
|
|
|
|
8,111,989
|
|
Less: Present value of lease liabilities – discontinued operations
|
|
|
(54,028
|
)
|
|
|
-
|
|
|
|
(54,028
|
)
|
Present value of lease liabilities – continuing operations
|
|
$
|
589,165
|
|
|
$
|
7,468,796
|
|
|
$
|
8,057,961
|
|
17.
|
COMMITMENTS AND
CONTINGENCIES
|
Contingencies
In measuring the credit risk of guarantee
services to automobile purchasers, the Company primarily reflects the “probability of default” by the automobile purchasers
on its contractual obligations and considers the current financial position of the automobile purchasers and its likely future
development.
The Company manages the credit risk of
automobile purchasers by performing preliminary credit checks of each automobile purchaser and ongoing monitoring every month.
By using the current credit loss model, management is of the opinion that the Company is bearing the credit risk to repay the principal
and interests to the financial institutions if automobile purchasers default on their payments for more than three months. Management
also periodically re-evaluates probability of default of automobile purchasers to make adjustments in the allowance when necessary
as the Company is the guarantor of the loans.
Historically, most of the automobile purchasers
would pay the Company their previous defaulted amounts within one to three months. In December 2019, a novel strain of coronavirus,
or COVID-19, surfaced and it has spread rapidly to many parts of China and other parts
of the world, including the United States. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure
of stores and facilities in China and elsewhere. Because substantially all of the Company’s operations are conducted
in China, the COVID-19 outbreak has materially and adversely affected, and may continue to affect, the Company’s business
operations, financial condition and operating results for 2020, including but not limited to decrease in revenues, slower collection
of accounts receivables and additional allowance for doubtful accounts. Some of the Company’s customers exited the ride-hailing
business and tendered their automobiles to the Company for sublease or sale to generate income or proceeds to cover payments owed
to financial institutions and the Company. For the three months ended June 30, 2020, the Company recognized estimated provisions
loss of approximately $19,000 for the guarantee services because the drivers who exited the ride-hailing business were not able
to make the monthly payments.
As of June 30, 2020, the maximum contingent liabilities the
Company would be exposed to was approximately $17,356,000 (including approximately $404,000 related to the discontinued P2P business),
assuming all the automobile purchasers were in default. Automobiles are used as collateral to secure the payment obligations of
the automobile purchasers under the financing agreements. The Company estimated the fair market value of the collateral to be approximately
$12,273,000 as of June 30, 2020, based on the market price and the useful life of such collateral, which represents about
70.7% of the maximum contingent liabilities. As of June 30, 2020, approximately $2,041,000, including interests of $123,000,
due to financial institutions, of all the automobile purchases we serviced were past due mainly due to the COVID-19 epidemic in
China.
Investment from Non-controlling Interest
Shareholders
On July 4, 2020, Hunan Ruixi, Jinkailong
and the other shareholders of Jinkailong entered into the JKL Investment Agreement with Hongyi.
Pursuant to the JKL Investment Agreement,
Jinkailong agreed to issue and Hongyi agreed to subscribe for a 27.03% equity interest in Jinkailong in consideration of RMB50
million (approximately $7.0 million). The Investment will be made in two payments: (i) the first payment of RMB10 million
(approximately $1.4 million) is due no later than September 30, 2020 and (ii) the remaining RMB40 million (approximately
$5.6 million) is due within 30 days after the record-filing of the Investment has been made with the local PRC government and the
other shareholders of Jinkailong having made their respective capital contributions in full in cash, but no later than December 31,
2020. As a result, Hunan Ruixi will be required to pay RMB3.5 million (approximately $0.5 million) to Jinkailong as a capital contribution.
Upon the full payment of the consideration, the Investment will be deemed to be closed (the “Closing”).
As a result of the Investment, the original
shareholders’ ownership percentage will be proportionally diluted but Hunan Ruixi will continue to control Jinkailong pursuant
to the Voting Agreements.
The JKL Investment Agreement sets performance
targets for Jinkailong during a three-year performance commitment period following the Closing. During the performance commitment
period, Jinkailong has agreed, and its original shareholders have agreed to cause Jinkailong, to seek to achieve annual revenue
for Jinkailong of no less than RMB52 million (approximately $7.4 million), RMB90 million (approximately $12.7 million) and RMB110
million (approximately $15.6 million), respectively, and annual net profit of no less than RMB10 million (approximately $1.4 million),
RMB20 million (approximately $2.8 million) and RMB25 million (approximately $3.5 million), respectively, during the first, second
and third year of the performance commitment period.
The JKL Investment Agreement also
provides Hongyi certain shareholder rights, including, but not limited to, the right to receive any undistributed dividends,
a right of first refusal for any equity transfer from the other shareholders of Jinkailong, a tag-along right during the
performance commitment period, anti-dilution rights, redemption rights, subscription rights and priority in liquidation or
dissolution of Jinkailong. Specifically, pursuant to the redemption right provision in the JKL Investment Agreement, in the
event that Jinkailong (i) fails to become public through an initial public offering for a valuation of no less than
RMB350 million (approximately $49.5 million) or merge with a public company for a valuation of no less than RMB300 million
(approximately $42.5 million) within the six months following the performance commitment period, (ii) fails to achieve
an accumulated net profit of RMB24 million (approximately $3.4 million) for the first two years of the performance commitment
period or a net profit of RMB20 million (approximately $2.9 million) for the third year of the performance commitment period,
or (iii) has any material and adverse change to its core business, including but not limited to being included in the
list of dishonest persons and loss of over one third of its online ride-hailing taxi operating licenses, as well as
bankruptcy, liquidation or cessation of operations, Hongyi shall have the right to require certain shareholders of Jinkailong
(including Hunan Ruixi) to repurchase all of its equity interest in Jinkailong. Based on a repurchase formula provided for in
the JKL Investment Agreement, the maximum repurchase amount that Hunan Ruixi would be subject to is RMB28,320,000
(approximately $4.0 million).
Exercise of Warrants
On July 9, 2020, one of the holders
of Series A warrants exercised the warrants to purchase 50,000 shares of the Company’s stock at an exercise price of
$1.50 per share generating gross proceeds of $75,000 to the Company.
Public Offering and Exercise of the
Over-Allotment Option
On August 4, 2020, the Company entered
into the Underwriting Agreement with the Benchmark Company, LLC and Axiom Capital Management, Inc., as representatives of
the several Underwriters (the “Underwriters”), relating to an underwritten public offering (the “Offering”)
of 12,000,000 shares (the “Shares”) of the Company’s common stock at a price to the public of $0.50 per Share
(the “Offering Price”). Pursuant to the terms of the Underwriting Agreement, the Company granted the Underwriters a
45-day option to purchase up to an additional 1,800,000 shares of Common Stock (the “Option Shares” and together with
the Shares, the “Securities”) to cover over-allotments, if any, at the Offering Price less the underwriting discounts
and commissions. An underwriting discount of 7% was applied to the Offering Price, except for Shares purchased by certain existing
investors of the Company (the “Excluded Investors”), an underwriting discount of 6% was applied. On August 6,
2020, the Company completed the Offering. The net proceeds to the Company from the sale of the Shares, after deducting the underwriting
discounts and commissions and other estimated offering expenses payable by the Company, were approximately $5.3 million.
On August 13, 2020, the Underwriters
exercised their rights to purchase 1,800,000 Option Shares at $0.50 per share. This transaction was completed on
August 13, 2020. Net proceeds from the sale of these Option Shares were approximately $0.8 million net of underwriting
discounts and commissions and offering expenses. In connection with the Offering, the Company issued the Underwriters or
their permitted designees, on a private placement basis, warrants (the “Warrants”) to purchase up to 568,000
shares of common stock representing 5% of the aggregate number of Securities sold in the Offering, excluding the Securities
sold to the Excluded Investors, for which the Underwriters will be issued warrants to purchase up to 4% of the total
Securities sold. The Warrants are valid for a period of five years and exercisable commencing six months from August 6, 2020
at a price per share equal to 125% of the Offering Price and are exercisable on a “cashless” basis.
Issuances of common stock
On August 18, 2020, the Company issued
an aggregate of 169,015 shares of common stock in settlement of restricted stock units previously issued to certain current and
former directors under the Company’s 2018 Equity Incentive Plan and 500,000 shares of common stock to a consultant for services
to be rendered under a consulting service agreement.