The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1.
|
ORGANIZATION AND PRINCIPAL ACTITIVIES
|
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 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. The Company ceased its online lending services business in October 2019 and
commenced a process of winding down such business.
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.
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). As of 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 a voting agreement 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.
On July 5, 2019, Yicheng entered into
an Investment and Equity Transfer Agreement with Chengdu Mashangchuxing Automobile Leasing Co., Ltd. (“Mashang Chuxing”),
Chengdu Yunche Chixun Business Consulting Co., Ltd. (“Yunche Chixun”), Mr. Zhiqiu Xia and all the shareholders
of Mashang Chuxing (“Mashang Chuxing Shareholders”), pursuant to which, Yicheng, Yunche Chixun, Mr. Zhiqiu Xia
acquired from the Mashang Chuxing Shareholders 49%, 5% and 46% of the equity interests of Mashang Chuxing for no consideration,
respectively. As of the date of the financial statements, none of the shareholders of Mashang Chuxing made capital contribution.
Mashang Chuxing commenced providing ride-hailing services in August 2019 and has not generated significant revenue due to
limited operations. As a result, no equity investment income nor expense were recorded for the three and nine months ended December 31,
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 represents
a major shift that will have a material effect on the Company’s operations and financial results, which triggers discontinued
operations accounting in accordance with ASC 205-20-45. See Note 4 – discontinued operations.
The following diagram illustrates the Company’s
corporate structure, including its subsidiaries, and VIEs, as of the date of these financial statements:
VIE Agreements with Sichuan Senmiao
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:
Equity
Interest Pledge Agreement
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.
Exclusive Business Cooperation Agreement
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.
Exclusive Option Agreement
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.
Powers of Attorney
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.
Timely Report 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 Company’s consolidated financial statements.
The Restructuring constituted a reorganization.
As all of the above mentioned companies are under common control, this series of transactions are considered as a reorganization
of the entities under common control at carrying value and the consolidated financial statements have been prepared as if the reorganization
had occurred retroactively. The consolidated financial statements have been prepared as if the existing corporate structure had
been in existence throughout all periods and the reorganization had occurred as of the beginning of the earliest period presented
in the accompanying consolidated financial statements.
Voting Agreement with Jinkailong’s
Other Shareholders
In addition to obtaining 35% equity interests
in Jinkailong, Hunan Ruixi entered into a voting agreement, as amended (the “Voting Agreement”), with Jinkailong and
other Jinkailong’s shareholders holding an aggregate of 65% equity interests. Pursuant to the Voting Agreement, all other
Jinkailong’s shareholders will vote in concert with Hunan Ruixi on all fundamental corporate transactions in the event of
a disagreement for a period of 20 years, 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 consolidated financial statements.
Total assets and total liabilities of the
Company’s VIEs included in the Company’s consolidated financial statements as of December 31, 2019 and March 31,
2019 are as follows:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Total assets from continuing operations
|
|
$
|
7,256,048
|
|
|
$
|
4,130,435
|
|
Total assets from discontinued operations
|
|
|
1,499,618
|
|
|
|
1,083,579
|
|
Total assets
|
|
$
|
8,775,666
|
|
|
$
|
5,214,014
|
|
|
|
|
|
|
|
|
|
|
Total liabilities from continuing operations
|
|
$
|
7,096,861
|
|
|
$
|
6,456,098
|
|
Total liabilities from discontinued operations
|
|
|
7,973,676
|
|
|
|
396,671
|
|
Total liabilities
|
|
$
|
15,070,537
|
|
|
$
|
6,852,769
|
|
Net
revenue, income (loss) from operations and net loss of the VIEs that were included in the Company's consolidated financial statements
for the three and nine months ended December 31, 2019 and 2018 are as follows:
|
|
For the Three Months Ended
December 31,
|
|
|
For the Nine Months Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net revenue
|
|
$
|
414,077
|
|
|
$
|
119,235
|
|
|
$
|
2,302,940
|
|
|
$
|
119,235
|
|
Income (loss) from operations
|
|
$
|
741,260
|
|
|
$
|
(7,014
|
)
|
|
$
|
600,455
|
|
|
$
|
(7,014
|
)
|
Net income (loss) from continuing operations attributable to stockholders
|
|
$
|
(116,991
|
)
|
|
$
|
8,324
|
|
|
$
|
95,976
|
|
|
$
|
8,324
|
|
Net loss from discontinued operations attributable to stockholders
|
|
|
(4,094,558
|
)
|
|
|
(78,459
|
)
|
|
|
(4,870,090
|
)
|
|
|
(929,698
|
)
|
Net loss attributable to stockholders
|
|
$
|
(4,211,549
|
)
|
|
$
|
(70,135
|
)
|
|
$
|
(4,774,114
|
)
|
|
$
|
(921,374
|
)
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Basis of presentation
|
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 December 31, 2019 and for the nine months ended December 31, 2019 and 2018 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,
2019, which was filed with the SEC on July 5, 2019.
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 December 31, 2019, its unaudited results of operations for the three and nine months ended
December 31, 2019 and 2018, and its unaudited cash flows for the nine months ended December 31, 2019 and 2018, 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.
(b)
|
Basis of consolidation
|
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.
(c)
|
Foreign currency translation
|
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$”) and the accompanying consolidated financial
statements have been expressed in US$. 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:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
Balance sheet items, except for equity accounts
|
|
|
6.9632
|
|
|
|
6.7119
|
|
|
|
For the Three Months Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Items in the statements of operations and comprehensive income (loss)
|
|
|
7.0600
|
|
|
|
6.9162
|
|
|
|
For the Nine Months Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Items in the statements of operations and comprehensive income (loss), and statements of cash flows
|
|
|
6.9620
|
|
|
|
6.7008
|
|
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. 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.
(e)
|
Fair values of financial instruments
|
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:
Level 1
|
Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
Level 2
|
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
|
Level 3
|
Inputs to the valuation methodology are unobservable and significant to the fair value.
|
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 December 31, 2019:
|
|
Carrying Value at
December 31,
2019
|
|
|
Fair Value Measurement at
December 31, 2019
|
|
|
|
(Unaudited)
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
$
|
629,848
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
629,848
|
|
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 nine months ended
December 31, 2019:
|
|
December 31,
2019
|
|
Beginning balance
|
|
$
|
-
|
|
Derivative liabilities recognized at grant date on June 20, 2019
|
|
|
3,150,006
|
|
Change in fair value of derivative liabilities
|
|
|
(1,509,406
|
)
|
Fair value of Series B warrants exercised
|
|
|
(1,010,752
|
)
|
Ending balance
|
|
$
|
629,848
|
|
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 is 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 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) and December 31, 2019.
|
|
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
|
%
|
|
|
1.77
|
%
|
|
|
1.77
|
%
|
Expected volatility
|
|
|
86
|
%
|
|
|
86
|
%
|
|
|
86
|
%
|
|
|
December 31, 2019
|
|
|
|
Series A
Warrants
|
|
|
Series B
Warrants
|
|
|
Placement
Agent
Warrants
|
|
# of shares exercisable
|
|
|
1,336,021
|
|
|
|
3,132
|
|
|
|
142,509
|
|
Valuation date
|
|
|
12/31/2019
|
|
|
|
12/31/2019
|
|
|
|
12/31/2019
|
|
Exercise price
|
|
$
|
1.50
|
|
|
$
|
0.0001
|
|
|
$
|
3.38
|
|
Stock price
|
|
$
|
0.67
|
|
|
$
|
0.67
|
|
|
$
|
0.67
|
|
Expected term (year)
|
|
|
3.47
|
|
|
|
0.47
|
|
|
|
3.47
|
|
Risk-free interest rate
|
|
|
1.64
|
%
|
|
|
1.60
|
%
|
|
|
1.64
|
%
|
Expected volatility
|
|
|
123
|
%
|
|
|
123
|
%
|
|
|
123
|
%
|
As of December 31, 2019 and March 31,
2019, financial instruments of the Company comprised primarily current assets and current liabilities including cash and cash
equivalents, accounts receivable, finance lease receivables and other assets, escrow receivables, due from related parties, borrowings
from financial institutions, other liabilities, due to stockholders and due to related parties and affiliates, 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 finance lease receivables were recorded
at gross adjusted for the deferred interest income using the effective interest rate method. The Company believes that the effective
interest rates underlying the finance lease receivables approximate current market rates for such finance leasing products as of
December 31, 2019.
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 noncontrolling 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 noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of
the noncontrolling 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 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 consolidated income statements.
For the Company's non-wholly owned subsidiaries,
a noncontrolling 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 noncontrolling interests are also recorded as noncontrolling interests in
the Company's consolidated balance sheets and consolidated statements of operations and comprehensive loss. Cash flows related
to transactions with noncontrolling interests are presented under financing activities in the 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 2(p).
The Company has discontinued the online P2P lending services segment and has only one segment in the period 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 December 31, 2019 and March 31,
2019, allowance for doubtful accounts amounted to $84,415 and $0, 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 December 31,
2019, the Company determined no allowance for doubtful accounts was necessary for finance lease receivables.
As of December 31, 2019 and March 31,
2019, finance lease receivables consisted of the following:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Gross minimum lease payments receivable
|
|
$
|
1,637,763
|
|
|
$
|
40,023
|
|
Less: Amounts representing estimated executory costs
|
|
|
-
|
|
|
|
-
|
|
Minimum lease payments receivable
|
|
|
1,637,763
|
|
|
|
40,023
|
|
Less Allowance for uncollectible minimum lease payments receivable
|
|
|
-
|
|
|
|
-
|
|
Net minimum lease payments receivable
|
|
|
1,637,763
|
|
|
|
40,023
|
|
Estimated residual value of leased automobiles
|
|
|
-
|
|
|
|
-
|
|
Less: Unearned interest
|
|
|
(460,556
|
)
|
|
|
(7,471
|
)
|
Financing lease receivables, net
|
|
$
|
1,177,207
|
|
|
$
|
32,552
|
|
Finance lease receivables, net, current portion
|
|
$
|
428,958
|
|
|
$
|
10,254
|
|
Finance lease receivables, net, long-term portion
|
|
$
|
748,249
|
|
|
$
|
22,298
|
|
Future scheduled minimum lease payments
for investments in sales-type leases as of December 31, 2019 are as follows:
|
|
Minimum future
payments receivable
|
|
Twelve months ending December 31, 2020
|
|
$
|
559,494
|
|
Twelve months ending December 31, 2021
|
|
|
550,856
|
|
Twelve months ending December 31, 2022
|
|
|
407,269
|
|
Twelve months ending December 31, 2023
|
|
|
120,144
|
|
Total
|
|
$
|
1,637,763
|
|
(l)
|
Property and equipment
|
Property and equipment primarily consists
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 nine months ended December 31,
2019 and 2018, 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 consolidated income statements.
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
|
Platform
|
|
7 years
|
Customer relationship
|
|
10 years
|
Software
|
|
5-7 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 and nine months ended December 31, 2019, there was a $0 and $264,958 impairment, respectively,
on customer relationship from Sichuan Senmiao as a result of the Company’s decision to discontinue the P2P lending business
in October 2019. For the three and nine months ended December 31, 2018, there was no impairment of intangible assets.
(n)
|
Earnings (loss) per share
|
Basic earnings (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 earnings
(loss) per share, net income (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 earnings (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 a company’s balance sheet, with any changes in fair value recorded in a 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, 2019 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.
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 consolidated financial statements upon adoption of ASC 606.
As of December 31, 2019, the Company
had outstanding contracts for automobile transaction and related services amounting to $1,590,743, of which $629,787 is expected
to be completed within 12 months after December 31, 2019, and $960,956 is expected to be completed after December 31,
2020.
Disaggregated information of revenues by
business lines are as follows:
|
|
For the Three Months
Ended December 31,
|
|
|
For the Nine Months
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Automobile Transaction and Related Services (Continuing Operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Revenues from sales of automobiles
|
|
$
|
1,987,433
|
|
|
$
|
-
|
|
|
$
|
10,828,063
|
|
|
$
|
-
|
|
- Service fees from automobile purchase services
|
|
|
352,351
|
|
|
|
70,654
|
|
|
|
1,609,361
|
|
|
|
70,654
|
|
- Facilitation fees from automobile transactions
|
|
|
21,031
|
|
|
|
16,424
|
|
|
|
164,294
|
|
|
|
16,424
|
|
- Service fees from management and guarantee services
|
|
|
128,893
|
|
|
|
21,332
|
|
|
|
313,548
|
|
|
|
21,332
|
|
- Financing revenues
|
|
|
44,149
|
|
|
|
-
|
|
|
|
105,413
|
|
|
|
-
|
|
- Other service fees
|
|
|
211,722
|
|
|
|
10,326
|
|
|
|
622,750
|
|
|
|
10,326
|
|
Online Lending Services (Discontinued Operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Transaction fees
|
|
|
1,160
|
|
|
|
80,564
|
|
|
|
72,394
|
|
|
|
261,450
|
|
- Service fees
|
|
|
3,134
|
|
|
|
10,557
|
|
|
|
24,990
|
|
|
|
26,205
|
|
- Website development revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
15,234
|
|
|
|
-
|
|
Total revenues
|
|
|
2,749,873
|
|
|
|
209,857
|
|
|
|
13,756,047
|
|
|
|
406,391
|
|
Total revenues from discontinued operations
|
|
|
(4,294
|
)
|
|
|
(91,121
|
)
|
|
|
(112,618
|
)
|
|
|
(287,655
|
)
|
Total revenues from continuing operations
|
|
$
|
2,745,579
|
|
|
$
|
118,736
|
|
|
$
|
13,643,429
|
|
|
$
|
118,736
|
|
Automobile transaction and related services
Sales of automobiles – The Company
generates revenue from sales of automobiles to the customers of Jinkailong, Hunan Ruixi and Mashang Chuxing. 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 and Mashang Chuxing, who acts on behalf of
its customers. The Company recognizes revenues when the automobile is delivered and control is transferred to the purchaser.
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.
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. 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 is recognized as financing revenues
over the lease term based on the effective rate of interest in the lease.
Lease
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 consider 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
reassess its pricing interest rates quarterly based on changes in the local prevailing rates in the marketplace. As of December 31,
2019, 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 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 December 31, 2019 and March 31,
2019. As of December 31, 2019, the calendar years ended December 31, 2013 through 2018 for the Company’s PRC entities
remain open for statutory examination by PRC tax authorities.
(r)
|
Comprehensive income (loss)
|
Comprehensive income (loss) includes net
income (loss) and foreign currency adjustments. Comprehensive income (loss) is reported in the consolidated statements of operations
and comprehensive income (loss). Accumulated other comprehensive loss, as presented on the 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.
Prior to March 31, 2019, leases are
classified as either capital or operating leases. Leases that transfer substantially all the benefits and risks incidental to the
ownership of assets are accounted for as if there was an acquisition of an asset and incurrence of an obligation at the inception
of the lease. All other leases are accounted for as operating leases expense and is included in the consolidated statements of
operations on a straight-line basis over the term of the leases. The Company had no capital lease commitments for the nine months
ended December 31, 2019.
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, Leases (“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
12 months or less are not required to be recognized. The Company did not have any financing lease for the nine months ended December 31,
2019.
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 approximately $246,227 ROU assets and approximately $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 consolidated statements of operations and comprehensive loss.
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 operating lease ROU asset also excludes lease incentives.
Lease expense is recognized on a straight-line basis over the lease term.
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 operating lease
liabilities in any tested asset group and include the associated operating lease payments in the undiscounted future pre-tax cash
flows.
(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 December 31, 2019 and March 31, 2019, approximately $71,000 and $1,950,000, respectively, was deposited with a bank in the United States which is insured by the U.S. government up to $250,000. On December 31, 2019 and March 31, 2019, approximately $1,083,000 and $3,070,000, respectively, were deposited in financial institutions located in mainland China, which were insured by the government authority. Under the Deposit Insurance System in China, a company’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 in mainland China. Accordingly, the Company’s business, financial condition and results of operations may
be influenced by the 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 government policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, 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 December 31, 2019, the Company provided an allowance for doubtful accounts
of $84,415, 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. As a result,
the Company re-evaluated its accounts receivables from the P2P customers and decided to write off accounts receivable of $143,337
that has not been received as of December 31, 2019.
|
2)
|
Liquidity risk and going concern
|
The Company is also exposed to liquidity
risk, which may limit the Company’s ability to access capital resources and have liquidity to meet its commitments and business
needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary,
the Company will turn to other financial institutions and the stockholders to obtain short-term funds to meet the liquidity requirements.
The Company’s management has considered
whether there is substantial doubt about its ability to continue as a going concern due to the Company’s (1) recurring losses
from operations, including approximately $4.8 million net loss attributable to the Company’s stockholders for the nine months
ended December 31, 2019, (2) accumulated deficit of approximately $19.8 million as of December 31, 2019 and (3) negative operating
cash flows of approximately $7.0 million for the nine months ended December 31, 2019.
In evaluating if there is substantial doubt
about its ability to continue as a going concern, the Company’s management is seeking to alleviate the going concern risk
through (1) cash and cash equivalents generated from operations, (2) financing from PRC banks and other financial institutions,
and (3) equity financing. The Company has certain plans to mitigate these adverse conditions and to increase the Company’s
liquidity. The Company has an unused credit line of RMB400 million (approximately USD56.2 million) from a bank is China (see Note
11(ii)) which could be used as its needs to raise its working capital. The Company also has access to a universal shelf registration
statement that could provide it with access to equity financing over the next twelve months. The Company believes that the available
cash and cash equivalents, together with the available sources of financing from a PRC bank or equity financing should enable the
Company to meet presently anticipated cash needs for at least the next twelve months from the date of these issuance of the accompanying
financial statements.
However, there is a risk that the Company
may face shortfalls in liquidity and that will be unable to obtain additional financing on commercially reasonable terms, if at
all. If adequate funds are not available, the Company may be unable to grow its business and may be required to reduce or refocus
its operations, which could have a material adverse effect on the financial condition and results of operations of the Company.
As
of December 31, 2019 and March 31, 2019, substantially all of the Company’s operating activities and major
assets and liabilities, except for the cash deposit of approximately $1,078,000 and $3,070,000, 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 Peoples’ 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 December 31, 2019, RMB were depreciated from 6.71 RMB into US$1.00 at March 31, 2019
to 6.96 RMB into US$1.00 at December 31, 2019.
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 October 2018,
the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities.
ASU 2018-17 eliminates the requirement that entities consider indirect interests held through related parties under common control
in their entirety when assessing whether a decision-making fee is a variable interest. Instead, the reporting entity will consider
such indirect interests on a proportionate basis. The amendments are effective for fiscal years ending after December 15,
2019. Early adoption is permitted. The Company is currently assessing the timing and impact of adopting the updated provisions
to its unaudited condensed consolidated financial statements.
In August 2018,
the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure
requirements on fair value measurements. The updated guidance if effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company
is currently assessing the timing and impact of adopting the updated provisions to its unaudited condensed consolidated financial
statements.
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. The Company does not intend to adopt the new standard early and
is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows;
however, it is expected that the new CECL model will alter the assumptions used in calculating credit losses on loans, finance
lease receivables, other receivables, prepayments, contingent liabilities from guarantee services, among other financial instruments,
and may result in material changes to the Company’s credit reserves.
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.
|
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.
3.
|
ACQUISITION OF HUNAN RUIXI AND ITS VIE
|
On November 21,
2018, the Company entered into the Investment Agreement with Hunan Ruixi and the Hunan Ruixi Shareholders. Pursuant to the Investment
Agreement, among other things, the Company acquired from the Hunan Ruixi Shareholders an aggregate of 60% of the outstanding equity
interest in Hunan Ruixi for no consideration. The Company closed the acquisition on November 22, 2018 and agreed to make a
capital contribution of $6,000,000 to Hunan Ruixi, representing 60% of its registered capital, in accordance with the Investment
Agreement. As of June 30, 2019, the Company made the full cash contributions totaling $6,000,000 to Hunan Ruixi. The Company
is entitled to vote and receive profits based on its equity interest ownership in Hunan Ruixi and has a right of first refusal
for any issuance of new equity of Hunan Ruixi.
The acquisition
had been accounted for as a business combination and the results of operations of Hunan Ruixi have been included in the Company's
consolidated financial statements from the acquisition date. The Company made estimates and judgments in determining the fair value
of acquired assets and liabilities, based on an independent valuation report and management's experiences with similar assets and
liabilities. The following table summarizes the fair values for major classes of assets acquired and liabilities assumed at the
date of acquisition:
|
|
Fair value
|
|
Net assets acquired (i)
|
|
$
|
63,965
|
|
Gain from acquisition of Hunan Ruixi and its subsidiary and VIE
|
|
|
-
|
|
Noncontrolling interests (ii)
|
|
|
-
|
|
Total purchase consideration
|
|
$
|
-
|
|
(i)
|
Net assets acquired primarily include cash and cash equivalents of $213,645, other current assets of $1,813,821, property and equipment of $107,865, other current liabilities of $711,303 and borrowings from related parties and affiliates of $785,231, and borrowings from financial institutions of $554,802.
|
(ii)
|
Fair value of the noncontrolling interests is estimated with reference to the purchase price per share as of the acquisition date.
|
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, $143,361 of accounts receivable, $3,749,284 of other receivables, and $143,636 of prepayments for impaired intangible
assets were indicated as of December 31, 2019 and the Company recognized $3,998,953 and $4,036,281 provision for doubtful
accounts for the three and nine months ended December 31, 2019, respectively, in related to the Company’s online lending
services business.
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 December 31, 2019.
Carrying amounts of major classes of assets included as part
of discontinued operations:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,520
|
|
|
$
|
1,052,530
|
|
Accounts receivable, net
|
|
|
-
|
|
|
|
126,272
|
|
Prepayments, receivables and other assets, net
|
|
|
910,565
|
|
|
|
6,214
|
|
Total Current Assets
|
|
|
920,085
|
|
|
|
1,185,016
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
13,883
|
|
|
|
25,205
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
|
133,062
|
|
|
|
-
|
|
Intangible assets, net
|
|
|
28,819
|
|
|
|
294,464
|
|
Prepayment for intangible assets
|
|
|
-
|
|
|
|
190,706
|
|
Total Other Assets
|
|
|
161,881
|
|
|
|
485,170
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,095,849
|
|
|
$
|
1,695,391
|
|
Carrying amounts of major classes of liabilities included
as part of discontinued operations:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Advance from customers
|
|
$
|
8,277
|
|
|
$
|
7,220
|
|
Accrued expenses and other liabilities
|
|
|
4,549,953
|
|
|
|
538,512
|
|
Due to stockholders
|
|
|
144,456
|
|
|
|
1,080,047
|
|
Due to related parties and affiliates
|
|
|
118,652
|
|
|
|
-
|
|
Lease liabilities
|
|
|
133,062
|
|
|
|
-
|
|
Total Current Liabilities
|
|
|
4,954,400
|
|
|
|
1,625,779
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
4,954,400
|
|
|
$
|
1,625,779
|
|
The following table sets forth the reconciliation
of the amounts of major classes of income and losses from discontinued operations in the consolidated statements of operations
and comprehensive loss for the three and nine months ended December 31, 2019.
|
|
For the Three Months Ended
December 31,
|
|
|
For the Nine Months Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues
|
|
$
|
4,294
|
|
|
$
|
91,121
|
|
|
$
|
112,618
|
|
|
$
|
287,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(387,895
|
)
|
|
|
(396,459
|
)
|
|
|
(1,387,059
|
)
|
|
|
(1,652,778
|
)
|
Provision for doubtful accounts
|
|
|
(3,998,953
|
)
|
|
|
-
|
|
|
|
(4,036,281
|
)
|
|
|
-
|
|
Amortization of intangible assets
|
|
|
(3,866
|
)
|
|
|
(60,474
|
)
|
|
|
(30,321
|
)
|
|
|
(233,562
|
)
|
Impairments of intangible assets and goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
(264,958
|
)
|
|
|
-
|
|
Total operating expenses
|
|
|
(4,390,714
|
)
|
|
|
(456,933
|
)
|
|
|
(5,718,619
|
)
|
|
|
(1,886,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,386,420
|
)
|
|
|
(365,812
|
)
|
|
|
(5,606,001
|
)
|
|
|
(1,598,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
|
(12,816
|
)
|
|
|
4,151
|
|
|
|
12,374
|
|
|
|
15,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(4,399,236
|
)
|
|
|
(361,661
|
)
|
|
|
(5,593,627
|
)
|
|
|
(1,583,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to stockholders
|
|
$
|
(4,399,236
|
)
|
|
$
|
(361,661
|
)
|
|
$
|
(5,593,627
|
)
|
|
$
|
(1,583,630
|
)
|
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 December 31, 2019 and March 31, 2019, accounts receivable were comprised of the following:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Receivables of transaction fees due from borrowers
|
|
$
|
-
|
|
|
$
|
126,272
|
|
Receivables of automobile sales due from automobile purchasers
|
|
|
1,532,275
|
|
|
|
-
|
|
Receivables of services fees due from automobile purchasers
|
|
|
1,774,999
|
|
|
|
199,909
|
|
Less: Unearned interest
|
|
|
(122,483
|
)
|
|
|
-
|
|
Less: Allowance for doubtful accounts
|
|
|
(84,415
|
)
|
|
|
-
|
|
Accounts receivable, net
|
|
$
|
3,100,376
|
|
|
$
|
326,181
|
|
Account receivable, net, - discontinued operations
|
|
|
-
|
|
|
|
(126,272
|
)
|
Account receivable, net, - continuing operations
|
|
$
|
3,100,376
|
|
|
$
|
199,909
|
|
|
|
|
|
|
|
|
|
|
Account receivable, net, current portion
|
|
$
|
2,009,589
|
|
|
$
|
199,909
|
|
Account receivable, net, long-term portion
|
|
$
|
1,090,787
|
|
|
$
|
-
|
|
Movement of allowance for doubtful accounts
is as follows:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Beginning balance
|
|
$
|
-
|
|
|
$
|
-
|
|
Provision for doubtful accounts
|
|
|
84,429
|
|
|
|
-
|
|
Translation adjustment
|
|
|
(14
|
)
|
|
|
-
|
|
Ending balance
|
|
$
|
84,415
|
|
|
$
|
-
|
|
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Automobiles (i)
|
|
$
|
1,526,077
|
|
|
$
|
1,508,244
|
|
(i)
|
As of December 31, 2019, the Company owned three automobiles with a total value of $36,220 for leasing purposes, 104 automobiles with a total value of $1,236,312 for sale, and 21 automobiles with a total value of $253,545 for either leasing or sale.
|
As of December 31, 2019 and March 31, 2019, management
compared the cost of automobiles with their net realizable value and determined no inventory write-down was necessary for these
automobiles.
7.
|
PREPAYMENTS, RECEIVABLES AND OTHER ASSETS
|
As of December 31, 2019 and March 31,
2019, the prepayments, receivables and other assets were comprised of the following:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Receivables from borrowers of online lending platform, net (i)
|
|
$
|
906,718
|
|
|
$
|
-
|
|
Due from automobile purchasers, net (ii)
|
|
|
3,178,623
|
|
|
|
2,564,834
|
|
Prepayments for automobiles (iii)
|
|
|
555,543
|
|
|
|
394,821
|
|
Deposits
|
|
|
537,266
|
|
|
|
294,986
|
|
Value added tax (“VAT”) recoverable (iv)
|
|
|
105,478
|
|
|
|
228,196
|
|
Deferred issuance costs pursuant to Registration Statement on Form S-3 (v)
|
|
|
-
|
|
|
|
149,696
|
|
Prepaid expenses
|
|
|
261,378
|
|
|
|
112,147
|
|
Employee advances
|
|
|
39,307
|
|
|
|
-
|
|
Others
|
|
|
27,935
|
|
|
|
48,788
|
|
Total prepayments, receivables and other assets
|
|
|
5,612,248
|
|
|
|
3,793,468
|
|
Total prepayments, receivables and other assets - discontinued operations
|
|
|
(910,565
|
)
|
|
|
(6,214
|
)
|
Total prepayments, receivables and other assets - continuing operations
|
|
$
|
4,701,683
|
|
|
$
|
3,787,254
|
|
(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 December 31, 2019, the Company recorded allowance of $3,749,284 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 December 31, 2019 and March 31,
2019, the Company recorded allowance of $143,796 and $2,995, respectively, against doubtful receivables.
(iii)
|
Prepayments for automobiles
|
The balance represented amounts
advanced to dealers for automobiles and to other third parties for automobiles related taxes and insurances.
(iv)
|
VAT recoverable
|
|
|
|
The balance of VAT recoverable represented the amount to be utilized to offset the Company’s future VAT arising from sales of goods.
|
(v)
|
Deferred issuance costs pursuant to Registration Statement on Form S-3
|
|
|
|
On April 15, 2019, the Company’s Registration Statement on Form S-3 registering up to $80,000,000 in aggregate principal amount of its common stock, preferred stock, debt securities, warrants, rights and/or units were declared effective. The deferred issuance costs pursuant to Form S-3 represented the direct and incremental costs related to the registered direct offering closed on June 21, 2019. The deferred issuance costs were netted against the gross proceeds of the offering on the effective date of the offering.
|
8.
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment consist of the following:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Leasehold improvements
|
|
$
|
180,700
|
|
|
$
|
-
|
|
Electronic devices
|
|
|
44,614
|
|
|
|
28,305
|
|
Office equipment, fixtures and furniture
|
|
|
77,285
|
|
|
|
48,157
|
|
Vehicles
|
|
|
247,451
|
|
|
|
81,523
|
|
Subtotal
|
|
|
550,050
|
|
|
|
157,985
|
|
Less: accumulated depreciation and amortization
|
|
|
(119,026
|
)
|
|
|
(32,100
|
)
|
Total property and equipment, net
|
|
$
|
431,024
|
|
|
$
|
125,885
|
|
Total property and equipment, net - discontinued operations
|
|
|
(13,883
|
)
|
|
|
(25,205
|
)
|
Total property and equipment, net - continuing operations
|
|
$
|
417,141
|
|
|
$
|
100,680
|
|
Depreciation and amortization expense from
continuing operations for the three months ended December 31, 2019 and 2018 amounted to $32,276 and $947, respectively. Depreciation
and amortization expense from discontinued operations for the three months ended December 31, 2019 and 2018 amounted to $2,719
and $2,823, respectively.
Depreciation
and amortization expense from continuing operations for the nine months ended December 31, 2019 and 2018 amounted to
$82,672 and $947, respectively. Depreciation and amortization expense from discontinued operations for the nine months ended December 31,
2019 and 2018 amounted to $8,339 and $7,720, respectively.
9.
|
INTANGIBLE ASSETS, NET
|
Intangible assets consisted of the following:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Customer relationship
|
|
$
|
-
|
|
|
$
|
392,618
|
|
Platform
|
|
|
1,119,389
|
|
|
|
1,161,267
|
|
Software
|
|
|
66,433
|
|
|
|
27,205
|
|
Subtotal
|
|
|
1,185,822
|
|
|
|
1,581,090
|
|
Less: Accumulated amortization
|
|
|
(1,155,631
|
)
|
|
|
(1,284,999
|
)
|
Total intangible assets, net
|
|
|
30,191
|
|
|
|
296,091
|
|
Total intangible assets, net - discontinued operations
|
|
|
(28,819
|
)
|
|
|
(294,464
|
)
|
Total intangible assets, net - continuing operations
|
|
$
|
1,372
|
|
|
$
|
1,627
|
|
Amortization expense from continuing operations
totaled $84 and $14 for the three months ended December 31, 2019 and 2018, respectively. Amortization expense from discontinued
operations totaled $3,866 and $60,474 for the three months ended December 31, 2019 and 2018, respectively.
Amortization expense from continuing operations
totaled $197 and $14 for the nine months ended December 31, 2019 and 2018, respectively. Amortization expense from discontinued
operations totaled $30,321 and $233,562 for the nine months ended December 31, 2019 and 2018, respectively.
The following table sets forth the Company’s
amortization expense for the next five years ending:
|
|
Amortization
expenses
|
|
Twelve months ending December 31, 2020
|
|
$
|
342
|
|
Twelve months ending December 31, 2021
|
|
|
342
|
|
Twelve months ending December 31, 2022
|
|
|
342
|
|
Twelve months ending December 31, 2023
|
|
|
272
|
|
Thereafter
|
|
|
74
|
|
Total
|
|
$
|
1,372
|
|
10.
|
PREPAYMENTS FOR INTANGIBLE ASSETS
|
As of December 31, 2019 and March 31,
2019, the balance of prepayments for intangible assets of $750,000 and $280,000 respectively, represented the advance payments
to a third party for the development of software to be used in the Company’s automobile transaction and related services.
The balance will be recognized as intangible assets and amortized over the estimated useful life upon the completion of installation
and testing of the software.
As of December 31, 2019 and March 31, 2019,
the balance of prepayments for intangible assets of $0 and $190,706 respectively, represented the advance payments for the development
of software to be used in the Company’s online P2P lending services business. On October 17, 2019, the Board approved the
Plan under which the Company discontinued and is winding down its online P2P lending services business. As a result, the Company
re-evaluated its prepayments for intangible assets to be used in the Company’s online P2P lending platform and determined
that it would no longer be using such software. As a result, the Company wrote off all those prepayments of $143,636 for intangible
assets for the three and nine months ended December 31, 2019.
11.
|
BORROWINGS FROM FINANCIAL INSTITUTIONS, CURRENT AND NONCURRENT
|
(i)
|
Borrowings from Financial institutions
|
The borrowings from certain financial institutions
represented the difference between the actual proceeds disbursed by the financial institutions to Jinkailong and the total principal
to be responsible for and repaid by the automobile purchasers. Such borrowings totaled $252,944 and $396,946 bearing interest rates
ranging between 6.2% and 8.1% per annum at December 31, 2019 and March 31, 2019, respectively, of which $41,696 and $177,789,
respectively, is to be repaid over a period of 13 to 24 months.
The interest expense for the three months
ended December 31, 2019 and 2018 was $16,498 and $2,993, respectively. The interest expense for the nine months ended December 31,
2019 and 2018 was $37,827 and $2,993, respectively.
On August 17, 2018, Hunan Riuxi signed
an intention agreement of credit line with Bank of Changsha Co., Ltd. (“Changsha Bank”). Pursuant to the agreement,
Changsha Bank has granted Hunan Ruixi a credit line up to approximately RMB400 million (approximately USD56.2 million) within
a term of 24 months from August 17, 2018 to August 17, 2020. As of the date of the issuance of these financial statements, Hunan
Ruixi has not used any portion of the credit line.
12.
|
BORROWINGS FROM THIRD PARTIES
|
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Borrowings from third parties
|
|
$
|
-
|
|
|
$
|
476,765
|
|
The borrowings from third parties were
fully repaid in July 2019. The interest expense for the three months ended December 31, 2019 and 2018 was $0 and $0,
respectively. The interest expense for the nine months ended December 31, 2019 and 2018 was $12,994 and $0, respectively.
13.
|
ACCRUED EXPENSES AND OTHER LIABILITIES
|
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Payables to investors of online lending platform (i)
|
|
$
|
3,983,877
|
|
|
$
|
-
|
|
Accrued payroll and welfare
|
|
|
861,072
|
|
|
|
614,765
|
|
Other payable (ii)
|
|
|
278,324
|
|
|
|
247,335
|
|
Loan repayments received on behalf of financial institutions (iii)
|
|
|
189,572
|
|
|
|
169,657
|
|
Payables for expenditures on automobile transaction and related services
|
|
|
110,172
|
|
|
|
157,382
|
|
Accrued expenses
|
|
|
156,671
|
|
|
|
198,456
|
|
Deposits
|
|
|
453,198
|
|
|
|
82,232
|
|
Other taxes payable
|
|
|
-
|
|
|
|
30,976
|
|
Total accrued expenses and other liabilities
|
|
|
6,032,886
|
|
|
|
1,500,803
|
|
Total accrued expenses and other liabilities - discontinued operations
|
|
|
(4,549,953
|
)
|
|
|
(538,512
|
)
|
Total accrued expenses and other liabilities - continuing operations
|
|
$
|
1,482,933
|
|
|
$
|
962,291
|
|
(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.
|
14.
|
EMPLOYEE BENEFIT PLAN
|
The Company has made employee benefit contributions
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
$74,518 and $4,442 for the three months ended December 31, 2019 and 2018, respectively, for continuing operations of the Company.
The contributions made by the Company were $61,447 and $22,059 for the three months ended December 31, 2019 and 2018, respectively,
for the Company’s discontinued operations.
The contributions made by the Company were
$169,458 and $4,442 for the nine months ended December 31, 2019 and 2018, respectively, for continuing operations of the Company.
The contributions made by the Company were $158,184 and $62,017 for the nine months ended December 31, 2019 and 2018, respectively,
for the Company’s discontinued operations.
As of December 31, 2019 and March 31,
2019, the Company did not make adequate employee benefit contributions in the amount of $159,641 and $65,868, respectively, for
continuing operations of the Company. As of December 31, 2019 and March 31, 2019, the Company did not make adequate employee
benefit contributions in the amount of $441,392 and $337,578, 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 IPO 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 shares of the 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 the issuance of these financial statements,
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 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 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 and nine months ended December 31, 2019, the
change of fair value was a loss of $485,400 and a gain of $1,509,406, respectively, recognized in the accompanying unaudited condensed
consolidated statements of operations and comprehensive loss based on the decrease 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 December 31, 2019, the fair value of the derivative instrument totaled $629,848.
The Company has outstanding warrants as
following:
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Average
Exercise
|
|
|
Remaining
Contractual
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Price
|
|
|
Life
|
|
Balance, March 31, 2018
|
|
|
337,940
|
|
|
|
337,940
|
|
|
$
|
4.80
|
|
|
|
4.96
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(300,000
|
)
|
|
|
(300,000
|
)
|
|
$
|
4.80
|
|
|
|
-
|
|
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, December 31, 2019
|
|
|
1,519,602
|
|
|
|
1,519,602
|
|
|
$
|
1.76
|
|
|
|
3.45
|
|
Restricted Stock Units
On July 31, 2018, the Board approved
the issuance of 5,000 restricted stock units (“RSUs”) to each of the five directors as stock compensation for their
services for the Company’s fiscal year ending March 31, 2019. Total RSUs granted to the five directors were 25,000 for
an aggregate fair value of $117,750. Pursuant to the Restricted Stock Unit Award Agreements (“Award Agreements”) on
August 3, 2018, the RSUs vest in four equal quarterly installments on August 3, 2018, April 1, 2019, July 1,
2019 and October 1, 2019 or in full upon the occurrence of a change in control of the Company, subject to the terms and conditions
set forth in the Award Agreements, provided that the director remains in service as a director through the applicable vesting date.
The RSUs will be settled by the Company’s issuance of shares of common stock in certificated or uncertificated form upon
the earlier of (i) a change in control and (ii) the director’s cessation as a director of the Company due to a
“separation of service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, or
the director’s death or disability.
As of March 31, 2019, the first installment
of RSUs vested and the Company accounted for the vested RSUs as an addition to both expenses and additional paid-in capital. The
fair value of the vested RSUs is calculated at the grant date market price of the Company’s common stock multiplying by the
number of vested shares.
On December 11, 2019, the Board approved
the issuance of 30,303 RSUs to each of the Company’s five directors as stock compensation for their services for the Company’s
fiscal year ending March 31, 2020.
A summary of RSU activity for the year
ended March 31, 2019 and for the nine months ended December 31, 2019 is as follows:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant
Date Fair
Value
|
|
Balance of RSUs outstanding at March 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
Grants of RSUs
|
|
|
25,000
|
|
|
$
|
4.42
|
|
Vested RSUs
|
|
|
(6,250
|
)
|
|
$
|
4.42
|
|
Forfeited RSUs
|
|
|
(7,500
|
)
|
|
$
|
4.42
|
|
Balance of unvested RSUs at March 31, 2019
|
|
|
11,250
|
|
|
$
|
4.42
|
|
Grants of RSUs
|
|
|
151,515
|
|
|
|
0.66
|
|
Vested RSUs
|
|
|
(11,250
|
)
|
|
$
|
4.42
|
|
Forfeited RSUs
|
|
|
-
|
|
|
|
-
|
|
Balance of unvested RSUs at December 31, 2019 (Unaudited)
|
|
|
151,515
|
|
|
$
|
0.66
|
|
Total compensation expense for the three months ended December 31, 2019 and 2018 was $91,575 and $0, respectively. Total compensation
expense for the nine months ended December 31, 2019 and 2018 was $108,150 and $27,625, respectively. Two directors ceased
to serve on the board since November 8, 2018, and as a result 7,500 RSUs were forfeited during the year ended March 31, 2019.
The Company had an aggregate of 151,515 and 11,250 of unrecognized RSUs as of December 31, 2019 and March 31, 2019, respectively,
to be expensed over three months and nine months, respectively.
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. As of the date of this report, no awards have been granted
under the plan.
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 from $3.72 to $1.50 per share on December 20, 2019.
The Series B warrants are pre-funded
warrants and are being 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). During
the nine months ended December 31, 2019, the Company 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. The State of Nevada does not impose any state corporate
income tax.
The Company’s net operating loss
for the nine months ended December 31, 2019 amounted to approximately $846,000. As of December 31, 2019, the Company’s
net operating loss carryforward for U.S. income taxes was approximately $2.1 million. The net operating loss carryforward is available
to reduce future years’ taxable income through year 2039. 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 consolidated balance sheets. As of December 31,
2019 and March 31, 2019, valuation allowances for deferred tax assets were approximately $0.45 million and $0.27 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
December 31,
|
|
|
For the Nine Months Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current income tax (benefits) expenses
|
|
$
|
(72,648
|
)
|
|
$
|
-
|
|
|
$
|
155,722
|
|
|
$
|
-
|
|
Deferred income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
(122,772
|
)
|
|
|
-
|
|
Total income tax (benefits) expenses
|
|
$
|
(72,648
|
)
|
|
$
|
-
|
|
|
$
|
32,950
|
|
|
$
|
-
|
|
As of December 31, 2019 and March 31, 2019,
the Company’s PRC entities from continuing operations had net operating loss carryforwards of $0 and approximately $123,000,
respectively, which will expire in 2023. 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 March 31, 2019, full valuation allowance is provided
against the deferred tax assets based upon management’s assessment as to their realization. During the nine months ended
December 31, 2019, the Company utilized deferred tax assets of approximately $31,000 related to the Company’s net operating
loss carryforwards.
The tax effects of temporary differences
from continuing operations that give rise to the Company’s deferred tax assets are as follows:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Net operating loss carryforwards in the PRC
|
|
$
|
-
|
|
|
$
|
30,693
|
|
Net operating loss carryforwards in the U.S.
|
|
|
449,995
|
|
|
|
272,258
|
|
Less: valuation allowance
|
|
|
(449,995
|
)
|
|
|
(302,951
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2019 and March 31,
2019, the Company’s PRC entities associated with the discontinued P2P lending operations had net operating loss carryforwards
of approximately $8.7 million and $3.4 million, respectively, which will expire in 2023. 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
December 31, 2019 and March 31, 2019, 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:
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Net operating loss carryforwards in the U.S.
|
|
$
|
2,166,677
|
|
|
$
|
855,483
|
|
Less: valuation allowance
|
|
|
(2,166,677
|
)
|
|
|
(855,483
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
17.
|
RELATED PARTY TRANSACTIONS AND BALANCES
|
1.
|
Related Party Balances
|
1)
|
Due from related parties
|
As of December 31, 2019, due from
Mashang Chuxing was $81,233, which represented the funds Yicheng provided to support the operations of Mashang Chuxing since August 2019.
Other balances due from related parties were $12,260 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 $14,361 represents advances to the non-controlling shareholders of Hunan Ruixi for operational purposes.
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.
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Jun Wang
|
|
$
|
74,640
|
|
|
$
|
107,233
|
|
Xiang Hu
|
|
|
69,816
|
|
|
|
972,814
|
|
Total due to stockholders
|
|
$
|
144,456
|
|
|
$
|
1,080,047
|
|
Total due to stockholders – discontinued operations
|
|
|
(144,456
|
)
|
|
|
(1,080,047
|
)
|
Total due to stockholders – continuing operations
|
|
$
|
-
|
|
|
$
|
-
|
|
3)
|
Due to related parties and affiliates
|
|
|
December 31,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Loan payable to related parties (i)
|
|
$
|
260,782
|
|
|
$
|
95,781
|
|
Other payables due to related parties (ii)
|
|
|
-
|
|
|
|
297,978
|
|
Others (iii)
|
|
|
70,014
|
|
|
|
22,172
|
|
Total due to related parties and affiliates
|
|
|
330,796
|
|
|
|
415,931
|
|
Total due to related parties and affiliates – discontinued operations
|
|
|
(118,652
|
)
|
|
|
-
|
|
Total due to related parties and affiliates – continuing operations
|
|
$
|
212,144
|
|
|
$
|
415,931
|
|
(i)
|
As of December 31, 2019 and March 31, 2019, the balances represented borrowings from three related parties, which is unsecured, interest free and due in the fiscal year of 2020. The balance as of March 31, 2019 bore an interest rate of 10% per annum and is due in the fiscal year of 2020.
|
(ii)
|
As of March 31, 2019, the balance represented borrowings from two related parties, who obtained borrowings from the online P2P lending platform of Sichuan Senmiao and then loaned the money to Jinkailong. The balance bore an interest rate of 8.22% per annum and was fully repaid in April 2019.
|
(iii)
|
As of December 31, 2019 and March 31, 2019, the balances represented $70,014 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
December 31, 2019 and 2018 were $750 and $3,246, respectively. Interest expense for the nine months ended December 31,
2019 and 2018 were $28,772 and $3,246, 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 December 31,
2019, the outstanding balances were $69,816 and $74,640, respectively.
The Company entered into two office lease
agreements which 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. For the three months ended December 31, 2019 and 2018, the Company paid $27,415
and $11,278, respectively, to the stockholder in rental expenses. For the nine months ended December 31, 2019 and 2018, the
Company paid $82,246 and $69,182 in rent, respectively, to the stockholder.
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. For the three months ended December 31, 2019 and 2018, the Company paid $20,725
and $0 in rent, respectively, to Dingchentai. For the nine months ended December 31, 2019 and 2018, the Company paid $31,180
and $0 in rent, respectively, to Dingchentai.
Before the acquisition of Hunan Ruixi,
five related parties of Jinkailong borrowed funds of $747,647 through the online P2P lending platform of Sichuan Senmiao and then
loaned the money to Jinkailong. As of March 31, 2019, the outstanding balance was $297,978. During the three months ended
June 30, 2019, Jinkailong repaid all of the loans. Those loans bore interest rates ranging from 7.68% to 8.22% per annum
and the interest expense for the three and nine months ended December 31, 2019 was $0 and $12,184, respectively.
Effective January 1, 2019, the Company
adopted ASU 2016-02, “Leases” (Topic 842), and elected the package of practical expedients that does not require the
Company to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification
for any expired or existing leases and (3) initial direct costs for any expired or existing leases. The impact of the adoption
of the ASC 842, as of April 1, 2019, the Company recognized approximately $246,227 ROU assets and approximately $247,325 lease
liabilities, primarily related to leases of facilities. 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. The average remaining lease term of its existing leases
is 2.34 years. 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 consolidated statements of operations and comprehensive loss.
The
Company occupies various offices under operating lease agreements with a term shorter than 12 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.
Rental expenses from continuing operations
totaled $50,690 and $16,402 for the three months ended December 31, 2019 and 2018, respectively. Rental expenses from discontinued
operations totaled $27,077 and $30,747 for the three months ended December 31, 2019 and 2018, respectively.
Rental expenses from continuing operations
totaled $202,751 and $16,402 for the nine months ended December 31, 2019 and 2018, respectively. Rental expenses from discontinued
operations totaled $84,192 and $97,116 for the nine months ended December 31, 2019 and 2018, respectively.
The following table sets forth the Company’s
minimum lease payments in future periods:
|
|
Lease payments
|
|
Twelve months ending December 31, 2020
|
|
$
|
374,112
|
|
Twelve months ending December 31, 2021
|
|
|
192,968
|
|
Twelve months ending December 31, 2022
|
|
|
124,187
|
|
Twelve months ending December 31, 2023
|
|
|
107,729
|
|
Twelve months ending December 31, 2024
|
|
|
41,168
|
|
Total lease payments
|
|
|
840,164
|
|
Less: discount
|
|
|
(76,805
|
)
|
Present value of lease liabilities
|
|
|
763,359
|
|
Present value of lease liabilities – discontinued operations
|
|
|
(133,062
|
)
|
Present value of lease liabilities – continuing operations
|
|
$
|
630,297
|
|
19.
|
COMMITMENTS AND CONTINGENCIES
|
From
January 1, 2020 through the date of issuance of these financial statements, the Company entered into two contracts with two
automobile dealers for the purchase of a total of 21 automobiles for an aggregate purchase price of approximately $348,000. These
purchase transactions are expected to be completed by the end of 2020.
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.
However, as the Company commenced the
automobile transaction and related services for less than one year, there was no sufficient 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
previous defaulted amounts within one to three months. Therefore, for the nine months ended December 31, 2019, the Company
did not provide provisions for the guarantee services. As of December 31, 2019, the maximum contingent liabilities the Company
exposed to would be approximately $18,901,000 if all the automobile purchasers defaulted, among which approximately $553,000 would
be due to Sichuan Senmiao after the assumption of all the loans in accordance with the Plan. 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 $15,540,000 as of December 31, 2019, based on the market price and the
useful life of such collateral, which represents about 82.2% of the contingent liabilities.