The following discussion and analysis of our results of operations and financial
condition should be read together with our consolidated financial statements and
the notes thereto and other financial information, which are included elsewhere
in this Report. Our financial statements have been prepared in accordance with
U.S. GAAP. In addition, our financial statements and the financial information
included in this Report reflect our organizational transactions and have been
prepared as if our current corporate structure had been in place throughout the
relevant periods.
Overview
We were incorporated in the State of Delaware on January 7, 2019. We are a
travel service provider. We currently provide car services to individual and
group travelers. We currently offer carpooling, airport pick-up and drop-off,
and personal driver services for travelers between Guangdong Province and Hong
Kong. We collaborate with car fleet companies and charge a service fee by
matching the traveler and the driver. We officially launched our online service
through our "Let's Go" mobile application in December 2019 to provide
multi-language services to international travelers coming to visit China.
Redefining user experience, we aim to provide our users with comprehensive and
convenient service offerings and become a one-stop travel booking resource for
travelers. While network scale is important, we recognize that transportation
happens locally. We currently operate in two markets - Guangdong Province and
Hong Kong and plan to expand our offering in more oversea markets.
38
Transfers of Cash to and from Our Subsidiaries
Pony Group Inc is a holding company incorporated in Delaware with no material
operations of its own, and we conduct our business through our indirectly
wholly-owned subsidiaries, Pony HK, in Hong Kong and Universe Travel, in
Shenzhen. We currently do not rely on dividends and other distributions on
equity to be paid by our Hong Kong or Shenzhen subsidiaries to fund our cash and
financing requirements, including the funds necessary to pay dividends and other
cash distributions to our stockholders, to service any debt we may incur and to
pay our operating expenses. Currently, substantially all of our operations are
in Hong Kong from Pony HK and in Shenzhen from Universe Travel. Pony HK is the
parent of a wholly-owned subsidiary, Universe Travel Culture & Technology Ltd.,
that is incorporated in the PRC. We do not intend to set up any subsidiary or
enter into any contractual arrangements to establish a VIE structure with any
entity in China. Hong Kong is a special administrative region of the PRC and the
basic policies of the PRC regarding Hong Kong are reflected in the Basic Law of
the Hong Kong Special Administrative Region of the People's Republic of China
(the "Basic Law"), providing Hong Kong with a high degree of autonomy and
executive, legislative and independent judicial powers, including that of final
adjudication under the principle of "one country, two systems". The laws and
regulations of the PRC do not currently have any material impact on any future
transfer of cash either from us to Pony HK or from Pony HK to us and the
investors in the U.S. In addition, there are no restrictions or limitations
under the laws of Hong Kong imposed on the conversion of Hong Kong dollar or the
Chinese Yuan into foreign currencies and the remittance of currencies out of
Hong Kong or across borders and to U.S investors.
We are permitted under the Delaware law to provide funding to our subsidiaries,
including Pony HK and Universe Travel, through loans or capital contributions
without restrictions on the amount of the funds. There are no significant
restrictions or limitations on our ability to distribute earnings from our
businesses, including our subsidiaries, to the U.S. investors. Specifically,
under PRC laws and regulations, Universe Travel is a wholly foreign-owned
enterprise in China. As such, Universe Travel may pay dividends only out of its
accumulated after-tax profits as determined in accordance with PRC accounting
standards and regulations. In addition, a wholly foreign-owned enterprise is
required to set aside at least 10% of its accumulated after-tax profits each
year, if any, to fund certain statutory reserve funds until the aggregate amount
of such funds reaches 50% of its registered capital. At its discretion, a wholly
foreign-owned enterprise may allocate a portion of its after-tax profits based
on PRC accounting standards to staff welfare and bonus funds. These reserve
funds and staff welfare and bonus funds are not distributable as cash dividends.
In addition, Pony HK is permitted under the laws of Hong Kong to provide funding
to Pony Group Inc, the holding company incorporated in Hong Kong, and to Pony
HK's subsidiary, Universe Travel, a company incorporated in the PRC, through
dividend or other distribution without restrictions on the amount of the funds.
Further, Pony HK and Universe Travel currently intend to retain all available
funds and future earnings, if any, for the operation and expansion of its
business and does not anticipate declaring or paying any dividends in the
foreseeable future As of the date of this Report, there has been no dividends,
distributions or cash transfer between our holding company and our subsidiaries
nor do we expect such dividends, distributions or cash transfers to occur in the
foreseeable future among our holding company and its subsidiaries. Accordingly,
we currently do not have, nor we anticipate to have in the future, cash
management policies that dictate how funds are transferred between our holding
company and its subsidiaries.
Moreover, there are no restrictions on foreign exchange or our ability to
transfer cash between entities within our group, across borders, or to U.S.
investors. However, the PRC government has significant authority to intervene or
influence the China operations of an offshore holding company at any time, and
such oversight may also extend to our Hong Kong operating company. We cannot
assure you that the PRC government will not prevent us from transferring the
cash we maintain in Hong Kong outside of Hong Kong, or restrict our ability to
deploy our cash into business or to pay dividends. We could also be subject to
limitations on the transfer or the use of our cash if we expand our business
operations into China or conduct our operations in some other ways such that we
become subject to PRC laws that regulate these activities. In addition, if Pony
HK or Universe Travel incur debt on its own behalf in the future, the
instruments governing the debt may restrict its ability to pay dividends or make
other distributions to us. To the extent cash and/or assets in the business is
in Pony HK or Universe Travel, the cash and/or assets may not be available to
fund operations or for other use outside of the PRC or Hong Kong due to
interventions in or the imposition of restrictions and limitations on our
ability or on our subsidiaries by the PRC government to transfer such cash
and/or assets. As such, any limitation on our ability to transfer or use our
cash could materially and adversely limit our ability to grow, make investments
or acquisitions that could be beneficial to our business, pay dividends, or
otherwise fund and conduct our business.
We have never paid or declared any cash dividends on our common stock and do not
anticipate paying cash dividends in the foreseeable future. The declaration of
dividends on any class of shares is within the discretion of our board of
directors, subject to Delaware law, out of legally available funds, and will
depend on the assessment of, among other factors, earnings, capital requirements
and our operating and financial condition. None of our subsidiaries has made any
dividends or distributions to us. Under the current practice of the Inland
Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of
dividends paid by us. See "Item 1A. Risk Factors - Risks Related to Our Business
and Industry - We are not likely to pay cash dividends in the foreseeable
future.."
39
Plan of Operations
In January 2019, we started our Research and Development ("R&D") project mobile
Lets Go App ("App") designed to have multi-language interface to attract users
from the world, focusing on providing one-stop travel services to foreigners
traveling in China, for both leisure and business.
In April 2019, we rolled out basic version which supports carpooling, car
rental, Airport Pick-up and/or Drop-off, etc., ready for download at Apple App
store; the basic version has an interface in Chinese language only. In May 2019,
we rolled out second version which has an enhanced interface in both Chinese and
English language, supporting payment through PayPal. By the end of 2019, we
rolled out third version which has multi-language interface to attract users
from all-over the world. In January 2020, we official launched App.
We intend to attract users from outside of China to use our App and expand our
offerings on the App to serve as a one-stop shop to book tickets, reserve
hotels, rent a car and hire an English speaking driver.
Our goal is to grow to an international player in the travel service market. To
accomplish such goal, we will cooperate with other businesses which have
capital, marketing and technology resources or products. We expect to recruit
more workforce and talents, and develop new technologies and products.
Results of Operations
For the Year ended December 31, 2021 Compared to December 31, 2020
Revenue
For the year ended December 31, 2021 and 2020, revenues were $157,627 and
$115,381, respectively, with an increase of $42,246 over the same period in
2020. In compliance with the government health emergency rules in place, the
Company temporarily closed all offices in China and ceased operations from
January 19, 2020 to February 10, 2020. During the year ended December 31, 2021,
orders for our travel service business have recovered.
Cost of Revenue
Cost of Revenue for the year ended December 31, 2021 and 2020 were $102,314 and
$58,191, respectively, with an increase of $44,123 over the same period in 2022.
The increase mainly due to the increase of revenue, the cost of revenue increase
accordingly.
Gross Profit
Gross profits were $55,313 and $57,190 for the year ended December 31, 2021 and
2020, respectively, a decrease of $1,877 over the same period in 2020.
Operating Expenses
Operating expenses for the year ended December 31, 2021 and 2020 were $171,276
and $100,742, respectively, with an increase of $70,534 or 70.01% from the same
period in 2020. The increase mainly due to the effect of COVID-19 the Company
temporarily closed all offices in China and ceased operations from January 19,
2020 to February 10, 2020. There was no such item during the year ended December
31, 2021.
40
Other Income (Expense)
Other income consists of interest income and exchange gain (loss) for the year
ended December 31, 2021 and 2020 the net other income were $17,957 when it
was$1,765 for the same period in 2020.The change of other Income(expense) mainly
due to the change of exchange rate . The increase was mainly due to the change
of exchange rate and the increase of average cash balance.
Liquidity and Capital Resources
We suffered recurring losses from operations and have an accumulated deficit of
$280,326 at December 31, 2021. We had a cash balance of $266,011 and working
capital deficit of $102,984 as of December 31, 2021. The Company has incurred
losses of $98,006 and $41,787 for the year ended December 31 2021 and 2020,
respectively. The Company has not continually generated significant gross
margins. Unless our operations generate a significant increase in gross margins
and cash flows from operating activities, our continued operations will depend
on whether we are able to raise additional funds through various sources, such
as equity and debt financing, other collaborative agreements and/or strategic
alliances. Our management is actively engaged in seeking additional capital to
fund our operations in the short to medium term. Such additional funds may not
become available on acceptable terms and there can be no assurance that any
additional funding that we do obtain will be sufficient to meet our needs in the
long term. As of December 31, 2021, we had enough cash to last approximately six
months.
Net cash used in operating activities for the year ended December 31, 2021,
amounted to $2,778, compared to $61,082 net cash used in operating activities
for the year ended December 31, 2020.
There were $0 cash used by investment activities for the year ended December 31,
2021 and 2020.
Net cash used in financing activities for the year ended December 31, 2021
amounted to $14,333, compared to net cash provided by financing activities of $
309,692 in the same period 2020. In June 2020, we completed the initial public
offering and received proceeds of $250,000 before deducting underwriting
discounts, commissions and other related expenses.
COVID-19
In January 2020, the World Health Organization declared a global health
emergency as the novel coronavirus ("COVID-19") outbreak continues to spread
beyond China. In an effort to contain COVID-19, the Chinese authorities have
suspended air, road, and rail travel in the area around Wuhan and placed
restrictions on travel and other activities throughout China, including
Guangdong Province and Hong Kong, the key market in which we operate. In
compliance with the government health emergency rules in place, the Company
temporarily closed all offices in China and ceased operations from January 19,
2020 to February 10, 2020. At the end of this period, management reopened our
business.
As of the date of this prospectus, the Hong Kong government has reported cases
of COVID-19 in the region, has upgraded its response level to emergency, its
highest response level, and is taking other steps to manage the outbreak. On
February 8, 2020, the Hong Kong government began enforcing a compulsory 14-day
quarantine for anyone, regardless of nationality, arriving in Hong Kong who has
visited mainland China within a 14-day period. This quarantine does not apply to
individuals transiting Hong Kong International Airport and certain exempted
groups such as flight crews. However, health screening measures are in place at
all of Hong Kong's borders and the Hong Kong authorities will quarantine
individual travelers, including passengers transiting the Hong Kong
International Airport, if the Hong Kong authorities determine the traveler to be
a health risk. On January 30, 2020, the Hong Kong government closed certain
transportation links and border checkpoints connecting Hong Kong with mainland
China (all located in Guangdong Province) until further notice, and on February
3, 2020 suspended ferry services from Macau (which has border checkpoints
connecting Macau with Guangdong Province).
The effects of the COVID-19 pandemic, including the travel restrictions
described above, have resulted in a dramatic reduction in the number of people
travelling from Guangdong Province to Hong Kong and a similar reduction in the
number of our customers and have, severely impacted our operating results during
the first quarter of 2020. For example, compared to the first quarter of 2019,
the first quarter of 2020's revenue, cost of revenue and operating expenses
decreased by 33.2%, 43.8% and 76.6%, respectively, and gross profit and other
income increased by 19.9% and 240.8%, respectively. We believe the decreases,
including the decrease in cost of revenue, are primarily attributable to the
fact that we ceased car services for individual and group travelers between
Guangdong Province and Hong Kong in the first quarter of 2020, resulting in a
decrease of customers. In the same period, we started to provide express,
small-package delivery services for customers in the same region in cities
including Shenzhen, Guangzhou, Zhuhai and Zhongshan, which brought in an
estimated $8,700 of revenue. We expect that after our offices reopened on
February 11, 2020 and as the travel restrictions started to ease, our business
will gradually return to normal levels, although we are unable to predict as of
the date of this prospectus the speed of the recovery.
41
We expect the COVID-19 outbreak may materially affect our financial condition
and results of operations going forward. Our business operations and activities
in many regions (including Hong Kong and Guangdong Province) may be subject to
quarantines, "shelter-in-place" rules, and various other restrictions for the
foreseeable future. Due to the uncertainty of the future impacts of the COVID-19
pandemic, the extent of the financial impact cannot be reasonably estimated at
this time. Without limited the generality of the foregoing sentence, any
significant disruption to travel, including travel restrictions and other
potential protective quarantine measures against COVID-19 by governmental
agencies, may increase the difficulty and could make it difficult for the
Company to provide its services to its customers. Travel restrictions and
protective measures against COVID-19 could cause the Company to incur additional
unexpected costs and expenses. The extent to which COVID-19 impacts the
Company's business, sales and results of operations will depend on future
developments, which are highly uncertain and cannot be predicted.
Going Concern
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern; however, the above condition
raises substantial doubt about the Company's ability to do so. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result should the Company be unable to
continue as a going concern.
In order to continue as a going concern, the Company will need, among other
things, additional capital resources. Management's plans to obtain such
resources for the Company include (1) obtaining capital from the sale of its
equity securities, (2) sales of the Company's services, (3) short-term and
long-term borrowings from banks, and (4) short-term borrowings from stockholders
or other related party(ies) when needed. However, management cannot provide any
assurance that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually to secure other sources of financing and attain
profitable operations.
Critical Accounting Policies
The discussion and analysis of the Company's financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. We continually evaluate our estimates,
including those related to bad debts, the useful life of property and equipment
and intangible assets, and the valuation of equity transactions. We base our
estimates on historical experience and on various other assumptions that we
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Any future changes to these
estimates and assumptions could cause a material change to our reported amounts
of revenues, expenses, assets and liabilities. Actual results may differ from
these estimates under different assumptions or conditions. We believe the
following critical accounting policies affect our significant judgments and
estimates used in the preparation of the financial statements.
Accounts Receivable - The customers are required to make payments when they book
the services, otherwise, the services will not be arranged. Sometimes, the
Company extends credit to its group clients. The company considers accounts
receivable to be fully collectible at year-end. Accordingly, no allowance for
doubtful accounts has been recorded.
Revenue Recognition - The Company recognizes revenue in accordance with ASC 606.
The core principle of ASC606 is to recognize revenue when promised goods or
services are transferred to customers in an amount that reflects the
consideration that is expected to be received for those goods or services. ASC
606 defines a five-step process to achieve this core principle, which includes:
(1) identifying contracts with customers, (2) identifying performance
obligations within those contracts, (3) determining the transaction price, (4)
allocating the transaction price to the performance obligation in the contract,
which may include an estimate of variable consideration, and (5) recognizing
revenue when or as each performance obligation is satisfied. Our sales
arrangements generally ask customers to pay in advance before any services can
be arranged. The company recognizes revenue when each performance obligation is
satisfied. Documents and terms and the completion of any customer acceptance
requirements, when applicable, are used to verify services rendered. The Company
has no returns or sales discounts and allowances because services rendered and
accepted by customers are normally not returnable
Off-Balance Sheet Arrangements
As of December 31, 2021, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
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PONY GROUP INC. 