SENMIAO TECHNOLOGY LIMITED The following discussion and analysis of our results of operations and financial condition should be read together with our unaudited consolidated condensed financial statements and the notes thereto, which are included elsewhere in this Report and our Annual Report on Form 10-K for the year endedMarch 31, 2021 (the "Annual Report") filed with theSEC . Our financial statements have been prepared in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). Overview We are a provider of automobile transaction and related services, connecting auto dealers, financial institutions, and consumers, who are mostly existing and prospective ride-hailing drivers affiliated with different operators of online ride-hailing platforms inthe People's Republic of China ("PRC" or "China"). We provide automobile transaction and related services through our wholly owned subsidiaries,Yicheng Financial Leasing Co., Ltd. , a PRC limited liability company ("Yicheng"),Chengdu Corenel Technology Limited , a PRC limited liability company ("Corenel"), andHunan Ruixi Financial Leasing Co., Ltd. ("Hunan Ruixi"), a PRC limited liability company, and its variable interest entity ("VIE"),Sichuan Jinkailong Automobile Leasing Co., Ltd. ("Jinkailong"). SinceOctober 2020 , we also operate an online ride-hailing platform throughHunan Xixingtianxia Technology Co., Ltd. ("XXTX"), a majority owned subsidiary ofSichuan Senmiao Zecheng Business Consulting Co., Ltd. , our wholly-owned subsidiary ("Senmiao Consulting "). Our platform enables qualified ride-hailing drivers to provide application-based transportation services mainly inChengdu ,Changsha andGuangzhou, China . In addition, we are going to be engaged in providing system development and support for online ride-hailing platforms like XXTX through our new VIE,Chengdu Youlu Technology Ltd. ("Youlu"). However, Youlu has not yet begun their operation as ofDecember 31, 2021 . Substantially all of our operations are conducted inChina .
Our Automobile Transactions and Related Services
Our automobile transaction and related services are mainly comprised of (i) automobile operating lease where we provide car rental services to individual customers to meet their personal needs with lease term no more than twelve months; (ii) automobile financing where we provide our customers with auto finance solutions through financing leases; (iii) automobile sales where we procure new cars from dealerships and sell them to our customers in the automobile financing facilitation business; and (iv) facilitation of automobile transaction and financing where we connect the prospective ride-hailing drivers to financial institutions to buy, or get financing on the purchase of, cars to be used to provide online ride-hailing services. We started our facilitation services inNovember 2018 , the sale of automobiles inJanuary 2019 , and financial and operating leasing inMarch 2019 , respectively. SinceNovember 22, 2018 , the acquisition date of Hunan Ruixi, and as ofDecember 31, 2021 , we have facilitated financing for an aggregate of 1,687 automobiles with a total value of approximately$26.0 million , sold an aggregate of 1,419 automobiles with a total value of approximately$13.8 million and delivered approximately 2,207 automobiles under operating leases and 131 automobiles under financing leases to customers, the vast majority of whom are online ride-hailing drivers. The table below provides a breakdown of the number of vehicles sold or delivered under different leasing arrangements or managed/guaranteed by us and corresponding revenue generated for the three and nine months endedDecember 31, 2021 and 2020: Three Months Ended December 31 Nine Months Ended December 31 2021 2020 2021 2020 Number of Revenue Number of Revenue Number of Revenue Number of Revenue Vehicles (Approximate) Vehicles (Approximate) Vehicles (Approximate) Vehicles (Approximate) Operating Leases 2,025$ 1,947,000 1,195$ 940,000 2,136$ 5,440,000 1,220$ 2,136,000 Financing Leases 131$ 26,000 130$ 74,000 131$ 102,000 130$ 179,000 Sales - - 7$ 104,000 - - 26$ 528,000 Facilitation - - 7$ 19,000 - - 61$ 181,000 Other Services >1,500$ 553,000 >2,200$ 197,000 >1,800$ 1,089,000 >2,500$ 848,000 51 Table of Contents Our operating leases, automobile management services and auto financial leasing accounted for approximately 82.0%, 2.3% and 1.5% of our total revenue from our automobile transactions and related services, respectively, for the nine months endedDecember 31, 2021 , while our operating leases, auto sales, auto financing and transaction facilitation, automobile management services and auto financial leasing accounted for approximately 55.2%, 13.6%, 4.7%, 8.1% and 4.6% for the nine months endedDecember 31, 2020 , respectively.
Our Ride-Hailing Platform Services
As part of our goal to provide an all-encompassing solution for online ride-hailing drivers as well as to increase our competitive strengths in an increasingly competitive online ride-hailing industry and to take advantage of the market potential, inOctober 2020 , we began operating our own online ride-hailing platform inChengdu . The platform (called Xixingtianxia) was owned and operated by XXTX, of whichSenmiao Consulting acquired a 78.74% equity interest pursuant to a supplementary agreement to XXTX Investment Agreement with all the original shareholders of XXTX onFebruary 5, 2021 (the "XXTX Increase Investment Agreement"). Pursuant to the XXTX Increase Investment Agreement,Senmiao Consulting agreed to make an investment ofRMB40 million (approximately$6 million ) in XXTX in cash in exchange for a 78.74% equity interest in XXTX. The registration procedures for the change in shareholders and registered capital of XXTX were completed onMarch 19, 2021 . After the transaction, the total registered capital of XXTX increased toRMB50.8 million (approximately$7.8 million ). OnOctober 22, 2021 ,Senmiao Consulting further entered into a Share Swap Agreement (the "Share Swap Agreement"), pursuant to which theSenmiao Consulting shall acquire all of the remaining equity interests the original shareholders hold in XXTX at a total purchase price of$3.5 million , payable in the Company's shares of common stock, par value$0.0001 per share (the "Common Stock") at a per share price of the average closing price of a share of Common Stock reported on the Nasdaq Capital Market for ten (10) trading days immediately preceding the date of the Share Swap Agreement. OnNovember 9, 2021 , the issuance of 5,331,667 shares of the Company's common stock for this transaction has been completed and onDecember 31, 2021 , the registration procedures for the change in shareholders and thee record-filing of the local PRC government have been completed. Upon the completion of the transaction,Senmiao Consulting holds 100% equity interest in XXTX. As the date of this Report,Senmiao Consulting has made capital contribution ofRMB36.16 million (approximately$5.69 million ) to XXTX and the remaining amount is expected to be paid beforeDecember 31, 2025 . XXTX operates Xixingtianxia and holds a national online reservation taxi operating license. The platform is presently servicing online ride-hailing drivers in 14 cities inChina , includingChengdu ,Changsha ,Guangzhou and so on, providing them with a platform to view and take customer orders for rides. We currently collaborate with Gaode Map, a well-known aggregation platform inChina on our ride-hailing platform services. We also entered into a cooperation agreement with a top online ride-hailing platform inJune 2021 . Under our collaboration, when a rider uses the platform to search for taxi/ride-hailing services on the aggregation platform, the platform provides such rider a number of online ride-hailing platforms for selection, including ours and if our platform is selected by the rider, the order will then be distributed to registered drivers on our platform for viewing and acceptance. The rider may also simultaneously selects multiple online ride-hailing platforms in which case, the aggregation platform will distribute the requests to different online ride-hailing platforms which they cooperate with, based on the number of available drivers using the platform in a certain area and these drivers' historical performance, among other things. We generate revenue from providing services to online ride-hailing drivers to assist them in providing transportation services to the riders looking for taxi/ride-hailing services. We earn commissions for each completed order as the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider. We settle our commissions with the aggregation platforms on a weekly basis. Meanwhile, in order to strengthen our market position in certain cities, our collaboration model with Meituan has been changed from the one the same as Gaode, to the one focusing on automobile operating lease and drivers' management services sinceAugust 2021 . Since earlyAugust 2021 , we signed a new contract with an affiliate of Meituan, whereby the online ride-hailing requests and orders shall be completed on Meituan's platform utilizing our network of cars and drivers. We earn rental income from drivers and will earn commissions from Meituan in the future. 52 Table of Contents
The acquisition of XXTX has brought us a new stream of revenue and enhanced our goal of providing an all-encompassing solution for online ride-hailing drivers. We launched Xixingtianxia in specific markets withinChengdu in lateOctober 2020 , focusing on current driver customers. During the nine months endedDecember 31, 2021 , we have expanded marketing of our ride-hailing platform to a larger pool of potential drivers and riders inChengdu ,Changsha ,Guangzhou and another 11 cities through cooperation with certain local car rental companies and through offering attractive incentives and awards to drivers. During the nine months endedDecember 31, 2021 , approximately 10.2 million rides with gross fare of approximately$32.2 million were completed through Xixingtianxia and an average of over 10,900 ride-hailing drivers completed rides and earned income through Xixingtianxia (the "Active Drivers") each month. We plan to expand our driver base for the platform and automobile rental business while strengthening the royalty of the drivers who both lease our cars and use our platform while expanding. During the nine months endedDecember 31, 2021 , we earned online ride-hailing platform service fees of approximately$1.6 million , netting off approximately$3.2 million incentives paid to Active Drivers. We intend to focus on drivers who currently finance or lease vehicles through us but our platform is available to others. We plan to launch Xixingtianxia in more cities acrossChina the next 12 months.
Key Factors and Risks Affecting Results of Operations
Ability to Increase Our Automobile Lessee and Active Driver Base
Our revenue growth has been largely driven by the expansion of our automobile lessee base and the corresponding revenue generated from operating and financial leasing. After the acquisition of XXTX, our revenue growth also depends on the number of completed online ride-hailing orders on our platform, which largely depends on the number of Active Drivers who complete ride-hailing transactions on our platform. We acquire customers for our Automobile Transaction and Related Services, as well as for our Online Ride-hailing Platform Services, through the network of third-party sales teams, referral from online ride-hailing platforms and our own efforts including online advertising and billboard advertising. We also send out fliers and participate in trade shows to advertise our services. We plan to increase the number of our Active Drivers by expanding our platform to more cities during the next five years as well as marketing our platform to our existing and prospective automobile lessees. We expect the expansion of our Active Driver base to promote the growth of our automobile rental business because we offer automobile rental solutions/incentives specifically targeted at drivers using our platform. An effective cross-selling strategies between our automobile finance and leasing business and the newer online ride-hailing platform business is important to our expansion and revenue growth. We also plan to strengthen our marketing efforts through the collaboration with certain automobile dealers and through our own team by employing more experienced staffs and improving the quality and variety of our services. As ofDecember 31, 2021 , we had 74 employees in our own sales department.
Management of Automobile Rentals
Due to the fierce competition of online ride-hailing industry inChengdu and the adverse impact from COVID-19 pandemic across mainlandChina , a significant number of online ride-hailing drivers exited the ride-hailing business and rendered their automobiles to us for sublease or sales in order to generate income/proceeds to cover their payments owed to the financial institutions and us. We have seen an increasing demand for short-term car rentals since the end of 2019, which remained stable during the three and nine months endedDecember 31, 2021 . To meet the demand of business expansion, we also lease automobiles from third parties. The daily management and timely maintenance of leased automobiles will have a significant effect on the growth of our income from leasing automobiles in the next twelve months. The effective management of our automobiles through our proprietary system and experienced auto-management team could provide qualified automobiles to potential lessees, either for personal use or providing online ride-hailing services. As ofDecember 31, 2021 , we had one parking lot and 15 employees inChengdu , one parking lot and five employees inGuangzhou , and one parking lot and five employees inChangsha for parking and management of automobiles for operating lease. During the three months endedDecember 31, 2021 and 2020, our average utilization of the automobiles for operating lease was approximately 82% and 76%, respectively. During the nine months endedDecember 31, 2021 and 2020, our average utilization of the automobiles for operating lease was approximately 74% and 73%, respectively. 53 Table of Contents
Our Service Offerings and Pricing
The growth of our revenue depends on our ability to improve existing solutions and services provided, continue identifying evolving business needs, refine our collaborations with business partners and provide value-added services to our customers. The attraction of new automobile leases depends on our leasing solutions with attractive rental price and flexible leasing terms. We have also adopted a stable pricing formula, considering the historical and future expenditure, remaining available leasing months and market price to determine our rental price for varied rental solutions. Furthermore, our product designs affect the type of automobile leases we attract, which in turn affect our financial performance. The attraction of new Active Drivers depends on the comprehensive income they could earn from our own or cooperated platform, which is mainly affected by the number orders distributed to them through our platform and the amount of the incentives paid to them from platforms. Our revenue growth also depends on our abilities to effectively price our services, which enables us to attract more customers and improve our profit margin.
Ability to Retain Existing Financial Institutions and Engage New Financial Institutions
Historically, the growth of our business is dependent on our ability to retain existing financial institutions and engage new financial institutions. During the three and nine months endedDecember 31, 2021 , we did not generate revenue from automobile financing facilitation transactions because of the shift of our business focus to automobile rental. Despite such decrease, we are exploring new collaboration methods with financial institutions in connection with our automobile rental business and for our purchase of new energy vehicles ("NEVs") in the next twelve months. Our collaborations with financial institutions may be affected by factors beyond our control, such as perception of automobile financing as an attractive asset, stability of financial institutions, general economic conditions and regulatory environment. To increase the number of our cooperative financial institutions and the availability of financing for our existing and new businesses will enhance the overall stability and sufficiency of funding for automobile transactions.
Ability to Collect Payments on a Timely Basis
We used to advance the purchase price of automobiles and all service expenses when we provide related services to the purchasers. We collect the receivables due from automobile purchasers from their monthly installment payments and repay financial institutions on behalf of the purchasers every month. As ofDecember 31, 2021 , we had accounts receivable, net of allowance of approximately$0.7 million and advanced payments of approximately$0.5 million due from the automobile purchasers, net of allowance, which will be collected through installment payments on a monthly basis during the relevant affiliation periods. During the nine months endedDecember 31, 2021 , we settle our commissions with the aggregation platforms on a weekly basis for our online ride-hailing platform services and automobile rental income on a monthly basis. As ofDecember 31, 2021 , we had accounts receivable of online ride-hailing service fees of approximately$0.1 million in total. The efficiency of collection of the monthly and weekly payments has a material impact on our daily operation. Our risk and asset management department has set up a series of procedures to monitor the collection from drivers. Our business department has also set up a stable and close relationship with cooperated platform to ensure the timely collection of commissions. Besides, we are dealing with a cooperated platform to temporarily "lock-up" the fares of the rides which Active Drivers earn from the platform to ensure the timely collection of our rental receivables from those Active Drivers. The accounts receivable and advance payments may increase our liquidity risk. We have used the majority of the proceeds from our equity offerings and plan to seek equity and/or debt financings to pay for the expenditure related to the automobile purchase. To pay for the expenditure in advance will enhance the stability of our daily operation and lower the liquidity risk, and attract more customers.
Ability to Manage Defaults and Potential Guarantee Liability Effectively
We are exposed to credit risk as we are required by certain financial institutions to provide guarantee on the lease/loan payments (including principal and interests) of the automobile purchasers referred by us. If a default occurs, we are required to make the monthly payments on behalf of the defaulted purchasers to the financial institution.
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We manage the credit risk arising from the default of automobile purchasers by performing credit checks on each automobile purchaser based on the credit reports fromPeople's Bank of China and third-party credit rating companies, and personal information including residence, ethnicity group, driving history and involvement in legal proceeding. Our risk department continuously monitors the payment by each purchaser and sends them payment reminders. We also keep close communication with our purchasers in particular the online ride-hailing drivers so that we can evaluate their financial conditions and provide them with assistance including the transfer of automobile to a new driver if they are no longer interested in providing ride-hailing services or are unable to earn enough income to make monthly lease/loan payments. In addition, automobiles are used as collateral to secure purchasers' payment obligations under the financing arrangement. In the event of a default, we can track the automobile through an installed GPS system and repossess and handover the automobile over to the financial institution so that we can be released from our guarantee liability. However, if a financial institution initiates a legal proceeding to collect payments due from a defaulted automobile purchaser, we may be required to repay the defaulted amount as a guarantor. If we are unable to undertake the responsibility as a guarantor, our assets, such as cash and cash equivalents, may be frozen by the court if the financial institution successfully requests for an order to freeze our assets or bank accounts, which may adversely affect our operations. As ofDecember 31, 2021 , approximately$5,841,000 , including interests of approximately$350,000 , due to financial institutions, of all the automobile purchases we serviced were past due. 1,325 online ride-hailing drivers we serviced rendered their automobiles to us for sublease or sale and 55 automobile purchasers that remained in the online ride-hailing business were late in their monthly installment payments as ofDecember 31, 2021 . In general, most of the defaulted automobile purchasers who want to remain in online ride-hailing business would pay the default amounts within one to three months. Our risk management department typically starts to interact with overdue purchasers if they have missed one monthly installment payment. However, if the balances are overdue for more than two months or the purchasers decide to exit the online ride-hailing business and sublease or sell their automobiles, we would fully record an allowance against receivables from those purchasers. As ofDecember 31, 2021 , we recognized an accumulated allowance against receivables of approximately$3,721,000 from these purchasers. For the three and nine months endedDecember 31, 2021 , we also recognized approximately$6,000 and$26,000 expenses, respectively, for the guarantee services as the drivers exited the online ride-hailing business and would no longer make the monthly repayments to us. During the three months and nine months endedDecember 31, 2021 , we sub-leased approximately 1,100 and 1,210 rendered automobiles to other customers. By subleasing automobiles from these drivers, we believe we can cope with the defaults and control associated risks. Further, the automobiles subject to our financing leases are not collateralized by us. As ofDecember 31, 2021 , the total value of non-collateralized automobiles was approximately$1,012,000 . We believe our risk exposure of financing leasing is immaterial as we have experienced limited default cases and we are able to re-lease those automobiles to drivers under financing leases.
Actual and Potential Impact of Ongoing Coronavirus (COVID-19) in
Beginning in late 2019, an outbreak of a novel strain of coronavirus and related respiratory illness (which we refer to as COVID-19) was first identified inChina and has since spread rapidly globally. The COVID-19 pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities inChina and globally. InMarch 2020 , the WHO declared COVID-19 a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because all of our business operations and our workforce are concentrated inChina (where the virus first originated), our business, results of operations and financial condition have been adversely affected. Due to the lockdown policy and travel restrictions, the demand for ride-hailing services has been materially and adversely impacted in our areas of operation inChina , which reduced the demand of our Automobile Transaction and Related Services. As a result, our revenue and income for the three months endedMarch 31, 2020 andJune 30, 2020 were negatively impacted to a significant extent. As the online ride-hailing markets inChengdu andChangsha gradually recovered from the impact of COVID-19 since the latter half of the three months endedJune 30, 2020 , we have witnessed the increasing trend on our revenue for the last three quarters in the year endedMarch 31, 2021 . The revenue generated during the three and nine months endedDecember 31, 2021 increased over 100% and 97.5%, respectively, as compared with the three and nine months endedDecember 31 ,
2020.
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Impact on Our Automobile Transactions and Related Services
Our ability to collect the monthly installment payments from ride-hailing drivers during February andMarch 2020 was adversely impacted. Approximately 1,500 drivers delayed their monthly installments of February andMarch 2020 , which resulted in a decrease in our monthly installment collection by$732,000 during February andMarch 2020 . SinceApril 2020 , the COVID-19 epidemic inChina has been effectively controlled and the online ride-hailing markets inChengdu andChangsha have been recovering since the latter half of the three months endedJune 30, 2020 . As ofDecember 31, 2021 , 1,325 drivers exited the online ride-hailing business and rendered their automobiles to us for sublease or sale while 55 drivers postponed their monthly installment payments. As a result, we recorded accumulated bad debt expenses of approximately$3,721,000 . The average monthly installments during the three and nine months endedDecember 31, 2021 increased approximately 0.4% and 3%, respectively, as compared with the same period in 2020. We will continue to closely monitor our collections. Our daily cash flow has also been adversely impacted as a result of the unsatisfied collection from the online ride-hailing drivers and our potential guarantee expenditure pursuant to the financing agreements we guaranteed. Our cash flow will be adversely impacted if local resurgence of COVID-19 cases incurs inChengdu ,Changsha andGuangzhou , which would have negative impact on the online ride-hailing market accordingly due to travel restriction. In addition, our automobile purchasers and lessees may be unable to generate sufficient income to make their monthly installment payments, which may create a significant risk of continuing default from our automobile purchasers or lessees. As a result, we may have to repay the defaulted amount as a guarantor or lose the monthly rental revenue. If we experience a widespread default by our automobile purchasers/lessees, our cash flow and results of operations will be materially and adversely affected. As a consequence, we could face shortfalls in liquidity without extra financing resources for the foreseeable future and lose the ability to grow our business or may even be required to scale down or restructure our operations. In an effort to assist with our automobile purchasers, we negotiated with the financial institutions we cooperate with to extend the due dates for monthly payments that may be affected by the epidemic. Certain financial institutions agreed to grant a grace period of up to four months from February toMay 2020 for qualified drivers.
Impact on Our Ride-Hailing Platform Services
We commenced the operation of our online ride-hailing platform since lateOctober 2020 and have witnessed the decrease in online ride-hailing orders inmid-December 2020 and lateJuly 2021 , whenChengdu reported 14 and 6 confirmed COVID-19 cases, respectively, and fewer people took ride-hailing trips as a result. The average daily rides completed through our platform decreased by approximately 10% to 15% compared to that before the reporting of the new COVID-19 cases inChengdu and recovered a week later as the new confirmed cases inChengdu were fully under control. Consequently, the income of our Automobile Transaction and Related Services customers who ran their business through theDidi platform also decreased during this period. Similarly, in earlyJanuary 2021 ,Beijing reported three confirmed COVID-19 cases and one asymptomatic case involving drivers forDidi , a major transportation network company, which also resulted in the decrease in orders in theDidi platform inBeijing . Sincemid-May 2021 toJune 2021 ,Guangzhou has reported a series of confirmed and asymptomatic COVID-19 cases, the local government has ensured concrete and effective measures to fight against the resurgence, including suspending some traffic activities in certain medium-risk and high-risk areas inGuangzhou . The average daily rides completed through our platform decreased by approximately 40% compared to that before the reporting of the new COVID-19 cases inGuangzhou . During the nine months endedDecember 31, 2021 , recent local resurgences of COVID-19 cases in some areas did not have material negative impacts on the economy ofChina , so we expect that the impact brought by potential COVID-19 cases in the future may be limited asChina has established plans to rapidly contain the spread of COVID-19 cases and minimize related economic losses. We temporally closed our corporate headquarter to adhere to the lockdown policy inChengdu fromJuly 28 to August 11, 2021 , as required by relevantChengdu regulatory authorities as a countermeasure for the local resurgences of COVID-19 in lateJuly 2021 . Our employees were working in other offices and the closure of our headquarter did not have significant impact on our business operations during such period. We reopened our headquarter inChengdu onAugust 12, 2021 . However, if the epidemic inChina deteriorates during the fiscal year endingMarch 31, 2022 , large number of new confirmed COVID-19 cases in the regions where we operate our online ride-hailing platform may have significant negative impact on the demand for rides through online ride-hailing platforms, including our platform and our revenue from the Online Ride-hailing Platform Services
may
decrease.
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We anticipate having a larger cash outflow in our daily operations in the next
twelve months as we expand our Online Ride-hailing Platform Services in more
cities in China and incur more marketing and promotion expenses. Our cash flow
situation may worsen if the COVID-19 pandemic reoccurs in China .
Any of these factors related to COVID-19 and other similar or currently
unforeseen factors beyond our control could have an adverse effect on our
overall business environment, cause uncertainties in the regions in China where
we conduct business, cause our business to suffer in ways that we cannot predict
and materially and adversely impact our business, financial condition and
results of operations.
Ability to Manage and Grow New Ride-Hailing Business
Due to the fierce competition of online ride-hailing industry inChengdu andChangsha , our ability to increase our revenue over time may be limited if we focus only on our current Automobile Transaction and Related Services business model. As part of our strategy to provide an all-encompassing solution for online ride-hailing drivers, we have expanded our services to drivers through the operation of Xixingtianxia, our own online ride-hailing platform, which has brought us a new stream of revenue. We generate revenue from commissions earned from each completed order, which represent the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider. As the aggregation platforms distribute the demand orders to different online ride-hailing platforms, the flow of drivers in our area of operations is enhanced, leading to a higher probability that more ride orders will be distributed to our platform, which in turn will increase the revenue of the drivers who use our platform (and our revenue). This also allows us to attract more drivers to engage their online ride-hailing business on our platform. Through a series of promotion and effective daily management and training services, we expect our own online ride-hailing platform will offer us a stable revenue source which can also help grow our automobile financing and leasing business. Pursuant to the cooperation agreement signed withDidi Chuxing Technology Co., Ltd. ("Didi") for our Automobile Transaction and Related Services, we may be penalized byDidi , or our partnership withDidi may be terminated as we now operate a business competitive withDidi . However, the service fees we earned fromDidi for automobile transaction and related services currently represent less than 0.1% of our total revenue. Therefore, we believe the termination of cooperation withDidi on automobile transaction and related services will not have a material influence on our business or results of operations.
Ability to Compete Effectively
Our business and results of operations depend on our ability to compete
effectively. Overall, our competitive position may be affected by, among other
things, our service quality and our ability to price our solutions and services
competitively. We will set up and continuously optimize our own business system
to improve our service quality and user experience. Our competitors may have
more resources than we do, including financial, technological, marketing and
others and may be able to devote greater resources to the development and
promotion of their services. We will need to continue to introduce new or
enhance existing solutions and services to continue to attract automobile
dealers, financial institutions, car buyers, leasees, ride-hailing drivers and
other industry participants. Whether and how quickly we can do so will have a
significant impact on the growth of our business.
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Market Opportunity and Government Regulations in
The demand for our services depends on overall market conditions of the online ride-hailing industry inChina . The continuous growth of the urban population places increasing pressure on the urban transportation and the improvement of living standards has increased the market demand for quality travel inChina . Traditional taxi service is limited, and the emerging online platforms have created good opportunities for the development of the online ride-hailing service market. Based on the monitoring ofChina E-Commerce Research Center , the number of online ride-hailing service users had reached 333 million by the end of 2018, increased by 16% from 2017. According toBain & Company , the transaction value ofChina's online ride-hailing market in 2017 was larger than the total of the rest of the world. It estimated that by 2021, the total transaction value ofChina's online ride-hailing market will reach$60 billion . The online ride-hailing industry is facing increasing competition inChina and is attracting more capital investment. According to the MOT ofthe People's Republic of China , as ofDecember 31, 2021 , approximately 258 online ride-hailing platforms have obtained booking taxi operating licenses and the total volume of online ride-hailing orders was approximately 681 million inDecember 2021 inChina . Meanwhile, approximately 1.6 million online booking taxi transportation certificates and approximately 3.9 million online booking taxi driver's licenses were issued nationwide inChina . According to the 47th Statistical Report onInternet Development published inFebruary 2021 , by the end ofDecember 2020 , the number of passengers of online ride-hailing inChina was approximately 365 million, took approximately 36.9% of the total number of Chinese internet users. Since 2019, in addition to the traditional online ride-hailing platforms, automobile manufacturers, offline operation service companies, financial and map service providers, among others, have built cooperation relationships with each other to make the online ride-hailing industry a more aggregated industry. The online ride-hailing industry may also be affected by, among other factors, the general economic conditions inChina . The interest rates and unemployment rates may affect the demand of ride-hailing services and automobile purchasers' willingness to seek credit from financial institutions. Adverse economic conditions could also reduce the number of qualified automobile purchasers and online ride-hailing drivers seeking credit from the financial institutions, as well as their ability to make payments. Should any of those negative situations occur, the volume and value of the automobile transactions we service will decline, and our revenue and financial condition will be negatively impacted. In order to manage the rapidly growing ride-hailing service market and control relevant risks, onJuly 27, 2016 , seven ministries and commissions inChina , including the MOT, jointly promulgated the "Interim Measures for theAdministration of Online Taxi Booking Business Operations and Services" ("Interim Measures") and amended it onDecember 28, 2019 , which legalizes online ride-hailing services such asDidi and requires the online ride-hailing services to meet the requirements set out by the measures and obtain taxi-booking service licenses and take full responsibility of the ride services to ensure the safety of riders. OnNovember 5, 2016 , theMunicipal Communications Commission of Chengdu City and a number of municipal departments jointly issued the "Implementation Rules for theAdministration of Online Booking Taxi Management Services for Chengdu ", which was abolished and replaced by the updated version issued onJuly 26, 2021 . OnAugust 10, 2017 , theTransportation Commission of Chengdu further issued the detailed guidance "Working Process for the Online Booking Taxi Drivers Qualification Examination and Issuance" and the "Online Booking Taxi Transportation Certificate Issuance Process." According to these regulations and guidelines, three licenses /certificates are required for operating the online ride-hailing business inChengdu : (1) the ride-hailing service platform such asDidi should obtain the online booking taxi operating license; (2) the automobiles used for online ride-hailing should obtain the online booking taxi transportation certificate ("automobile certificate"); (3) the drivers should obtain the online booking taxi driver's license ("driver's license"). Besides, all the new cars used for online ride-hailing should be NEVs. OnJuly 23, 2018 , theGeneral Office of Changsha Municipal People's Government issued the "Detailed Rules for theAdministration of Online Booking Taxi Management Services for Changsha ." OnJune 12, 2019 , theMunicipal Communications Commission of Changsha City further issued "Transfer and Registration Procedures of Changsha Online Booking of Taxi." According to the regulations and guidelines, to operate a ride-hailing business inChangsha requires similar licenses inChengdu , except those automobiles used for online ride-hailing services are required to meet certain standards, including that the sales price (including taxes) is overRMB120,000 (approximately$17,000 ). In practice, Hunan Ruixi is also required to employ a safety administrator for every 50 automobiles used for online ride-hailing services and submit daily operation information of these automobiles such as traffic violation to theTransport Management Office of the Municipal Communications Commission of Changsha City every month. 58 Table of Contents
In addition to the national online reservation taxi operating license, XXTX and its subsidiaries also obtained the online reservation taxi operating license in 21 cities, includingChengdu ,Changsha ,Guangzhou , Hezhou,Haikou ,Nanchang ,Shenyang , Tianjing, Yiyu, two cities inShandong Province , five cities inJiangsu Province and other five cities inSichuan Province fromJune 2020 toJanuary 2022 , to operate the online ride-hailing platform services. AndDidi , the online ride-hailing platform with whom we cooperate for our automobile transaction and related services, obtained the online reservation taxi operating license inChengdu andChangsha inMarch 2017 andJuly 2018 , respectively. However, approximately 50% of our ride-hailing drivers have not obtained the driver's license as ofDecember 31, 2021 while all of the cars used for online ride-hailing services which we provided management services have the automobile certificate. Without requisite automobile certificate or driver's license, these drivers may be suspended from providing ride-hailing services, confiscated their illegal income and subject to fines of up to 10 times of their illegal income. Starting inDecember 2019 ,Didi began to enforce such limitation on drivers inChengdu who have a driver's license but operate automobiles without the automobile certificate. Furthermore, according to the Interim Measures, no enterprise or individual is allowed to provide information for conducting online ride-hailing services to unqualified vehicles and drivers. InDecember 2020 ,Chengdu Transportation Bureau has taken a series of investigations into actions violating the Interim Measures and imposed fines for such violations. Among the 226 cases, two cases involved drivers of our Xixingtianxia online ride-hailing platform who failed to obtain the ride-hailing driver's licenses. As a result, we were finedRMB10,000 (approximately$1,600 ). Pursuant to the Interim Measures, XXTX and its subsidiaries may be fined betweenRMB5,000 toRMB30,000 (approximately$787 to$4,720 ) for violations of the Interim Measures, including providing online ride-hailing platform services to unqualified drivers or vehicles. During the three and nine months endedDecember 31, 2021 , we have been fined by approximately$4,000 and$170,000 by Traffic Management Bureaus inChengdu andChangsha , respectively, of which, approximately$2,000 and$15,000 , respectively, was further compensated by drivers or cooperated third parties. If we are deemed in serious violation of the Interim Measures, our Online Ride-hailing Platform Services may be suspended and the relevant licenses may be revoked by certain government authorities. We are in the process of assisting the drivers to obtain the required certificate and license both for our Automobile Transaction and Related Services and our Online Ride-hailing Platform Services. However, there is no guarantee that all of the drivers affiliated with us would be able to obtain all the certificates and licenses. Further, there is no assurance that each of the drivers who using our platform or the cars used by such drivers in providing ride-hailing services possesses the requisite license or certificate. Our business and results of operations will be materially and adversely affected if our affiliated drivers are suspended from providing ride-hailing services or imposed substantial fines or if we are found to be in serious violation of the Interim Measures due to the drivers' failure to obtain requite licenses and/or automobile certificates in connection with providing services through our platform. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. For example, the Chinese cybersecurity regulator announced onJuly 2, 2021 that it had begun an investigation ofDidi and two days later ordered that the company's app be removed from smartphone app stores. We believe that our current operations are in compliance with the laws and regulations of the Chinese cybersecurity regulator. However, the Company's operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry.
Our Discontinued Online P2P Lending Services
We previously also operated an online lending platform through our VIE,Sichuan Senmiao , inChina , which facilitated loan transactions between Chinese investors and individual and SME borrowers. Our revenues from online lending services were primarily generated from fees charged for our services in matching investors with borrowers. We charged borrowers transaction fees for the work we perform through our platform and charged our investors service fees on their actual investment returns. We ceased our online lending services inOctober 2019 to focus on our automobile transaction and related services. 59
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In connection with the plan adopted by our Board of Directors to discontinue and wind down our online P2P lending services business onOctober 17, 2019 (the "Plan"), we ceased facilitation of loan transactions on our online lending platform and assumed all the outstanding loans from investors on the platform. The aggregate balance of the loans we assumed was approximately$5.6 million . As ofDecember 31, 2021 , we have repaid all of the platform investors using the cash generated from our Automobile Transaction and Related Services and payments collected from borrowers in the aggregate of approximately$6.3 million . SinceDecember 31, 2019 , we have treated the online lending business as discontinued operations and recognized receivables from borrowers and payables to investors of approximately$4.0 million in our financial statements accordingly. Based on recent repayments collected from borrowers, we also recognized bad debt expenses of approximately$3.8 million for those receivables and$0.3 million for accounts receivable and prepayment for intangible assets related to our online lending services. However, the amount and timing of the actual allowance for bad debt may change based on evidence of collectability of the subject loans during the execution of the Plan. As part of the Plan, we transferred certain employees who used to work on our online lending business, primarily the information technology staffs, to provide a new website design and development service for customers.
Results of Operations for the Three Months Ended
For the
Three Months Ended
December 31,
2021 2020 Change
(unaudited) (unaudited)
Revenues $ 3,543,049 $ 1,638,550 $ 1,904,499
Cost of revenues (2,692,177) (1,793,815) (898,362)
Gross profit (loss) 850,872 (155,265) 1,006,137
Operating expenses
Selling, general and administrative expenses (3,764,222) (2,401,250) (1,362,972)
Recovery of doubtful accounts 22,330 187,907 (165,577)
Impairments of long-lived assets (7,982) (41,983) 34,001 Total operating expenses (3,749,874) (2,255,326) (1,494,548) Loss from operations (2,899,002) (2,410,591) (488,411) Other income (expenses), net 170,847 (72,586) 243,433 Interest expense (16,475) (2,158) (14,317)
Interest expense on finance leases (97,919) (150,227) 52,308 Change in fair value of derivative liabilities 3,536,859 (1,030,843) 4,567,702 Issuance costs for issuing series A convertible preferred stock (821,892) - (821,892) Loss before income taxes (127,582) (3,666,405) 3,538,823 Income tax expenses (4,539)
(7,487) 2,948 Net loss$ (132,121) $ (3,673,892) $ 3,541,771 Revenues We started generating revenue from Automobile Transaction and Related Services from our acquisition of Hunan Ruixi onNovember 22, 2018 and revenue from Online Ride-hailing Platform Services from our acquisition of XXTX onOctober 23 ,
2020,
respectively.
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Revenue for the three months ended December 31, 2021 increased by $1,904,499 , or
approximately 116%, as compared with the three months ended December 31, 2020 .
The increase was mainly due to the increase of operating lease revenues from
automobile rentals and revenues from online ride-hailing platform services. In
an effort to mitigate the negative impact on our daily cash flow resulting from
the rendering of automobiles from drivers who exited the ride-hailing business
due to the COVID-19 pandemic in China and develop the new business, we shifted
our business focus to automobile rentals from facilitation of automobile
transaction and financing since the fiscal year 2021. The online ride-hailing
market has gradually recovered since the latter half of the three months ended
June 30, 2020 as COVID-19 is generally under control in China and the sporadic
local resurgences of COVID-19 did not have material impact on the market. As a
result, the number of additional automobiles rendered to us by the ride-hailing
drivers exiting the business decreased during the three months ended December
31, 2021 as compared with the same period in the prior year. We had revenue of
$1,947,481 from automobile rental and $1,017,156 from online ride-hailing
platform services during the three months ended December 31, 2021 , which offset
the negative impact of the decrease in our revenue in automobile sales and
facilitation of automobile transaction and financing.
As we plan to focus more on our automobile rental and Online Ride-hailing
Platform Services business, we expect our revenue from automobile rental income
to continue to account for a majority of our revenues and revenue from our
Online Ride-hailing Platform Services to keep stable over the next twelve
months. We plan to take advantage of the expansion of our online ride-hailing
platform to increase the utilization of our automobiles for operating leases,
which would bring the increasing demand for short-term automobile rentals.
The following table sets forth the breakdown of revenues by revenue source for
the three months ended
For the
Three Months Ended
December 31,
2021 2020
(unaudited) (unaudited)
Revenue from automobile transactions and related services
$ 1,334,015 - Operating lease revenues from automobile rentals 1,947,481
939,645
- Financing revenues 25,780
74,155
- Service fees from automobile management and guarantee services 49,846
41,523
- Service fees from automobile purchase services -
18,968
- Revenues from sales of automobiles -
104,329
- Facilitation fees from automobile transactions - 30 - Other service fees 502,786
155,365
Revenue from online ride-hailing platform services 1,017,156
304,535
Total Revenue $ 3,543,049 $ 1,638,550 Revenue from automobile transactions and related services
Revenue from our automobile transaction and related services mainly includes operating lease revenues from automobile rentals, service fees from automobile management and guarantee services, financing revenues (representing interest income from financial leasing) and other services fees, which accounted for approximately 77.1%, 2.0%, 1.0% and 19.9%, respectively, of the total revenue from automobile transaction and related services during the three months endedDecember 31, 2021 . Meanwhile, operating lease revenues from automobile rentals, sales revenue of automobiles, financing revenues (representing interest income from financial leasing), service fees from automobile management and guarantee services, service fees from automobile purchase services and other services fees, which accounted for approximately 70.4%, 7.8%, 5.6%, 3.1%, 1.4% and 11.7%, respectively, of the total revenue from automobile transaction and related services during the three months endedDecember 31, 2020 . 61
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Operating lease revenues from automobile rentals
We generate revenues from leasing our own automobiles or sub-leasing automobiles rendered by online ride-hailing drivers with their authorization for a lease term of no more than twelve months. The increase of rental income was due to the increased number of leased automobiles. We leased over 2,000 automobiles with an average monthly rental income of$458 per automobile, resulting in a rental income of$1,947,481 , for the three months endedDecember 31, 2021 . While we leased over 1,170 automobiles with an average monthly rental income of$473 per automobile, resulting in a rental income of$939,645 , for the three months
endedDecember 31, 2020 . Financing revenues We started our financial leasing business inMarch 2019 and began to generate interest income from providing financial leasing services to ride-hailing drivers inApril 2019 . We also charge the customers of our automobile financing facilitation services interest on their monthly payments which cover purchase price of automobile and our services fees and facilitation fees for terms of 36 or 48 months. We recognized a total interest income of$25,780 from an average monthly number of 70 automobiles and$74,155 from an average monthly number of 101 automobiles during the three months endedDecember 31, 2021 and 2020, respectively. The decrease was further aggravated by the decrease in the monthly amortization of interest income for automobiles leased in prior periods
Service fees from automobile management and guarantee services
The majority of our customers are online ride-hailing drivers. They also entered into affiliation service agreements with us pursuant to which we provide them post-transaction management services and guarantee services. The service fees from automobile management and guarantee services remained stable mainly attributed because the average number of automobiles which we provided management and guarantee services for remained stable during the three months endedDecember 31, 2021 and 2020 as the number of newly rendered automobiles did not increase significantly during the period fromDecember 31, 2020 toDecember 31, 2021 .
Service fees from automobile purchase services
We generate revenues from providing a series of automobile purchase services throughout the automobile purchase transaction process. The amount of these fees is based on the sales price of the automobiles and relevant services provided. We had no service fees from new financial leasing automobile transaction during the three months endedDecember 31, 2021 while we serviced 16 new automobile purchases under financial leasing during the three months endedDecember 31, 2020 .
Sales of automobiles and facilitation fees from automobile transactions
As we have shifted our business focus to automobile leasing, we had no automobile sold during the three months endedDecember 31, 2021 . Meanwhile, we sold an aggregate of 7 automobiles to the customers of Jinkailong andHunan Ruixi and earned income of$104,329 during the three months endedDecember 31, 2020 . Facilitation fees from automobile transaction were minimal in our revenue constitution. Other service fees We generate other revenues such as monthly services commissions from Meituan, commissions from insurance companies and other companies, service fees from drivers who rent our new energy electric vehicles and other miscellaneous service fees charged to our customers, which accounted for approximately 56.4%, 16.6%,8.5% and 18.5% of revenues from other service fees during the three months endedDecember 31, 2021 , respectively. The commissions from insurance companies and other miscellaneous service fees charged to the automobile purchasers, which accounted for approximately 57.2%, and 42.8% of revenues from other service fees during the three months endedDecember 31, 2020 , respectively. Other service fees increased by$347,420 mainly due to the increase of approximately$283,635 in monthly services commissions from Meituan as we have set up a new cooperation model with Meituan, whereby the online ride-hailing requests and orders shall be completed on Meituan's platform utilizing our network of cars and drivers since earlyAugust 2021 . We earn commissions from Meituan accordingly. In addition, the new service fees with amount of$42,931 charged to online ride-hailing drivers who rent our new energy electric vehicles and$20,855 in other miscellaneous service fees also increased in accordance with the expansion
of
our operating lease.
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Revenue from online ride-hailing platform services
We generate revenue from providing services to online ride-hailing drivers to assist them in providing transportation service to the riders though our platform and earn commissions for each completed order equal to the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider sinceOctober 2020 . During the three months endedDecember 31, 2021 , approximately 1.5 million rides with gross fare of approximately$5.6 million were completed through our Xixingtianxia platform and we earned online ride-hailing platform service fees of$1,017,156 , netting off approximately$0.13 million incentives paid to Active Drivers. Cost of Revenues Cost of revenues represents the amortization, daily maintenance and insurance expense of automobiles leased to online ride-hailing drivers of$1,589,486 , technical service charges, insurance and other expenses of online ride-hailing platform services of$1,102,691 . Cost of revenues increased by$898,362 , or approximately 50%, during the three months endedDecember 31, 2021 as compared with the same period in 2020, mainly due to the increase of$383,660 in costs of automobiles under operating leases and$705,726 in direct expense and technical service fees of Online Ride-hailing Platform Services, respectively, as a result of the expansion of those two businesses, partially offset by the decrease in costs of automobile sold of$191,024 as the number of automobiles sold decreased from 7 to 0. Gross Profit (loss)
During the three months endedDecember 31, 2021 , we earned gross profit of$850,872 , as compared with gross loss of$155,265 during the same period in 2020 mainly due to the expansion of our operating lease and the new cooperation model with Meituan. The gross profit generated from sales of automobiles and other revenues with no cost of revenues increased by$375,065 mainly due to the new commission we earned from Meituan under the new cooperation model with Meituan. The gross profit from automobile rentals operating lease increased by$624,176 due to the significant increase in the number of automobiles leased during the three months endedDecember 31, 2021 as compared with the same period in 2020. However, the gross loss from our online ride-hailing platform services slightly decreased by$6,896 as we paid more driver incentives during the three months endedDecember 31, 2021 as compared with the same period in last year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily consist of salary and employee benefits, office rental expense, travel expenses, and other costs. Selling, general and administrative expenses increased from$2,401,250 for the three months endedDecember 31, 2020 to$3,764,222 for the three months endedDecember 31, 2021 , representing an increase of$1,362,972 , or approximately 56.8%. The increase was attributable to more employees hired for business expansion for our new online ride-hailing platform services, the daily operations of our automobile transaction and related services business and the management of the increasing number of automobiles for sublease. The increase mainly consists of an increase of$569,194 in salary and employee benefits as the number of our employee increased from 241 to 333, an increase of$312,442 in offices rental and charges, an increase of$525,282 in professional service fees such as financial, legal and market consulting, and an increase of$80,616 in other miscellaneous expenses, which was partially offset by a decrease of$296,639 in amortization of intangible assets and automobiles. The number of automobiles which were rendered to us but have not been sub-leased decreased as we leased more automobiles during three months endedDecember 31, 2021 as compared with the same period in last year.
Bad Debt Expense
As a result of the fierce competition in the online ride-hailing markets inChengdu andChangsha , and the negative impact of COVID-19, the number of online ride-hailing drivers we serviced who rendered their automobiles to us for sublease or sale increased by approximately 20 while the numbers of drivers who missed their monthly installment payments decreased by approximately 24 during the three monthsDecember 31, 2021 . We re-evaluated the possibility of collection of unsettled balances from those drivers and recovered bad debt expense of$22,330 for those receivables during the three months endedDecember 31, 2021 . While we recovered bad debt expenses of$187,907 for those receivables during the three months endedDecember 31, 2020 . 63
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Impairments of Long-lived Assets
For the three months endedDecember 31, 2021 , we evaluated the future cash flow of our right-of-use assets and our own vehicles used for operating leases during their remaining useful life and recognized an additional impairment loss of$7,982 for those assets that could not generate sufficient cash. While for the three months endedDecember 31, 2020 , we recognized an additional impairment loss of$41,983 for certain right-of-use assets that could not generate sufficient cash.
Other Income (expenses), net
For the three months endedDecember 31, 2021 , we had other income, net of$170,847 primarily consist of penalty income of approximately$150,000 from some leasees and other miscellaneous service fees. We had other expense, net of$72,586 , primarily a result of the penalty of$38,280 paid for driver's traffic violations and accrued additional guarantee expenses of$93,119 payable in the same period in 2020.
Interest Expense and Interest Expense on Finance Leases
Interest expense for the three months endedSeptember 30, 2021 was$16,475 , resulting from the borrowings of Jinkailong from a financial institution for its working capital requirements. The increase of$14,317 was due to the increase in loans obtained in the nine months endedDecember 31, 2021 . Interest expense on finance leases for the three months endedDecember 31, 2021 was$97,919 , representing the interest expense accrued under financing leases for the un-leased automobiles rendered to us for sublease or sale by the online ride-hailing drivers who exited the ride-hailing business. Interest expense on finance leases decreased by$52,308 , or approximately 35%, as compared with the same period in 2020, mainly due to the weighted average number of rendered automobiles during the three months endedDecember 31, 2021 decreased approximately 24% than that in the same period in last year, as well as the decrease in the number of automobiles which were rendered to us but have not been sub-leased as we leased more automobiles during the current period.
Change in Fair Value of Derivative Liabilities
Warrants issued in our registered direct offerings that took place inJune 2019 ,February 2021 andMay 2021 , and theAugust 2020 underwritten public offering were classified as liabilities under the caption "Derivative Liabilities" in the consolidated balance sheet and recorded at estimated fair value at each reporting date, computed using the Black-Scholes valuation model. The change in fair value of derivative liabilities the three months endedDecember 31, 2021 was a gain of$3,536,859 in total, which consists of a gain of$32,150 for the warrants issued in ourJune 2019 registered direct offering, a gain of$64,140 for the warrants issued in ourAugust 2020 underwritten public offering, and a gain of$102,569 for the warrants issued in ourFebruary 2021 registered direct offering, a gain of$1,186,876 for the warrants issued in ourMay 2021 registered direct offering, and a gain of$2,151,124 for the warrants issued in ourNovember 2021 private placement. The change in fair value of derivative liabilities for the three months endedDecember 31, 2020 derived from change of the fair value betweenDecember 31, 2020 andSeptember 30, 2020 for the warrants issued in our registered direct offering inJune 2019 and our underwritten public offering inAugust 2020 , resulted in a loss of$1,030,843 in total. 64
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Issuance costs for issuing series A convertible preferred stock
Issuance costs for the series A convertible preferred stock in ourNovember 2021 private placement in connection with the placement agent warrants, placement commission and other direct costs were expensed. Total issuance costs charged to expense for the three months endedDecember 31, 2021 were$821,892 . Issuance costs allocated to the series A convertible preferred (Mezzanie Equity) were recorded as a reduction of the share balance.
Income Tax Expense
Generally, our subsidiaries and consolidated VIEs inChina are subject to enterprise income tax on their taxable income inChina at a rate of 25%. The enterprise income tax is calculated based on the entity's global income as determined under PRC tax laws and accounting standards. Income tax expense of$4,539 for the three months endedDecember 31, 2021 , mainly represented the provision of enterprise income tax resulting from the taxable income of$18,156 from Hunan Ruixi. Income tax expense of$7,487 for the three months endedDecember 31, 2020 mainly represented the provision of enterprise income tax resulting from the taxable income of approximately$29,900 from Hunan Ruixi
and Yicheng. Net loss
As a result of the foregoing, net loss for the three months ended
Results of Operations for the Nine Months Ended
For the
Nine Months Ended
December 31,
2021 2020 Change
(unaudited) (unaudited)
Revenues $ 8,249,033 $ 4,175,862 $ 4,073,171
Cost of revenues (9,339,832) (3,588,586) (5,751,246)
Gross profit (loss) (1,090,799) 587,276 (1,678,075)
Operating expenses
Selling, general and administrative expenses (10,429,219) (7,110,884) (3,318,335)
Recovery of (Provision for) doubtful accounts (80,410) 106,835 (187,245)
Impairments of long-lived assets and goodwill (178,125) (122,206) (55,919)
Total operating expenses (10,687,754) (7,126,255) (3,561,499)
Loss from operations (11,778,553) (6,538,979) (5,239,574)
Other income, net 152,893 56,795 96,098
Interest expense (44,123) (37,698) (6,425)
Interest expense on finance leases (313,766) (587,457) 273,691
Change in fair value of derivative liabilities 5,185,309 (1,443,784) 6,629,093
Issuance costs for issuing series A convertible
preferred stock (821,892) - (821,892)
Loss before income taxes (7,620,132) (8,551,123) 930,991
Income tax expenses (4,550) (14,464) 9,914
Net loss $ (7,624,682) $ (8,565,587) $ 940,905
Revenues
Revenue for the nine months ended December 31, 2021 increased by $4,073,171 , or
approximately 97.5%, as compared with nine months ended December 31, 2020 . The
increase was mainly due to the increase of operating lease revenues from
automobile rentals and revenues from online ride-hailing platform services.
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The following table sets forth the breakdown of revenues by revenue source for
the nine months ended
For the
Nine Months Ended
December 31,
2021 2020
(unaudited) (unaudited)
Revenue from automobile transactions and related services
$ 3,871,327 - Operating lease revenues from automobile rentals 5,440,470
2,136,078
- Financing revenues 101,774
178,589
- Service fees from automobile management and guarantee services 151,018
315,124
- Service fees from automobile purchase services 975
179,545
- Revenues from sales of automobiles -
527,961
- Facilitation fees from automobile transactions -
1,646
- Other service fees 937,342
532,384
Revenue from online ride-hailing platform services 1,617,454
304,535
Total Revenue $ 8,249,033 $ 4,175,862 Revenue from automobile transactions and related services
Revenue from our automobile transaction and related services mainly includes operating lease revenues from automobile rentals, service fees from automobile management and guarantee services, financing revenues and other services fees, which accounted for approximately 82.0%, 2.3%, 1.5% and 14.2%, respectively, of the total revenue from automobile transaction and related services during the nine months endedDecember 31, 2021 . Meanwhile, operating lease revenues from automobile rentals, sales revenue of automobiles, service fees from automobile management and guarantee services, service fees from automobile purchase services, financing revenues and other services fees, which accounted for approximately 55.2%, 13.6%, 8.1%, 4.7%, 4.6% and 13.8%, respectively, of the total revenue from automobile transaction and related services during the nine months endedDecember 31, 2020 .
Operating lease revenues from automobile rentals
We generate revenues from leasing our own automobiles or sub-leasing automobiles rendered by online ride-hailing drivers with their authorization for a lease term of no more than twelve months. The increase of rental income was due to the increased number of leased automobiles. We leased over 2,100 automobiles with an average monthly rental income of$440 per automobile, resulting in a rental income of$5,440,470 , for the nine months endedDecember 31, 2021 . While we leased over 1,200 automobiles with an average monthly rental income of$473 per automobile, resulting in a rental income of$2,136,078 , for the nine months endedDecember 31, 2020 .
Financing revenues
We recognized a total interest income of$101,774 from an average monthly number of 79 automobiles and$178,589 from an average monthly number of 86 automobiles during the nine months endedDecember 31, 2021 and 2020, respectively. The decrease was further aggravated by the decrease in the monthly amortization of interest income for automobiles leased in prior periods.
Service fees from automobile management and guarantee services
The decrease of$164,106 was due to the decrease in the accumulated number of rendered automobiles which were subsequently rented to ride-hailing drivers whom we charge rent rather than charging management and guarantee services fee. We had management and guarantee services for over 1,360 and 2,500 automobiles during the nine months endedDecember 31, 2021 and 2020, respectively. 66
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Service fees from automobile purchase services
Service fees from automobile purchase services decreased by$178,570 during the nine months endedDecember 31, 2021 , as compared with the same period in 2020, mainly due to the decrease in the number of facilitated new automobile purchases. We had revenue from only two new automobile transactions during the nine months endedDecember 31, 2021 while we serviced 111 new automobile purchases under financing lease with service fees ranging from$137 to$3,510 per automobile during the nine months endedDecember 31, 2020 .
Sales of automobiles and facilitation fees from automobile transactions
As we have shifted our business focus to automobile leasing, we had no automobile sold during the nine months endedDecember 31, 2021 . Meanwhile, we sold an aggregate of 26 automobiles of$527,961 during the nine months endedDecember 31, 2020 . Facilitation fees from automobile transaction were minimal in our revenue constitution. Other service fees We generate other revenues such as monthly services commissions from Meituan, commissions from insurance companies and other companies, service fees from drivers who rent our new energy electric vehicles and other miscellaneous service fees charged to our customers, which accounted for approximately 32.6%, 28.0%%, 15.5% and 23.9% of revenues from other service fees during the nine months endedDecember 31, 2021 , respectively. The commissions from insurance companies and other miscellaneous service fees charged to the automobile purchasers, which accounted for approximately 80.7%, and 19.3% of revenues from other service fees during the nine months endedDecember 31, 2020 , respectively. Other service fees increased by$404,957 mainly due to an increase of approximately$305,820 in monthly services commissions from Meituan as we have set up a new cooperation model with Meituan since earlyAugust 2021 . In addition, the new service fees with amount of$145,533 charged to online ride-hailing drivers who rent our new energy electric vehicles increase of approximately$145,120 in other miscellaneous service fees, partially offset by decrease of approximately$191,516 in commissions from insurance companies, which was attribute to the lower commission fee rate during the three months endedDecember 31, 2021 .
Revenue from online ride-hailing platform services
We generate revenue from providing services to online ride-hailing drivers to assist them in providing transportation service to the riders though our platform and earn commissions for each completed order equal to the difference between an upfront quoted fare and the amount earned by a driver based on actual time and distance for the ride charged to the rider sinceOctober 2020 . During the nine months endedDecember 31, 2021 , approximately 10.2 million rides with gross fare of approximately$32.2 million were completed through our Xixingtianxia platform and we earned online ride-hailing platform service fees of$1,617,454 , netting off approximately$3.2 million incentives paid to Active Drivers. Cost of Revenues Cost of revenues represents the amortization, daily maintenance and insurance expense of automobiles leased to online ride-hailing drivers of$6,122,769 , technical service charges, insurance and other expenses of online ride-hailing platform services of$3,217,063 . Cost of revenues increased by$5,751,246 , or approximately 160%, during the nine months endedDecember 31, 2021 as compared with the same period in 2020, mainly due to the increase of$3,532,327 in costs of automobiles under operating leases and$2,820,098 in direct expense and technical service fees of Online Ride-hailing Platform Services, respectively, as a result of the expansion of those two businesses, partially offset by the decrease in costs of automobile sold of$601,179 as the number of automobiles sold decreased from 26 to 0. 67 Table of Contents Gross Profit (loss) We had gross loss of$1,090,799 during the nine months endedDecember 31, 2021 as compared with the gross profit of$587,276 in the same period in 2020 mainly due to the decreased number of automobile sales and facilitated new automobile purchases. The gross loss from automobile rentals from operating lease increased by$227,935 during the nine months endedDecember 31, 2021 as compared with the same period in 2020. The majority of those leased automobiles were rendered to us with overdue monthly installment payments to financial institutions. Therefore, the total amount of the amortization and daily maintenance expense of these automobiles were higher than the monthly rent generated and resulted in losses. The gross loss from our Online Ride-hailing Platform Services increased by$1,507,178 due to we paid excess driver incentives to attractive drivers to our platform in the nine months endedDecember 31, 2021 , especially from April toJune 2021 . Meanwhile, the gross profit generated from sales of automobiles and other revenues with no cost of revenues increased by$57,038 during the nine months endedDecember 31, 2021 as compared with the same period in 2020.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily consist of salary and employee benefits, office rental expense, travel expenses, and other costs. Selling, general and administrative expenses increased from$7,110,884 for the nine months endedDecember 31, 2020 to$10,429,219 for the nine months endedDecember 31, 2021 , representing an increase of$3,318,335 , or approximately 46.7%. The increase was attributable to more employees hired for business expansion for our new online ride-hailing platform services, the daily operations of our automobile transaction and related services business and the management of the increasing number of automobiles for sublease. The increase mainly consists of an increase of$2,027,471 in salary and employee benefits as the number of our employee increased from 234 to 337, an increase of$912,004 in advertising and promotion for the new online ride-hailing platform services, an increase of$910,619 in offices rental and charges, an increase of$322,093 in professional service fees such as financial, legal and market consulting, and a slight increase of$36,195 in other miscellaneous expenses, which was partially offset by a decrease of$890,047 in amortization of intangible assets and automobiles which were rendered to us but have not been sub-leased as we leased more automobiles during nine months endedDecember 31, 2021 as compared with the same period in last year. Bad Debt Expense
As a result of the fierce competition in the online ride-hailing markets inChengdu andChangsha , and the negative impact of COVID-19, the number of online ride-hailing drivers we serviced who rendered their automobiles to us for sublease or sale increased by approximately 36 and the numbers of drivers who missed their monthly installment payments increased by approximately 12 during the nine months endedDecember 31, 2021 . We re-evaluated the possibility of collection of unsettled balances from those drivers and provided additional bad debt expense of$80,410 for those receivables during the nine months endedDecember 31, 2021 .
Impairments of Long-lived Assets and
For the nine months endedDecember 31, 2021 , we evaluated the future cash flow of our right-of-use assets and our own vehicles used for operating leases during their remaining useful life and recognized an additional impairment loss of$38,545 for those assets that could not generate sufficient cash. Meanwhile, we performed impairment test on goodwill and fully recognized impairment of$139,580 against goodwill. We recognized the impairment loss due to regulatory changes in the online ride hailing industry, and forecast an insufficient future cashflow to support the valuation of our goodwill. For the nine months endedDecember 31, 2020 , we recognized an impairment loss of$122,206 for certain right-of-use assets that could not generate sufficient cash.
Other income, net
For the nine months endedDecember 31, 2021 , we had other income, net of$152,893 , primarily consist of penalty income of approximately$293,000 from some leasees and other miscellaneous non-recurring expense, partially offset by fines of$155,000 for our served online ride-hailing drivers who failed to obtain the ride-hailing driver's licenses approximately. We had other income, net of$56,795 , primarily a result of the receipt of a government subsidy of$143,000 fromSichuan Economic and Information Department for our initial public offering in 2018, offset by the penalty of$38,280 paid and additional guarantee expenses of$93,119 payable accrued to Impawn in the same period in 2020. 68
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Interest Expense and Interest Expense on Finance Leases
Interest expense for the nine months endedDecember 31, 2021 was$44,123 , resulting from the borrowings of Jinkailong from a financial institution for its working capital requirements. The increase of$6,425 , or approximately 17%, was due to the increase in loans obtained in the nine months endedDecember 31, 2021 . Interest expense on finance leases for the nine months endedDecember 31, 2021 was$313,766 , representing the interest expense accrued under financing leases for the leased automobiles rendered to us for sublease or sale by the online ride-hailing drivers who exited the ride-hailing business. Interest expense on finance leases decreased by$273,691 , or approximately 47%, as compared with the same period in 2020, mainly due to the weighted average number of rendered automobiles during the nine months endedDecember 31, 2021 decreased approximately 12% than that in the same period in last year, as well as the decrease in the number of automobiles which were rendered to us but have not been sub-leased as we leased more automobiles during the current period.
Change in Fair Value of Derivative Liabilities
Warrants issued in our registered direct offerings that took place inJune 2019 ,February 2021 andMay 2021 , and theAugust 2020 underwritten public offering were classified as liabilities under the caption "Derivative Liabilities" in the consolidated balance sheet and recorded at estimated fair value at each reporting date, computed using the Black-Scholes valuation model. The change in fair value of derivative liabilities the nine months endedDecember 31, 2021 was a gain of$5,185,309 in total, which consists of a gain of$168,230 for the warrants issued in ourJune 2019 registered direct offering, a gain of$315,393 for the warrants issued in ourAugust 2020 underwritten public offering, a gain of$514,123 for the warrants issued in ourFebruary 2021 registered direct offering, a gain of$2,036,440 for the warrants issued in ourMay 2021 registered direct offering, and a gain of$2,151,123 for the warrants issued in ourNovember 2021 private placement. The change in fair value of derivative liabilities for the nine months endedDecember 31, 2020 derived from change of the fair value betweenDecember 31, 2020 andMarch 31, 2020 for the warrants issued in ourJune 2019 registered direct offering and the fair value betweenDecember 31, 2020 andAugust 4, 2020 for the warrants issued in ourAugust 2020 underwritten public offering, resulted in a loss of$1,443,784 in total.
Issuance costs for issuing series A convertible preferred stock
Issuance costs for the series A convertible preferred stock in ourNovember 2021 private placement in connection with the placement agent warrants, placement commission and other direct costs were expensed. Total issuance costs charged to expense for the nine months endedDecember 31, 2021 were$821,892 . Issuance costs allocated to the series A convertible preferred (Mezzanie Equity) were recorded as a reduction of the share balance.
Income Tax Expense
Generally, our subsidiaries and consolidated VIEs inChina are subject to enterprise income tax on their taxable income inChina at a rate of 25%. The enterprise income tax is calculated based on the entity's global income as determined under PRC tax laws and accounting standards. Income tax expense of$4,550 and$14,464 for the nine months endedDecember 31, 2021 and 2020, respectively, mainly represented the provision of enterprise income tax resulting from the taxable income of$18,000 from Ruixi and$57,856 fromHunan Ruixi, Jinkailong and Yicheng, respectively.
Other subsidiaries and consolidated VIEs in
Net Loss
As a result of the foregoing, net loss for the nine months ended
Liquidity and Capital Resources
We have financed our operations primarily through proceeds from our equity offerings, stockholder loans, commercial debt and cash flow from operations.
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We had cash and cash equivalents of $2,801,711 as of December 31, 2021 as
compared to $4,448,075 as of March 31, 2021 for our continuing operations. We
primarily hold our excess unrestricted cash in short-term interest-bearing bank
accounts at financial institutions.
On May 13, 2021 , we closed a registered direct offering of $5,531,916 shares of
our common stock at $1.175 per share, pursuant to a securities purchase
agreement with certain accredited investors. As a result, we raised
approximately $5.8 million , net of placement agent fees and offering expenses,
to support our working capital requirements.
On November 10, 2021 , we completed a private placement of 5,000 shares of our
series A convertible preferred stock at $1,000 per share, pursuant to a
securities purchase agreement with certain institutional investor. As a result,
we raised approximately $4.4 million , net of placement agent fees and offering
expenses, to support our working capital requirements.
Our business is capital intensive and we have spent expenditure on developing
our Online Ride-hailing Platform Services and expanding automobile operating
leasing during the nine months ended December 31, 2021 . We have considered
whether there is substantial doubt about our ability to continue as a going
concern due to (1) recurring losses from operations, including net loss of
approximately $7.6 million for the nine months ended December 31, 2021 , (2)
accumulated deficit of approximately $39.7 million as of December 31, 2021 ; (3)
the working capital deficit of approximately $9.9 million as of December 31,
2021 ; (4) net operating cash outflows of approximately $5.0 million and $1.5
million from continuing operations and discontinued operations, respectively,
for the nine months ended December 31, 2021 and (5) the purchase commitment of
approximately $1.7 million . As of December 31, 2021 , we have entered into a
purchase contract with an automobile dealer to purchase a total of 200
automobiles for the amount of approximately $3.4 million . As the date of this
Report, 100 automobiles of approximately $1.7 million have been purchased in
cash and delivered to us and the remaining purchase commitment of approximately
$1.7 million shall be completed with financing option through the dealer's
designated financial institutions.
We do not believe that the proceeds from our public offerings and our
anticipated cash flows would be sufficient to meet our anticipated working
capital requirements and capital expenditures in the ordinary course of business
for the next 12 months from the date of this Report. We have determined there is
substantial doubt about our ability to continue as a going concern. If we are
unable to generate significant revenue, we may be required to cease or curtail
our operations. We are trying to alleviate the going concern risk through the
following sources:
? continuing to seek equity financing to support our working capital;
? other available sources of financing (including debt) from PRC banks and other
financial institutions; and
? financial support and credit guarantee commitments from our related parties.
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However, there is no assurance that we will be successful in implementing the
foregoing plans or that additional financial will be available to us on
commercially reasonable terms, or at all. There are a number of factors that
could potentially arise that could undermine our plans, such as (i) the impact
of the COVID-19 pandemic on our business and areas of operations in China ,
(ii) changes in the demand for our services, (iii) PRC government policies,
(iv) economic conditions in China and worldwide, (v) competitive pricing in the
automobile transaction and related service and ride-hailing industries,
(vi) changes in our relationships with key business partners, (vii) that
financial institutions in China may not able to provide continued financial
support to our customers, and (viii) the perception of PRC-based companies in
the U.S. capital markets. Our inability to secure needed financing when required
could require material changes to our business plans and could have a material
adverse effect on our viability and results of operations.
For the
Nine Months Ended
December 31,
2021 2020
(unaudited) (unaudited)Net Cash Used in Operating Activities$ (6,459,172) $ (1,786,674) Net Cash Used in Investing Activities (3,538,102)
(194,179)
Net Cash Provided by Financing Activities 8,177,287
4,596,314
Effect of Exchange Rate Changes on Cash and Cash Equivalents 173,623
83,332
Cash and Cash Equivalents at Beginning of Period 4,448,075
844,027
Cash and Cash Equivalents at End of Period 2,801,711
3,542,820
Less: Cash and cash equivalents from discontinued operations - - Cash and cash equivalents from continuing operations, end of period$ 2,801,711 $ 3,542,820
Cash Flow in Operating Activities
For the nine months ended
The total net cash used in operating activities from continuing operations primarily comprised of the payment of salary and employee benefits of$3,880,242 , other operating costs of$4,759,211 , and maintenance fees, insurance and other costs for automobiles and related transactions of$6,357,468 , partially offset by revenue received of$9,467,300 and the net collection of$524,831 on automobiles used for financial lease to be collected within the lease terms. The increase of$4,796,749 in net cash used in operating activities from continuing operations for the nine months endedDecember 31, 2021 was primarily attributable to (1) decrease of$6,629,093 in the change of fair value of derivative liabilities as our stock price is running below our stock warrant's exercise price; (2) decrease of$2,455,135 in accrued expenses and other liabilities; (3) increase of$353,203 in inventories, offset by (4) decrease of$1,019,256 in net loss; (5) increase of$948,103 in depreciation and amortization of long-lived assets; (6) issuance cost for issuing series A convertible preferred stock of$821,892 in Novmber 2021 private placement; (7) decrease of$259,087 in prepayments, other receivables and other assets; (8) increase of$528,727 in advances from customers; and (9) decrease of$1,004,564 in account receivable and finance lease receivable due to we collect our revenue in a better turnover rate.
The net cash used in operating activities from discontinued operation was
primarily the payment to investors of the discontinued P2P platform for the nine
months ended
Cash Flow in Investing Activities
For the nine months endedDecember 31, 2021 , we had net cash used in investing activities of$3,538,102 , which consisted of$3,536,704 from continuing operations and$1,398 from discontinued operations. The majority net cash used in investing was for the purchase of automobiles for operating lease purpose. For the nine months endedDecember 31, 2020 , we had net cash used in investing activities of$194,179 , which consisted of the net cash used in investing activities of$191,921 from continuing operations and$2,258 from discontinued operations. The majority net cash used in investing was for the purchase of automobiles for operating lease purpose. 71
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Cash Flow in Financing Activities
For the nine months endedDecember 31, 2021 , we had net cash provided by financing activities of$8,177,287 , which primarily consisted of: (1) total net proceeds of approximately$5.8 million from our registered public offering inMay 2021 , approximately$4.4 million from our private placement inNovember 2021 , and$22,015 from exercised warrants from investors, respectively; (2) borrowings from a financial institution of$693,777 ; (3) loan to related party of$15,546 , partially offset by (4) principal payments made for finance lease liabilities of$1,994,077 , (5) repayments to related parties of$171,738 ; and (6) repayments of current borrowings from financial institutions of$529,226 . For the nine months endedDecember 31, 2020 , we had net cash provided by financing activities of$4,596,314 , which primarily consisted of: (1) net proceeds of$6,098,297 from our underwritten public offering inAugust 2020 ; (2) proceeds from the exercise of warrants of$496,117 ;(3) borrowings from an insurance company of$508,275 , partially offset by (4) repayments and loans to stockholders, related parties and affiliates of$380,657 , (5) repayments of current borrowings from financial institutions of$354,504 ; and (5) principal payments made for finance lease liabilities of$1,771,214 .
Off-Balance Sheet Arrangements
As the date of this Report, we had the following off-balance sheet arrangements that are likely to have a future effect on our financial condition, revenues or expenses, results of operations and liquidity:
? Purchase Commitments
OnFebruary 22, 2021 , we entered into one purchase contract with an automobile dealer to purchase a total of 200 automobiles for the amount of approximately$3.4 million . Pursuant to the contract, we are required to purchase 100 automobiles in cash with the amount of approximately$1.7 million . The remaining 100 automobiles purchase commitment with the amount of approximately$1.7 million shall be completed with financing option through the dealer's designated financial institutions. As of the date of this Report, 100 automobiles of the contract signed inFebruary 2021 have been purchased in cash and delivered to us. As we are in process of getting approval from the dealer's designated financial institutions in financing the 100 automobiles' purchase, there is no clear timing schedule for completing the remaining purchase commitment with this automobile dealer. However, we expect the purchase to be completed byDecember 31, 2022 . ? Contingent Liabilities
Contingent liabilities for automobile purchasers
We are exposed to credit risk as we are required by certain financial institutions to provide guarantee on the lease/loan payments (including principal and interests) of the automobile purchasers referred by us. As ofDecember 31, 2021 , the maximum contingent liabilities we would be exposed to was approximately$9.7 million , assuming all the automobile purchasers were in default, which may cause an increase in guarantee expense and cash outflow in financing activities. As ofDecember 31, 2021 , approximately$5,841,000 , including interests of$350,000 , due to financial institutions, of all the automobile purchases we serviced were past due.
Contingent liability of Jinkailong
OnMay 25, 2018 ,Chengdu Industrial Impawn Co., Ltd ("Impawn") signed a pledge and pawn contract (the "Master Contact") with Langyue, pursuant to which, Impawn shall provide loans to Langyue up toRMB20 million (approximately$2.9 million ). In connection with the Master Contract, Jinkailong entered into a guaranty with Impawn and agreed to provide guarantee on all the payments (including principal, interests, compensations and other expenses) of Langyue jointly and severally with seven other guarantors, one of which is a shareholder of Jinkailong. Langyue usedRMB7,019,652 (approximately$1,003,000 ) of the loans from Impawn and re-loaned it to automobile purchasers referred by Jinkailong fromJune 2018 toSeptember 2018 , which were also guaranteed by Jinkailong. 72
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Langyue did not timely pay Impawn the monthly installment forJune 2020 . InJuly 2020 , Impawn sent the Collection Letter and Notice to Langyue to demand payment of the interest and penalty ofRMB100,300 (approximately$14,330 ). OnSeptember 18, 2020 , Impawn initiated a legal action in front of the Court for an order to collect and enforce the repayment of the total outstanding principals, interest and penalty for an aggregate ofRMB9,992,728 (approximately$1,428,000 ) and other expenses by freezing all bank accounts of the Langyue and all related guarantors. OnOctober 14, 2020 , the cash in the bank of Jinkailong, with total amount ofRMB175,335 (approximately$25,050 ) were frozen by the Court and became restricted cash accordingly. OnDecember 24, 2020 , Jinkailong, a shareholder of Jinkailong and Impawn signed a settlement agreement ("Settlement Agreement"). Impawn agreed to release the pledge of Jinkailong's 75 automobiles, provided that Jinkailong and such shareholder repay an aggregate ofRMB4,026,594 (approximately$634,000 ) in monthly installments over 35 months. In addition, upon the initial payment ofRMB600,000 (approximately$94,000 ) by Jinkailong and such shareholder, Impawn will request the court to release the frozen bank accounts of Jinkailong. The Settlement Agreement further provided that it did not release the guarantee obligations of Jinkailong and in the event Langyue's loan is not fully repaid at the end of the 35 months, Impawn reserves the right to pursue further actions against Jinkailong and such shareholder for the outstanding balance of the loan. As ofDecember 31, 2021 , the original maximum contingent liabilities related to the loans from Langyue to automobile purchasers which Jinkailong would be exposed to was approximatelyRMB453,000 (approximately$71,000 ), which has been included in the amount of contingent liabilities of automobile purchasers as mentioned above. Jinkailong will collect monthly installment payments from online ride-hailing drivers who lease those 75 automobiles to repay for the remaining balance of Impawns and recognize guarantee expenses if any. However, as Jinkailong has undertaken the joint and several liability guarantee for all of Langyue's loans from Impawn, Jinkailong may be required to pay all the outstanding balance of$1,119,000 to Impawn in the future. OnSeptember 24 andOctober 30, 2019 ,Shanghai Fengbang Leasing Co., Ltd ("Fengbang") signed two financial leassing agreements (the "Master Agreements") with two customers of Jinkailong, pursuant to which, Fengbang shall provide financial lease to the customers with the original principal amounted to approximatelyRMB79,500 (approximately$13,000 ) andRMB108,800 (approximately$17,000 ), respectively. In connection with the Master Agreements, Jinkailong entered into the guaranty with Fengbang and agreed to provide guarantee on all the payments (including principal, interests, compensations and other expenses). However, the customers did not pay Fengbang monthly installment on time and Fengbang initiated legal actions with the court ofJiading District inShanghai (the "Jiading Court") in March andApril 2021 , respectively. OnMarch 25, 2021 andMay 26, 2021 , Jiading Court ruled that those customers should pay Fengbang the total outstanding principal, interest, penalty and other expenses amounted to approximatelyRMB90,000 (approximately$14,000 ) and approximatelyRMB123,000 (approximately$20,000 ), respectively. However, as those customers did not pay to Fengbang in accordance with Jiading Court's decision while Jinkailong has guarantee liability on those loans, onJanuary 20, 2022 , the cash amounted toRMB93,297 (approximately$15,000 ) in one of Jinkailong's bank accounts was frozen by Jiading Court and then excuted to pay to Fengbang. The related two automobiles have been rendered to Jinkailong and we have recorded lease liability of approximatelyRMB169,000 (approximately$27,000 ) as ofDecember 31, 2021 . The Company is in the process of taking actions to lower the potential negative impact on the daily cashflow of Jinkailong and expects to finalize the solution and release the restricted cash beforeMarch 31, 2022 .
Inflation
We do not believe our business and operations have been materially affected by inflation.
Critical Accounting Policies We prepare our unaudited condensed consolidated financial statements in accordance withU.S GAAP. These accounting principles require us to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our past experience, knowledge and assessments of current business and other conditions, our expectations regarding the future based on available information and assumptions. Other than disclosed below, there have been no material changes during the nine months endedDecember 31, 2021 in our accounting policies from those previously disclosed in our Annual Report for the fiscal year endedMarch 31, 2021 . 73
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The selection of critical accounting policies, the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant assumptions and estimates used in the preparation of our unaudited consolidated financial statements.
(a)Use of estimates
In presenting the unaudited condensed consolidated financial statements in accordance withU.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 us to revise our estimates. we base our 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 and goodwill, 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.
(b)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 us. The
three levels of valuation hierarchy are defined as follows:
Level 1Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2Inputs 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 3Inputs to the valuation methodology are unobservable and significant to the fair value.
(c)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.
(d)Mezzanine Equity (redeemable)
We evaluates our convertible preferred stock in accordance with ASU 2020-06,
Debt - Debt with Conversion and Other Options (Subtopic 470-20), and Derivatives
and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity, to determine if
its convertible preferred stock should be treated as a liability or an equity.
As a result, the convertible preferred stock should be treated as an equity as
it did not meet the definition of liability instrument. In accordance with ASC
480-10-s99, the convertible preferred stock should be classified as a mezzanine
equity, since it contained a change of control redemption right feature which is
not solely within our control.
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(e)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. We then determine 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".
(f)Revenue recognition
We recognize our revenue under ASC 606. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. It also requires us to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.
To achieve that core principle, we apply the five steps defined under ASC 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
We account for a contract with a customer when the contract is committed in writing, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration to collect is substantially probable. We have assessed the impact of the guidance by reviewing our 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, we 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 our unaudited condensed consolidated financial statements upon adoption of ASC 606.
Automobile Transaction and Related Services
Sales of automobiles - We generate 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
automobiles. The amount of the revenue is based on the sale price agreed by
Hunan Ruixi or Yicheng and the counterparties, including Jinkailong, who act on
behalf of their customers. We recognize revenues when an automobile is delivered
and control is transferred to the purchaser. Accounts receivable related to the
revenue are being collected over 36 to 48 months. The interest component is
included in the non-current portion of the accounts receivable.
Operating lease revenues from automobile rentals - We generate revenue from
sub-leasing automobiles from some online ride-hailing drivers or leasing our own
automobiles. We recognize revenue wherein an automobile is transferred to the
leasee and the leasee has the ability to control the asset, is accounted for
under ASC Topic 842. Rental transactions are satisfied over the rental period.
Rental periods are short term in nature, generally are twelve months or less.
Service fees from management and guarantee services - Over 95% of our customers
are online ride-hailing drivers. The drivers sign affiliation agreements with
us, pursuant to which we provide 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. We
recognize revenue over the affiliation period when performance obligations are
completed.
Financing revenues - Interest income from the lease arising from our sales-type
leases and bundled lease arrangements is recognized in financing revenues over
the lease term based on the effective rate of interest in the lease.
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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. We recognize revenue when all the services are completed and an automobile is delivered to the purchaser at a point in time. Accounts receivable related to the revenue are being collected over 36 to 48 months. The interest component is included in the non-current portion of the accounts receivable. Facilitation fees from automobile transactions - Facilitation fees from automobile purchase transactions are paid by our customers including third-party sales teams or the automobile purchasers for the facilitation of the sales and financing of automobiles. We attract automobile purchasers through third-party sales teams or its own sales department. For the sales facilitated between third-party sales teams and automobile purchasers, we charge 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, we charge the fees to the automobile purchasers. We recognize revenue from facilitation fees when the titles are transferred to the purchasers at a point in time. The amount of fees is based on the type of automobile and negotiation with each sales team or automobile purchaser. The fees charged to third-party sales teams or automobile purchasers are paid before the automobile purchase transactions are consummated. These fees are non-refundable upon the delivery of automobiles.
Online ride-hailing platform service revenue
We generate revenue from providing services to online ride-hailing drivers
("Drivers") to assist them in providing transportation services to riders
("Riders") looking for taxi/ride-hailing services. We earn commissions for each
completed order in an amount equal to the difference between an upfront quoted
fare and the amount earned by a Driver based on actual time and distance for the
ride charged to the Rider. As a result, we bear a single performance obligation
in the transaction of connecting Drivers with Riders to facilitate the
completion of a successful transportation service for Riders. We recognize
revenue upon completion of a ride as the single performance obligation is
satisfied and we have the right to receive payment for the services rendered
upon the completion of the ride. We evaluate the presentation of revenue on a
gross or net basis based on whether we control the service provided to the Rider
and are the principal (i.e. "gross"), or we arrange for other parties to provide
the service to the Rider and are an agent (i.e. "net"). Since we are not
primarily responsible for ride-hailing services provided to Riders, nor do we
have inventory risk related to the services, we recognize revenue at net basis.
Leases
We account for leases in accordance with ASC 842. The two primary accounting provisions we use 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%). Automobiles included in arrangements meeting these conditions are accounted for as sales-type leases. For sales-type leases, we recognize sales equal to the present value of the minimum lease payments discounted using the implicit interest rate in the lease and cost of sales equal to carrying amount of the asset being leased and any initial direct costs incurred, less the present value of the unguaranteed residual. 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.
We exclude from the measurement of our 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.
We consider the economic life of most of automobile to be three to four years, since this represents the most frequent contractual lease term for its automobile and the automobile will be used forDidi driving services. We believe three to four years is representative of the period during which the automobile is expected to be economically usable, with normal service, for the purpose
for
which it is intended.
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A portion of our direct sales of automobile to end customers are made through
bundled lease arrangements which typically include automobile, services
(automobile purchase services, facilitation fees, 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. We consider 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.
Our 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. We reassess our pricing
interest rates quarterly based on changes in the local prevailing rates in the
marketplace. As of December 31, 2021 , our pricing interest rate is 6.0% per
annum.
(g)Share-based awards
Share-based awards granted to our 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, we review 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 us, including but not limited to the fair value of the underlying shares, expected life, expected volatility and expected forfeiture rates. We are 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.
(h)Leases
We account for leases in accordance with ASC 842. Beginning in the year endedMarch 31, 2020 , we entered into certain agreements as a lessor under which we leased automobiles to short-term (usually under twelve months) car service drivers. We also enter into certain agreements as a lessee to lease automobiles and to conduct our automobiles rental operations. If any of the following criteria are met, we classify the lease as a finance lease (as a lessee) or as a direct financing or sales-type lease (both as a lessor):
? The lease transfers ownership of the underlying asset to the lessee by the end
of the lease term;
? The lease grants the lessee an option to purchase the underlying asset that the
Company is reasonably certain to exercise;
The lease term is for 75% or more of the remaining economic life of the
? underlying asset, unless the commencement date falls within the last 25% of the
economic life of the underlying asset;
? The present value of the sum of the lease payments equals or exceeds 90% of the
fair value of the underlying asset; or
? The underlying asset is of such a specialized nature that it is expected to
have no alternative use to the lessor at the end of the lease term.
Leases that do not meet any of the above criteria are accounted for as operating leases.
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We combine lease and non-lease components in its contracts under Topic 842, when permissible.
Finance and operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the implicit rate for our leases is not readily determinable, we use our 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 we 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 we do not have reasonable certainty at lease inception that these options will be exercised. We generally consider the economic life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. We have 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. The 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. We review the impairment of our ROU assets consistent with the approach applied for our other long-lived assets. We review the recoverability of its long-lived assets when events or changes in circumstances occur, indicating 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. We have 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.
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