Senmiao Technology(AIHS) - 2020 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The financial statements present the company's financial position and performance, driven by the new automobile business and a non-cash gain on derivative liabilities Unaudited Condensed Consolidated Balance Sheets Total assets increased to $15.6 million by September 30, 2019, driven by the automobile business, while total equity grew to $11.5 million Condensed Consolidated Balance Sheet Data (USD) | Balance Sheet Item | September 30, 2019 (Unaudited) | March 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $11,458,180 | $11,399,155 | | Total Assets | $15,645,331 | $12,314,135 | | Total Current Liabilities | $3,612,181 | $3,753,604 | | Total Liabilities | $4,133,232 | $3,931,393 | | Total Stockholders' Equity | $11,506,303 | $8,375,398 | | Total Liabilities and Equity | $15,645,331 | $12,314,135 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Revenue surged to $5.9 million for the three months ended September 30, 2019, driven by the automobile business, resulting in a net income of $1.14 million Statement of Operations Highlights (USD) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Revenues | $5,921,166 | $71,508 | | Gross Profit | $1,211,982 | $71,508 | | Loss from Operations | ($804,301) | ($797,734) | | Change in fair value of derivative liabilities | $1,998,202 | $0 | | Net Income (Loss) | $1,141,359 | ($790,005) | | Basic EPS | $0.04 | ($0.03) | Statement of Operations Highlights (USD) | Metric | Six Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Revenues | $11,015,606 | $196,534 | | Gross Profit | $2,284,110 | $196,534 | | Loss from Operations | ($1,200,399) | ($1,731,274) | | Change in fair value of derivative liabilities | $1,994,806 | $0 | | Net Income (Loss) | $635,926 | ($1,720,369) | | Basic EPS | $0.02 | ($0.07) | Unaudited Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $6.1 million for the six months ended September 30, 2019, reflecting increased working capital needs for the auto business Cash Flow Summary for Six Months Ended Sep 30 (USD) | Cash Flow Activity | 2019 (Unaudited) | 2018 (Unaudited) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($6,064,404) | ($1,581,719) | | Net Cash Used in Investing Activities | ($854,695) | ($69,743) | | Net Cash Provided by Financing Activities | $4,650,997 | $674,617 | | Net Decrease in Cash | ($2,481,843) | ($1,075,492) | | Cash at End of Period | $2,538,667 | $10,066,074 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's business shift to automobile services, cessation of P2P lending, adoption of new accounting standards, and contingent liabilities from loan guarantees - The company provides automobile transaction and related services for the ride-hailing industry in China. It ceased its online P2P lending services business in October 2019 to wind it down[19] - The company adopted new accounting standards ASC 606 (Revenue from Contracts with Customers) and ASC 842 (Leases) on April 1, 2019. The adoption of ASC 606 had no material change, while ASC 842 resulted in the recognition of Right-of-Use (ROU) assets and lease liabilities[75][105] - In June 2019, the company closed a registered direct offering, issuing common stock and warrants. Warrants with exercise prices in USD are treated as derivative liabilities and re-measured to fair value each period, resulting in a significant non-cash gain in the quarter[52][153] - Subsequent to the quarter end, on October 17, 2019, the Board approved a plan to wind down and discontinue the online lending services due to tightened regulations. The company will assume outstanding loans of approximately $5.6 million from platform lenders[192][193][194] - The company has contingent liabilities related to guarantees on lease/loan payments for automobile purchasers, with a maximum exposure of approximately $18.1 million as of September 30, 2019[322] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to automobile transaction services, the cessation of P2P lending, significant revenue growth from the auto business, and the impact of a non-cash gain on financial results Overview and Business Strategy The company's strategy focuses on automobile transaction and related services for the ride-hailing industry, having ceased its online P2P lending business due to regulatory pressures - The company's primary focus is now on its Automobile Transactions and Related Services (the "Auto Business"), which includes facilitation, sales, and financing for the ride-hailing market[199][201] - The company ceased its online P2P lending services in October 2019 due to a tightening regulatory environment and to focus on the Auto Business. It will assume approximately $5.6 million in outstanding loans from the platform's lenders[200][227][228] Results of Operations Financial performance dramatically improved, with revenue surging to $5.9 million for the three months ended September 30, 2019, driven by the auto business and a non-cash gain Results of Operations Comparison (Three Months Ended Sep 30) | Metric (USD) | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Revenues | $5,921,166 | $71,508 | $5,849,658 | | Gross Profit | $1,211,982 | $71,508 | $1,140,474 | | Net Income (Loss) | $1,141,359 | ($790,005) | $1,931,364 | Results of Operations Comparison (Six Months Ended Sep 30) | Metric (USD) | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Revenues | $11,015,606 | $196,534 | $10,819,072 | | Gross Profit | $2,284,110 | $196,534 | $2,087,576 | | Net Income (Loss) | $635,926 | ($1,720,369) | $2,356,295 | - Revenue growth was almost entirely from the automobile transaction and related services, which generated $5.89 million and $10.9 million in revenue for the three and six months ended Sep 30, 2019, respectively[244][277] - A significant contributor to net income was a non-cash gain of $2.0 million for the three-month period and $2.0 million for the six-month period from the change in fair value of derivative liabilities (warrants)[271][304] Liquidity and Capital Resources Cash and cash equivalents decreased to $2.5 million by September 30, 2019, with operations financed by equity offerings and $6.1 million used in operating activities - Cash and cash equivalents stood at $2,538,667 as of September 30, 2019[309] - In June 2019, a registered direct offering of common stock and warrants raised net proceeds of approximately $5.1 million[313] Cash Flow Summary for Six Months Ended Sep 30, 2019 (USD) | Cash Flow Activity | Amount | | :--- | :--- | | Net Cash Used in Operating Activities | ($6,064,403) | | Net Cash Used in Investing Activities | ($854,695) | | Net Cash Provided by Financing Activities | $4,650,997 | Off-Balance Sheet Arrangements The company has off-balance sheet arrangements including contingent liabilities from loan guarantees, with a maximum exposure of $18.1 million, and $1.3 million in automobile purchase commitments - The company has a maximum contingent liability of $18,099,000 from providing guarantees on lease/loan payments for automobile purchasers[322] - As of September 30, 2019, the company had purchase commitments for 115 automobiles for an aggregate price of approximately $1.3 million[323] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as per the report requirements - Not applicable[358] Controls and Procedures Management concluded that disclosure controls and procedures were not effective due to material weaknesses, including insufficient accounting expertise and inadequate policies - Disclosure controls and procedures were deemed not effective as of September 30, 2019[358] - Identified material weaknesses include: - Insufficient staff with U.S. GAAP/SEC knowledge - Lack of comprehensive accounting policies - Ineffective entity-level controls and procedures for related-party transactions[358] - Remediation efforts include hiring a U.S. GAAP consultant, an internal audit staff, and improving board communication. The company plans to hire additional accounting staff and improve internal control policies[358][359] PART II – OTHER INFORMATION Legal Proceedings The company reported no legal proceedings - None[360] Risk Factors As a smaller reporting company, the company is not required to provide this information in the 10-Q - The company is a smaller reporting company and is not required to provide information for this item[361] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities - None[361] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[361] Other Information The company reported no other information - None[361] Exhibits The report lists several exhibits filed or furnished with the SEC, including CEO and CFO certifications and XBRL data files - Exhibits filed include CEO/CFO certifications and XBRL instance documents[361]