Senmiao Technology(AIHS) - 2023 Q4 - Annual Report

PART I Business Senmiao Technology, a U.S. holding company, operates in China through subsidiaries, focusing on automobile transaction services and an online ride-hailing platform, having terminated all VIE agreements - The company operates two primary business segments: Automobile Transaction and Related Services and Online Ride-hailing Platform Services[18] - As of March 31, 2022, Senmiao has terminated all its VIE Agreements and no longer consolidates any VIEs in its financial statements[17] Automobile Transaction and Related Services Key Metrics (Since Nov 2018 to Mar 2023) | Metric | Value | |:---|:---| | Automobiles Financed | 1,687 (Total Value: ~$24.4 million) | | Automobiles Sold | 1,466 (Total Value: ~$14.1 million) | | Automobiles under Operating Leases | ~2,936 | | Automobiles under Financing Leases | 144 | Online Ride-hailing Platform (Xixingtianxia) Performance (FY 2023) | Metric | Value | |:---|:---| | Completed Rides | ~6.1 million | | Gross Fare | ~$19.9 million | | Average Monthly Active Drivers | >5,100 | | Net Service Fees | ~$3.7 million (after ~$0.5M incentives) | Automobile Transactions and Related Services This segment offers auto operating leasing, purchase and NEV services, auto sales, auto financing, and auto management and guarantee services - This segment comprises several services: Auto Operating Leasing, Purchase and New Energy Vehicle (NEV) Services, Auto Sales, Auto Financing, and Auto Management and Guarantee Services[19] FY 2023 Revenue from Automobile Services (excluding Jinkailong) | Service Line | Revenue (USD) | |:---|:---| | Auto Operating Leasing | ~$3,453,000 | | Purchase and NEVs Services | $384,095 | | Auto Sales | $243,065 | | Auto Financing (Interest Income) | $41,738 | | Auto Management and Guarantee | $40,158 | Ride-Hailing Platform Services The company operates its "Xixingtianxia" ride-hailing platform, active in 26 cities, earning commissions from completed orders - The company operates its own ride-hailing platform, "Xixingtianxia," which launched in October 2020 and is now active in 26 cities[30] - The platform collaborates with aggregation platforms like Gaode Map, earning commissions on each completed order calculated as the difference between the upfront fare and the driver's earnings[30] Corporate History and Structure Senmiao Technology, incorporated in Nevada in 2017, expanded through acquisitions and transitioned to a direct ownership structure by terminating VIE agreements - Senmiao Technology Limited was incorporated in Nevada in June 2017, growing through acquisitions like Hunan Ruixi in 2018 and XXTX in 2020, which became a wholly-owned subsidiary in December 2021[33][35][42] - The company terminated its VIE agreements with Sichuan Senmiao, Jinkailong, and Youlu by March 31, 2022, shifting to a direct ownership structure, with Jinkailong now a 35% equity investee[47][49][51] Recent Developments and COVID-19 Impact Recent developments include a 1-for-10 reverse stock split and adverse impacts from the COVID-19 pandemic on both business segments - A 1-for-10 reverse stock split was implemented on April 6, 2022, reducing authorized common stock from 100 million to 10 million shares[52] - The COVID-19 pandemic adversely impacted business, with automobile services suffering from drivers rendering vehicles due to lower income, and the ride-hailing platform seeing order decreases of 20-35% during local outbreaks and lockdowns[53][54] Regulations The company is subject to extensive PRC regulations on cybersecurity, data security, personal information protection, and ride-hailing operations, with compliance challenges - The company is subject to extensive PRC regulations covering cybersecurity, data security (including the Cybersecurity Review Measures), and personal information protection, requiring significant compliance efforts[72][77][82][88] - For its ride-hailing business, the company must comply with national and local regulations requiring licenses for the platform, vehicles, and drivers, with approximately 57% of its drivers lacking required licenses as of March 31, 2023, leading to fines[98][100][101] - As of March 31, 2023, the company has not made adequate employee benefit contributions as required by PRC law, with a shortfall of $1,086,526, which may subject it to penalties[140][391] - New CSRC rules effective March 31, 2023, require Chinese domestic companies to file with the CSRC for overseas securities offerings, including follow-on offerings, impacting future capital raising activities[180][181] Risk Factors The company faces significant risks across its business, operations in China, and its securities, including internal control weaknesses, regulatory non-compliance, potential delisting, and evolving data security laws - The company has identified material weaknesses in its internal control over financial reporting, including insufficient personnel with U.S. GAAP knowledge, inadequate internal audit policies, and deficiencies in IT general controls[206][308][309] - A significant risk is that approximately 57% of its online ride-hailing drivers had not obtained the required driver's license as of March 31, 2023, exposing the company to fines and penalties[203][231] - The company faces the risk of its common stock being delisted from Nasdaq for failing to meet the minimum bid price requirement, having received a non-compliance notice on June 15, 2023[214][405] - Compliance with China's new Data Security Law, Cybersecurity Review Measures, and Personal Information Protection Law entails significant expense and could be adversely impacted by greater oversight from the Cyberspace Administration of China (CAC), particularly for companies listed on foreign exchanges[210][354][363] Unresolved Staff Comments The company reports that it has no unresolved staff comments - Not Applicable[470] Properties The company leases its principal executive offices in Chengdu, Sichuan, along with additional offices, parking lots, and an exhibition hall to support its automobile services - The principal executive office is a 965 square meter space in Chengdu, with a lease expiring in March 2026 and monthly rent of approximately $10,700[470] - Additional leased properties include offices, parking lots, and an exhibition hall in Chengdu, Changsha, and Guangzhou to support its two business segments[471][472] Legal Proceedings The company is not currently a party to any material legal or administrative proceedings but may be subject to claims arising in the ordinary course of business - As of the report date, there are no material legal proceedings against the company[473] Mine Safety Disclosures This item is not applicable to the company - Not applicable[473] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "AIHS", has never paid dividends, and amended its 2018 Equity Incentive Plan to reserve 1,500,000 shares - The company's common stock is traded on the Nasdaq Capital Market under the ticker symbol "AIHS"[476] - The company has never paid cash dividends and does not intend to in the foreseeable future, citing the need to retain funds for business operations and growth[477] - The 2018 Equity Incentive Plan was amended to increase the number of reserved shares to 1,500,000, with 1,470,371 shares remaining available for future issuance as of March 31, 2023[480][482] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenues increased by 65% to $8.1 million in FY2023, with a shift from gross loss to gross profit, but substantial doubt exists about the company's ability to continue as a going concern Financial Performance Summary (Continuing Operations) | Metric | FY 2023 | FY 2022 | Change | |:---|:---:|:---:|:---:| | Total Revenues | $8,082,514 | $4,913,102 | +65% | | Gross Profit (Loss) | $1,492,513 | ($2,088,195) | +$3,580,708 | | Loss from Operations | ($6,140,908) | ($11,561,988) | +47% | | Net Loss | ($3,790,693) | ($5,606,145) | +32% | - Management has determined there is substantial doubt about the company's ability to continue as a going concern due to a net loss of $3.8 million, an accumulated deficit of $37.7 million, a working capital deficit of $0.4 million, and purchase commitments of $1.36 million[572][573] - The significant improvement in gross profit was mainly driven by the online ride-hailing platform services, which turned a gross loss of $1.1 million in FY2022 into a gross profit of $1.4 million in FY2023, largely by reducing driver incentives[548] - As of March 31, 2022, the company deconsolidated its former VIE, Jinkailong, resulting in a one-time net gain from deconsolidation of $10.98 million in discontinued operations for FY2022[561][568] Quantitative and Qualitative Disclosures About Market Risk This section is not required as the company qualifies as a smaller reporting company - Not required for smaller reporting companies[608] Financial Statements and Supplementary Data This section presents the company's consolidated financial statements for FY2023 and FY2022, with the auditor's report highlighting substantial doubt about the company's going concern ability - The auditor's report for the fiscal year ended March 31, 2023, contains an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern[613] Consolidated Balance Sheet Highlights (As of March 31) | Metric | 2023 | 2022 | |:---|:---:|:---:| | Cash and cash equivalents | $1,610,090 | $1,185,221 | | Total Assets | $14,238,615 | $19,878,117 | | Total Liabilities | $5,741,549 | $6,488,379 | | Accumulated Deficit | ($37,715,294) | ($34,601,545) | | Total Equity | $8,227,680 | $12,568,939 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no disagreements with its accountants on accounting and financial disclosure - None[884] Controls and Procedures Management concluded that disclosure controls were ineffective as of March 31, 2023, due to material weaknesses in internal control over financial reporting, with a remediation plan outlined - Management concluded that disclosure controls and procedures were not effective as of March 31, 2023[885] - Material weaknesses identified include: (1) insufficient accounting personnel with U.S. GAAP experience, (2) lack of adequate internal audit policies and procedures, and (3) deficiencies in IT general controls[886] - The company plans to remediate these weaknesses by hiring additional accounting staff, improving its internal audit function, and enhancing its IT environment and management[887] Other Information The company reported no other information for this item - None[890] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[890] PART III Directors, Executive Officers and Corporate Governance This section provides biographical information for directors and executive officers, details board committee composition, and confirms compliance with Nasdaq's independence and diversity requirements - The key executive officers are Xi Wen (CEO, Chairman), Xiaoyuan Zhang (CFO), and Haitao Liu (COO)[894][895][896] - The Board has three committees: Audit, Compensation, and Nominating and Corporate Governance, all composed of independent directors[910][911][914] - The company is in compliance with Nasdaq's board diversity requirements, with three female Asian directors and one male Asian director on its board of five[908][909] Executive Compensation This section details executive compensation for FY2023 and FY2022, including CEO Xi Wen's total compensation of $237,570 in FY2023, and outlines employment agreement terms and non-executive director retainers Executive Compensation (FY 2023) | Name and Position | Total Compensation ($) | |:---|:---:| | Xi Wen (CEO, Chairman) | 237,570 | | Xiaoyuan Zhang (CFO) | 78,842 | | Haitao Liu (COO) | 78,813 | | Chunhai Li (Former CTO) | 68,261 | - Employment agreements for executive officers include provisions for severance payments in the event of termination without cause or termination following a change of control[928][929][935] - Non-employee directors receive an annual retainer of $20,000, with the exception of Trent Davis, who receives $40,000[944] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section discloses beneficial ownership of common stock as of July 10, 2023, with Senmiao International Investment Group Limited holding 13.2% and all directors and executive officers as a group owning 1.8% Beneficial Ownership (as of July 10, 2023) | Name of Beneficial Owner | Percentage of Outstanding Shares | |:---|:---:| | Senmiao International Investment Group Limited | 13.2% | | Xi Wen (CEO) | 1.5% | | All directors and executive officers as a group | 1.8% | Certain Relationships and Related Transactions, and Director Independence The company discloses related-party office lease agreements and operational transactions with its equity investee, Jinkailong, while confirming the independence of three directors under Nasdaq rules - The company has engaged in office lease agreements with related parties, including a supervisor of Sichuan Senmiao and a company where an independent director is the legal representative[953][954] - Significant operational transactions occurred with Jinkailong (a 35% equity investee), including the company paying Jinkailong $95,804 in promotion fees and leasing vehicles to and from Jinkailong in FY2023[955][956] - The board of directors has determined that Trent D. Davis, Xiaojuan Lin, and Sichun Wang are independent directors[958] Principal Accountant Fees and Services This section details fees paid to Marcum Asia CPAs LLP, the company's auditor, totaling $341,700 for FY2023, primarily for audit and audit-related services, all pre-approved by the audit committee - Effective September 1, 2022, Friedman LLP combined with Marcum LLP, and the company subsequently engaged Marcum Asia CPAs LLP as its independent registered public accounting firm[959] Accountant Fees | Fee Category | FY 2023 | FY 2022 | |:---|:---:|:---:| | Audit Fees | $321,700 | $280,000 | | Audit-Related Fees | $10,000 | $35,000 | | Tax Fees | $10,000 | $8,000 | | All Other Fees | $0 | $0 | PART IV Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Form 10-K report, including financial statements and various exhibits - This item provides an index of all financial statements, schedules, and exhibits filed with the annual report[966][967] Form 10-K Summary This item is not applicable - Not applicable[967]