Valor Energy Inc: Form 10-Q for the period ended Dec 31, 2024

The following discussion and analysis of our results of operations and financial condition should be read together with our unaudited condensed consolidated financial statements and the notes thereto, which are included elsewhere in this Report and our Annual Report on Form 10-K for the year ended March 31, 2024 (the “Annual Report”) filed with the SEC. Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Overview

We are a provider of automobile transaction and related services, connecting consumers, who are mostly existing and prospective ride-hailing drivers affiliated with different operators of online ride-hailing platforms in the People’s Republic of China (“PRC” or “China”). We provide automobile transaction and related services through our wholly owned subsidiary, Chengdu Corenel Technology Limited, a PRC limited liability company (“Corenel”), and our majority owned subsidiaries, Chengdu Jiekai Technology Ltd. (“Jiekai”), and Hunan Ruixi Financial Leasing Co., Ltd. (“Hunan Ruixi”), a PRC limited liability company. Substantially all of our operations are conducted in China.

From October 2020 to August 2024, we also operated an online ride-hailing platform through Hunan Xixingtianxia Technology Co., Ltd. (“XXTX”), a wholly-owned subsidiary of Sichuan Senmiao Zecheng Business Consulting Co., Ltd., our wholly-owned subsidiary (“Senmiao Consulting”). The platform enabled qualified ride-hailing drivers to provide application-based transportation services mainly in Chengdu, Changsha and other 20 cities in China. As more fully discussed below under “– Our Discontinued Ride-Hailing Platform Services,” we ceased our online ride-hailing Platform Services on August 20, 2024.

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 (the “Auto Operating Leasing”); (ii) monthly services where we provide management and related services to other online ride-hailing platforms we cooperated with (“Partner Platforms”) and other companies and earn commission from them (the “Auto Commissions”); (iii) automobile financing where we provide our customers with auto finance solutions through financing leases (the “Auto Financing”); (iv) service fees from new energy vehicles (“NEVs”) leasing, automobile purchase services where we charge NEVs lessees or automobile purchasers for a series of the services provided to them throughout the leasing or purchase process based on the chosen product solutions, such as ride-hailing driver training, assisting with a series of administrative procedures and other consulting services (the “NEVs and Purchase Services”); and (v) automobile sales (the “Auto Sales”) and other supporting services provided to online ride-hailing drivers, including auto management and other related services (the “Auto Management Services”). We started our facilitation and supporting services in November 2018, the sale of automobiles in January 2019, and financial and operating leasing in March 2019, respectively.

Since November 22, 2018, the acquisition date of Hunan Ruixi, and as of December 31, 2024, we have facilitated financing for an aggregate of 312 automobiles with a total value of approximately $5.3 million, sold an aggregate of 1,516 automobiles with a total value of approximately $14.5 million and delivered 1,977 automobiles under operating leases and 182 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 by us and corresponding revenue generated for the three and nine months ended December 31, 2024 and 2023:

During the three months ended December 31, 2024, our Auto Operating Leasing, Auto Commissions, Auto Financing and other services income accounted for approximately 81.2%, 4.8%, 2.6%, and 11.4% of our total revenue from our automobile transactions and related services, respectively, while our Auto Operating Leasing, Auto Commissions, Auto Financing, and other services income accounted for approximately 89.5%, 4.6%, 1.1%, and 4.8% for the three months ended December 31, 2023, respectively. During the nine months ended December 31, 2024, our Auto Operating Leasing, Auto Commissions, Auto Financing and other services income accounted for approximately 82.1%, 4.0%, 2.9%, and 11.0% of our total revenue from our automobile transactions and related services, respectively, while our Auto Operating Leasing, Auto Commissions, Auto Financing, and other services income accounted for approximately 88.2%, 4.8%, 1.1%, and 5.9% for the nine months ended December 31, 2023, respectively.

Our Discontinued Online Ride-Hailing Platform Services

From October 2020 to August 2024, we operated our own online ride-hailing platform in China. The platform (called Xixingtianxia) was owned and operated by XXTX, of which Senmiao Consulting acquired the 100% equity interest pursuant to a series of investment and supplementary agreements. XXTX operated Xixingtianxia and held a national online reservation taxi operating license, which served online ride-hailing drivers in 22 cities in China, providing them with a platform to view and take customer orders for rides. XXTX generated 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. XXTX earned 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.

Due the fierce competition of the online ride-hailing industry, XXTX had been suffered loss. Since December 2023, XXTX had engaged Anhui Lianma Technology Co., Ltd. (“Anhui Lianma”), a third-party to co-operate the online ride-hailing platform by outsourcing certain daily operation work to Anhui Lianma in most of cities it operates platform in XXTX and Anhui Lianma will jointly share the operational profits, with the specific calculation method being defined in the cooperation agreement. However, considering the changes in online ride-hailing industry and development plan of the Company, on August 8, 2024, we entered into an acquisition agreement with debt assumption takeover (“Acquisition Agreement”) with a third party named Jiangsu Yuelaiyuexing Technology Co., Ltd. (“Yuelai”), and certain other parties thereto. Pursuant to the Acquisition Agreement, Yuelai acquired all of the equity interests the XXTX at a total purchase price of zero, while taking over certain liabilities of XXTX as defined in the Acquisition Agreement. On August 20, 2024, the acquisition was completed and we ceased the online ride-hailing platform services.

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. We acquire customers for our Automobile Transaction and Related 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 maintain the number of our customers by marketing our companies to our existing and prospective automobile lessees in the cities we now operate in. We expect to keep 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 Partner Platforms. An effective cross-selling strategies between our automobile leasing business and our Partner Platforms 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 staff, sharing market resources with our equity investee company, and improving the quality and variety of our services. As of December 31, 2024, we had 4 employees in our own sales department.

Management of Automobile Rentals

Due to the fierce competition of online ride-hailing industry in those cities we operated in, we have witnessed a high turn-over rate on the short-term car rentals during the nine months ended December 31, 2024. To meet the demand in Chengdu and Changsha, we have purchased and leased automobiles from third parties for our operating lease. The daily management and timely maintenance of leased automobiles will have a significant effect on the stability and potential growth of our income from leasing automobiles in the next twelve months. The effective management, including maintaining the high turn-over rate of our automobiles through our proprietary system and experienced auto-management team could provide in-time delivery and qualified automobiles to potential lessees, either for personal use or providing online ride-hailing services. As of December 31, 2024, for parking and management of automobiles for operating lease, we had one parking lot, an exhibition hall and 3 employees in Changsha, and we also share the parking lot with our equity investee company, Jinkailong in Chengdu. During the three months ended December 31, 2024 and 2023, the average utilization of the automobiles for operating lease was approximately 85.9% and 80.6%, respectively. During the nine months ended December 31, 2024 and 2023, the average utilization of the automobiles for operating lease was approximately 84.8% and 77.6%, respectively.

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 series of pricing formulas to adopt the market changes, 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 customers depends on the comprehensive income they could earn from our own or Partner Platforms, which is mainly affected by the number of 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 Key Business Cooperators

Historically, we have set up a series of strategy and business relationships with certain affiliates of some famous and leading companies of NEVs manufacturers, online ride-hailing platforms, local NEVs leasing companies, and travel service providers to develop our Automobile Transaction and Related Services. We earned commission or services fee from them, purchased and leased automobiles for our business at a favorable price. The close relationships have provided us with the necessary capacity to support the development of our online ride-hailing platform and leasing business. To retain these valuable cooperators and continuously explore opportunities to collaborate with them in more areas is important to us to have considerable resources to support the exploration and expansion of our business into new cities.

Meanwhile, in order to strengthen our market position in certain cities, our subsidiaries, Hunan Ruixi and Jiekai, have built up cooperation relationships with Partner Platforms, such as Hunan Didi Technology Co., Ltd., Chengdu Anma Zhixing Technology Co., Ltd., Sichuan Peitu Kuaixing Technology Co., Ltd. and Chongqing Yiqizhao Technology Co., Ltd. Chengdu Branch, whereby the online ride-hailing requests and orders shall be completed on Partner Platforms utilizing the network of cars and drivers of us while Hunan Ruixi and Jiekai earned rental income from drivers and earned commissions from Partner Platforms.

Ability to Collect Receivables on a Timely Basis

For receivables from Auto Operating Leasing, we usually settle the rental income with each online ride-hailing driver monthly based on the product solutions they chose. In accordance with the development of the operating lease business, our Partner Platforms, such as Gaode, agree to temporarily “lock-up” the fares of the rides which the driver earned from the platform to ensure the timely collection of our rental receivables from them. As of December 31, 2024, we had accounts receivable of operating lease of approximately $40,000 in total. Besides, during the nine months ended December 31, 2024, we settled our commissions with the Partner Platforms for our online ride-hailing platform services and automobile rental income on a monthly basis.

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 Partner Platforms to ensure the timely collection of commissions. 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 Effectively

We manage the credit risk arising from the default of automobile purchasers and lessees by performing credit checks on each automobile purchaser or lessee based on the credit reports from People’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 monitoring the daily gross fare earned by the online ride-hailing drivers, who are our majority customers and run their business through our online ride-hailing platform during the nine months ended December 31, 2024. We do this 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.

Further, the automobiles subject to our financing leases are not collateralized by us. As of December 31, 2024, the total value of non-collateralized automobiles was approximately $216,000. 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.

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, lessees, 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.

Market Opportunity and Government Regulations in China

The demand for our services depends on overall market conditions of the online ride-hailing industry in China. 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 in China. Traditional taxi service is limited, and the emerging online platforms have created good opportunities for the development of the online ride-hailing service market. The market value is expected to increase from RMB354.7 billion in 2024 to RMB751.3 billion in 2028, owing to rising consumer demand for economical mobility options and an amplified penetration of shared mobility services, especially in lower-tier cities. According to the 54th Statistical report on Internet Development in China published in August 2024 by the China Internet Network Information Center (the “CNNIC”), the number of online ride-hailing service users had reached 503 million by the end of December 2023, and took approximately 45.7% of the total number of Chinese internet users. In addition, in recent years, aggregation platforms have gained rising significance in the shared mobility industry. According to Frost & Sullivan, the portion of ride hailing orders fulfilled through aggregation platforms increased from 3.5% in 2018 to 30.0% in 2023, and is expected to further increase to 49.0% by 2028. The online ride-hailing industry is also facing increasing competition in China and is attracting more capital investment. For example, Dida Inc., Chenqi Technology Limited and CaoCao Inc. have filed their prospectuses to the Stock Exchange of Hong Kong Limited in March 2024 and April 2024, respectively.

However, the participants in the online ride-hailing industry are facing increasingly fierce competitions. According to the Ministry of Transportation (the “MOT”) of the People’s Republic of China, as of October 30, 2024, approximately 362 online ride-hailing platforms have obtained booking taxi operating licenses and the total volume of online ride-hailing orders was approximately 1,007 million in October 2024 in China, representing an increase of approximately 8% and 24% as compared with the ones as of October 30, 2023, respectively. Meanwhile, approximately 3.21 million online booking taxi transportation certificates and approximately 7.48 million online booking taxi driver’s licenses were issued nationwide in China, both representing an increase of approximately 18% as compared with the ones as of December 31, 2023. Since 2023, the municipal transportation bureaus in a series of cities in China have released operational dynamics and risk warnings for the online ride-hailing industry, stating that the online ride-hailing market has become saturated. They remind enterprises and practitioners who intend to engage in online ride-hailing services should have a detailed understanding of relevant regulations, conduct market research, fully consider changes in operating income due to factors such as supply and demand, market conditions, fluctuations or continuous declines, objectively evaluate the actual income level of industry practitioners, and make rational and prudent career choices.

The online ride-hailing industry may also be affected by, among other factors, the general economic conditions in China. 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 average income of individual and intensify the competition between platforms. 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.

On November 5, 2016, the Municipal Communications Commission of Chengdu City and a number of municipal departments jointly issued the “Implementation Rules for the Administration of Online Booking Taxi Management Services for Chengdu”, which was abolished and replaced by the updated version issued on July 26, 2021. On August 10, 2017, the Transportation Commission of Chengdu further issued the guidelines on compliance requirements for online ride-hailing businesses, including Working Process for the Online Appointment of Taxi Drivers Qualification Examination and Issuance and Online Appointment Taxi Transportation Certificate Issuance Process. On November 28, 2016, Guangzhou Municipal People’s Government promulgated Interim Measures for the Management of Online Ride Hailing Operation and Service in Guangzhou, as amended on November 14, 2019. According to these regulations and guidelines, three licenses /certificates are required for operating the online ride-hailing business in Chengdu and Guangzhou: (1) the ride-hailing service platform 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 in Chengdu should be NEVs since July 2021.

However, approximately 41% of our ride-hailing drivers have not obtained the driver’s license for online ride-hailing services as of December 31, 2024 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 in December 2019, Didi began to enforce such limitation on drivers in Chengdu who have a driver’s license but operate automobiles without the automobile certificate. Meanwhile, during the nine months ended December 31, 2024, Gaode conducted several rounds of compliance checks in Chengdu and other cities. Gaode reduced the number of orders dispatched to XXTX platform as it found certain drivers who provide their online ride-hailing services through our platform without obtaining the driver’s licenses during the check. We had assisted the drivers to obtain the required certificate and license for our Automobile Transaction and Related Services. However, there was no guarantee that all of the drivers who run their online ride-hailing business would be able to obtain all the certificates and licenses. These Partner Platforms may not allow unqualified drivers who lease our automobiles to drive through these platforms, or reduce their commission income, so that they may not be able to earn enough income from those Partner Platforms to pay our rental fees. Our business and results of operations shall be materially and adversely affected if we could not serve qualified drivers or our served drivers are suspended from providing ride-hailing services.

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. Pursuant to the Interim Measures, during the nine months ended December 31, 2024, XXTX was fined by approximately $3,000 by Traffic Management Bureaus in Changsha for providing online ride-hailing platform services to unqualified drivers. Since October 2020, XXTX had been fined by approximately $311,000 by Traffic Management Bureaus in Changsha, Chengdu, Guangzhou and other cities, of which, approximately $62,000 was further compensated by drivers or cooperated third parties.

The Chinese government has exercised and continued to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. For example, the Chinese cybersecurity regulator announced on July 2, 2021 that it had begun an investigation of Didi 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.

Results of Continuing Operations for the three months ended December 31, 2024 Compared to the three months ended December 31, 2023

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Revenues

We started generating revenue from Automobile Transaction and Related Services from our acquisition of Hunan Ruixi on November 22, 2018. Revenue for the three months ended December 31, 2024 decreased by $188,371, or approximately 17.0%, as compared with the three months ended December 31, 2023. The decrease was mainly due to the decrease number of the automobiles for operating lease.

As we focus on our automobile rental business currently, we expect revenue from our automobile rental to continuously account for a majority of our revenues. We plan to provide a series of product solutions to sustain and further increase the number of our automobiles for operating leases.

The following table sets forth the breakdown of revenues by revenue source for the three months ended December 31, 2024 and 2023:

(unaudited)

(unaudited)

Revenue from our automobile transaction and related services mainly includes operating lease revenues from automobile rentals, service fees from NEVs leasing, monthly services commissions, financing revenues, service fees from automobile purchase services, and other services fees, which accounted for approximately 81.2%, 7.5%, 4.8%, 2.6%, 0.3% and 3.6%, respectively, of the total revenue from automobile transaction and related services during the three months ended December 31, 2024. Meanwhile, operating lease revenues from automobile rentals, service fees from NEVs leasing, monthly services commissions, financing revenues, sales revenue of automobiles and other services fees, which accounted for approximately 89.5%, 0.8%, 4.6%, 1.1%, 1.7% and 2.3%, respectively, of the total revenue from automobile transaction and related services during the three months ended December 31, 2023.

Operating lease revenues from automobile rentals

We generate revenues from leasing our own automobiles, sub-leasing automobiles leased from third-parties or rendered by online ride-hailing drivers with their authorization for a lease term of no more than twelve months. The decrease of rental income of $244,818 or approximately 24.7% during the three months ended December 31, 2024 was mainly due to the decrease in the number of the automobiles leased for operating lease as well as average monthly rental income per automobile. We leased approximately 662 automobiles with an average monthly rental income of approximately $383 per automobile, resulting in a rental income of $747,253, including rental income of $2,882 from Jinkailong, for the three months ended December 31, 2024. While we leased over 870 automobiles with an average monthly rental income of approximately $477 per automobile, resulting in a rental income of $992,071, including rental income of $7,133 from Jinkailong, for the three months ended December 31, 2023.

Service fees from NEVs leasing

We generated revenues of $68,963 and $8,412 from leasing NEVs by charging leases service fees during the three months ended December 31, 2024 and 2023, respectively. The amount of services fees for NEVs leasing were based on our product solutions in accordance which adjusted with different market conditions.

Monthly services commissions

We generated revenues of $43,755 and $51,388 from the monthly management and related services provided to our Partner Platforms and other companies during the three months ended December 31, 2024 and 2023, respectively. The decrease of $7,633 or approximately 14.9% was due to decrease in the number of the automobiles and drivers we served, who ran their business through the Partner Platforms.

Financing revenues

We started our financial leasing business in March 2019 and began to generate interest income from providing financial leasing services to ride-hailing drivers in April 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 $23,668 from an average monthly number of 49 automobiles and $12,195 from an average monthly number of 26 automobiles during the three months ended December 31, 2024 and 2023, respectively. The increase was due to the monthly payment we charged to customers and the average number of automobiles served for financial leasing increased during the three months ended December 31, 2024.

Service fees from automobile purchase services and Other revenues

We generated revenues of $2,959 and $19,122 from the automobile purchase services during the three months ended December 31, 2024 and 2023, respectively. The decrease was due to the number of the automobiles purchase transactions decreased to 2 during the three months ended December 31, 2024 from 14 in the same period in 2023. We generate other revenues from other miscellaneous service fees charged to our customers. Other services fees mainly include the maintenance fees charged to our customers pursuant to certain new production solutions.

We generate other revenues from other miscellaneous service fees charged to our customers during the three months ended December 31, 2024 and 2023. Other services fees mainly include the maintenance fees charged to our customers pursuant to certain new production solutions.

Cost of Revenues

Cost of revenues represents the amortization of ROUs, depreciation and rental cost of automobiles, daily maintenance and insurance expense of automobiles which related to our Auto Operating Leasing. Cost of revenues decreased by $76,308 or approximately 9.3% during the three months ended December 31, 2024 as compared with the same period in 2023, mainly due to the monthly average number of the automobiles leased for operating lease decreased to 324 in the three months ended December 31, 2024 from 444 in the three months ended December 31, 2023. During the three months ended December 31, 2024 and 2023, the costs of automobiles under operating leases with amount of $44,479 and $80,973, respectively, was from a related party.

Gross Profit

We had gross profit of $176,387 and $288,450, respectively, during the three months ended December 31, 2024 and 2023. The decrease of $112,063 was mainly due to the decrease in gross profit from Auto Operating Leasing. The following table sets forth the breakdown of gross profit by major revenue source for the three months ended December 31, 2024 and 2023:

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(unaudited)

We had a gross profit of $3,804 in our Auto Operating Leasing during the three months ended December 31, 2024, which decreased by $168,510 from a gross profit of $172,314 in the three months ended December 31, 2023. The decrease was attributable to the average monthly rental income decreased from approximately $477 for the three months ended December 31, 2023 to approximately $383 for the three months ended December 31, 2024 while the related cost did not decrease that much. As a result, the gross profit margin of the revenues from our Auto Business decreased from approximately 17.4% to approximately 0.5% during the three months ended December 31, 2024, led our overall gross profit margin decreased to approximately 19.2% from approximately 26.0% during the three months ended December 31, 2023 since the revenue generated from auto operating lease accounted over 80% of our total revenues.

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 decreased from $746,514 for the three months ended December 31, 2023 to $515,366 for the three months ended December 31, 2024, representing a decrease of $231,148, or approximately 31.0%. The decrease was attributable to our continuous control on costs and streamline expenses during the three months ended December 31, 2024. The decrease mainly consisted of (1) a decrease of $158,567 in offices rental and charges; and (2) a decrease of $87,303 in in salary and employee benefits as the average monthly number of our employees decreased from 65 for the three months ended December 31, 2023 to 46 for the three months ended December 31, 2024.

Provision for credit losses

We re-evaluated the possibility of collection of unsettled balances from customers/suppliers of our automobile transactions and related services, and provided provision for credit losses of $367,245 against receivables from Jinkailong for the three months ended December 31, 2024. While we did not provide additional provision for credit losses against receivables during the three months ended December 31, 2023.

Stock-based compensation

In October 2023, we entered into three different consulting and services agreements (the “Consulting Agreements”) with three consultants (the “Consultants”), pursuant to which we engaged the Consultant to provide certain merger and acquisition consulting service, market research and business development advisory services, and financial consulting services, respectively. We issued an aggregate of 1,500,000 shares of our common stock in November 2023 to settle the compensation for the services. We did not have similar transaction during the three months ended December 31, 2024.

Other income, net

For the three months ended December 31, 2024, we had other income, net of $4,897, which primarily consist of (1) penalty income of approximately $20,000 from the customers; partially offset by (2) the loss of approximately $2,000 from the disposal of our own fixture and furniture used for operating leases;(3) the miscellaneous expense of approximately $13,000.

For the three months ended December 31, 2023, we had other income, net of $159,933, which primarily consist of (1) the income of approximately $5,000 from the disposal of our right-of-use assets and our own vehicles used for operating leases; (2) penalty income of approximately $102,000 from the customers; and (3) the miscellaneous income of approximately $53,000.

Interest Expense on Finance Leases

Interest expense on finance leases for the three months ended December 31, 2024 and 2023 was $3,365 and $6,791, respectively, representing the interest expense accrued under financing leases for the leased automobiles Corenel leased from a third-party company, and the leased automobiles rendered to us for sublease or sale by the online ride-hailing drivers who exited the ride-hailing business.

Change in Fair Value of Derivative Liabilities

Warrants issued in our registered direct offerings that took place in February 2021 and May 2021, and the August 2020 underwritten public offering, and the November 2021 private placement 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 for the three months ended December 31, 2024 and 2023 was a gain of $121,314 and $46,188, respectively. The following table sets forth the breakdown of the gain in fair value of derivative liabilities for the three months ended December 31, 2024 and 2023:

(unaudited)

(unaudited)

Income Tax Expense

Generally, our subsidiaries are subject to enterprise income tax on their taxable income in China 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. All the subsidiaries in China suffered losses and no tax expense was recorded for the three months ended December 31, 2024 and 2023.

Net loss from continuing operations

As a result of the foregoing, net loss from continuing operations for the three months ended December 31, 2024 was $583,378, representing a decrease of $119,656 from net loss of $703,034 for the three months ended December 31, 2023.

Results of Continuing Operations for the nine months ended December 31, 2024 Compared to the nine months ended December 31, 2023

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41

Revenues

We started generating revenue from Automobile Transaction and Related Services from our acquisition of Hunan Ruixi on November 22, 2018.

Revenue for the nine months ended December 31, 2024 decreased by $935,728, or approximately 26.9%, as compared with the nine months ended December 31, 2023. The decrease was mainly due to the decrease of $981,472 of operating lease revenues from automobile rentals resulted from the decrease number of the automobiles for operating lease.

The following table sets forth the breakdown of revenues by revenue source for the nine months ended December 31, 2024 and 2023:

(unaudited)

(unaudited)

Revenue from our automobile transaction and related services mainly includes operating lease revenues from automobile rentals, service fees from NEVs leasing, monthly services commissions, financing revenues, service fees from automobile purchase services, and other services fees, which accounted for approximately 82.1%, 5.6%, 4.0%, 2.9%, 1.2%, and 4.2%, respectively, of the total revenue from automobile transaction and related services during the nine months ended December 31, 2024. Meanwhile, operating lease revenues from automobile rentals, service fees from NEVs leasing, monthly services commissions, financing revenues, service fees from automobile purchase services, and other services fees, which accounted for approximately 88.2%, 1.0%, 4.8%, 1.1%, 0.9%, and 4.0%, respectively, of the total revenue from automobile transaction and related services during the nine months ended December 31, 2023.

Operating lease revenues from automobile rentals

We generate revenues from leasing our own automobiles, sub-leasing automobiles leased from third-parties or rendered by online ride-hailing drivers with their authorization for a lease term of no more than twelve months. The decrease of rental income of $981,472 or approximately 32.0% during the nine months ended December 31, 2024 was mainly due to the decrease in the number of the automobiles leased for operating lease as well as average monthly rental income per automobile. We leased approximately 704 automobiles with an average monthly rental income of approximately $409 per automobile, resulting in a rental income of $2,087,986, including rental income of $11,747 from Jinkailong, for the nine months ended December 31, 2024. While we leased over 1,400 automobiles with an average monthly rental income of approximately $485 per automobile, resulting in a rental income of $3,069,458, including rental income of $29,280 from Jinkailong, for the nine months ended December 31, 2023.

Service fees from NEVs leasing

We generated revenues of $142,751and $33,309 from leasing NEVs by charging leases service fees during the nine months ended December 31, 2024 and 2023, respectively. The amount of services fees for NEVs leasing is based on our product solutions which adjusted in accordance with different market conditions.

Monthly services commissions

We generated revenues of $100,690 and $168,199 from the monthly management and related services provided to our Partner Platforms and other companies during the nine months ended December 31, 2024 and 2023, respectively. The decrease of $67,509 or approximately 40.1% was due to decrease in the number of the automobiles and drivers we served, who ran their business through the Partner Platforms.

Financing revenues

We started our financial leasing business in March 2019 and began to generate interest income from providing financial leasing services to ride-hailing drivers in April 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 $72,697 from an average monthly number of 45 automobiles and $37,135 from an average monthly number of 34 automobiles during the nine months ended December 31, 2024 and 2023, respectively. The increase was due to the monthly payment we charged to customers and the average number of automobiles served for financial leasing increased during the nine months ended December 31, 2024.

Service fees from automobile purchase services and Other revenues

We generate revenues from providing a series of automobile purchase services throughout the automobile purchase transaction process, including sales-type lease. We had revenue from 21 and 19 automobiles purchase transaction during the nine months ended December 31, 2024 and 2023, respectively. The related service fees income slightly decreased $1,492 from $31,354 during the nine months ended December 31, 2023 to $29,862 during the nine months ended December 31, 2024 due to the different services we provided.

We generate other revenues from other miscellaneous service fees charged to our customers and sales of automobile. Other services fees mainly include the maintenance fees charged to our customers pursuant to certain new production solutions.

Cost of Revenues

Cost of revenues represents the amortization of ROUs, depreciation and rental cost of automobiles, daily maintenance and insurance expense of automobiles which related to our Auto Operating Leasing. Cost of revenues decreased by $720,221 or approximately 26.3% during the nine months ended December 31, 2024 as compared with the same period in 2023, mainly due to the monthly average number of the automobiles leased for operating lease decreased to 293 in the nine months ended December 31, 2024 from 513 in the nine months ended December 31, 2023. During the nine months ended December 31, 2024 and 2023, the costs of automobiles under operating leases with amount of $63,440 and $473,317, respectively, was from a related party.

Gross Profit

We had gross profit of $526,256 and $741,763, respectively, during the nine months ended December 31, 2024 and 2023. The decrease of $215,507 was mainly due to the decrease in profit from Auto Operating Leasing. The following table sets forth the breakdown of gross profit by major revenue source for the nine months ended December 31, 2024 and 2023:

(unaudited)

(unaudited)

We had a gross profit of $69,517 in our Auto Operating Leasing during the nine months ended December 31, 2024, which decreased by $261,251 from a gross profit of $330,768 in the nine months ended December 31, 2023. The decrease was mainly attributable to the decrease in the number of the automobiles leased for operating lease from approximately 1,400 for the nine months ended December 31, 2023 to approximately 700 for the nine months ended December 31, 2024, respectively while the related cost did not decrease that much. As a result, the gross profit margin of the revenues from our Auto Business decreased from approximately 10.8% for the nine months ended December 31, 2023 to approximately 3.3% for the nine months ended December 31, 2024, led our overall gross profit margin slightly decreased to approximately 20.7% from approximately 21.3% during the nine months ended December 31, 2023.

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 decreased from $2,434,146 for the nine months ended December 31, 2023 to $1,899,515 for the nine months ended December 31, 2024, representing a decrease of $534,631, or approximately 22.0%. The decrease was attributable to our continuous control on costs and streamline expenses during the nine months ended December 31, 2024. The decrease mainly consisted of (1) a decrease of $183,944 in salary and employee benefits as the average monthly number of our employees decreased from 67 to 54; and (2) a decrease of $ $276,727 in offices rental and charges; and (3) a decrease of $125,122 in professional service fees such as financial, legal and market consulting in the nine months ended December 31, 2024.

Provision for credit losses

We re-evaluated the possibility of collection of unsettled balances from customers/suppliers of our automobile transactions and related services, and provided provision for credit losses of $722,681 and $680,396 against receivables from Jinkailong for the nine months ended December 31, 2024 and 2023, respectively.

Stock-based compensation

In October 2023, we entered into three different consulting and services agreements (the “Consulting Agreements”) with three consultants (the “Consultants”), pursuant to which we engaged the Consultant to provide certain merger and acquisition consulting service, market research and business development advisory services, and financial consulting services, respectively. We issued an aggregate of 1,500,000 shares of our common stock in November 2023 to settle the compensation for the services. We did not have similar transaction during the nine months ended December 31, 2024.

Other income, net

For the nine months ended December 31, 2024, we had other income, net of $444,761, which primarily consist of the (1) a gain of $397,775 from deconsolidation of XXTX; (2) penalty income of approximately $80,000 from the customers; (3) income of approximately $4,000 from the disposal of our own vehicles used for operating leases; partially offset by (4) the expense of approximately $20,000 from the termination of our right-of-use assets for an exhibition hall we leased in Changsha, and (5) the miscellaneous expense of approximately $17,000.

For the nine months ended December 31, 2023, we had other income, net of $275,736, which primarily consist of (1) the income of approximately $32,000 from the disposal of our right-of-use assets and our own vehicles used for operating leases; (2) penalty income of approximately $154,000 from the customers; and (3) the miscellaneous income of approximately $90,000.

Interest Expense and Interest Expense on Finance Leases

Interest expense on finance leases for the nine months ended December 31, 2024 and 2023 was $12,723 and $23,107, respectively, representing the interest expense accrued under financing leases for the leased automobiles Corenel leased from a third-party company, and the leased automobiles rendered to us for sublease or sale by the online ride-hailing drivers who exited the ride-hailing business.

Change in Fair Value of Derivative Liabilities

Warrants issued in our registered direct offerings that took place in June 2019, February 2021 and May 2021, and the August 2020 underwritten public offering, and the November 2021 private placement 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 for the nine months ended December 31, 2024 and 2023 was a gain of $105,900 and $410,027, respectively. The following table sets forth the breakdown of the gain in fair value of derivative liabilities for the nine months ended December 31, 2024 and 2023:

(unaudited)

(unaudited)

Income Tax Expense

Generally, our subsidiaries are subject to enterprise income tax on their taxable income in China 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. All the subsidiaries in China suffered losses and no tax expense was recorded for the nine months ended December 31, 2024 and 2023.

Net loss from continuing operations

As a result of the foregoing, net loss from continuing operations for the nine months ended December 31, 2024 was $1,558,002, representing a decrease of $596,946 from net loss of $2,154,948 for the nine months ended December 31, 2023.

Results of Discontinued Operations for the three and nine months ended December 31, 2024 Compared to the three and nine months ended December 31, 2023

(unaudited)

(unaudited)

(unaudited)

(unaudited)

The results of discontinued operations mainly consist of the financial figures of our former subsidiary, XXTX. As of August 20, 2024, we deconsolidated XXTX and its business result was included in our online ride-hailing platform services before we deconsolidated its financial figures.

Revenues

XXTX generated revenue from providing services to online ride-hailing drivers to assist them in providing transportation service to the riders though our platform and earned 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 since October 2020.

During the three months ended December 31, 2023, approximately 1.2 million rides with gross fare of approximately $3.6 million were completed through Xixingtianxia platform and an average of over 4,900 Active Drivers each month. XXTX earned online ride-hailing platform service fees of $510,203, after netting off approximately $40,000 incentives paid to Active Drivers.

During the nine months ended December 31, 2024, approximately 0.6 million rides with gross fare of approximately $1.8 million were completed through our Xixingtianxia platform and an average of over 2,100 Active Drivers each month. XXTX earned online ride-hailing platform service fees of $344,241, after netting off approximately $32,000 incentives paid to Active Drivers.

During the nine months ended December 31, 2023, approximately 4.1 million rides with gross fare of approximately $12.5 million were completed through our Xixingtianxia platform and an average of over 5,400 Active Drivers each month. XXTX earned online ride-hailing platform service fees of $2,059,622, after netting off approximately $0.2 million incentives paid to Active Drivers.

Cost of Revenues

Cost of revenues from discontinued operations represents technical service charges, insurance and other expenses related to Online Ride-Hailing Platform Services. During each of the three and nine months ended December 31, 2024, cost of revenues decreased as compared with the same period in 2023, mainly due to the decrease in direct expense and technical service fees of online ride-hailing platform services due to the decrease in the number of completed orders.

Selling, General and Administrative Expenses

Selling, general and administrative expenses from discontinued operations primarily consisted of (1) $64,859 in salary and employee benefits; (2) $32,187 in entertainment, advertising and promotion; and (3) other miscellaneous expenses in the nine months ended December 31, 2024.

While it primarily consisted of (1) $116,458 in salary and employee benefits; (2) $108,649 in entertainment, advertising and promotion; and (3) other miscellaneous expenses in the three months ended December 31, 2023. It primarily consisted of (1) $392,744 in salary and employee benefits; (2) $398,474 in entertainment, advertising and promotion and (3) other miscellaneous expenses in the nine months ended December 31, 2023.

Provision for credit losses

For the nine months ended December 31, 2024, XXTX provided provision for credit losses of $173,278 against receivables from a prepaid software development fee and a deposit due to the termination on the development which resulting from the discontinuing of the business.

Other income (expense), net

For the nine months ended December 31, 2024, XXTX had other income, net of $33,214, which primarily due to the miscellaneous other income in its daily operations.

For the three and nine months ended December 31, 2023, XXTX had other expense, net of $5,699 and $24,699, respectively, which primarily due to the miscellaneous other expense in its daily operations.

Interest Expense

Interest expense from discontinued operations was resulted from the borrowings of XXTX from a financial institution for its working capital turnover.

Income Tax Benefit

For the nine months ended December 31, 2024, XXTX had deferred tax benefit of $4,510, resulted from deferred tax, while all the subsidiaries of XXTX suffered losses for the three and nine months ended December 31, 2024 and 2023, no income taxes were recorded for the corresponding period accordingly.

Net loss from discontinued operations

As a result of the foregoing, the net loss from discontinued operations for the nine months ended December 31, 2024 was $213,647. While the net loss from discontinued operations for the three and nine months ended December 31, 2023 was $190,894 and $367,779, respectively.

Liquidity and Going Concern

We have financed our operations primarily through proceeds from our equity offerings, stockholder loans, commercial debt and cash flow from operations.

We had cash and cash equivalents of $949,224 as of December 31, 2024 as compared to $737,719 as of March 31, 2024. We primarily hold our excess unrestricted cash in short-term interest-bearing bank accounts at financial institutions.

Our business is capital intensive. We have considered whether there is substantial doubt about our ability to continue as a going concern due to (1) the net loss of approximately $1.8 million for the nine months ended December 31, 2024; (2) accumulated deficit of approximately $43.3 million as of December 31, 2024; (3) the working capital deficit of approximately $3.4 million as of December 31, 2024; and (4) a purchase commitment of approximately $0.9 million for 100 automobiles. As of the filing date of this Report, we have entered into a purchase contract with an automobile dealer to purchase a total of 100 automobiles in the amount of approximately $1.5 million, of which, approximately $0.6 million has been remitted as purchase prepayments. The remaining purchase commitment of approximately $0.9 million shall be remitted in installment to be completed before March 31, 2025.

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:

• 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.

Based on the above considerations, we are of the opinion that we will probably not have sufficient funds to meet our working capital requirements and debt obligations as they become due one year from the filing date of this Report, if we are unable to obtain additional financing. In addition, there is no assurance that we will be successful in implementing the foregoing plans or that additional capitals 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) changes in the demand for our services, (ii) PRC government policies, (iii) economic conditions in China and worldwide, (iv) competitive pricing in the automobile transaction and related service and ride-hailing industries, (v) changes in our relationships with key business partners, (vi) that financial institutions in China may not able to provide continued financial support to our customers, and (vii) 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.

(unaudited)

(unaudited)

Cash Flow in Operating Activities

For the nine months ended December 31, 2024, net cash provided by operating activities was $548,442, which consisted of net cash inflows of $621,883 from continuing operations and net cash outflows of $73,441 from discontinued operations. While for the nine months ended December 31, 2023, net cash provided by operating activities was $254,749, which consisted of net cash inflows of $603,079 from continuing operations and net cash outflows of $348,330 from discontinued operations.

The decrease of $18,804 in net cash provided by operating activities from continuing operations for the nine months ended December 31, 2024 as compared with the nine months ended December 31, 2023 was primarily attributable to (1) decrease of $596,946 in net loss; (2) decrease of $304,127 in gains resulted from change of fair value of derivative liabilities; (3) increase of $182,019 in the change of accrued expenses and other liabilities (both third parties and due to a related party); and partially offset by (4) non-incurrence of $444,300 in stock-based compensation in the nine months ended December 31, 2024 as compared with it in the same period in 2023; (5) the gain of $397,775 from deconsolidation of XXTX; (6) decrease of $101,025 in amortization of right-of-use assets; and (7) decrease of $98,806 in the change of accounts payable.

Cash Flow in Investing Activities

For the nine months ended December 31, 2024, we had net cash used in investing activities of $448,208, which consisted of the net cash outflows of $448,257 from continuing operations and net cash inflows of $49 from discontinued operations. The majority of net cash used in investing activities from continuing operations was (1) a loan to a related party of $320,703; (2) the cash of $142,751 released upon disposal of XXTX, (3) the purchase furniture for office purpose of $1,607, partially offset by (4) the proceeds from sales of the used-automobiles of $16,804.

For the nine months ended December 31, 2023, we had net cash used in investing activities of $541,204, which consisted of the net cash outflows of $541,363 from continuing operations and net cash inflows of $159 from discontinued operations. The majority of net cash used in investing activities was $643,376 paid for the purchase of automobiles for operating lease purpose, and partially offset by the proceeds from sales of the used-automobiles and rendered automobiles of $102,013.

Cash Flow in Financing Activities

For the nine months ended December 31, 2024, we had net cash used in financing activities of $17,528, which consisted of net cash inflows of $64,546 from continuing operations and net cash outflows of $82,074 from discontinued operations. The majority of net cash provided by financing activities was consisted of: (1) borrowings from a related party of $79,872; and (2) repayments from a related party of $13,893; partially offset by (3) principal payments made for finance lease liabilities of $29,219.

For the nine months ended December 31, 2023, we had net cash used in financing activities of $194,523, which consisted of the net cash outflows of $430,725 from continuing operations and net cash inflows of $236,202 from discontinued operations. The net cash used in financing activities from continuing operations primarily consisted of: (1) principal payments made for finance lease liabilities of $171,388; (2) repayments to related parties and affiliates of $572,113; and (3) repayment of current borrowings to a financial institution of $8,453; partially offset by (4) repayment from a related party of $321,229. While the net cash provided by financing activities from discontinued operations primarily attributable to the borrowings from a financial institution of $251,397.

Off-Balance Sheet Arrangements

As of the filing date of this Report, we have 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

On September 23, 2022, we entered into a purchase contract with an automobile dealer to purchase a total of 100 automobiles for the amount of approximately $1.5 million, of which approximately $0.6 million has been remitted as purchase prepayments, and we expect to fulfill the purchase commitment before March 31, 2025.

• Contingent Liabilities

Pursuant to the Regulations of the State Council on Implementing the Management System for Registered Capital Registration in the Company Law of the People's Republic of China issued on July 1, 2024 (the “Registered Capital Registration Implementing Rules”), as Jinkailong was registered and established before June 30, 2024, its shareholders should fully pay their unpaid subscribed capital before June 30, 2032. As of December 31, 2024, Hunan Ruixi holds 35% of equity interest of Jinkailong and has not made any payments towards to the investment amounted to RMB3.5 million (approximately $479,000). According to the Registered Capital Registration Implementing Rules, Hunan Ruixi shall pay the subscribed capital of Jinkailong before June 30, 2032.

Inflation

We do not believe our business and operations have been materially affected by inflation.

Critical Accounting Estimates

Our unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements and accompanying notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We have identified certain accounting estimates that are significant to the preparation of our financial statements. These estimates are important for an understanding of our financial condition and results of operation. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting estimates involve the most significant estimates and judgments used in the preparation of our financial statements.

In presenting the unaudited condensed consolidated financial statements in accordance with U.S. GAAP, management make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgement and available information. Accordingly, actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions using the currently available information. Changes in facts and circumstances may cause 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 the critical accounting estimates as follows.

When reading our unaudited condensed consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions. Our critical accounting policies and practices include the following: (i) fair values of financial instruments, including derivative liabilities; (ii) accounts receivable, net; (iii) property and equipment, net; (iv) intangible assets, net; (v) revenue recognition; and (vi) leases - lessee. See Note 3—Summary of Significant Accounting Policies to our consolidated financial statements in our 2024 Form 10-K for the disclosure of these accounting policies. We believe the following accounting estimates involve the most significant judgments used in the preparation of our financial statements.

(a) 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 by using Black-Scholes model. The changes in the values of these instruments are shown in the accompanying consolidated statements of operations and comprehensive loss as “change in fair value of derivative liabilities”.

(b) Allowance for credit losses

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires us to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. We adopted this guidance effective April 1, 2023. ASC 326 introduces an approach based on expected losses to estimate the allowance for credit losses, which replaces the previous incurred loss impairment model. The adoption of this guidance did not have a material impact on our consolidated financial statements. Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for credit losses. We estimate the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated economic conditions, customer-specific circumstances, recent payment history and other relevant factors.

The balance of other receivables is unsecured and is reviewed periodically to determine whether their carrying value has become impaired. We consider the balances to be impaired if the collectability of the balances becomes doubtful. We use the individual specific valuation method to estimate the allowance for uncollectible balances. The allowance is also based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections and utilizations. Actual amounts received or utilized may differ from management’s estimate of credit worthiness and the economic environment.

As of December 31, 2024 and March 31, 2024, the allowance for credit losses represented approximately 3.7% and 7.2% of gross accounts receivable balances, respectively. The provision is recorded against accounts receivable balances, with a corresponding charge recorded in the consolidated statements of operations and comprehensive loss. Delinquent account balances are written-off against the allowance for credit losses after management has determined that the likelihood of collection is not probable. Allowance for credit losses balances amounted to $1,529 and $1,545 as of December 31, 2024 and March 31, 2024, respectively for accounts receivable. Allowance for credit losses balances amounted to $20,252 and $20,474 as of December 31, 2024 and March 31, 2024, respectively for deposits and other receivables. Allowance for credit losses balances amounted to $3,778,815 and $3,099,701 as of December 31, 2024 and March 31, 2024, respectively, for amount due from a related party.

(c) Leases - Lessee

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 finance or operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term for operating lease. Meanwhile, we recognize the finance leases ROU assets and interest on an amortized cost basis. The amortization of finance ROU assets is recognized on a straight-line basis as amortization expense, while the lease liability is increased to reflect interest on the liability and decreased to reflect the lease payments made during the period. Interest expense on the lease liability is determined each period during the lease term as the amount that results in a constant periodic interest rate of the automobile loans on the remaining balance of the liability.

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.

(d) Impairment of long-lived assets

Long-lived assets, including property and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. We assess the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, we would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. For the three and nine months ended December 31, 2024 and 2023, we did not recognize impairment for property and equipment and intangible assets.

(e) Valuation of deferred tax assets

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

Evaluation of Disclosure Controls and Procedures

Based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of December 31, 2024, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective due to the following material weaknesses in our internal control over financial reporting:

• We did not have sufficient personnel with appropriate levels of accounting knowledge and experience to address complex U.S. GAAP accounting issues and to prepare and review financial statements and related disclosures under U.S. GAAP. Specifically, our control did not operate effectively to ensure the appropriate and timely analysis of and accounting for unusual and non-routine transactions and certain financial statement accounts;
• We are lacking adequate policies and procedures in internal audit function to ensure that our policies and procedures have been carried out as planned; and
• We had deficiencies in our IT general controls, regarding to the Logical Access Security, Change Management, IT Operations and Cybersecurity of our financial system and key application system, etc.

We are improving our IT environment and daily management to ensure network and information security. In addition, we plan to address the weaknesses identified above by implementing the following measures:

(i) Continuously seeking and hiring additional accounting staff with comprehensive knowledge of U.S. GAAP and SEC reporting requirements;

(ii) Ameliorating our internal audit to assist with assessment of Sarbanes-Oxley compliance requirements and improvement of internal controls related to financial reporting; and

(iii) improving our IT environment and daily management.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.