| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of presentation The
accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) for interim financial information, and with the rules and regulations of the
United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements. Unaudited interim results are not necessarily indicative of the results
for the full fiscal year. The accompanying unaudited condensed financial statements should be read in conjunction with the audited
consolidated financial statements and accompanying notes for the years ended December 31, 2020, 2021 and 2022. The
unaudited condensed consolidated financial statements include the financial statements of SunCar Technology and its subsidiaries. All
intercompany transactions and balances among SunCar Technology and its subsidiaries have been eliminated upon consolidation. (b) Use of estimates The
preparation of the unaudited condensed consolidated financial statements in accordance with US GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities
at the balance sheet date, and the reported revenues and expenses during the reported periods in the condensed consolidated financial
statements and accompanying notes. Significant accounting estimates include, but not limited to, the allowance for doubtful accounts,
useful lives and impairment of long-lived assets, and valuation allowances of deferred tax assets. Changes in facts and circumstances
may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the unaudited
condensed consolidated financial statements. (c) Accounts receivable, net Accounts
receivable, net are stated at the original amount less allowances for doubtful accounts. Accounts receivable are recognized in the period
when the Group has provided services to its customers and when its right to consideration is unconditional. The Group reviews the accounts
receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances.
The Group considers many factors in assessing the collectability of its receivables, such as the age of the amounts due, the customer’s
payment history, credit-worthiness and other specific circumstances related to the accounts. An allowance for doubtful accounts is recorded
in the period in which a loss is determined to be probable. Accounts receivable balances are written off after all collection efforts
have been exhausted. Adoption
of Accounting Standards Update (“ASU”) 2016-13 In
June 2016, the FASB issued ASU 2016-13: Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected
credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and
supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial
assets measured at amortized cost. The Group adopted ASU 2016-13 from January 1, 2023 using modified-retrospective transition approach
with a cumulative-effect adjustment to shareholders’ equity amounting to $507 recognized as of January 1, 2023. (d) Fair value measurement Accounting
guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and
it considers assumptions that market participants would use when pricing the asset or liability. Accounting
guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs are:
● Level
1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
● Level
2—Include other inputs that are directly or indirectly observable in the marketplace.
● Level
3—Unobservable inputs which are supported by little or no market activity. Accounting
guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income
approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving
identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present
value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach
is based on the amount that would currently be required to replace an asset. Financial
assets and liabilities of the Group primarily consist of cash, accounts receivable, other receivables included in prepayments and other
current assets, short-term borrowings, accounts payable, other payables included in accrued expenses and other current liabilities. As
of December 31, 2022 and June 30, 2023, the carrying amounts of other financial instruments approximated to their fair values due to
the short-term maturity of these instruments. The
Group’s non-financial assets, such as software and equipment, would be measured at fair value only if they were determined to be
impaired. (e) Revenue recognition The
Group’s revenues are mainly generated from providing automotive after-sales service, insurance intermediation service and technology
service. The
Group recognizes revenue pursuant to ASC 606, Revenue from Contracts with Customers (“ASC 606”). In accordance with ASC 606,
revenues from contracts with customers are recognized when control of the promised goods or services is transferred to the Group’s
customers, in an amount that reflects the consideration the Group expects to be entitled to in exchange for those goods or services,
reduced by Value Added Tax (“VAT”). To achieve the core principle of this standard, we applied the following five steps:
1. Identification
of the contract, or contracts, with the customer;
2. Identification
of the performance obligations in the contract;
3. Determination
of the transaction price;
4. Allocation
of the transaction price to the performance obligations in the contract; and
5. Recognition
of the revenue when, or as, a performance obligation is satisfied. Automotive
after-sales service The
Group defines enterprise clients as the Group’s customers and the Group sells automotive after-sales service coupons to enterprise
clients, which each coupon represents one specific automotive after-sales service. There are various service types including vehicle
washing, waxing, maintenance, driving service and road assistance, and the Group only provides one specific service among various service
types for each specific service coupon. The Group identifies each specific service coupon as a contract that establishes enforceable
rights and obligations for each party. The Group charges the service fee at a fixed price per service when the service is performed.
For service coupons with limited duration, the Group either charges the service fee at a fixed price per service when the service is
performed or when the coupon expires, whether or not the service has been performed. The Group considers each service coupon is a distinct
service that is capable of providing a benefit to the customer on its own according to ASC 606-10-25-14(a). Therefore, the Group identifies
only one performance obligation under a contract, which is to provide a specific service or to stand-ready to perform a specific service
within a limited duration. The Group acts as a principal as the Group controls the right to services before the services are provided
to customers and the Group has the ability to direct other parties to provide the services to customers on the Group’s behalf.
Specifically, the Group has the ability to choose service providers, is primarily responsible for the acceptability for the service meeting
customer specifications, bears inventory risk after transfer of control of services to customers, and has the discretion in establishing
the price with customers and with service providers and bears credit risk. The Group recognizes revenue in the gross amount of consideration
at a point of time when the service is provided, or when the service coupon expires. The Group does not provide refunds to customers
when a coupon is expired but not used. Insurance
intermediation service The
Group provides insurance intermediation service distributing primarily vehicle insurance on behalf of the insurance companies and charges
insurance companies for intermediation service commissions. Insurance intermediation services are considered to be rendered and completed,
and revenue is recognized, at the time an insurance policy becomes effective, that is, when the signed insurance policy is in place and
the premium is collected from the insured. The Group has satisfied the performance obligation to recognize revenue when the premiums
are collected by the respective insurance companies and not before, because collectability is not ensured until receipt of the premium.
Accordingly, the Group does not accrue any insurance intermediation service commission and fees prior to the receipt of the related premiums.
No allowance for cancellation has been provided for intermediation services as cancellation of policies rarely occurs. Technology
service The
Group provides technology service including technical software and consulting related to automobile services and insurance, such as customer
relationship management (CRM), order management, finance management and visual analysis systems. The Group charges service fee based
on fixed price per month for service provided, and recognizes revenue over time during the service period. Contract
Balances Timing
of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent revenue recognized for the
amounts invoiced and/or prior to invoicing when the Group has satisfied its performance obligation and has an unconditional right to
the payment. Contract assets represent the Group’s right to consideration in exchange for goods or services that the Group has
transferred to a customer. The Group has no contract assets as of December 31, 2022 and June 30, 2023. The
contract liabilities consist of the billings or cash received for services in advance of revenue recognition and is recognized as revenue
the performance obligation is satisfied. The Group’s contract liabilities amounted to $3,569 and $3,870 as of December 31, 2022
and June 30, 2023, respectively. During the six months ended June 30, 2022 and 2023, the Group recognized $1,901 and $3,569 that was
included in contract liabilities balance at January 1, 2022 and 2023, respectively. (f) Warrants The
Group accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s
specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives
and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant
to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity
classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant
holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other
conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant
issuance and as of each subsequent quarterly period end date while the warrants are outstanding For
issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component
of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants
are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter.
Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair
value of the Private Warrants was estimated using a Black-Scholes model. (g) Foreign currency transactions and translations The
Group’s principal country of operations is the PRC. The financial position and results of its operations are determined using RMB,
the local currency, as the functional currency. The Group’s financial statements are reported using U.S. Dollars (“$”).
The results of operations and the consolidated statements of cash flows denominated in foreign currency are translated at the average
rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are
translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated
at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation
rate, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with
changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange
rates from period to period are included as a separate component of accumulated other comprehensive income (loss) included in consolidated
statements of changes in equity. Gains and losses from foreign currency transactions are included in the results of operations. The
value of RMB against $ and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political
and economic conditions. Any significant revaluation of RMB may materially affect the Group’s financial condition in terms of $
reporting. The following table outlines the currency exchange rates that were used in creating the consolidated financial statements:
December 31, June 30,
Balance sheet items, except for equity accounts 6.8972 7.2513
For the Six Months Ended
2022 2023
Items in the statements of income and comprehensive income, and statements of cash flows 6.4835 6.9283 No
representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation. (h) Recent accounting pronouncements The
Group is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”). Under the JOBS Act, EGC can delay adopting new or revised accounting standards issued subsequent to the enactment
of the JOBS Act until such time as those standards apply to private companies. The
Group has evaluated pronouncements recently issued but not yet adopted. The adoption of these pronouncements is not expected to have
a material impact or are unrelated to the Group’s consolidated financial condition, results of operations, cash flows or disclosures. |
