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EX-32.1 - CERTIFICATION - SHARING ECONOMY INTERNATIONAL INC.f10q0920ex32-1_sharing.htm
EX-31.2 - CERTIFICATION - SHARING ECONOMY INTERNATIONAL INC.f10q0920ex31-2_sharing.htm
EX-31.1 - CERTIFICATION - SHARING ECONOMY INTERNATIONAL INC.f10q0920ex31-1_sharing.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

COMMISSION FILE NUMBER: 001-34591

 

SHARING ECONOMY INTERNATIONAL INC.

(Exact name of Registrant as specified in its charter)

 

NEVADA   90-0648920
 (State or other jurisdiction of
incorporation of organization)
  (I.R.S. Employer
Identification No.)

 

M302, 3/F, Eton Tower,

8 Hysan Avenue,

Causeway Bay, Hong Kong

(Address of principal executive offices)

 

(852) 35832186

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer Accelerated filer
Non-accelerated filer  Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange
on which registered
         

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 144,513,102 shares of common stock and 3,189,600 shares of preferred stock are issued and outstanding as of October 28, 2020. 

 

 

 

 

 

  

SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES

 FORM 10-Q

September 30, 2020

 

TABLE OF CONTENTS

 

    Page No.
  PART I. - FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
  Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019 (Audited) 1
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) 2
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) 3
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited) 4
  Notes to Condensed Consolidated Financial Statements (Unaudited) 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
Item 4. Controls and Procedures 29
     
  PART II - OTHER INFORMATION  
     
Item 5. Exhibits 31

 

i

 

 

FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

 

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 FREE. Our SEC filings are available through our website at http://www.seii.com/investor-relations/sec-filings.

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

ii

 

 

PART 1 - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

  AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

 

   September 30,   December 31, 
   2020   2019 
   (Unaudited)   (Audited) 
ASSETS        
         
CURRENT ASSETS:        
Cash and cash equivalents  $1,289,024   $83,667 
Accounts receivable, net of allowance for doubtful accounts   112,960    305 
Prepaid expenses and other receivables   899,716    1,019,883 
Marketable securities   2,265,938    4,532,296 
           
Total current assets   4,567,638    5,636,151 
           
OTHER ASSETS:          
Property and equipment, net   520,690    620,075 
Intangible assets, net   957,250    1,108,407 
           
Total other assets   1,477,940    1,728,482 
           
Total assets  $6,045,578   $7,364,633 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES:          
Short-term bank loans  $6,124,233   $4,676,184 
Convertible note payable, net of unamortized debt discount   926,229    838,571 
Accounts payable and accrued expenses   479,952    516,341 
Other payable   973,213    279,941 
Due to related parties   2,532,161    2,365,504 
Income taxes payable   -    6,802 
Deferred revenue   269    - 
           
Total current liabilities   11,036,057    8,683,343 
           
LONG-TERM LIABILITIES:          
Long-term loan   4,959,429    4,981,361 
           
Total liabilities   15,995,486    13,664,704 
           
STOCKHOLDERS’ DEFICIT:          
Preferred stock, $0.001 par value; 50,000,000 shares authorized; 3,189,600 and 0 issued and outstanding at September 30, 2020 and December 31, 2019, respectively)   3,190    - 
Common stock ($0.001 par value; 7,400,000,000 shares authorized; 144,506,979 and 3,988,372 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively)   144,507    3,989 
Common stock to be issued   -    140,379 
Additional paid-in capital   62,358,572    60,773,853 
Accumulated losses   (71,548,666)   (66,300,687)
Accumulated other comprehensive income   (8,972)   42,597 
Total SEII stockholder’s deficit   (9,051,369)   (5,339,869)
           
Non-controlling interest   (898,539)   (960,202)
           
Total stockholders’ deficit   (9,949,908)   (6,300,071)
           
Total liabilities and stockholders’ deficit  $6,045,578   $7,364,633 

 

#Post a fifty for one (50:1) reverse split effective on October 13, 2020.

 

See notes to unaudited condensed consolidated financial statements.

 

1

 

 

SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2020   2019   2020   2019 
       (Restated)       (Restated) 
                 
REVENUES  $50,069   $533   $118,051   $27,325 
                     
COST OF REVENUES   (31,794)   13,490    (68,939)   (11,990)
                     
GROSS PROFIT   18,275    14,023    49,112    15,335 
                     
OPERATING EXPENSES:                    
Depreciation and amortization   84,590    37,949    253,770    111,917 
Selling, general and administrative   582,475    665,076    1,479,427    4,066,861 
Written-off prepayments   -    -    122,514    - 
Impairment loss on goodwill   82,692    -    1,163,590    - 
                     
Total operating expenses   749,757    703,025    3,019,301    4,178,778 
                     
LOSS FROM OPERATIONS   (731,482)   (689,002)   (2,970,189)   (4,163,443)
                     
OTHER INCOME (EXPENSE):                    
Interest income   6    10    10    103 
Interest expense   (109,071)   (149,474)   (701,982)   (240,289)
Dividend income   -    -    175    - 
Impairment loss on marketable securities   (23,480)   -    (1,885,085)   - 
Gain on sale of marketable securities   154,285    -    231,253      
Loss on disposal of a subsidiary   -    -    (70,901)   - 
Other income   15,893    75,233    91,957    75,234 
                     
Total other (expense) income, net   37,633    (74,231)   (2,334,573)   (164,952)
                     
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES   (693,849)   (763,233)   (5,304,762)   (4,328,395)
                     
PROVISIONS FOR INCOME TAXES:   -    -    -    - 
                     
LOSS FROM CONTINUING OPERATIONS   (693,849)   (763,233)   (5,304,762)   (4,328,395)
                     
DISCONTINUTED OPERATIONS:                    
Loss from discontinued operations, net of income taxes   -    (318,783)   -    (23,844,924)
                     
NET LOSS   (693,849)   (1,082,016)   (5,304,762)   (28,173,319)
                     
NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST   (6,881)   (44,647)   (56,783)   (307,394)
                     
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS  $(686,968)  $(1,037,369)  $(5,247,979)  $(27,865,925)
COMPREHENSIVE LOSS:                    
Net loss  $(693,849)   (1,082,016)   (5,304,762)   (28,173,319)
Foreign currency translation loss   (16,112)   (534,699)   (51,569)   (208,422)
                     
Comprehensive loss  $(709,961)  $(1,616,715)  $(5,356,331)  $(28,381,741)
                     
Net income (loss) attributable to non-controlling interest  $(6,881)  $(44,647)  $(56,783)  $(307,394)
Foreign currency translation gain (loss) from non-controlling interest   1    -    1,517    (363)
                     
Comprehensive loss attributable to common stockholders  $(703,081)  $(1,572,068)  $(5,301,065)  $(28,073,984)
                     
NET LOSS PER COMMON SHARE:                    
Continuing operations - basic  $(0.00)  $(7.71)  $(0.06)  $(22.67)
Discontinued operations - basic   (0.00)   (3.42)   (0.00)   (134.46)
                     
Net loss per common share - basic  $(0.00)  $(11.13)  $(0.06)  $(157.13)
                     
Continuing operations - diluted  $(0.00)  $(7.71)  $(0.05)  $(22.67)
Discontinued operations - diluted   (0.00)   (3.42)   (0.00)   (134.46)
Net loss per common share - diluted  $(0.00)  $(11.13)  $(0.05)  $(157.13)
                     
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                    
Basic   140,077,157    93,178    94,714,229    177,335 
Diluted   142,653,373    93,178    96,431,706    177,335 

 

#Post a fifty for one (50:1) reverse split effective on October 13, 2020.

 

See notes to unaudited condensed consolidated financial statements.

2

 

 

SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

(Unaudited)

 

Three months ended September 30, 2020
   Preferred Stock   Common Stock   Common stock to be issued                     
   Number of
Shares
   Amount  

Number of

Shares

   Amount   Number of
Shares
   Amount   Additional
Paid-in
Capital
   Retained
Earnings
   Accumulated
Other
Comprehensive
Income
  

Non-

controlling
Interest

   Total
Stockholders’
Deficit
 
                                             
Balance, July 1, 2020   3,189,600    3,190    144,393,275   $144,394    -    -   $62,358,685   $(70,861,698)  $7,140   $(974,221)  $(9,322,510)
                                                        
Impact from fractional shares   -    -    113,704   $113    -    -   $(113)  $-   $-   $-   $- 
                                                        
Acquisition of NCI   -    -    -    -    -    -    -    -    -    82,562    82,562 
                                                        
Net loss for the period   -    -    -    -    -    -    -    (686,968)   -    (6,881)   (693,849)
                                                        
Foreign currency translation adjustment   -    -    -    -    -    -    -    -    (16,112)   1    (16,111)
                                                        
Balance, September 30, 2020   3,189,600    3,190    144,506,979   $144,507    -    -   $62,358,572   $(71,548,666)  $(8,972)  $(898,539)  $(9,949,908)

 

Three Months ended September 30, 2019
   Common Stock   Common stock to be issued                         
   Number of       Number of       Additional
Paid-in
   Retained   Statutory   Accumulated
Other
Comprehensive
  

Non-

controlling

   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Capital   Earnings   Reserve   Income   Interest   Equity 
Balance, July 1, 2019 (restated)   3,806,719   $3,807    140,378,844    140,379   $65,366,113   $(66,927,798)  $2,352,592   $3,005,118   $(802,912)  $3,137,299 
                                                   
Net loss for the period   -    -    -    -    -    (1,038,069)   -    -    (44,647)   (1,082,716)
                                                   
Foreign currency translation adjustment   -    -    -    -    -    -    -    (534,699)   -    (534,699)
                                                   
Balance, September 30, 2019   3,806,719   $3,807    140,378,844   $140,379   $65,366,113   $(67,965,867)  $2,352,592   $2,470,419   $(847,559)  $1,519,884 

 

Nine months ended September 30, 2020
   Preferred Stock   Common Stock   Common stock to be issued                     
   Number of
Shares
   Amount   Number of
Shares
   Amount   Number of
Shares
   Amount   Additional
Paid-in
Capital
   Retained
Earnings
   Accumulated
Other
Comprehensive
Income
  

Non-

controlling
Interest

   Total
Stockholders’
Deficit
 
                                             
Balance, January 1, 2020   -    -    3,988,372   $3,989    140,378,844    140,379   $60,773,853   $(66,300,687)  $42,597   $(960,202)  $(6,300,071)
                                                        
Common stock issued for acquisition of Peak Equity Group   -    -    140,378,844    140,379    (140,378,844)   (140,379)   -    -    -    -    - 
                                                        
Common stock issued for acquisition of non-wholly owned subsidiary   2,658,000    2,658    -    -    -    -    1,007,382    -    -    (33,345)   976,695 
                                                        
Common stock issued for services from consultants and service providers   531,600    532    16,000    16    -    -    477,460    -    -    -    478,008 
                                                        
Common stock issued upon conversion of debt   -    -    10,059    10    -    -    99,990    -    -    -    100,000 
                                                        
NCI from disposal of subsidiary   -    -    -    -    -    -    -    -    -    67,712    67,712 
                                                        
Acquisition of NCI   -    -    -    -    -    -    -    -    -    82,562    82,562 
                                                        
Impact from fractional shares   -    -    113,704    113    -    -    (113)   -    -    -    - 
                                                        
Net loss for the period             -    -    -    -    -    (5,247,979)   -    (56,783)   (5,304,762)
                                                        
Foreign currency translation adjustment   -    -    -    -    -    -    -    -    (51,569)   1,517    (50,052)
                                                        
Balance, September 30, 2020   3,189,600    3,190    144,506,979   $144,507    -    -   $62,358,572   $(71,548,666)  $(8,972)  $(898,539)  $(9,949,908)

 

Nine Months ended September 30, 2019
   Common Stock   Common stock to be issued                         
   Number of       Number of       Additional
Paid-in
   Retained   Statutory   Accumulated
Other
Comprehensive
  

Non-

controlling

   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Capital   Earnings   Reserve   Income   Interest   Equity 
                                         
Balance, January 1, 2019 (restated)   3,770,139   $3,770    140,378,844   $140,379   $65,515,431   $(40,099,942)  $2,352,592   $2,695,362   $(539,802)  $30,067,790 
                                                   
Common stock issued for cash   13,800    14    -    -    200,086    -    -    -    -    200,100 
                                                   
Common stock issued for services from consultants and service providers   26,987    27    -    -    288,942    -    -    -    -    288,969 
                                                   
Common stock surrendered for services from consultants and service providers   (11,251)   (11)   -    -    (947,937)   -    -    -    -    (947,948)
                                                   
Common stock issued upon conversion of debt   5,334    5    -    -    49,995    -    -    -    -    50,000 
                                                   
Common stock issued for donation   1,710    2    -    -    259,596    -    -    -    -    259,598 
                                                   
Net loss for the period   -    -    -    -    -    (27,865,925)   -    -    (307,394)   (28,173,319)
                                                   
Foreign currency translation adjustment   -    -    -    -    -    -    -    (224,943)   (363)   (225,306)
                                                   
Balance, September 30, 2019   3,806,719   $3,807    140,378,844    140,379   $65,366,113   $(67,965,867)  $2,352,592   $2,470,419   $(847,559)  $1,519,884 

 

#Post a fifty for one (50:1) reverse split effective on October 13, 2020.

 

See notes to unaudited condensed consolidated financial statements.

3

 

 

SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

(Unaudited)

 

   Nine Months Ended 
   September 30, 
   2020   2019 
       (Restated) 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(5,304,762)  $(28,173,319)
Less: loss from discontinued operations   -    (23,844,924)
Net loss from continuing operations   (5,304,762)   (4,328,395)
Adjustments to reconcile net loss from operations to net cash used in operating activities:          
Depreciation   101,526    18,515 
Amortization of intangible assets   152,244    93,402 
Impairment loss on marketable securities   1,885,085    - 
Impairment loss on goodwill   1,163,590    - 
Written-off prepayments   122,514    - 
Stock-based professional fees   523,008    2,653,802 
Stock-based compensation   -    933 
Stock-based donation   -    259,598 
Loss on disposal of a subsidiary   70,901    - 
Amortization of debt discount   4,658    162,170 
Gain on sale of marketable securities   (231,253)   - 
Changes in operating assets and liabilities:          
Accounts receivable   11,143    42,605 
Prepaid expenses and other receivables   (2,187)   227,128 
Accounts payable and accrued expenses   (39,099)   78,422 
Other payable   230,952    (30,955)
Income tax payable   (6,802)   (27,446)
Deferred revenue   269    - 
           
CASH FLOWS USED IN OPERATING ACTIVITIES – continuing operations   (1,318,213)   (850,221)
CASH FLOWS USED IN OPERATING ACTIVITIES – discontinued operations   -    453,315 
CASH FLOWS USED IN OPERATING ACTIVITIES   (1,318,213)   (396,906)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of marketable securities   (8,078,052)   - 
Purchase of NCI   (154)     
Proceeds from disposal of marketable securities   8,711,484    - 
Proceeds from disposal of a subsidiary   8,251    - 
Dividend received   175      
Cash from acquisition of a non-wholly owned subsidiary   192,022    - 
           
CASH FLOWS USED IN INVESTING ACTIVITIES – continuing operations   833,726    - 
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES – discontinued operations   -    (99,941)
CASH FLOWS USED IN INVESTING ACTIVITIES   833,726    (99,941)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Repayments of bank loan   (39,149)   - 
Proceeds from bank loan   1,412,574    5,136,619 
Proceeds from issuance of note payable   183,000    (8,810)
Advance from related party   166,657    (4,616,651)
Repayment to related party   -    (31,604)
Proceeds from sale of common stock, net   -    200,100 
           
CASH FLOWS PROVIDED BY  FINANCING  ACTIVITIES – continuing operations   1,723,082    679,654 
CASH FLOWS USED IN  FINANCING CTIVITIES – discontinued operations   -    (608,999)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   1,723,082    70,655 
           
Effect of exchange rate changes   (33,238)   (231,057)
           
Net change in cash and cash equivalents   1,205,357    (657,249)
           
Cash and cash equivalents  - beginning of period   83,667    883,461 
           
Cash and cash equivalents  - end of period   1,289,024    226,212 
           
Less: Cash and cash equivalents from discontinued operations   -    (151,798)
           
Cash and cash equivalents from continuing operations, end of period   1,289,024   $74,414 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid in continuing operations for:          
Interest  $144,225   $240,289 
Income taxes  $-   $- 
           
Cash paid in discontinued operations for:          
Interest  $-   $116,597 
Income taxes  $-   $- 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Interest  $557,757   $111,280 
Stock issued for acquisition of a non-wholly owned subsidiary  $976,695   $- 
Stock issued for services from consultants and vendors  $478,008   $- 
Stock issued for redemption of convertible note and accrued interest  $100,000   $50,000 

 

#Post a fifty for one (50:1) reverse split effective on October 13, 2020.

 

See notes to unaudited condensed consolidated financial statements.

4

 

 

SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

(Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION

 

Sharing Economy International Inc. (the “Company”) was incorporated in Delaware on June 24, 1987 under the name of Malex, Inc. On December 18, 2007, the Company’s corporate name was changed to China Wind Systems, Inc. and on June 13, 2011, the Company changed its corporate name to Cleantech Solutions International, Inc. On August 7, 2012, the Company was converted into a Nevada corporation. On January 8, 2018, the Company changed its corporate name to Sharing Economy International Inc. 

 

Following the closure of its operations in the PRC during 2019, the Company’s latest business initiatives are focused on targeting the technology and global sharing economy markets, by developing online platforms and rental business partnerships that will drive the global development of sharing through economical rental business models. In connection with the new business initiatives, the Company formed or acquired the following subsidiaries:

 

  Vantage Ultimate Limited (“Vantage”), a company incorporated under the laws of British Virgin Islands on February 1, 2017 and is wholly-owned by the Company.
  Sharing Economy Investment Limited (“Sharing Economy”), a company incorporated under the laws of British Virgin Islands on May 18, 2017 and is wholly-owned by Vantage.
  EC Advertising Limited (“EC Advertising”), a company incorporated under the laws of Hong Kong on March 17, 2017 and is a wholly-owned by Sharing Economy.
  EC Rental Limited (“EC Rental”), a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage.
  EC Assets Management Limited (“EC Assets”), a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage.
  Cleantech Solutions Limited (formerly known as EC (Fly Car) Limited), a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is a wholly-owned by Sharing Economy.
  Global Bike Share (Mobile App) Limited, a company incorporated under the laws of British Virgin Islands on May 23, 2017 and is a wholly-owned by Sharing Economy.
  EC Power (Global) Technology Limited (“EC Power”), a company incorporated under the laws of British Virgin Islands on May 26, 2017 and is wholly-owned by EC Rental.
  ECPower (HK) Company Limited, a company incorporated under the laws of Hong Kong on June 23, 2017 and is wholly-owned by EC Power.
  EC Manpower Limited, a company incorporated under the laws of Hong Kong on July 3, 2017 and is wholly-owned by Vantage.
  EC Technology & Innovations Limited (“EC Technology”), a company incorporated under the laws of British Virgin Islands on September 1, 2017 and is wholly-owned by Vantage.
  Inspirit Studio Limited (“Inspirit Studios”), a company incorporated under the laws of Hong Kong on August 24, 2015, and 51% of its shareholding was acquired by EC Technology on December 8, 2017.
  EC Creative Limited (“EC Creative”), a company incorporated under the laws of British Virgin Islands on January 9, 2018 and is wholly-owned by Vantage.
  3D Discovery Co. Limited (“3D Discovery”), a company incorporated under the laws of Hong Kong on February 24, 2015, 60% of its shareholdings was acquired by EC Technology on January 19, 2018 and remaining 40% of its shareholdings was acquired by EC Technology on August 14, 2020.
  Sharing Film International Limited, a company incorporated under the laws of Hong Kong on January 22, 2018 and is a wholly-owned by EC Creative.
  AnyWorkspace Limited (“AnyWorkspace”), a company incorporated under the laws of Hong Kong on November 12, 2015, and 80% of its shareholding was acquired by Sharing Economy on January 30, 2018.
  Xiamen Great Media Company Limited (“Xiamen Great Media”), a company incorporated under the laws of the PRC on September 5, 2018 and is a wholly-owned by EC Advertising.
  Jebe Production Group Limited (“Jebe”), a company incorporated under the laws of the Hong Kong on February 27, 2008 and 68% of its shareholding was acquired by the Company on May 6, 2020.

 

5

 

 

On March 24, 2020, the Company sold its equity interest of 80% in AnyWorkspace Limited for a consideration of approximately $8,251 with a loss on disposal of $70,901.

 

On May 6, 2020, the Company acquired an equity interest of 68% in Jebe Production Group Limited for a consideration of 2,658,000 shares of series A convertible preferred stock, approximately $1,010,040.

 

On May 20, 2020, the Company and one stockholder holding an aggregate of 4,679,260,000 shares of common stock on such date approved an amendment to the Company’s Articles of Incorporation effecting a fifty-for-one (50:1) reverse split (the “Reverse Stock Split”) of the Company’s outstanding shares of common stock. The Reverse Stock Split was effective on the OTC Markets Group, Inc. as of the opening of business on October 13, 2020. As a result of the Reverse Stock Split, each 50 shares of the Company’s common stock outstanding on such date were exchanged for one share of the Company’s common stock. The number of authorized shares and par value remain unchanged.  All share and per share information in this financial statements and footnotes have been retroactively adjusted for the period and years presented, unless otherwise indicated, to give effect to the forward stock split.  

 

On August 14, 2020, the Company acquired the remaining equity interest of 40% in 3D Discovery Co. Limited for a consideration $154.

 

Going Concern

 

These condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, the Company had a loss from continuing operations of approximately $5,304,762 for the nine months ended September 30, 2020 and suffered from the accumulated deficit of $71,548,666 at that date. The net cash used in operations were approximately $1,318,213 for the nine months ended September 30, 2020. Management believes that its capital resources are not currently adequate to continue operating and maintaining its business strategy for twelve months from the date of this report. The Company may seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from bank loans, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations.

 

Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Listing Status

 

On November 26, 2018, Sharing Economy International Inc. (the “Company”) received a staff determination notice from The Nasdaq Stock Market (“Nasdaq”) informing the Company that as a result of its failure to comply with Nasdaq’s shareholder approval requirements set forth in Listing Rule 5635(c) (the “Rule”), the staff determined to deny the Company’s request for continued listing based on a plan of compliance submitted on October 26, 2018. The Company’s common stock was delisted from Nasdaq at the open of trading on December 5, 2018. The Company’s common stock is currently trading on the OTC Markets under the symbol “SEII”. On January 2, 2020, the Company is trading on OTCQB.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

 

6

 

 

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2019 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on July 24, 2020. The consolidated balance sheet as of December 31, 2019 contained herein has been derived from the audited consolidated financial statements as of December 31, 2019, but does not include all disclosures required by the generally accepted accounting principles in the U.S. (“U.S. GAAP”).

 

Principles of Consolidation

 

The Company’s unaudited condensed consolidated financial statements include the financial statements of its wholly-owned and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in the three and nine months ended September 30, 2020 and 2019 include the allowance for doubtful accounts on accounts and other receivables, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets, and the value of stock-based transactions.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. Cash equivalents include highly liquid investments with maturities of three months or less when purchased. Cash and cash equivalents held at financial institutions may at times exceed insured amounts. It is believed that the Company mitigates such risk by investing in or through major financial institutions.

 

Fair Value of Financial Instruments

 

The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, prepaid expenses and other receivables, short-term bank loans, convertible notes payable, accounts payable, accrued liabilities, amount due to a related party and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.

 

ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

 

7

 

 

The following table presents information about the Company’s assets and liabilities that were measured at fair value as of September 30, 2020 and December 31, 2019, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

 

   September 30,   Quoted
Prices In
Active Markets
   Significant
Other
Observable
Inputs
   Significant
Other
Unobservable
Inputs
 
Description  2020   (Level 1)   (Level 2)   (Level 3) 
   (Unaudited)             
Assets:                
Marketable securities, available-for-sale  $2,265,938   $2,265,938   $    –   $     – 

 

   December 31,   Quoted
Prices In
Active Markets
   Significant
Other
Observable
Inputs
   Significant
Other
Unobservable
Inputs
 
Description  2019   (Level 1)   (Level 2)   (Level 3) 
   (Audited)             
Assets:                
Marketable securities, available-for-sale  $4,532,296   $4,532,296   $    –   $    – 

 

As of September 30, 2020 and December 31, 2019, the Company did not have any nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements, at least annually, on a recurring basis, nor did the Company have any assets or liabilities measured at fair value on a non-recurring basis.

 

Concentrations of Credit Risk

 

The Company’s operations are carried out in Hong Kong. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in Hong Kong. The Company’s operations in Hong Kong are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with large commercial banks in Hong Kong, Singapore and China, none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

 

Accounts Receivable

 

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company 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. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2020 and December 31, 2019, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $0 and $0, respectively. 

 

8

 

 

Property and Equipment

 

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of operations in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. Impairment loss has been recorded in current period.

 

    Useful life
Office equipment and furniture   5 years
Vehicles   5 years
Vessels   5 years

 

Depreciation expense from continuing operations for the three months ended September 30, 2020 and 2019 amounted to $33,842 and $10,482, respectively.

 

Depreciation expense from continuing operations for the nine months ended September 30, 2020 and 2019 amounted to $101,526 and $16,727, respectively.

 

Depreciation expense from discontinued operations for the three months ended September 30, 2020 and 2019 amounted to $0 and $696,850, respectively.

 

Depreciation expense from discontinued operations for the nine months ended September 30, 2020 and 2019 amounted to $0 and $2,081,089, respectively.

 

Impairment of long-lived assets and intangible assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. At September 30, 2020 and December 31, 2019, the Company conducted an impairment assessment on property, equipment and intangible asset based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of property, equipment and intangible asset as of September 30, 2020 and December 31, 2019. Such analysis considered future use of such equipment, consultation with equipment resellers, subsequent sales of price of equipment held for sale, and other industry factors. Upon completion of the annual impairment analysis, the Company recorded impairment charges on long-lived assets of $0 and $13,355,958 for the nine months ended September 30, 2020 and 2019, in relation to its discontinued operations.

 

Revenue recognition

 

In May 2014, FASB issued an update Accounting Standards Update (“ASU”) (“ASU 2014-09”) establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard in 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers.

 

9

 

 

Continuing operations

 

The Company derives its revenues from the sale of licence and advertising right and in a term of certain periods. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

 

  identify the contract with a customer;
  identify the performance obligations in the contract;
  determine the transaction price;
  allocate the transaction price to performance obligations in the contract; and
  recognize revenue as the performance obligation is satisfied.

  

Discontinued operations

 

The Company recognizes revenues from the sale of equipment upon shipment and transfer of title. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person hours to complete a service and generally is recognized over the contract period.

 

All other product sales with customer specific acceptance provisions are recognized upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.

 

Stock-Based Compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if fully vested and non-forfeitable. The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Foreign Currency Translation

 

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”) or Hong Kong dollars (HKD). For the subsidiaries and affiliates, whose functional currencies are the RMB or HKD, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive loss.

 

The Company did not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

 

10

 

 

Translation of amounts from RMB and HK$ into US$ has been made at the following exchange rates for the period ended September 30, 2020 and 2019:

 

   September 30,
2020
   September 30,
2019
 
Period-end RMB:US$ exchange rate   7.0682    7.1363 
Period average RMB:US$ exchange rate   7.0324    6.8609 
Period-end HK$:US$ exchange rate   7.7502    7.8396 
Period average HK$:US$ exchange rate   7.8000    7.8000 

 

Loss Per Share of Common Stock

 

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. 

 

The following table presents a reconciliation of basic and diluted net loss per share:

 

   Nine months ended
September 30,
 
   2020   2019 
Net Loss for basic and diluted attributable to common shareholders  $(5,304,762)  $(28,173,319)
From continuing operations   (5,304,762)   (4,328,395)
From discontinued operations  $-   $(23,844,924)
           
Weighted average common stock outstanding          
-       Basic   94,714,229    177,335 
-       Diluted   96,431,706    177,335 
           
Net loss per share of common stock          
From continuing operations – basic  $(0.06)  $(22.67)
From discontinued operations – basic   (0.00)   (134.46)
Net loss per common share – basic  $(0.06)  $(157.14)
           
From continuing operations – diluted  $(0.05)  $(22.67)
From discontinued operations – diluted   (0.00)   (134.46)
Net loss per common share – diluted  $(0.05)  $(157.14)

 

Comprehensive Loss

 

Comprehensive loss is comprised of net loss and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended September 30, 2020 and 2019 included net loss and unrealized gain from foreign currency translation adjustments. 

  

Reclassification

 

Certain reclassifications have been made in prior period’s consolidated financial statements to conform to the current year’s financial presentation. The reclassifications have no effect on previously reported net loss.

 

11

 

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Under ASU 2016-02, lessees will be required to recognize all leases (with the exception of short-term leases) at the commencement date including a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use (ROU) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In December 2017, January 2018, July 2018, December 2018 and March 2020, the FASB issued ASU 2017-13, ASU 2018-01, ASU 2018-10 & 11, ASU 2018-20 and ASU 2019-01, respectively, which contain modifications and improvements to ASU 2016-02. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under the Optional Transition Method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. On January 1, 2019, the Company adopted ASC Topic 842 using the modified retrospective approach and elected to utilize the Optional Transition Method. In addition, the Company elected the land easement transition practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease. The adoption did not impact the Company’s previously reported consolidated financial statements nor did it result in a cumulative effect adjustment to retained earnings as of January 1, 2019. 

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment. ASU 2018-07 aligns the accounting for share based payments granted to non-employees with that of share based payments granted to employees. The Company early adopted ASU No. 2018-07 in the fourth quarter of 2018 and there was no cumulative effect of adoption. The adoption of this ASU did not have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

 

NOTE 2 - BUSINESS COMBINATION

 

On May 6, 2020, the Company completed the acquisition of 68% equity interest of Jebe Production Group Limited (the “Acquisition”). The total consideration of the acquisition is 2,658,000 shares of series A convertible preferred stock, approximately $1,010,040.

 

The purchase price allocation resulted in $1,080,898 of goodwill, as below:

 

Acquired assets:  US$ 
Cash and cash equivalents  $192,022 
Trade receivables   123,798 
Other receivables   45,160 
    360,980 
Less: Assumed liabilities     
Accrued liabilities   (2,709)
Amount due to a director   (462,474)
    (465,183)
      
Fair value of net assets acquired   (104,203)
Non-controlling interest   33,345 
Goodwill recorded   1,080,898 
      
Cash consideration allocated  $1,010,040 

 

The Acquisition was accounted for as a business combination in accordance with ASC 805 “Business Combinations”. The Company has allocated the purchase price consideration based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from management estimation. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.

 

12

 

 

The goodwill is fully impaired during the period ended September 30, 2020.

 

On August 14, 2020, the Company completed the acquisition of 40% equity interest of 3D Discovery Co. Limited (the “Acquisition”). The total consideration of the acquisition is $1,200.

 

The purchase price allocation resulted in $82,692 of goodwill, as below:

 

Acquired assets:  US$ 
Cash and cash equivalents  $2,762 
Trade receivables   46 
Other receivables   149 
Non-current assets   103,412 
    106,369 
Less: Assumed liabilities     
Accrued liabilities   (1,171)
Other payable   (2,181)
Amount due to related parties   (185,555)
    (188,907)
      
Fair value of net assets acquired   (82,538)
Goodwill recorded   82,692 
      
Cash consideration allocated  $154 

 

The Acquisition was accounted for as a business combination in accordance with ASC 805 “Business Combinations”. The Company has allocated the purchase price consideration based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from management estimation. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.

 

The goodwill is fully impaired during the period ended September 30, 2020.

  

NOTE 3 – DISCONTINUED OPERATIONS

 

On December 30, 2019, the Company’s Board of Directors approved to enter into a VIE Termination Agreement relating to the termination of the Consulting Services Agreement, Operating Agreement, Equity Pledge Agreement, Option Agreement, Voting Rights Proxy Agreement dated October 12, 2007 with Huayang Companies. The operations in China was closed down and fully written-off at December 31, 2019. The assets and liabilities of Huayang Companies have been accounted for as discontinued operations in the Company’s combined and consolidated balance sheets for all periods presented. The operating results related to these lines of business have been included in discontinued operations in the Company’s combined and consolidated statements of operations for all periods presented.

 

On March 24, 2020, the Company sold its equity interest of 80% in AnyWorkspace Limited. The assets and liabilities of AnyWorkspace Companies have been accounted for as discontinued operations in the Company’s combined and consolidated balance sheets for all periods presented. The operating results related to these lines of business have been included in discontinued operations in the Company’s combined and consolidated statements of operations for all periods presented.

 

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The summarized operating result of discontinued operations included in the Company’s unaudited condensed consolidated statements of operations is as follows: 

 

   Nine months ended
September 30,
 
   2020   2019 
Revenues  $-   $5,216,740 
Cost of revenues   -    (9,583,746)
Gross loss   -    (4,367,006)
Operating expenses:          
Other operating expense   -    (19,279,018)
Total operating expense   -    (19,279,018)
Other expense, net   -    (198,900)
Loss from discontinued operations, net of income taxes  $-   $(23,844,924)

 

NOTE 4 – INTANGIBLE ASSETS

 

As of September 30, 2020 and December 31, 2019, intangible assets consisted of the following:

 

   Useful life  September 30,
2020
   December 31,
2019
 
      (Unaudited)   (Audited) 
            
Other intangible assets  3 – 5 years   844,245    843,817 
Redemption code  5 years   750,000    750,000 
Goodwill  infinite   27,353    27,353 
       1,621,598    1,621,170 
Less: accumulated amortization      (664,348)   (512,763)
      $957,250   $1,108,407 

 

Amortization of intangible assets attributable to future periods is as follows:

 

Year ending September 30:  Amount 
2021  $299,869 
2022   168,017 
2023   162,011 
2024   150,000 
2025   150,000 
   $929,897 

 

Amortization of intangible assets from continuing operations was $152,244 and $93,402 for the nine months ended September 30, 2020 and 2019, respectively. Amortization of intangible assets from discontinued operations was $0 and $46,837 for the nine months ended September 30, 2020 and 2019, respectively.

 

Amortization of intangible assets from continuing operations was $50,748 and $25,679 for the three months ended September 30, 2020 and 2019, respectively. Amortization of intangible assets from discontinued operations was $0 and $4,297 for the three months ended September 30, 2020 and 2019, respectively.

  

NOTE 5 – BANK LOANS

 

Bank loans of $5,083,817 represented amount due to one financial institution in Hong Kong that are repayable in a term of 30 years, with 360 monthly installments and interest is charged at the annual rate of 2.5% below its best lending rate.

 

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Revolving credit line of $5,999,845 is expected to be repaid in the next twelve months and interest is charged at the rate of 1.7468% - 1.8726 per annum over the Hong Kong Dollar Best Lending Rate.

 

At September 30, 2020, the banking facilities of the Company were secured by:

 

  Personal guarantee by the directors of the Company’s subsidiary;
  Legal charge and rental assignment over the leasehold land and buildings owned by its related companies which are controlled by the major shareholder of the Company, Mr. Chan Tin Chi; and
  Hong Kong Mortgage Corporation Limited.

 

At September 30, 2020 and December 31, 2019, bank loans consisted of the following:

 

   September 30,
2020
   December 31,
2019
 
   (Unaudited)   (Audited) 
Mortgage loan  $5,083,817   $5,098,796 
Line of revolving loan   5,999,845    4,558,749 
Short-term bank loans   -    1,195,297 
           
Total bank loans   11,083,662    10,852,842 
Less: Total bank loans – discontinued operations   -    (1,195,297)
Total bank loans – continuing operations  $11,083,662   $9,657,545 
           
Reclassifying as:          
Current portion  $6,124,233   $4,676,184 
Long-term portion (more than 12 months)   4,959,429    4,981,361 
           
Total bank loans  $11,083,662   $9,657,545 

 

Interest related to the bank loans from continuing operations was $0 and $149,474 for the three months ended September 30, 2020 and 2019, respectively.

 

Interest related to the bank loans from continuing operations was $144,225 and $240,289 for the nine months ended September 30, 2020 and 2019, respectively.

 

Interest related to the bank loans from discontinued operations was $0 and $35,605 for the three months ended September 30, 2020 and 2019, respectively.

 

Interest related to the bank loans from discontinued operations was $0 and $116,597 for nine months ended September 30, 2020 and 2019, respectively.

 

All interests are included in interest expense on the accompanying condensed consolidated statements of operations. 

 

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NOTE 6 – CONVERTIBLE NOTE PAYABLE

 

Securities purchase agreement and related convertible note and warrants

 

On May 2, 2018, pursuant to a securities purchase agreement, the Company closed a private placement of securities with Iliad Research and Trading, L.P. (the “Investor”) pursuant to which the Investor purchased a Convertible Promissory Note (the “Iliad Note”) in the original principal amount of $900,000, convertible into shares of common stock of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in the Iliad Note, and a two year Warrant to purchase 134,328 shares of Common Stock at an exercise price of $7.18 per share (the “Warrant”). In connection with the Iliad Note, the Company paid an original issue discount of $150,000 and paid issuance costs of $45,018 which will be reflected as a debt discount and amortized over the Iliad Note term. The Iliad Note bears interest at 10% per annum, is unsecured, and is due on the date that is fifteen months from May 2, 2018. The warrants shall expire on the last calendar day of the month in which the second anniversary of the Issue Date occurs.

 

On November 8, 2018, the Company converted an aggregate of $27,811 and $47,189 outstanding principal and interest of the Iliad Note, respectively, into a total of 36,621 shares of its common stock.

 

On January 11, 2019, the Company converted an aggregate of $34,103 and $15,897 outstanding principal and interest of the Iliad Note, respectively, into 266,667 shares of its common stock.

 

On April 30, 2020, the Company converted an aggregate of $100,000 and $0 outstanding principal and interest of the Iliad Note, respectively, into 502,955 shares of its common stock.

 

At June 30, 2020, the Iliad Note is in default with the outstanding balance of $738,571 in principal and $444,789 of accrued interest. At the date of filing, both parties have not reached into the mutual agreement.

 

The Investor has the right at any time after May 2, 2018 until the outstanding balance has been paid in full to convert all or any part of the outstanding balance into shares of common stock of the Company at conversion price of $6.70 per share (the “Lender Conversion Price”). The Lender Conversion Price is subject to certain adjustments set forth in the Iliad Note. The conversion price for each Redemption Conversion (the “Redemption Conversion Price”) shall be the lesser of (a) the Lender Conversion Price, and (b) the Market Price; provided, however, in no event shall the Redemption Conversion Price be less than $2.00 per share (“Conversion Price Floor”) unless the Company waive the Conversion Price Floor.

 

This debt instrument includes embedded components including a put option. The Company evaluated these embedded components to determine whether they are embedded derivatives within the scope of ASC 815 that should be separately carried at fair value. ASC 815-15-25-1 provides guidance on when an embedded component should be separated from its host instrument and accounted for separately as a derivative. Based on this analysis, the Company believes that the put option is clearly and closely related to the debt instrument and does not meet the definition of a derivative. Accordingly, in connection with this Iliad Note, the Company recorded a debt discount for (a) the original issue discount of $150,000 (b) the relative fair value of the warrants issued of $152,490 and (c) legal fees and other fees paid in connection with the Iliad Note aggregating $45,018. There is no beneficial conversion feature on this Iliad Note. The debt discount shall be accreted on a straight line basis over the term of this Iliad Note.

 

On April 7, 2020, pursuant to a securities purchase agreement, the Company closed a private placement of securities with Power Up Lending Group Ltd. (“Power Up”) pursuant to which Power Up purchased a Convertible Promissory Note (the “Power Up Note”) in the original principal amount of $83,000, with additional tranches of up to $1,000,000 in the aggregate over the next twelve (12) months, subject to the discretion of both parties. The Power Up Note is convertible into shares of the common stock of the Company at a price equal to 65% of the average of the two (2) lowest trading prices for the Company’s common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. The Power Up Note bears interest at 8% per annum and is due on October 7, 2021.

 

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On April 14, 2020, the Company and Black Ice Advisors, LLC (“Black Ice”) entered into a Securities Purchase Agreement, whereby the Company issued a note to Black Ice (the “Black Ice Note”) in the original principal amount of $110,000.The Black Ice Note contains an original issue discount of $10,000 which will be reflected as a debt discount and amortized over the Black Ice Note term. The Black Ice Note is convertible into shares of the common stock of the Company at a price equal to 60% of the lowest trading price of the Company’s common stock for the fifteen (15) prior trading days including the day upon which a Notice of Conversion is received by the Company. The Black Ice Note bears interest at 10% per annum and is due on April 14, 2021.

 

As of September 30, 2020 and December 31, 2019, convertible debt consisted of the following:

 

   September 30,
2020
   December 31,
2019
 
   (Unaudited)   (Audited) 
         
Convertible debt at principal amount  $931,571   $838,571 
Unamortized discount   (7,863)   - 
Convertible debt, net  $923,708   $838,571 

 

The amortization of discount was $4,658 and $162,170 for the nine months ended September 30, 2020 and 2019.

 

The amortization of discount was $2,521 and $92,668 for the three months ended September 30, 2020 and 2019.

 

As of September 30, 2020 and December 31, 2019, accrued interest amounted to $584,235 and $63,303, respectively.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

Due to related parties

 

From time to time, during 2020 and 2019, the Company receive advances from Chan Tin Chi Family Company Limited (formerly known as YSK 1860 Co., Limited), who is the major shareholder of the Company for working capital purposes. These advances are non-interest bearing and are payable on demand. During the nine months ended September 30, 2020, the Company repaid to Chan Tin Chi Family Company Limited for working capital totaled $233,269. During the nine months ended September 30, 2019, the Company received advances from Chan Tin Chi Family Company Limited for working capital totaled $487,939. At September 30, 2020 and December 31, 2019, amounts due to Chan Tin Chi Family Company Limited amounted to $2,036,189 and $1,745,444, respectively.

 

At September 30, 2020 and December 31, 2019, amounts due to related companies amounted to $495,972 and $319,542, respectively.

 

The amounts are unsecured, interest-free and have no fixed terms of repayment.

 

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NOTE 8 – STOCKHOLDERS’ DEFICIT

 

Effective May 20, 2020, the Board of Directors of the Company and one stockholder holding an aggregate of 4,679,260,000 shares of common stock on such date approved an amendment to the Company’s Articles of Incorporation effecting a fifty-for-one (50:1) reverse split (the “Reverse Stock Split”) of the Company’s outstanding shares of common stock. The Reverse Stock Split was effective on the OTC Markets Group, Inc. as of the opening of business on October 13, 2020. As a result of the Reverse Stock Split, each 50 shares of the Company’s common stock outstanding on such date was exchanged for one share of the Company’s common stock.

 

In March 2020, an amendment to The Company’s Articles of Incorporation to increase the number of shares of common stock which the Company is authorized to issue from 250,000,000 to 7,450,000,000 was approved. The Company issued the remaining 140,378,844 shares of common stock to Peak Equity shareholders in April 13, 2020.

 

As of September 30, 2020 and December 31, 2019, the Company has 144,506,979 shares and 3,988,372 shares of common stock issued and outstanding, respectively.

 

As of September 30, 2020 and December 31, 2019, the Company has 3,189,600 shares and 0 shares of Series A preferred stock issued and outstanding, respectively.

 

 

Preferred stock issued for services and acquisition of a non-wholly owned subsidiary

 

During the nine months ended September 30, 2020, pursuant to consulting and service agreements, the Company issued an aggregate of 531,600 shares of preferred stock to one consultant and vendors for the services rendered and to be rendered. These shares were valued at the fair market value on the grant date using the reported closing share price on the date of grant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is measured using the fair value of the Company’s preferred stock at reporting date. During the nine months ended September 30, 2020, the fair value of the above mentioned shares issued and the change in value of the shares to be issued was $202,008. The Company recognizes stock-based professional fees over the period during which the services are rendered by such consultant or vendor. For the nine months ended September 30, 2020, the Company recorded stock-based consulting and service fees to service provider of $202,008. In connection with the issuance/future issuance of shares to consultants and vendors, the Company recorded prepaid expenses of $0 which will be amortized over the remaining service period.

 

On May 6, 2020, the Company acquired an equity interest of 68% in Jebe Production Group Limited for a consideration of 2,658,000 shares of series A convertible preferred stock.

 

Common stock issued for services

 

During the nine months ended September 30, 2020, pursuant to consulting and service agreements, the Company issued an aggregate of 800,000 shares of common stock to several consultants and vendors for the services rendered and to be rendered. These shares were valued at the fair market value on the grant date using the reported closing share price on the date of grant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is measured using the fair value of the Company’s preferred stock at reporting date. During the nine months ended September 30, 2020, the fair value of the above mentioned shares issued and the change in value of the shares to be issued was $276,000. The Company recognizes stock-based professional fees over the period during which the services are rendered by such consultant or vendor. For the nine months ended September 30, 2020, the Company recorded stock-based consulting and service fees to service provider of $276,000.

 

Common stock issued for debt conversion

 

In April 2020, the Company issued 502,955 shares of its common stock upon conversion of debt (note 6).

 

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NOTE 9 – CONCENTRATIONS

 

Customers

 

For the three and nine months ended September 30, 2020 and 2019, there are no customers representing more than 10% of the Company’s revenue.

 

Vendors

 

For the three and nine months ended September 30, 2020 and 2019, there are no vendors representing more than 10% of the Company’s purchase.

 

NOTE 10 – COMMITMENT AND CONTINGENCIES

 

Litigation: 

 

On April 25, 2019, ECPower (HK) Company Limited (“EC Power”), a subsidiary of SEII, filed a claim against The Dairy Farm Limited (“Dairy Farm”) in respect of the cooperation agreement between the two parties for the battery rental business at 7-Eleven outlets in Hong Kong during the period from September 2017 to February 2018. The claim is for a total compensation of HK$1,395,000 (approximately $178,846) which comprises of (i) HK$45,000 (approximately $5,769) as compensation for interest and administration cost incurred as a result of Dairy Farm’s delay in payment of EC Power’s share of the rental income, and (ii) HK$1,350,000 (approximately $173,077) as compensation for Dairy Farm’s early termination of the cooperation agreement without any valid proof of fault on the part of EC Power.

 

Legal proceedings:

 

On June 10, 2020, the Company’s subsidiary, Ecrent Worldwide Company Limited (“Ecrent Worldwide”), a wholly owned subsidiary of Universal Sharing Limited (formerly known as Ecrent Holdings Limited), received a writ of summon (the “Summon”) issued by Messrs Wilkinson & Grist on behalf of Mr. Michael Andrew BERMAN and Mr. Eric Hans ISRAEL, who were the former Chief Executive Officer and Chief Financial Officer of Ecrent (America) Company Limited (“Ecrent America”) and Ecrent (USA) Company Limited (“Ecrent USA”). Both Ecrent America and Ecrent USA were the former subsidiaries of Universal Sharing Limited. On the same day, the Summon also delivered to Mr. Chan Tin Chi, the major shareholder of SEII and his spouse, Ms. Deborah Yuen Wai Ming. Pursuant to the US Judgement dated on September 25, 2019 issued by the Supreme Court of the State of New York County of Nassau, the Summon demands Ecrent Worldwide, Mr. Chan Tin Chi, and Ms. Deborah Yuen Wai Ming to fully settle an amount of approximately $241,706 and $103,841 to Mr. Berman and Mr. Israel, respectively representing the unpaid salary, benefits, expenses and incentive bonus. SEII intends to dispute these proceedings that the US Judgement is not enforceable under the Hong Kong jurisdiction.

 

In accordance with applicable accounting guidance, the Company records accruals for certain of its outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred, and the amount of loss can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would make a loss contingency both probable and reasonably estimable. The Company discloses the amount of the accrual if the financial statements would be otherwise misleading.

 

When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. However, if the loss (or an additional loss in excess of the accrual) is at least a reasonable possibility and material, then the Company discloses an estimate of the possible loss or range of loss, if such estimate can be made or discloses that an estimate cannot be made.

  

NOTE 11 – SUBSEQUENT EVENTS 

 

On April 8, 2020, the Company and shareholder of OOB HK Media HK Limited (“OOB HK”) Entered into a Share Exchange Agreement, whereby the Company shall issue 239,387,189 shares of series A convertible preferred stock at a price of $0.33 per share, in exchange of 100% ownership of OOB HK, which owns 100% of Tone Rich (Shanghai) Limited that holds 69.6% of OOB Media (Sichuan) Company Limited, an advertising media technology and agency company. 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

Historically, our primary operations involved the design, manufacture and distribution of a line of proprietary high and low temperature dyeing and finishing machinery to the textile industry, which has terminated in December, 2019.

 

With the termination of the manufacturing businesses, we are actively exploring other new ventures and opportunities that could contribute to our business in the future.

 

Given the termination of our manufacturing business, we continued to pursue what we believe are high growth opportunities for the Company, particularly our new business divisions focused on the development of sharing economy platforms and related rental businesses within the company. These initiatives are still in an early stage and are dependent in large part on availability of capital to fund their future growth. We did not generate significant revenues from our sharing economy business initiatives in 2019 or during the nine months ended September 30, 2020.

 

Recent developments

 

Inspirit Studio

 

During the period, BuddiGo, the sharing economy mobile platform developed by Inspirit Studio Limited (“Inspirit Studio”), continuously promoted its service to the local market in Hong Kong. BuddiGo offers a wide range of errand services. Currently, about 80 percent of the orders received are for on-demand urgent delivery of items such as documents, flowers and cakes. Food delivery services are also available. During the period from June 2018 to June 30, 2019, over 1,200 individuals have officially registered as sell-side buddies, who completed over 600 delivery orders from June 2018 to June 30, 2020, majority orders were happened in the third quarter of year 2018. In addition, BuddiGo has signed up with a number of local business partners to provide ongoing delivery services for these clients. BuddiGo’s goal is to connect with the community and deliver localized content featuring BuddiGo’s core features and advantages. BuddiGo is actively seeking strategic investors or collaborative parties who are enthusiastic about its business model and can help achieve its business targets and expand into different countries.

 

3D Discovery Co. Limited

 

3D Discovery, an IT service provider that develops virtual tours for the real estate, hospitality and interior design industries. 3D Discovery’s space capturing and modeling technology is already used by some of Hong Kong’s leading property agencies to provide their clients with a truly immersive, first-hand experience of a physical space while saving them time and money. According to Goldman Sachs, the Real Estate virtual reality (“VR”) industry is predicted to reach $2.6 billion in 2025, supported by a potential user base of over 1.4 million registered real estate agents in some of the world’s largest markets. Apart from its existing profitable operations, 3D Discovery is developing a mobile app, Autocap, which allows users to create an interactive virtual tour of a physical space by using a mobile phone camera.

 

3D Discovery successfully completed a number of projects during the year. First, its “3D Virtual Tours in Hong Kong” generated about 1,371,000 impressions in 2018. In addition, 3D Discovery partnered with Midland Realty, one of the largest real estate agencies in Hong Kong, to establish the “Creation 200 3D Virtual Tours.”.

 

EC Advertising Limited

  

We started meeting with a number of potential clients there and anticipate that this advertising company will confirm with them several marketing campaigns. In order to maximize our exposure to the potential clients in Mainland China, we are developing a strategic media plan which will cover major cities in Mainland China such as Beijing, Shanghai, Guangzhou and Shenzhen. Major banks, real estate developers and consumer products manufacturers and retailers are our target clients. More importantly, our presence in Mainland China can facilitate the rollout of franchise programs of our business units, which is one of the revenue drivers for the Company.

 

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ECrent Platform Business 

 

In December 2019, we have acquired the ECrent global businesses.

 

Going forward, we will continue targeting the technology and global sharing economy markets, by developing online platforms and rental business partnerships that will drive the global development of sharing through economical rental business models.

  

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements 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 continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions.

 

We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.

 

Accounts Receivable

 

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

  

As a basis for estimating the likelihood of collection has been established, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on at least a quarterly basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

 

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Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

 

    Useful Life
Office equipment and furniture   5 Years
Vehicles   5 Years
Vessels   5 Years

  

The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of income and comprehensive income in the year of disposition.

 

We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. 

 

Stock-based Compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if the award is non-forfeitable. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Additionally, effective January 1, 2017, the Company adopted the Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s consolidated financial statements and related disclosures.

 

Through September 30, 2018, pursuant to ASC 505-50 – “Equity-Based Payments to Non-Employees”, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. The Company periodically reassessed the fair value of non-employee share based payments until service conditions are met, which generally aligns with the vesting period of the equity instrument, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 in the fourth quarter of 2018 and there was no cumulative effect of adoption.

 

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Currency Exchange Rates

 

Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries is the RMB and Hong Kong Dollar.

 

Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiary. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.

  

Our financial statements are expressed in U.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB and the Hong Kong dollar. To the extent we hold assets denominated in U.S. dollars, any appreciation of the RMB or HKD against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB or HKD against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.

 

Recent Accounting Pronouncements 

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Under ASU 2016-02, lessees will be required to recognize all leases (with the exception of short-term leases) at the commencement date including a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use (ROU) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In December 2017, January 2018, July 2018, December 2018, December 2019 and March 2020, the FASB issued ASU 2017-13, ASU 2018-01, ASU 2018-10 & 11, ASU 2018-20 and ASU 2019-01, respectively, which contain modifications and improvements to ASU 2016-02. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under the Optional Transition Method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. On January 1, 2019, the Company adopted ASC Topic 842 using the modified retrospective approach and elected to utilize the Optional Transition Method. In addition, the Company elected the land easement transition practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease. The adoption did not impact the Company’s previously reported consolidated financial statements nor did it result in a cumulative effect adjustment to retained earnings as of January 1, 2019. 

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment. ASU 2018-07 aligns the accounting for share based payments granted to non-employees with that of share based payments granted to employees. The Company early adopted ASU No. 2018-07 in the fourth quarter of 2018 and there was no cumulative effect of adoption. The adoption of this ASU did not have a material impact on our financial position, results of operations, cash flows, or presentation thereof.

 

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RESULTS OF OPERATIONS

 

Three months ended September 30, 2020 and 2019

 

The following table sets forth the results of our operations for the three months ended September 30, 2020 and 2019:

 

   Three Months ended
September 30,
 
   2020   2019 
Revenues  $50,069   $533 
Cost of revenues   (31,794)   13,490 
Gross profit   18,275    14,023 
Operating expenses   749,757    703,025 
Loss from operations   (731,482)   (689,002)
Other (expense) income, net   37,633    (74,231)
Loss from continuing operations before provision for income taxes   (693,849)   (763,233)
Provision for income taxes   -    - 
Loss from continuing operations   (693,849)   (763,233)
Loss from discontinued operations, net of income taxes   -    (318,783)
Net loss  $(693,849)  $(1,082,016)

 

Revenues.

 

During the three months ended September 30, 2020, we recognized revenues from our sharing economy business of $50,069 compared to $533 for the three months ended September 30, 2019, an increase of $49,536, or 929%.

 

Cost of revenues.

 

Cost of revenues includes commission costs. For the three months ended September 30, 2020, cost of revenues was $31,794 as compared to ($13,490) for the three months ended September 30, 2019, an increase of $45,284, or 335.6%.

 

Gross profit and gross margin.

 

Our gross profit was $18,275 for the three months ended September 30, 2020 as compared to gross profit of $14,023 for the three months ended September 30, 2019, representing gross margins of 36% and 263%, respectively. The decrease in our gross margin for the three months ended September 30, 2020 was primarily attributed to the new business revenue from acquisition of a non-wholly owned subsidiary.

 

Operating expenses.

 

For the three months ended September 30, 2020, operating expenses were $749,757 as compared to $703,025 for the three months ended September30, 2019, an increase of $46,732, or 6.64%, due to increase in impairment loss on goodwill.

  

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Loss from operations.

 

As a result of the factors described above, for the three months ended September 30, 2020, loss from operations amounted to $731,482 as compared to $689,002 for the three months ended September 30, 2019.

 

Other income (expense).

 

Other income (expense) includes interest income, interest expense, foreign currency transaction gain (loss), impairment loss on marketable securities, gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the three months ended September 30, 2020, total other income, net, amounted to $37,633 as compared to other expense, net, of $74,231 for the three months ended September 30, 2019, a decrease of $111,864. The decrease in other expense, net, was primarily attributable to losses incurred in the three months ended September 30, 2020 related interest expense of $109,071 and gain on sale of marketable securities of $154,285.

 

Income tax provisionIncome tax expense was $0 for the three months ended September 30, 2020 and 2019.

 

Loss from continuing operations. As a result of the foregoing, our loss from continuing operations was $693,849, or $(0.00) per share (basic and diluted), for the three months ended September 30, 2020, as compared with loss from continuing operations of $763,233, or $(7.71) per share (basic and diluted), for the three months ended September 30, 2019, an decrease of $69,384, or 9.09%.

 

Loss from discontinued operations, net of income taxes. Our loss from discontinued operations was $0, or $0.00 per share (basic and diluted), for 3.42.20) per share (basic and diluted), for the three months ended September 30, 2019.

 

The summarized operating result of discontinued operations included in our condensed consolidated statements of operations is as follows:

 

   Three Months ended
September 30,
 
   2020   2019 
Revenues  $-   $1,676,831 
Cost of revenues   -    (1,709,129)
Gross loss   -    (32,298)
           
Other operating expenses   -    (225,423)
Loss from discontinued operations before income taxes   -    (257,721)
Other expense, net        (61,062)
Income taxes   -    - 
Loss from discontinued operations, net of income taxes  $-   $(318,783)

 

Net loss.

 

As a result of the foregoing, our net loss was $693,849, or $(0.00) per share (basic and diluted), for the three months ended September 30, 2020, as compared with net loss $1,082,016, or $(7.71) per share (basic and diluted), for the three months ended September 30, 2019, a change of approximately $388,167, or 35.87%.

 

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Nine months ended September 30, 2020 and 2019

 

The following table sets forth the results of our operations for the nine months ended September 30, 2020 and 2019:

 

   Nine Months ended
September 30,
 
   2020   2019 
Revenues  $118,051   $27,325 
Cost of revenues   (68,939)   (11,990)
Gross profit   49,112    15,335 
Operating expenses   3,019,301    4,178,778 
Loss from operations   (2,970,189)   (4,163,443)
Other expense, net   (2,334,573)   (164,952)
Loss from continuing operations before provision for income taxes   (5,304,762)   (4,328,395)
Provision for income taxes   -    - 
Loss from continuing operations   (5,304,762)   (4,328,395)
Gain from discontinued operations, net of income taxes   -    (23,844,924)
Net loss  $(5,304,762)  $(28,173,319)

 

Revenues.

 

During the nine months ended September 30, 2020, we recognized revenues from our sharing economy business of $118,051 compared to $27,325 for the nine months ended September 30, 2019, an increase of $90,726, or 332%.

 

Cost of revenues.

 

Cost of revenues includes commission costs. For the nine months ended September 30, 2020, cost of revenues was $68,939 as compared to $11,990 for the nine months ended September 30, 2019, an increase of $56,949, or 474.97%.

 

Gross profit and gross margin.

 

Our gross profit was $49,112 for the nine months ended September 30, 2020 as compared to gross profit of $15,335 for the nine months ended September 30, 2019, representing gross margins of 42% and 56%, respectively. The decrease in our gross margin for the nine months ended September 30, 2020 was primarily attributed to the decrease revenue generated from engineering service income of the new acquired non-wholly owned subsidiary.

 

Operating expenses.

 

For the nine months ended September 30, 2020, operating expenses were $3,019,301 as compared to $4,178,778 for the nine months ended September 30, 2019, a decrease of $1,159,477, or 27.7%, due to decrease in selling, general and administrative expense.

  

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Loss from operations.

 

As a result of the factors described above, for the nine months ended September 30, 2020, loss from operations amounted to $2,970,189, as compared to $4,163,443 for the nine months ended September 30, 2019.

 

Other expense.

 

Other expense includes interest income, interest expense, foreign currency transaction gain (loss), impairment loss on marketable securities, gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the nine months ended September 30, 2020, total other expense, net, amounted to $2,334,573 as compared to $164,952 for the nine months ended September 30, 2019, an increase of $2,169,621, or 1,315%. The increase in other expense, net, was primarily attributable to interest expense and impairment loss on marketable securities incurred in the nine months ended September 30, 2020.

 

Income tax provisionIncome tax expense was $0 for the nine months ended September 30, 2020 and 2019.

 

Loss from continuing operations. As a result of the foregoing, our loss from continuing operations was $5,304,762, or $(0.06) per share (basic and diluted), for the nine months ended September 30, 2020, as compared with loss from continuing operations of $4,328,395, or $(22.67) per share (basic and diluted), for the nine months ended September 30, 2019, an increase of $976,367, or 22.56%.

 

Loss from discontinued operations, net of income taxes. Our loss from discontinued operations was $0, or $0.00 per share (basic and diluted), for the nine months ended September 30, 2020, as compared with loss from discontinued operations of $23,844,924, or $(134.46) per share (basic and diluted), for the nine months ended September 30, 2019.

 

The summarized operating result of discontinued operations included our condensed consolidated statements of operations is as follows:

 

   Nine Months ended
September 30,
 
   2020   2019 
Revenues  $  -   $5,216,740 
Cost of revenues   -    (9,583,746)
Gross loss   -    (4,367,006)
           
Other operating expenses   -    (19,279,018)
Loss from discontinued operations before income taxes   -    (23,646,024)
Other expense, net        (198,900)
Income taxes   -    - 
Loss from discontinued operations, net of income taxes  $-   $(23,844,924)

 

Net loss.

 

As a result of the foregoing, our net loss was $5,304,762, or $(0.06) per share (basic and diluted), for the nine months ended September 30, 2020, as compared with net loss $28,173,319, or $(157.14) per share (basic and diluted), for the nine months ended September 30, 2019, a change of approximately $22,868,557, or 81.2%.

 

Liquidity and Capital Resources

 

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

 

As of September 30, 2020 and December 31, 2019, we had cash and cash equivalents of approximately $1,289,024 and $83,667, respectively.

 

The following table sets forth a summary of our cash flows for the periods as indicated:

 

   For the Nine Months ended 
   September 30, 
   2020   2019 
Net cash used in operating activities  $(1,318,213)  $(396,906)
Net cash used in investing activities  $833,726   $(99,941)
Net cash provided by financing activities  $1,723,082   $70,655 
Effect of exchange rate changes on cash and cash equivalents  $(33,239)  $(231,057)
Net increase (decrease) in cash and cash equivalents  $1,205,357   $(657,249)
Cash and cash equivalents at beginning of period  $83,667   $883,461 
Less: cash and cash equivalents from discontinued operations  $-   $(151,798)
Cash and cash equivalents at end of period  $1,289,024   $74,414 

 

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The following table sets forth a summary of changes in our working capital from December 31, 2019 to September 30, 2020 (dollars in thousands):

 

  

September 30,

2020

   December 31,
2019
   Change in Working Capital   Percentage Change 
Working capital:                
Total current assets  $4,568   $5,636   $(1,068)   (18.9)%
Total current liabilities   11,036    8,683    2,353    27.1%
Working capital  $(6,468)  $(3,047)  $(3,421)   112%

 

Working Capital. Total working capital as of September 30, 2020 amounted to approximately negative $6.4 million, as compared to approximately negative $3.0 million as of December 31, 2019. The deterioration in working capital was due mainly to a decline in net assets.

 

Net cash used in operating activities was $1,318,213 for the nine months ended September 30, 2020, and consisted primarily of a net loss of $5,304,762, adjusted for depreciation and amortization of $253,770, written-off prepayments of $122,514, impairment loss on marketable securities of $1,885,085, impairment loss on goodwill of $1,163,590 and the loss on disposal of a subsidiary of $70,901, an increase in accounts receivable of $11,143, a decrease in prepaid expenses and other receivables of $2,187, a decrease in accounts payable and accrual of $39,099, an increase in other payable of $230,952, a decrease in taxes payable of $6,802, and an increase in deferred revenue of $269.

 

Net cash flow generated from investing activities was $833,726 for the nine months ended September 30, 2020 as compared to $99,941 for the six months ended September 30, 2019. For the nine months ended September 30, 2020, net cash flow used in investing activities reflects cash received from acquisition of a non-wholly owned subsidiary, disposal of subsidiary of $8,251, purchase of marketable securities of $8,078,052 and proceeds from sale of marketable securities of $8,711,484.

 

Net cash flow provided by financing activities was $1,723,082 for the nine months ended September 30, 2020 as compared to $70,655 for the nine months ended September 30, 2019. During the nine months ended September 30, 2020, we received advances from related party of $166,657, received from bank loan of $1,412,574, received from issuance of note payable of $183,000, offset by repayments for bank loans of approximately $39,149. During the nine months ended September 30, 2019, we repay to related party of $4,616,651 and received proceeds from sale of common stock of $200,100, offset by repayments for related party advance of $31,604. Net cash flow used in financing activities from discontinued operations was $608,999.

 

We have historically funded our capital expenditures through cash flow provided by operations and bank loans. We intend to fund the cost by obtaining financing mainly from local banking institutions with which we have done business in the past. We believe that the relationships with local banks are in good standing and we have not encountered difficulties in obtaining needed borrowings from local banks.  

 

Contractual Obligations and Off-Balance Sheet Arrangements

 

Contractual Obligations

 

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows. The following tables summarize our contractual obligations as of September 30, 2020 (dollars in thousands), and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

 

   Payments Due by Period 
Contractual obligations:  Total   Less than
1 year
   1-3 years   3-5 years   5+ years 
Bank loans  $11,083   $6,124   $4,959   $    -   $   - 
Convertible note (1)   926    926    -    -    - 
Total  $12,009   $7,050   $4,959   $-   $- 

 

(1) Convertible note is currently in default with the outstanding balance of $738,571 in principal and $494,235 accrued interest at September 30, 2020. At the date of filing, both parties have not reached into the mutual agreement.

 

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Off-balance Sheet Arrangements

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

 

Inflation

 

The effect of inflation on our revenue and operating results was not significant.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Exchange Act, our management, including Anthony Che Chung Chan, our chief executive officer, and Ka Man Lam, our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2020.

 

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

 

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based on that evaluation, the management concluded that, because our internal controls over financial reporting are not effective, as described below, our disclosure controls and procedures were not effective as of September 30, 2020.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Our management identified material weaknesses related to (i) Lack of segregation of duties within accounting functions, (ii) Lack of accounting expertise in US GAAP, and (iii) Insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines. Our internal controls over financial reporting were not effective at September 30, 2020.

 

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Due to the current size and nature of business, segregation of all conflicting duties may not always be possible and may not be economically feasible, and we continue to rely on third parties for a significant portion of the preparation of our financial statements. As a result, we have not been able to take steps to improve our internal controls over financial reporting. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.

 

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

 

In light of these material weaknesses, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the nine months ended September 30, 2020 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with the U.S. GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the nine months ended September 30, 2020 are fairly stated, in all material respects, in accordance with the U.S. GAAP.

 

Changes in Internal Controls over Financial Reporting

 

There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

 

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PART II - OTHER INFORMATION

 

ITEM 5. EXHIBITS

 

31.1   Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer *
31.2   Rule 13a-14(a)/15d-14(a) certification of Principal Financial Officer *
32.1   Section 1350 certification of Chief Executive Officer and Chief Financial Officer *
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

*Filed herein

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  SHARING ECONOMY INTERNATIONAL INC.
     
Date: November 13, 2020 By: /s/ Anthony Che Chung Chan
    Anthony Che Chung Chan
    Chief Executive Officer and
    Principal Executive Officer
     
Date: November 13, 2020 By: /s/ Ka Man Lam
    Ka Man Lam
    Chief Financial Officer and
    Principal Accounting Officer

 

 

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