SEII 10-Q
Sharing Economy International Inc. (SEII)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from __________ to __________
COMMISSION FILE NUMBER:
(Exact name of Registrant as specified in its charter)
| (State or other
jurisdiction of incorporation of organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A |
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.
Indicate by check mark whether the registrant has submitted electronically 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).
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 | ☐ |
| ☐ | 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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 2023
TABLE OF CONTENTS
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
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Restated) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other receivables | ||||||||
| Due from related parties | ||||||||
| Assets held for discontinued operations | ||||||||
| Total current assets | ||||||||
| OTHER ASSETS: | ||||||||
| Assets held for discontinued operations | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Convertible note payable, net of unamortized debt discount | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Amount due to related party | ||||||||
| Accrued interests on promissory notes | ||||||||
| Liabilities held for discontinued operations | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Liabilities held for discontinued operations | ||||||||
| Total liabilities | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||
| Preferred stock, Series A $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total stockholders’ equity (deficit) attributed to SEII | ( | ) | ||||||
| Non-controlling interest | ( | ) | ||||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
1
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (restated) | (restated) | |||||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on disposal of subsidiaries | ||||||||||||||||
| Foreign exchange gain (loss) | ( | ) | ( | ) | ||||||||||||
| Sundry income | ||||||||||||||||
| Total other incomes (expenses), net | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense | ||||||||||||||||
| - | - | |||||||||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss from discontinued operations, net of income tax | ( | ) | ( | ) | ||||||||||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ( | ) | ||||||||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | ( | ) | ( | ) | ||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| COMPREHENSIVE INCOME (LOSS): | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Foreign currency translation gain (loss) | ( | ) | ||||||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Net loss attributable to non-controlling interest | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Foreign currency translation gain (loss) from non-controlling interest | ||||||||||||||||
| Comprehensive income (loss) attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| NET EARNING (LOSS) PER COMMON SHARE: | ||||||||||||||||
| Continuing operations – basic | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Continuing operations – diluted | ( | ) | ( | ) | ||||||||||||
| Discontinued operations – basic | ( | ) | ( | ) | ||||||||||||
| Discontinued operations – diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
2
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| Three and Nine months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Equity attributable to SEII shareholders | ||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Additional | Accumulated other | Total | ||||||||||||||||||||||||||||||||
| Number of shares | Amount | Number of shares | Amount | paid-in capital | comprehensive (loss) income | Accumulated deficits | Noncontrolling interests | shareholders’ equity (deficit) | ||||||||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Disposal of subsidiaries | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of shares to convert promissory note | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Net income for the period | - | - | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
| Issuance of shares to convert promissory note | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of shares for consultancy service | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of shares for staff’s salaries | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of shares for director’s remuneration | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
| Three and Six months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||
| Equity attributable to SEII shareholders | ||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Additional | Accumulated other | Total | ||||||||||||||||||||||||||||||||
| Number of shares | Amount | Number of shares | Amount | paid-in capital | comprehensive (loss) income | Accumulated deficits | Noncontrolling interests | shareholders’ deficit | ||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Issuance of shares to convert promissory note | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Issuance of shares for director’s remuneration | ||||||||||||||||||||||||||||||||||||
| Issuance of shares for consultancy service | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Issuance of shares to convert promissory note | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
3
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| (restated) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Less: Loss from discontinued operations | ( | ) | ||||||
| Income (loss) from continuing operations | ( | ) | ||||||
| Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: | ||||||||
| Gain on disposal of subsidiaries | ( | ) | ||||||
| Stock-based consultancy fees | ||||||||
| Stock-based director’s remuneration | ||||||||
| Stock-based staff salaries | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid and other receivables | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued interests on promissory notes | ||||||||
| Net cash used in continuing operations | ( | ) | ( | ) | ||||
| Net cash used in discontinued operations | ( | ) | ||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Net cash used in continuing operations | ||||||||
| Net cash provided by discontinued operations | ||||||||
| CASH FLOWS PROVIDED BY INVESTING ACTIVITIES | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| (Repayment to) advance from related party | ( | ) | ||||||
| Repayments of bank loan | ( | ) | ||||||
| Net cash (used in) provided by continuing operations | ( | ) | ||||||
| Net cash provided by discontinued operations | ||||||||
| CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES: | ( | ) | ||||||
| Effect of exchange rate changes | ||||||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| - Interest expense paid | $ | $ | ||||||
| - Tax paid | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Shares issued for conversion of convertible notes and accrued interest | $ | $ | ||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Reconciliation to amounts on the consolidated balance sheets | ||||||||
| Cash and cash equivalents for continuing operations | $ | $ | ||||||
| Assets held for discontinued operations | ||||||||
| $ | $ | |||||||
See notes to unaudited condensed consolidated financial statements.
4
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION
Sharing Economy International Inc. (the “Company”) was incorporated in Delaware on
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.
Effective January 1, 2023, the Company approved and completed the internal corporate restructuring actions to streamline, right-size and optimize specific organizational structure by disposing of several subsidiaries. As a result of the corporate exercise, the Advertising business met the criteria set forth in Accounting Standards Codification (“ASC”) 205-20 to be presented as a discontinued operation and the related assets and liabilities have been presented as held for discontinued operations. The Advertising business’ results of operations and the related cash flows are reflected in Income from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations and Comprehensive Loss and cash flows from discontinued operations in the Condensed Consolidated Statements of Cash Flows, respectively, for all periods presented.
The Company and its subsidiaries are hereinafter referred to as (the “Company”).
NOTE 2 – GOING CONCERN UNCERTAINTIES
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 an operating loss of approximately $
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.
NOTE 3 – SIGIFICANT ACCOUNTING POLICIES
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.
In the opinion of management, the condensed consolidated balance sheet as of September 30, 2023, which has been derived from audited financial statements for the last completed fiscal year and the unaudited condensed consolidated financial statements for this fiscal quarter, reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended September 30, 2023 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2023 or for any future period.
These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K/A for the year ended December 31, 2022.
5
Principles of Consolidation
The Company’s 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 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, 2023 and 2022 include valuation allowance of deferred tax assets, and the value of stock-based compensation.
Cash and cash equivalents
For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains with various financial institutions mainly in Hong Kong. At September 30, 2023 and December 31, 2022, cash balances held in banks in Hong Kong of $
Revenue recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (Topic 606) (“ASU 2014-09”). Under ASU 2014-09, 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. |
The transaction price for each contract is determined based on the amount the Company expects to be entitled to receive in exchange for transferring the promised products or services to the customer. Collectability of revenue is reasonably assured based on historical evidence of collectability of fees the Company charges its customers. The transaction price in the contract is allocated to each distinct performance obligation in an amount that represents the relative amount of consideration expected to be received in exchange for satisfying each performance obligation. Revenue is recognized when performance obligations are satisfied. At contract inception, the Company determines whether it satisfies the performance obligation over time or at a point in time.
The Company derives its revenues from the sale of advertising service in a monthly payment term. The Company’s performance obligation includes providing the connectivity among merchants and consumers, generally through its online media advertising platform. Online marketing consists of search engine marketing, display advertisements, referral programs and affiliate marketing. The Company will provide resources to support the marketing needs of the sharing economy businesses via partnerships and acquisitions of advertising companies.
The majority of the Company’s contracts with customers only contain a single performance obligation. When the agreements involve multiple performance obligations, the Company will account for individual performance obligations separately, if they are distinct.
6
The Company has one source of revenue for the respective fiscal periods:
| September 30, 2023 | September 30, 2022 (restated) | |||||||
| Sales of advertising service | $ | $ | ||||||
Income taxes
The Company is governed by the Income Tax Law under Hong Kong and the U.S. regimes. The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
On December 22, 2017, the United States signed into law the Tax Cuts and Jobs Act (the “Act”), a tax reform bill which, among other items, reduces the current federal income tax rate in the United States to
The Act has caused the Company’s deferred income taxes to be revalued. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as of September 30, 2023, the Company recognized the provisional effects of the enactment of the Act for which measurement could be reasonably estimated. Since the Company has provided a full valuation allowance against its deferred tax assets, the revaluation of the deferred tax assets did not have a material impact on any period presented. The ultimate impact of the Act may differ from these estimates due to the Company’s continued analysis or further regulatory guidance that may be issued as a result of the Act.
The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes,” which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the Company’s financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of September 30, 2023 and December 31, 2022, the Company had uncertain tax positions, and will continue to evaluate for uncertain positions in the future.
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 Hong Kong dollars (“HKD”). For the subsidiaries, whose functional currencies are 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.
Translation of amounts from HK$ into US$ has been made at the following exchange rates as of ended September 30, 2023 and 2022:
| September 30, 2023 | September 30, 2022 | |||||||
| Period-end RMB:US$ exchange rate | ||||||||
| Period average RMB:US$ exchange rate | ||||||||
| Period-end HK$:US$ exchange rate | ||||||||
| Period average HK$:US$ exchange rate, | ||||||||
7
Stock-based Compensation
FASB’s ASC Topic 718, “Stock Compensation” (“ASC Topic 718”), prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services are acquired. The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.
The Company estimates the fair value of each restricted stock award as of the date of grant using the closing price as reported by the OTC Markets Group Inc. on the date of grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. The Company accounts for forfeitures of restricted stock as they occur.
Earning (Loss) Per Share of Common Stock
ASC Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic net earning (loss) per share is computed by dividing net earning (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earning (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. The Company did not have any common stock equivalents or potentially dilutive common stock outstanding during the three and nine months ended September 30, 2023 and 2022. 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 earning (loss) per share:
| Three months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net loss for basic and diluted attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| From continuing operations | ( | ) | ( | ) | ||||
| From discontinued operations | ( | ) | ||||||
| Weighted average common stock outstanding – basic | ||||||||
| Weighted average common stock outstanding – diluted | ||||||||
| Net loss per common share | ||||||||
| From continuing operations – basic | $ | ( | ) | $ | ( | ) | ||
| From continuing operations – diluted | $ | ( | ) | $ | ( | ) | ||
| From discontinued operations – basic | $ | $ | ( | ) | ||||
| From discontinued operations – diluted | $ | $ | ( | ) | ||||
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net income (loss) for basic and diluted attributable to common shareholders | $ | $ | ( | ) | ||||
| From continuing operations | ( | ) | ||||||
| From discontinued operations | ||||||||
| Weighted average common stock outstanding – basic | ||||||||
| Weighted average common stock outstanding – diluted | ||||||||
| Net income (loss) per common share | ||||||||
| From continuing operations – basic | $ | $ | ||||||
| From continuing operations – diluted | $ | $ | ||||||
| From discontinued operations – basic | $ | $ | ( | ) | ||||
| From discontinued operations – diluted | $ | $ | ( | ) | ||||
Comprehensive income (loss)
Comprehensive income (loss) is comprised of net income (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 income for the three and nine months ended September 30, 2023 and 2022 included net loss and unrealized gain from foreign currency translation adjustments.
8
Related parties
The Company follows ASC Topic 850-10, “Related Party Disclosures” for the identification of related parties and disclosure of related party transactions.
Pursuant to section 850-10-20 the related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and Income-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments and contingencies
The Company follows ASC Topic 450-20, “Contingencies” to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Fair Value of Financial Instruments
The Company adopted the guidance of ASC Topic 820, “Fair Value Measurement,” 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, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, deferred tax assets, receivable from sale of subsidiary, prepaid expenses and other, short-term bank loans, bank acceptance notes payable, note payable, accounts payable, accrued liabilities, advances from customers, amount due to a related party, VAT and service taxes payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.
The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, prepaid expenses and other receivables, due from related parties, accounts payable and accrued liabilities, accrued interest on promissory notes, amount due to a related party approximate their fair market values based on the short-term maturity of these instruments.
9
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.
The following table presents information about the Company’s assets and liabilities that were measured at fair value as of September 30, 2023 and December 31, 2022, 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 | 2023 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| (Unaudited) | ||||||||||||||||
| Assets: | ||||||||||||||||
| Marketable securities, available-for-sale | $ | $ | $ | |||||||||||||
| December 31, | Quoted Prices In Active Markets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||
| Description | 2022 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Marketable securities, available-for-sale (discontinued operation) | $ | $ | $ | $ | ||||||||||||
As of September 30, 2023 and December 31, 2022, 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.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
In March 2023, the FASB issued ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements (“ASU 2023-01”) that is intended to improve the guidance for applying Topic 842 to arrangements between entities under common control. This ASU requires all entities (that is, including public companies) to amortize leasehold improvements associated with common control leases over the useful life to the common control group. The standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. The Company has adopted this pronouncement and had no material impact on its condensed and consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The disclosures requirements included in ASU 2023-07 are required for all public entities, including those with a single reportable segment. ASU 2023-07 is effective for annual periods beginning after December 15, 2024, on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the potential impact of ASU 2023-07 on its condensed and consolidated financial statements.
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In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 720): Improvements to Income Tax Disclosures (“ASU 2023-09”), which prescribes standard categories for the components of the effective tax rate reconciliation and requires disclosure of additional information for reconciling items meeting certain quantitative thresholds, requires disclosure of disaggregated income taxes paid, and modifies certain other income tax-related disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and allows for adoption on a prospective basis, with a retrospective option. The Company is currently evaluating the potential impact of the adoption of ASU 2023-09 on its condensed and consolidated financial statements.
In March 2024, the FASB issued ASU No. 2024-02, Codification Improvements-Amendments to Remove References to the Concepts Statements (“ASU 2024-02”). The amendments in this Update affect a variety of Topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance. This update contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior statements to provide guidance in certain topical areas. ASU 2024-02 is effective for public business entities for fiscal years beginning after December 15, 2024. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2025. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the potential impact of the adoption of ASU 2024-02 on its condensed and consolidated financial statements.
Except for the above-mentioned pronouncements, there are no new recently issued accounting standards that will have a material impact on the condensed and consolidated balance sheets, statements of operations and cash flows.
NOTE 4 – DISCONTINUED OPERATIONS
Effective January 1, 2023, the Company approved and completed the internal corporate restructuring actions to streamline, right-size and optimize specific organizational structure by disposing of several subsidiaries. As a result of the corporate exercise, the Advertising business met the criteria set forth in Accounting Standards Codification (“ASC”) 205-20 to be presented as a discontinued operation and the related assets and liabilities have been presented as held for discontinued operations. The Advertising business’ results of operations and the related cash flows are reflected in Income from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations and Comprehensive Loss and cash flows from discontinued operations in the Condensed Consolidated Statements of Cash Flows, respectively, for all periods presented.
For the nine months ended September 30, 2023, the Company recognized a gain of $
The net carrying amounts of the assets and liabilities in this disposal group are included and presented as discontinued operations in the accompanying condensed consolidated financial statements of the Company and are summarized as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other receivables | ||||||||
| Investment in equity instruments | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total assets | ||||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Short-term bank loans | ||||||||
| Advances from customers | ||||||||
| Intercompany payables * | ||||||||
| Other liabilities, current | ||||||||
| Other liabilities, non-current | ||||||||
| Total liabilities | ||||||||
| Net liabilities | $ | $ | ( | ) | ||||
| * |
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The summarized operating result of discontinued operations included in the Company’s condensed consolidated statements of operations is as follows:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Loss from operations | ( | ) | ||||||
| Other expense, net | ( | ) | ||||||
| Loss from discontinued operations, net of income taxes | $ | $ | ( | ) | ||||
NOTE 5 – CONVERTIBLE NOTE PAYABLE
Securities purchase agreement and related convertible note and warrants
Iliad Note
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 $
On November 8, 2018, the Company converted an aggregate of $
On January 11, 2019, the Company converted an aggregate of $
On April 30, 2020, the Company converted an aggregate of $
During the year ended December 31, 2020, the Company converted an aggregate of $
During the year ended December 31, 2021, the Company converted an aggregate of $
During the year ended December 31, 2022, the Company converted an aggregate of $
During the period ended September 30, 2023, the Company converted an aggregate of $
On April 17, 2023, the Company converted an aggregate of $
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 $
12
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 Topic 815, “Derivatives and Hedging”, 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 $
At September 30, 2023, the principal balance of Iliad Note was fully repaid by the conversion to the Company’s common stock. The Company accrued interest on this Iliad Note was $
1800 DIAGONAL LENDING, LLC
On July 7, 2022, pursuant to a securities purchase agreement, the Company closed a private placement of securities with 1800 DIAGONAL LENDING, LLC (“1800”) pursuant to which 1800 purchased the Convertible Promissory Note (“1800 Note”) in the original principal amount of $
On August 31, 2022, pursuant to a securities purchase agreement, the Company closed a private placement of securities with 1800 pursuant to which 1800 purchased the 1800 Note in the original principal amount of $
During the period ended September 30, 2023, the Company converted an aggregate of $
As at September 30, 2023, the Company had the outstanding principal balance of $
Pyram
On April 9, 2021, pursuant to a securities purchase agreement, the Company closed a private placement of securities with Pyram LC Architecture Limited. (“Pyram”) pursuant to which Pyram purchased the Convertible Promissory Note (the “Pyram Note”) in the original principal amount of $
On April 28, 2021, pursuant to a securities purchase agreement, the Company closed a private placement of securities with Pyram pursuant to which Pyram purchased the Pyram Note in the original principal amount of $
On May 13, 2021, pursuant to a securities purchase agreement, the Company closed a private placement of securities with Pyram pursuant to which Pyram purchased the Pyram Note in the original principal amount of $
On June 29, 2021, pursuant to a securities purchase agreement, the Company closed a private placement of securities with Pyram pursuant to which Pyram purchased the Pyram Note in the original principal amount of $
On July 29, 2021, the Company and Pyram entered into a Note Purchase Agreement, whereby the Company issued a note to Pyram (the “Pyram Note”) in the principal amount of $
13
On August 26, 2021, the Company and Pyram entered into a Note Purchase Agreement, whereby the Company issued a note to Pyram (the “Pyram Note”) in the principal amount of $
On September 20, 2021, the Company and Pyram entered into a Note Purchase Agreement, whereby the Company issued a note to Pyram (the “Pyram Note”) in the principal amount of $
The Company is currently in default under Pyram Note with the outstanding balance of $
NOTE 6 – RELATED PARTY TRANSACTIONS
Due to related parties
From time to time, the Company received advances from Chan Tin Chi Family Company Limited (formerly known as YSK 1860 Co., Limited), which is the major shareholder of the Company for working capital purposes.
As of September 30, 2023 and December 31, 2022, amounts due from related companies were $
As of September 30, 2023 and December 31, 2022, amounts due to Chan Tin Chi Family Company Limited were $
The amounts are unsecured, interest-free and have no fixed terms of repayment.
NOTE 7 – STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
The Company has authorized
As of September 30, 2023 and December 31, 2022, the Company had
Common Stock
The Company has authorized
Common stock issued for debt conversion
During the three months ended March 31, 2023, the Company issued
During the three months ended June 30, 2023, the Company issued
Common stock issued for consultancy fee and director’s remuneration
In June 2023, the Company issued
In June 2023, the Company issued
In June 2023, the Company issued
As of September 30, 2023 and December 31, 2022, the Company had
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NOTE 8 – COMMITMENTS 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$
Legal proceedings:
On June 10, 2020, the Company’s subsidiary, Ecrent Worldwide Company Limited (“Ecrent Worldwide”), a wholly 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 $
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 disclosed that an estimate cannot be made.
NOTE 9 – SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after September 30, 2023, up to the date that the unaudited condensed consolidated financial statements were available to be issued.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Effective January 1, 2023, the Company approved and completed the internal corporate restructuring actions to streamline, right-size and optimize specific organizational structure by disposing of several subsidiaries. As a result of the corporate exercise, the Advertising business met the criteria set forth in Accounting Standards Codification (“ASC”) 205-20 to be presented as a discontinued operation and the related assets and liabilities have been presented as held for discontinued operations. The Advertising business’ results of operations and the related cash flows are reflected in Income from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations and Comprehensive Loss and cash flows from discontinued operations in the Condensed Consolidated Statements of Cash Flows, respectively, for all periods presented.
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 GAAP. 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 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.
Stock-based Compensation
FASB’s ASC Topic 718, “Stock Compensation” (“ASC Topic 718”), prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services are acquired. The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.
The Company estimates the fair value of each restricted stock award as of the date of grant using the closing price as reported by the OTC Markets Group Inc. on the date of grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. The Company accounts for forfeitures of restricted stock as they occur.
Currency Exchange Rates
Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries is Hong Kong Dollar.
16
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 is Hong Kong dollar. To the extent we hold assets denominated in U.S. dollars, any appreciation of the 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 HKD against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.
Recent Accounting Pronouncements
In March 2023, the FASB issued ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements (“ASU 2023-01”) that is intended to improve the guidance for applying Topic 842 to arrangements between entities under common control. This ASU requires all entities (that is, including public companies) to amortize leasehold improvements associated with common control leases over the useful life to the common control group. The standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. The Company has adopted this pronouncement and had no material impact on its condensed and consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The disclosures requirements included in ASU 2023-07 are required for all public entities, including those with a single reportable segment. ASU 2023-07 is effective for annual periods beginning after December 15, 2024, on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the potential impact of ASU 2023-07 on its condensed and consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 720): Improvements to Income Tax Disclosures (“ASU 2023-09”), which prescribes standard categories for the components of the effective tax rate reconciliation and requires disclosure of additional information for reconciling items meeting certain quantitative thresholds, requires disclosure of disaggregated income taxes paid, and modifies certain other income tax-related disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and allows for adoption on a prospective basis, with a retrospective option. The Company is currently evaluating the potential impact of the adoption of ASU 2023-09 on its condensed and consolidated financial statements.
In March 2024, the FASB issued ASU No. 2024-02, Codification Improvements-Amendments to Remove References to the Concepts Statements (“ASU 2024-02”). The amendments in this Update affect a variety of Topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance. This update contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior statements to provide guidance in certain topical areas. ASU 2024-02 is effective for public business entities for fiscal years beginning after December 15, 2024. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2025. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the potential impact of the adoption of ASU 2024-02 on its condensed and consolidated financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
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RESULTS OF OPERATIONS
Three months ended September 30, 2023 and 2022
The following table sets forth the results of our operations for the three months ended September 30, 2023 and 2022:
| Three Months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | - | $ | - | ||||
| Cost of revenues | - | - | ||||||
| Gross profit | - | - | ||||||
| Operating expenses | 13,805 | 64,473 | ||||||
| Loss from operations | (13,805 | ) | (64,473 | ) | ||||
| Total other expenses, net | (2,041 | ) | (110,441 | ) | ||||
| Loss from continuing operations before provision for income taxes | (15,846 | ) | (174,914 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Loss from continuing operations | (15,846 | ) | (174,914 | ) | ||||
| Loss from discontinued operations, net of income taxes | (1,231,525 | ) | ||||||
| Net loss | $ | (15,846 | ) | $ | (1,406,439 | ) | ||
Revenues.
During the three months ended September 30, 2023, we recognized no revenues from our sharing economy business.
Cost of revenues.
No direct costs were incurred during the three months ended September 30, 2023 and 2022, respectively.
Gross profit and gross margin.
No gross profit and gross margin were resulted for the three months ended September 30, 2023 and 2022, respectively.
Operating expenses.
For the three months ended September 30, 2023, operating expenses were $13,805 compared to $64,473 for the three months ended September 30, 2022, a decrease of $50,668 or 78.59%, due to decrease in selling, general and administrative expense.
Loss from operations.
As a result of the factors described above, for the three months ended September 30, 2023, loss from operations was to $13,805 as compared to $64,473 for the three months ended September 30, 2022.
Total other expenses, net.
For the three months ended September 30, 2023, total other expenses, net, was $2,041 as compared to total other expenses, net, of $110,441 for the three months ended September 30, 2022, a decrease of $108,400. The decrease in total other expenses, net, was primarily decrease in interest expenses in the three months ended September 30, 2023.
Income tax provision.
No income tax expense was recorded for the three months ended September 30, 2023 and 2022.
Loss from continuing operations. As a result of the foregoing, our loss from continuing operations was $15,846, or $0.00 per share (basic and diluted), for the three months September 30, 2023, as compared with loss from continuing operations of $174,914, or $(0.00) per share (basic and diluted), for the three months ended September 30, 2022, a change of $159,068 or -90.94%.
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Loss from discontinued operations, net of income taxes. Our income (loss) from discontinued operations was $0, or $(0.00) per share (basic and diluted), for the three months ended September 30, 2023, as compared with loss from discontinued operations of $1,231,525, or $(0.00) per share (basic and diluted), for the three months ended September 30, 2022, a change of $1,231,525 or -100%.
Net loss.
As a result of the foregoing, our net loss was $15,846, or $(0.0) per share (basic and diluted), for the three months ended September 30, 2023, as compared with net loss of $1,406,439, or $(0.00) in the three months ended September 30, 2022.
Nine months ended September 30, 2023 and 2022
The following table sets forth the results of our operations for the nine months ended September 30, 2023 and 2022:
| Nine Months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | - | $ | - | ||||
| Cost of revenues | - | - | ||||||
| Gross profit | - | - | ||||||
| Operating expenses | 612,012 | 1,462,786 | ||||||
| Loss from operations | (612,012 | ) | (1,462,786 | ) | ||||
| Total other incomes (expenses), net | 26,235,575 | (163,161 | ) | |||||
| Income (loss) before provision for income taxes | 25,623,563 | (1,625,947 | ) | |||||
| Provision for income taxes | - | - | ||||||
| Income (Loss) from continuing operations | 25,623,563 | (1,625,947 | ) | |||||
| Loss from discontinued operations, net of income taxes | - | (2,063,138 | ) | |||||
| Net income (loss) | $ | 25,623,563 | $ | (3,689,085 | ) | |||
Revenues.
During the nine months ended September 30, 2023 and 2022, we recognized no revenues from our sharing economy business.
Cost of revenues.
No direct costs were incurred during the nine months ended September 30, 2023 and 2022.
Gross profit and gross margin.
No gross profit and gross margin were resulted during the nine months ended September 30, 2023 and 2022 as no income generated and direct costs incurred.
Operating expenses.
For the nine months ended September 30, 2023, operating expenses were $612,012, as compared to $1,462,786 for the nine months ended September 30, 2022, a decrease of $850,774 or 58.16%, due to a decrease in selling, general and administrative expense.
Loss from operations.
As a result of the factors described above, for the nine months ended September 30, 2023, loss from operations was $612,012 as compared to $1,462,786 for the nine months ended September 30, 2022.
Total other incomes (expenses), net.
Total other incomes (expenses), net include interest income, interest expense, foreign currency transaction gain (loss) and gain on disposal of a subsidiary. For the nine months ended September 30, 2023, total other incomes, net, amounted to $26,235,575 as compared to total other expenses, net, of $163,161 for the nine months ended September 30, 2022, an increase of $26,398,736. The increase in total other incomes, net, was primarily due to $26,222,555 gain on disposal of subsidiaries for the nine months ended September 30, 2023.
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Income tax provision.
No income tax expense was recorded for the nine months ended September 30, 2023 and 2022.
Income (loss) from continuing operations. As a result of the foregoing, our income from continuing operations was $25,623,563, or $0.03 per share (basic and diluted), for the nine months ended September 30, 2023, as compared with loss from continuing operations of $1,625,947, or $(0.00) per share (basic and diluted), for the nine months ended September 30, 2022, a change of $27,249,510 or 1,675.92%.
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, 2023, as compared with loss from discontinued operations of $2,063,138, or $(0.01) per share (basic and diluted), for the nine months ended September 30, 2022, a change of $2,063,138 or -100%.
Net income (loss).
As a result of the foregoing, our net income was $25,660,313 or $0.02 and $0.03 per share (basic and diluted), for the nine months ended September 30, 2023 as compared with net loss $3,689,085, or $(0.01) for the nine months ended September 30, 2022.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. As of September 30, 2023 and December 31, 2022, we had cash balance of $1,666 and $4,275, respectively. These funds are located in financial institutions mainly located in Hong Kong.
The following table sets forth a summary of changes in our working capital from December 31, 2022 to September 30, 2023:
| September 30, 2023 | December 31, 2022 | Change in Working Capital | Percentage Change | |||||||||||||
| Working capital: | ||||||||||||||||
| Total current assets | $ | 17,996,504 | $ | 2,707,371 | $ | 15,289,133 | 546.72 | % | ||||||||
| Total current liabilities | 3,838,808 | 12,372,740 | 8,533,932 | (68.97 | )% | |||||||||||
| Working capital (deficit) | $ | 14,157,696 | $ | (9,665,369 | ) | $ | 23,823,065 | 246.48 | % | |||||||
Working Capital. Total working capital as of September 30, 2023 was approximately $14.1 million, as compared to deficit approximately $9.7 million as of December 31, 2022. The increase in working capital was due to the disposal of the subsidiaries.
Cash Flows
The following table sets forth a summary of our cash flows for the periods as indicated:
| For the Nine Months ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (59,478 | ) | $ | (1,354,424 | ) | ||
| Net cash provided by investing activities | $ | - | $ | 219,033 | ||||
| Net cash (used in) provided by financing activities | $ | (170,981 | ) | $ | 1,086,980 | |||
| Effect of exchange rate changes on cash and cash equivalents | $ | 199,353 | $ | 6,067 | ||||
| Net decrease in cash and cash equivalents | $ | (31,106 | ) | $ | (42,344 | ) | ||
| Cash and cash equivalents at beginning of period | $ | 32,777 | $ | 66,273 | ||||
| Cash and cash equivalents at end of period | $ | 1,666 | $ | 23,929 | ||||
Net cash used in operating activities was $59,478 for the nine months ended September 30, 2023, and consisted primarily of a net income of $25,623,563, gain on disposal of subsidiaries of $26,222,555, stock-based consultancy fees of $180,000, stock-based director’s remuneration of $44,514 and stock-based staff salaries of $315,000.
There were no cash flows from investing activities for the nine months ended September 30, 2023 and 2022.
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Net cash flow used in financing activities was $170,981 for the nine months ended September 30, 2023 as compared to the net cash flow provided by financing activities was $1,086,980 for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, we received advances from related party of $117,450.
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.
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 condensed 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(b) 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, 2023.
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.
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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, 2023.
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(d) 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 on September 30, 2023.
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, 2023 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, 2023 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 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
Not required under Regulation S-K for “smaller reporting companies.”
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5.
ITEM 6. 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 | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herein |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantSecurities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SHARING ECONOMY INTERNATIONAL INC. | ||
| Date: April 28, 2026 | By: | /s/ Wu Shanna |
| Wu Shanna | ||
| Chief Executive Officer and | ||
| Principal Executive Officer | ||
| Date: April 28, 2026 | By: | /s/ Lam Ka Man |
| Lam Ka Man | ||
| Chief Financial Officer and | ||
| Principal Accounting Officer | ||
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