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)
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 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).
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 ☐
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.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 2021
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
AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts | ||||||||
| Prepaid expenses and other receivables | ||||||||
| Marketable securities | ||||||||
| Total current assets | ||||||||
| OTHER ASSETS: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Convertible note payable, net of unamortized debt discount | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Other payable | ||||||||
| Due to related parties | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Long-term loan | ||||||||
| Total liabilities | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock, Series A $ | ||||||||
| Common stock $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ( | ) | ||||||
| Total stockholders’ deficit attributed to SEII | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
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, 2021 AND 2020
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ( | ) | ( | ) | ||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Written-off prepayments | ||||||||||||||||
| Impairment loss on marketable securities | ||||||||||||||||
| Impairment loss on goodwill | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Dividend income | - | |||||||||||||||
| Gain on sale of marketable securities | ||||||||||||||||
| Loss on disposal of a subsidiary | ( | ) | ||||||||||||||
| Foreign currency (loss) gain | ( | ) | ||||||||||||||
| Other income | ||||||||||||||||
| Total other income (expense), net | ( | ) | ||||||||||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| PROVISIONS FOR INCOME TAXES: | ||||||||||||||||
| Current | ||||||||||||||||
| Deferred | ||||||||||||||||
| Total income tax provision | ||||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| COMPREHENSIVE LOSS: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation gain (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss attributable to non-controlling interest | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation gain from non-controlling interest | ||||||||||||||||
| Comprehensive loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER COMMON SHARE: | ||||||||||||||||
| Net loss per common share - basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic and 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)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||
| Equity attributable to SEII shareholders | ||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Additional | Accumulated other comprehensive | Non | Total shareholders’ | |||||||||||||||||||||||||||||||
| Number of shares | Amount | Number of shares | Amount | paid-in capital | (loss) income | Accumulated deficits | controlling interests | equity (deficit) | ||||||||||||||||||||||||||||
| Balance as of July 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Issuance of shares for director’s remuneration | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| For the three months ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Equity attributable to SEII shareholders | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common stock to be issued | Accumulated | |||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Additional | Retained | Other Comprehensive | Non- controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Income | Interest | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, July 1, 2020 | $ | $ | - | - | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Impact from fractional shares | - | - | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance September 30, 2020 | $ | $ | - | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||
| Equity attributable to SEII shareholders | ||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Additional | Accumulated other comprehensive | Non | Total shareholders’ | |||||||||||||||||||||||||||||||
| Number of shares | Amount | Number of shares | Amount | paid-in capital | (loss) income | Accumulated deficits | controlling interests | equity (deficit) | ||||||||||||||||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Issuance of shares for director’s remuneration | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued upon conversion of debt | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Fractional shares from reverse split | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Common stock issued for services from consultants and service providers | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for business marketing services | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Cancellation share | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| For the nine months ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Equity attributable to SEII shareholders | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common stock to be issued | Accumulated Other | Non- | Total | |||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Additional | Retained | Comprehensive | controlling | Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Income | Interest | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, January 1, 2020 | - | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Common stock issued for acquisition of Peak Equity Group | - | - | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Common stock issued acquisition of non-wholly owned subsidiary | - | - | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Common stock issued for services from consultants and service providers | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of debt | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| NCI from disposal of subsidiary | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Acquisition of NCI | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Impact from fractional shares | - | - | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance September 30, 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, 2021 AND 2020
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss from operations to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of intangible assets | ||||||||
| Impairment loss on marketable securities | ||||||||
| Gain on disposal of marketable securities | ( | ) | ( | ) | ||||
| Impairment loss on goodwill | ||||||||
| Written-off prepayments | ||||||||
| Stock-based professional fees | ||||||||
| Stock-based consultancy fee | ||||||||
| Stock-based business marketing fee | ||||||||
| Loss on disposal of a subsidiary | ||||||||
| Amortization of debt discount | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other receivables | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Other payable | ||||||||
| Income tax payable | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Dividends received | ||||||||
| Purchase of marketable securities | ( | ) | ( | ) | ||||
| Purchase of NCI | - | ( | ) | |||||
| Purchase of property, plant and equipment | ( | ) | - | |||||
| Proceeds from disposal of marketable securities | ||||||||
| Proceeds from disposal of a subsidiary | ||||||||
| Cash and cash equivalents from acquisition of a non-wholly owned subsidiary | ||||||||
| CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repayments of bank loan | ( | ) | ( | ) | ||||
| Proceeds from bank loan | ||||||||
| Proceeds from issuance of note payable | ||||||||
| Advance from related party | ||||||||
| CASH FLOWS 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: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | |||||||
| Income taxes | $ | |||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Interest | $ | $ | ||||||
| Stock issued for director’s remuneration | $ | $ | ||||||
| Stock issued for acquisition of a non-wholly owned subsidiary | $ | $ | ||||||
| Stock issued for services from consultants and vendors | $ | $ | ||||||
| Stock issued for redemption of convertible note and accrued interest | $ | $ | ||||||
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, 2021
(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 re-domiciled to a Nevada corporation. On January 8, 2018, the Company changed its corporate name to Sharing Economy International Inc.
The Company’s current 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.
| ● | 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 |
5
| ● | 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, | |
| ● | 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 | |
| ● | 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. |
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
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.
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 consolidated balance sheet as of December 31, 2020 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements 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, 2021 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2021 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 for the year ended December 31, 2020.
6
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 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 nine months ended September 30, 2021 and 2020 include the allowance for doubtful accounts on accounts and other receivables, the allowance for inventory reserve, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets, and the value of stock-based compensation.
Cash and Cash Equivalents
For purposes of the 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 the PRC, Hong Kong and the U.S. At September
30, 2021 and December 31, 2020, cash balances held in banks in the PRC and Hong Kong of $
Available-for-sale marketable securities
Available-for-sale marketable securities are reported at fair value using the market approach based on the quoted prices in active markets at the reporting date. The Company classifies the valuation techniques that use these inputs as Level 1 of fair value measurements. Any unrealized losses that are deemed other-than-temporary are included in current period earnings and removed from accumulated other comprehensive income (loss).
Realized gains and losses on marketable securities are included in current period earnings. For purposes of computing realized gains and losses, the cost basis of each investment sold is generally based on the weighted average cost method.
The Company regularly evaluates whether the decline in fair value of available-for-sale securities is other-than-temporary and objective evidence of impairment could include:
| ● | The severity and duration of the fair value decline; |
| ● | Deterioration in the financial condition of the issuer; and |
| ● | Evaluation of the factors that could cause individual securities to have an other-than-temporary impairment. |
7
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 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.
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, 2021 and December 31, 2020, 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 | 2021 | (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 | 2020 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Marketable securities, available-for-sale | $ | $ | $ | $ | ||||||||||||
As of September 30, 2021 and December 31, 2020, 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.
8
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 state-owned banks within the Hong Kong, and 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, 2021 and December 31, 2020, the Company has established, based on a review of its outstanding balances, no allowance for doubtful accounts in the accounts.
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 | ||
| Vehicles | ||
| Vessels |
Depreciation expense from continuing operations
for the three months ended September 30, 2021 and 2020 amounted to $
Depreciation expense from continuing operations
for the nine months ended September 30, 2021 and 2020 amounted to $
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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020. 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, no impairment charges on long-lived assets need to be charged.
9
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.
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. |
Income taxes
The Company is governed by the Income Tax Law of the PRC, Inland Revenue Ordinance of Hong Kong and the U.S. Internal Revenue Code of 1986, as amended. 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 December 31, 2020, 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.
10
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, 2021 and December 31, 2020, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.
Stock-Based Compensation
FASB’s ASC Topic 718, Stock Compensation (formerly, FASB Statement 123R) (“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. (the “OTCM”) 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.
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.
Translation of amounts from RMB and HK$ into US$ has been made at the following exchange rates for the period ended September 30, 2021 and 2020:
| September 30, 2021 | September 30, 2020 | |||||||
| Period-end RMB:US$ exchange rate | ||||||||
| Period average RMB:US$ exchange rate | ||||||||
| Period-end HK$:US$ exchange rate | ||||||||
| Period average HK$:US$ exchange rate | ||||||||
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.
11
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. The Company did not have any common stock equivalents or potentially dilutive common stock outstanding during the nine months ended September 30, 2021 and 2020. 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, | ||||||||
| 2021 | 2020 | |||||||
| Net Loss for basic and diluted attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average common stock outstanding – basic and diluted | ||||||||
| Net loss per common share – basic and diluted | $ | ( | ) | $ | ( | ) | ||
Noncontrolling interest
The Company accounts for noncontrolling interest in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to the its noncontrolling interest be clearly identified and presented on the face of the consolidated statements of operations and comprehensive loss.
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 income for the nine months ended September 30, 2021 and 2020 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.
12
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes.” The standard is expected to reduce cost and complexity related to accounting for income taxes. The new guidance eliminates certain exceptions and clarifies and amends existing guidance to promote consistent application among reporting entities. Depending on the amended guidance within this standard, adoption is to be applied on a retrospective, modified retrospective or prospective basis. The Company adopted this standard effective January 1, 2021, and the adoption did not have a material effect on the Company’s consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, “Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The new guidance clarifies the interactions between accounting standards that apply to equity investments without readily determinable fair values. Specifically, it addresses the accounting for the transition into and out of the equity method. The Company adopted this standard effective January 1, 2021 on a prospective basis, and the adoption did not have a material effect on the Company’s consolidated financial statements.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on the Company’s financial position or results of operations upon adoption.
NOTE 2 – PROPERTY AND EQUIPMENT
At September 30, 2021 and December 31, 2020, property and equipment consisted of the following:
| Useful life | September 30, 2021 | December 31, 2020 | ||||||||
| Office equipment | ||||||||||
| Motor vehicle | ||||||||||
| Yacht | ||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
Depreciation expense for the nine months ended
September 30, 2021 and 2020 amounted to $
Depreciation expense for the three months ended
September 30, 2021 and 2020 amounted to $
13
NOTE 3 –INTANGIBLE ASSETS
As of September 30, 2021 and December 31, 2020, intangible assets consisted of the following:
| Useful life | September 30, 2021 | December 31, 2020 | ||||||||
| Other intangible assets | ||||||||||
| Redemption code | ||||||||||
| Goodwill | ||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||
| Less: impairment loss | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
Annual amortization of intangible assets attributable to future periods is as follows:
| Year ending September 30: | Amount | |||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| $ | ||||
For the nine months ended
September 30, 2021 and 2020, amortization of intangible assets amounted to $
For the three months
ended September 30, 2021 and 2020, amortization of intangible assets amounted to $
NOTE 4 – BANK LOANS
At September 30, 2021, the Company had bank loans
of $
Revolving credit line of $
At September 30, 2021, 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. |
14
At September 30, 2021 and December 31, 2020, bank loans consisted of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Mortgage loan | $ | $ | ||||||
| Line of revolving loan | ||||||||
| Total bank loans | $ | $ | ||||||
| Reclassifying as: | ||||||||
| Current portion | $ | $ | ||||||
| Long-term portion (more than 12 months) | ||||||||
| Total bank loans | $ | $ | ||||||
Interest related to the bank loans was $
Interest related to the bank loans was $168,631
All interests are included in interest expense on the accompanying condensed consolidated statements of operations.
NOTE 5 – 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 $
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 December, 2020, 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 $
15
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 $
On April 7, 2020, pursuant
to a securities purchase agreement,
During the December,
2020, the Company converted an aggregate of $
On April 14, 2020, the
Company and Black Ice Advisors, LLC (“Black Ice”) entered into a Securities Purchase Agreement, whereby
In December 2020, the
Company converted an aggregate of $
In January 2021, the
Company converted an aggregate of $
In June 2021, the Company
converted an aggregate of $
On April 9, 2021, pursuant
to a securities purchase agreement,
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 $38,462. The Pyram Note is convertible into shares of the common stock of the Company at a price equal to 70% of the average closing prices for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The Pyram Note bears interest at 12% per annum and is due on October 28, 2021.
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 $25,641. The Power Up Note is convertible into shares of the common stock of the Company at a price equal to 70% of the average closing prices for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The Pyram Note bears interest at 12% per annum and is due on November 12, 2021.
16
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 $76,923. The Power Up Note is convertible into shares of the common stock of the Company at a price equal to 70% of the average closing prices for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The Pyram Note bears interest at 12% per annum and is due on December 28, 2021.
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 $102,565. The Pyram Note is a convertible into shares of the common stock of the Company at a price equal to 70% of the average closing prices for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The Pyram Note bears interest at 12% per annum and is due on January 28, 2022.
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 $74,359. The Pyram Note is a convertible into shares of the common stock of the Company at a price equal to 70% of the average closing prices for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. . The Pyram Note bears interest at 12% per annum and is due on February 25, 2022.
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 $128,206. The Pyram Note is a convertible into shares of the common stock of the Company at a price equal to 70% of the average closing prices for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. . The Pyram Note bears interest at 12% per annum and is due on March 19, 2022.
As of September 30, 2021 and December 31, 2020, convertible debt consisted of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Principal | $ | $ | ||||||
| Unamortized discount | ( | ) | ||||||
| Convertible debt, net | $ | $ | ||||||
The amortization of discount
was $
The amortization of discount
was $
As of September 30, 2021
and December 31, 2020, accrued interest amounted to $
NOTE 6 – RELATED PARTY TRANSACTIONS
Due to related parties
From time to time, during 2021 and 2020, 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 period ended September 30, 2021, the Company repaid to Chan Tin Chi Family Company Limited for working capital totaled $605,379. During the period ended September 30, 2020, the Company repaid to Chan Tin Chi Family Company Limited for working capital totaled $233,269. As of September 30, 2021 and December 31, 2020, amounts due to Chan Tin Chi Family Company Limited amounted to $2,422,948 and $1,817,569, respectively.
At September 30, 2021 and December 31, 2020, amounts
due to related companies amounted to $
The amounts are unsecured, interest-free and have no fixed terms of repayment.
NOTE 7 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized
Common Stock
The Company has authorized
As of September 30, 2021
and December 31, 2020, the Company has
17
Preferred stock issued for services and acquisition of a non-wholly owned subsidiary
Common stock issued for services
During the period ended September 30, 2021, the Company completed the following transactions -
| ● | the Company issued 18,500,000 shares of common stock to certain consultants for the business consultancy services rendered under 2020 Stock Incentive Plan. For the period ended September 30, 2021, the Company recorded stock-based service fee to the consultants at the price of $0.04 per share, in an aggregate amount of $740,000. |
| ● | the Company issued 6,747,638 shares of common stock to certain consultants for the consultancy services rendered. For the period ended September 30, 2021, the Company recorded service fee to the consultants at the price of $0.038 per share, in an aggregate amount of $256,410. |
| ● | the Company issued 625,000 shares of common stock to certain consultants for the consultancy services rendered. For the period ended September 30, 2021, the Company recorded service fee to the consultants at the price of $0.04 per share, in an aggregate amount of $25,000. |
| ● | the Company issued 1,000,000 shares of common stock to certain consultants for the consultancy services rendered. For the period ended September 30, 2021, the Company recorded service fee to the consultants at the price of $0.03 per share, in an aggregate amount of $30,000. |
Common stock issued for debt conversion
In January 2021, the
Company issued
In June 2021, the Company
issued
18
NOTE 8 – CONCENTRATIONS
Customers
For the three and nine
months ended September 30, 2021 and 2020, there are no customers representing more than
Vendors
For the three and nine
months ended September 30, 2021 and 2020, there are no vendors representing more than
NOTE 9 – 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.
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 $
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 10 – 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, 2021, up through November 16, 2021, the Company issued the unaudited condensed consolidated financial statements.
The Company is currently in default under Iliad
Note with the outstanding balance of $
On October 27, 2021, the Company and Pyram LC Architecture Limited (“Pyram”) entered into a Note Purchase Agreement, whereby the Company issued a note to Pyram (the “Pyram Note”) in the principal amount of $100,000. The Pyram Note is a convertible into shares of the common stock of the Company at a price equal to 70% of the average closing prices for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date.
19
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 2020 or during the nine months ended September 30, 2021.
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
FASB’s ASC Topic 718, Stock Compensation (formerly, FASB Statement 123R) (“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. (the “OTCM”) 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.
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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 December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes.” The standard is expected to reduce cost and complexity related to accounting for income taxes. The new guidance eliminates certain exceptions and clarifies and amends existing guidance to promote consistent application among reporting entities. Depending on the amended guidance within this standard, adoption is to be applied on a retrospective, modified retrospective or prospective basis. The Company adopted this standard effective January 1, 2021, and the adoption did not have a material effect on the Company’s consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, “Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The new guidance clarifies the interactions between accounting standards that apply to equity investments without readily determinable fair values. Specifically, it addresses the accounting for the transition into and out of the equity method. The Company adopted this standard effective January 1, 2021 on a prospective basis, and the adoption did not have a material effect on the Company’s 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, 2021 and 2020
The following table sets forth the results of our operations for the three months ended September 30, 2021 and 2020:
| Three Months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 50,397 | $ | 50,069 | ||||
| Cost of revenues | - | 31,794 | ||||||
| Gross profit | 50,397 | 18,275 | ||||||
| Operating expenses | 589,303 | 773,237 | ||||||
| Loss from operations | (538,906 | ) | (754,962 | ) | ||||
| Other (expense) income, net | 70,317 | 61,113 | ||||||
| Loss from continuing operations before provision for income taxes | (468,589 | ) | (693,849 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (468,589 | ) | $ | (693,849 | ) | ||
Revenues.
During the three months ended September30, 2021, we recognized revenues from our sharing economy business of $50,397 compared to $50,069 for the three months ended September 30, 2020, a decrease of $328, or 0.6%.
Cost of revenues.
Cost of revenues includes commission costs. For the three months ended September 30, 2021, cost of revenues was $0 as compared to $31,794 for the three months ended September 30, 2020, a decrease of $31,794, or 100%.
Gross profit and gross margin.
Our gross profit was $50,397 for the three months ended September 30, 2021 as compared to gross profit of $18,275 for the three months ended September 30, 2020, representing gross margins of 100% and 36%, respectively. The increase in our gross margin for the three months ended September 30, 2021 was primarily attributed to the new business revenue from acquisition of a wholly owned subsidiary.
Operating expenses.
For the three months ended September 30, 2021, operating expenses were $589,303 as compared to $773,237 for the three months ended September 30, 2020, a decrease of $183,934, or 22.8%, due to decrease in selling, general and administrative expense, impairment loss on marketable securities and 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, 2021, loss from operations amounted to $538,906 as compared to $754,962 for the three months ended September 30, 2020.
Other income (expense).
Other income (expense) includes interest income, interest expense, foreign currency transaction gain (loss), gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the three months ended September 30, 2021, total other income, net, amounted to $70,317 as compared to other income, net, of $61,113 for the three months ended September 30, 2020, an increase of $9,204. The increase in other income, net, was primarily increase in gain on sale of marketable securities in the three months ended September 30, 2021.
Income tax provision. Income tax expense was $0 for the three months ended September 30, 2021 and 2020.
Net loss.
As a result of the foregoing, our net loss was $468,589, or $(0.00) per share (basic and diluted), for the three months ended September 30, 2021, as compared with net loss $693,849, or $(0.00) per 32.5%.
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Nine months ended September 30, 2021 and 2020
The following table sets forth the results of our operations for the nine months ended September 30, 2021 and 2020:
| Nine Months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 180,682 | $ | 118,051 | ||||
| Cost of revenues | - | 68,939 | ||||||
| Gross profit | 180,682 | 49,112 | ||||||
| Operating expenses | 2,671,807 | 4,904,386 | ||||||
| Loss from operations | (2,491,125 | ) | (4,855,2741 | ) | ||||
| Other income (expense), net | 476,185 | (449,488 | ) | |||||
| Loss from continuing operations before provision for income taxes | (2,014,940 | ) | (5,304,762 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (2,014,940 | ) | $ | (5,304,762 | ) | ||
Revenues.
During the nine months ended September 30, 2021, we recognized revenues from our sharing economy business of $180,682 compared to $118,051 for the nine months ended September 30, 2020, an increase of $62,631, or 53%.
Cost of revenues.
Cost of revenues includes commission costs. For the nine months ended September 30, 2021, cost of revenues was $0 as compared to $68,939 for the nine months ended September 30, 2020, a decrease of $68,939, or 100%.
Gross profit and gross margin.
Our gross profit was $180,682 for the nine months ended September 30, 2021 as compared to gross profit of $49,112 for the nine months ended September 30, 2020, representing gross margins of 100% and 42%, respectively. The increase in our gross margin for the nine months ended September 30, 2021 was primarily attributed to the increase revenue generated from engineering service income of the new acquired wholly owned subsidiary.
Operating expenses.
For the nine months ended September 30, 2021, operating expenses were $2,671,807 as compared to $4,904,386 for the nine months ended September 30, 2020, a decrease of $2,232,579, or 45.5%, due to decrease in written-off prepayments, impairment loss on goodwill and impairment loss on marketable securities.
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Loss from operations.
As a result of the factors described above, for the nine months ended September 30, 2021, loss from operations amounted to $2,014,940, as compared to $5,304,762 for the nine months ended September 30, 2020.
Other income (expense)
Other expense includes interest income, interest expense, foreign currency transaction gain (loss), gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the nine months ended September 30, 2021, total other income, net, amounted to $476,185 as compared to total other expense $449,488 for the nine months ended September 30, 2020, an increase of $925,673, or 206.4%. The increase in other income, net, was primarily gain on sale of marketable securities incurred in the nine months ended September 30, 2021.
Income tax provision. Income tax expense was $0 for the nine months ended September 30, 2021 and 2020.
Net loss.
As a result of the foregoing, our net loss was $2,014,940, or $(0.00) per share (basic and diluted), for the nine months ended September 30, 2021, as compared with net loss $5,304,762, or $(0.00) per share (basic and diluted), for the nine months ended September 30, 2020, a change of approximately $3,289,822, or 62.0%.
Liquidity and Capital Resources
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
As of September 30, 2021 and December 31, 2020, we had cash and cash equivalents of approximately $211,886 and $1,805,417, respectively.
The following table sets forth a summary of our cash flows for the periods as indicated:
| For the Nine Months ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (1,162,623 | ) | $ | (1,318,213 | ) | ||
| Net cash used in investing activities | $ | (1,099,755 | ) | $ | 833,726 | |||
| Net cash provided by financing activities | $ | 734,407 | $ | 1,723,082 | ||||
| Effect of exchange rate changes on cash and cash equivalents | $ | (65,560 | ) | $ | (33,23 | ) | ||
| Net increase (decrease) in cash and cash equivalents | $ | (1,593,531 | ) | $ | 1,205,357 | |||
| Cash and cash equivalents at beginning of period | $ | 1,805,417 | $ | 83,667 | ||||
| Cash and cash equivalents at end of period | $ | 211,886 | $ | 1,289,024 | ||||
The following table sets forth a summary of changes in our working capital from December 31, 2020 to September 30, 2021 (dollars in thousands):
| September 30, 2021 | December 31, 2020 | Change in Working Capital | Percentage Change | |||||||||||||
| Working capital: | ||||||||||||||||
| Total current assets | $ | 4,593 | $ | 3,967 | $ | 626 | 15.8 | % | ||||||||
| Total current liabilities | 11,909 | 11,707 | 202 | 1.7 | % | |||||||||||
| Working capital | $ | (7,316 | ) | $ | (7,740 | ) | $ | (424 | ) | (5.5 | )% | |||||
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Working Capital. Total working capital deficit as of September 30, 2021 amounted to approximately $7.3 million, as compared to approximately $7.7 million as of December 31, 2020. The decrease in working capital deficit due to the settlement of debt upon stock conversion.
Net cash used in operating activities was $1,162,623 for the nine months ended September 30, 2021, and consisted primarily of a net loss of $2,014,940, adjusted for depreciation and amortization of $173,643, stock-based consultancy fee of $1,051,410, stock-based business promotion fee of $599,220, gain on disposal of marketable securities of $774,371, an increase in accounts receivable of $64,035, an increase in prepaid expenses and other receivables of $295,230, a decrease in accounts payable and accrual of $25,003, an increase in other payable of $183,969, and a decrease in deferred revenue of $107.
Net cash flow used in investing activities was $1,099,755 for the nine months ended September 30, 2021 as compared to, net cash flow provided by investing activities was $833,726 for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, net cash flow used in investing activities was cash received from dividend of $12,515, purchase of marketable securities of $18,318,917 and proceeds from sale of marketable securities of $17,254,369.
Net cash flow provided by financing activities was $734,407 for the nine months ended September 30, 2021 as compared to $1,723,082 for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, we received advances from related party of $1,014,609, received from issuance of note payable of $535,900, offset by repayments for bank loans of approximately $816,102. During the nine months ended September 30, 2020, we received advances from related party of $166,657, proceeds from bank loan of $1,412,574 and received from issuance of note payable of $183,000, repayments for bank loans of approximately $39,149.
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, 2021 (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 | $ | 10,517 | $ | 5,691 | $ | 4,826 | $ | - | $ | - | ||||||||||
| Convertible note (1) | 939 | 939 | - | - | - | |||||||||||||||
| Total | $ | 11,456 | $ | 6,630 | $ | 4,826 | $ | - | $ | - | ||||||||||
| (1) | Convertible note is currently in default with the outstanding balance of $503,571 in principal and $756,409 accrued interest at September 30, 2021. 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, 2021.
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, 2021.
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, 2021.
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, 2021 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 | 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 registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SHARING ECONOMY INTERNATIONAL INC. | ||
| Date: November 16, 2021 | By: | /s/ Anthony Che Chung Chan |
| Anthony Che Chung Chan | ||
| Chief Executive Officer and | ||
| Principal Executive Officer | ||
| Date: November 16, 2021 | By: | /s/ Ka Man Lam |
| Ka Man Lam | ||
| Chief Financial Officer and | ||
| Principal Accounting Officer | ||
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