Sharing Economy International Inc S-1, filed Oct 26, 2021
Sharing Economy International Inc. (SEII)
As filed with the Securities and Exchange Commission on October 26, 2021
Registration No. 333-___________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
| (Exact name of registrant as specified in its charter) |
| 7370 | 90-0648920 | |||
| (State or Other Jurisdiction of | (Primary Standard Industrial | (IRS Employer | ||
| Incorporation or Organization) | Classification Number) | Identification Number) |
No. 85 Castle Peak Road
Castle Peak Bay
Tuen Mun, N.T., Hong Kong
+852 3583-2186
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Chan Che Chung Anthony
Chief Executive Officer
Sharing Economy International Inc.
No. 85 Castle Peak Road
Castle Peak Bay
Tuen Mun, N.T., Hong Kong
+852 3583-2186
(Address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Thomas E. Puzzo, Esq.
Law Offices of Thomas E. Puzzo, PLLC
3823 44th Ave. NE
Seattle, Washington 98105
Telephone No.: (206) 522-2256
Approximate date of proposed sale to the public: As soon as practicable and from time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 Section 7(a)(2)(B) of the Exchange Act.
Calculation of Registration Fee
| Title of Securities To Be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Share | Proposed Maximum Aggregate Offering Price | Registration Fee | ||||||||||||
| Common Stock, par value $0.001 per share, issuable pursuant to Investment Agreement (1) | 294,117,647 | (1) | $ | 0.017 | (2) | $ | 5,000,000 | $ | 463.50 | |||||||
| Total | 294,117,647 | (2) | $ | 0.017 | (2) | $ | 5,000,000 | $ | 463.50 | |||||||
| (1) | Represents the number of shares of common stock of the Registrant that we will put (“Put Shares”) to Strattner Alternative Credit Fund LP, a Delaware limited partnership (“Strattner”), pursuant to a Common Stock Investment Agreement (the “Investment Agreement”) by and between Strattner and the Registrant, effective on May 5, 2021. In the event that adjustment provisions of the Investment Agreement require the Company to issue more shares than are being registered in this registration statement, for reasons other than those stated in Rule 416 of the Securities Act, the Company will file a new registration statement to register those additional shares. |
| (2) | This offering price has been estimated solely for the purpose of computing the registration fee in accordance with Rule 457(c) of the Securities Act on the basis of the average of the high and low prices of the common stock of the Company as reported on the OTCQB tier of the OTC Markets Group, Inc. on October 25, 2021. |
In the event of stock splits, stock dividends, or similar transactions involving the Registrant’s common stock, the number of Shares registered shall, unless otherwise expressly provided, automatically be deemed to cover the additional securities to be offered or issued pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION ON OCTOBER 26, 2021
SHARING ECONOMY INTERNATIONAL INC.
294,117,647 SHARES OF COMMON STOCK
This prospectus relates to the resale of shares of our common stock, par value $0.001 per share, by Strattner Alternative Credit Fund LP (“Strattner”) of 294,117,647 Put Shares that we will put to the Selling Security Holder pursuant to the Investment Agreement. Strattner is sometimes referred to herein as the “Selling Security Holder.”
The Investment Agreement with Strattner provides that Strattner is committed to purchase up to $5,000,000 of our common stock. We may draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Investment Agreement.
The Selling Security Holder is an “underwriter” within the meaning of the Securities Act in connection with the resale of our common stock under the Investment Agreement. No other underwriter or person has been engaged to facilitate the sale of shares of our common stock in this offering. This offering will terminate on November 20, 2022. The per share purchase price for the Put Shares shall be equal to 85% of volume weighted average price (“VWAP”) for the five consecutive trading days including and immediately after the date on which the Company submits a put notice to Strattner.
We will not receive any proceeds from the sale of the shares of common stock offered by the Selling Security Holder. We may receive proceeds of up to $5,000,000 from the sale of our Put Shares under the Investment Agreement. The proceeds will be used for working capital or general corporate purposes. We will bear all costs associated with this registration.
Our common stock is quoted on the OTCQB tier of the OTC Markets Group, Inc. (the “OTC Markets”) under the symbol “SEII.” The shares of our common stock registered hereunder are being offered for sale by Selling Security Holder at prices established on the OTCQB during the term of this offering. On October 25, 2021, the closing price of our common stock was $0.0165 per share. The price will fluctuate based on the demand for our common stock.
Investing in our Common Stock involves a high degree of risk. See “Risk Factors” to read about factors you should consider before buying shares of our Common Stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission becomes effective. This Prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such state.
The following table of contents has been designed to help you find information contained in this prospectus. We encourage you to read the entire prospectus.
TABLE OF CONTENTS
PART I - INFORMATION REQUIRED IN PROSPECTUS
i
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed information and the financial statements appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this Prospectus. Unless the context indicates or suggests otherwise, references to “we,” “our,” “us,” the “Company,” “Sharing Economy” or the “Registrant” refer to Sharing Economy International Inc., a Nevada corporation, and its wholly owned subsidiaries.
OUR COMPANY
Overview of Sharing Economy
Our business focuses on the development of sharing economy platforms and related rental businesses. We believe a true peer-to-peer sharing economy based on rentals will take significant market share in both the business and consumer markets over the next few years.
Sharing economy business models are hosted through digital platforms that enable more precise, real-time measurement of spare capacity and have the ability to dynamically connect that capacity with those who need it. These digital platforms handle transactions that offer access over ownership through renting, lending, subscribing, reselling, swapping or donating. Consumers who use sharing economy business models are often more comfortable with transactions that involve deeper social interactions than traditional methods of exchange.
Our fiscal year-end date is December 31.
Our board of directors consists of five persons: Chan Che Chung Anthony. Mr. Chan also serves as our Chief Executive Officer.
Our principal administrative offices are located at No. 85 Castle Peak Road, Castle Peak Bay, Tuen Mun, N.T., Hong Kong. Our website is www.seii.com. We do not incorporate the information on or accessible through our website into this Prospectus, and you should not consider any information on, or that can be accessed through, our websites a part of this Prospectus.
1
Recent Developments
Share Exchange Agreement
On July 6, 2020, the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”), by and among the Company, Nemo Holding Company Limited, a British Virgin Islands corporation (“Nemo Holding”), and the holders of common shares of Nemo Holding. The holders of the common stock of Nemo Holding consisted of 29 stockholders.
Under the terms and conditions of the Share Exchange Agreement, the Company offered, sold and issued 10,000,000 shares of common stock in consideration for all the issued and outstanding shares in Nemo Holding. Chan Che Chung Anthony, the Company’s sole officer and director, became the beneficial holder of 6,000,000 common shares, or 60%, of the issued and outstanding shares of Nemo Holding. The effect of the issuance of the 10,000,000 shares issued under the Share Exchange Agreement represents 10.8% of the issued and outstanding shares of common stock of the Company.
Immediately prior to the closing of the transactions under the Share Exchange Agreement, Mr. Chan was the holder of 233,813,213 shares of common stock, or 75.2%, of the issued and outstanding shares of common stock of the Company. Giving effect to the closing of the transactions under the Share Exchange Agreement, Mr. Chan acquired 6,000,000 shares of common stock of the Company, by virtue of his 60% beneficial ownership of Nemo Holding. The remaining 28 common shareholders of Nemo Holding acquired 4,000,000 shares of common stock under the Share Exchange Agreement, by virtue of their aggregate of 40% beneficial ownership of Nemo Holding.
As a result of the share exchange, Nemo Holding became a wholly-owned subsidiary of the Company.
The share exchange transaction with Nemo Holding was treated as a reverse acquisition, with Nemo Holding as the acquiror and the Company as the acquired party. Unless the context suggests otherwise, when we refer in this Form 8-K to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of Nemo Holding.
10% Convertible Note
On June 29, 2021, the Company and Pyram LC Architecture Limited (“Pyram”) entered into a Note Purchase Agreement, whereby the Company made and issued that certain Convertible Promissory Note (the “Note”, dated Jun 29, 2021 to Pyram in the principal amount of $76,923. The Note accrues interest at 12% per annum, is due December 28, 2021, and is convertible into shares of the common stock on December 28, 2021 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 December 28, 2021.
Stock Purchase Agreement
Investment Agreement with Strattner Alternative Credit Fund LP
On May 5, 2021, the Company entered into an Investment Agreement dated as of May 5, 2021 (the “Investment Agreement”) with the Selling Security Holder. The Investment Agreement provides that, upon the terms and subject to the conditions set forth therein, the Investor is committed to purchase up to $5,000,000 (the “Total Commitment”) worth of the Company’s common stock, $0.001 par value, over the 36-month term of the Investment Agreement.
2
From time to time over the term of the Investment Agreement, commencing on the trading day immediately following the date on which the initial registration statement is declared effective by the Securities and Exchange Commission (the “Commission”), as further discussed below, the Company may, in its sole discretion, provide the Investor with draw down notices (each, a “Draw Down Notice”) to purchase a specified dollar amount of the Put Shares (the “Draw Down Amount”) over a 10 consecutive trading day period, commencing on the trading day specified in the applicable Draw Down Notice (the “Pricing Period”), with each draw down subject to the limitations discussed below. The maximum amount of Shares requested to be purchased pursuant to any single Draw Down Notice cannot exceed 200% of the average daily trading volume of the Company’s common stock for the ten trading days immediately preceding the date of the Draw Down Notice (the “Maximum Draw Down Amount”).
Once presented with a Draw Down Notice, the Selling Security Holder is required to purchase the number of Put Shares underlying the Draw Down Notice. The per share purchase price for the Shares subject to a Draw Down Notice shall be equal to 85% of the arithmetic average of the lowest VWAPs during the applicable Pricing Period Each purchase pursuant to a draw down shall reduce, on a dollar-for-dollar basis, the Total Commitment under the Investment Agreement.
The Company is prohibited from issuing a Draw Down Notice if (i) the amount requested in such Draw Down Notice exceeds the Maximum Draw Down Amount, (ii) the sale of Shares pursuant to such Draw Down Notice would cause the Company to issue or sell or the Investor to acquire or purchase an aggregate dollar value of Shares that would exceed the Total Commitment, or (iii) the sale of Shares pursuant to the Draw Down Notice would cause the Company to sell or the Investor to purchase an aggregate number of shares of the Company’s common stock which would result in beneficial ownership by the Investor of more than 9.99% of the Company’s common stock (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder). The Company cannot make more than one draw down in any Pricing Period and must allow 10 days to elapse between the completion of the settlement of any one draw down and the commencement of a Pricing Period for any other draw down.
Additionally, the Company paid to the Investor a commitment fee equal in the form of 250,000 restricted shares of the Company’s common stock (the “Initial Commitment Shares”).
Registration Rights Agreement with Strattner Alternative Credit Fund LP
In connection with the execution of the Investment Agreement, on May 5, 2021, the Company and the Investor also entered into a Registration Rights Agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company has agreed to file an initial registration statement (“Registration Statement”) with the Commission to register an agreed upon number of Put Shares, on or prior to August 5, 2021 (the “Filing Deadline”) and have it declared effective on or before the 150th calendar day the Company has filed the Registration Rights Agreement (the “Effectiveness Deadline”).
If at any time all of the Registrable Securities (as defined in the Registration Rights Agreement) are not covered by the initial Registration Statement, the Company has agreed to file with the Commission one or more additional Registration Statements so as to cover all of the Registrable Securities not covered by such initial Registration Statement, in each case, as soon as practicable, but in no event later than the applicable filing deadline for such additional Registration Statements as provided in the Registration Rights Agreement.
The Company also agreed, among other things, to indemnify the Investor from certain liabilities and fees and expenses of the Investor incident to the Company’s obligations under the Registration Rights Agreement, including certain liabilities under the Securities Act of 1933, as amended (the “Securities Act”). The Investor has agreed to indemnify and hold harmless the Company and each of its directors, officers and persons who control the Company against certain liabilities that may be based upon written information furnished by the Investor to the Company for inclusion in a registration statement pursuant to the Registration Rights Agreement, including certain liabilities under the Securities Act.
3
We are a “Smaller Reporting Company”
We are a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have (i) a public float of less than $250 million or (ii) annual revenues of less than $100 million during the most recently completed fiscal year and no public float, or a public float of less than $700 million. As a “smaller reporting company,” the disclosure we will be required to provide in our SEC filings are less than it would be if we were not considered a “smaller reporting company.” Specifically, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-pay and frequency votes until annual meetings; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, being permitted to provide two years of audited financial statements in annual reports rather than three years. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze the Company’s results of operations and financial prospects.
Emerging Growth Company
We are an ‘‘emerging growth company’’ within the meaning of the federal securities laws. For as long as we are an emerging growth company, we will not be required to comply with the requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an emerging growth company. For a description of the qualifications and other requirements applicable to emerging growth companies and certain elections that we have made due to our status as an emerging growth company, see “Risk Factors—Risks Related to this Offering and our Common Stock – We are an ‘emerging growth company’ and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors” on page 7 of this prospectus.
Our fiscal year end is December 31. Our audited financial statements for the quarter ended March 31, 2021, were prepared assuming that we will continue our operations as a going concern. Our accumulated loss for the period from the three months ended March 31, 2021 was $73,249,036. For the three months ended March 31, 2021, we earned revenues of $88,207 from its sharing economy business, with the cost of such revenues being $0.
Due to the uncertainty of our ability to meet our current operating and capital expenses, our independent auditors have included a going concern opinion in their report on our audited financial statements for the period ended December 31, 2020. The notes to our financial statements contain additional disclosure describing the circumstances leading to the issuance of a going concern opinion by our auditors.
4
THE OFFERING
This Prospectus relates to the resale of up to 294,117,647 shares of our Common Stock, issuable the Selling Security Holder, pursuant to that certain Investment Agreement (the “Investment Agreement”), dated May 5, 2021, by and between the Company and the Selling Security Holder.
The Offering
| Common Stock offered by Selling Security Holder: | This Prospectus relates to the resale of 294,117,647 shares of our Common Stock, issuable to the Selling Security Holder. | |
| Common Stock outstanding before the Offering: | 194,670,023 shares of Common Stock as of the date of this Prospectus. | |
| Common Stock outstanding after the Offering: | 411,120,234 shares of Common Stock (1) | |
| Terms of the Offering: | The Selling Security Holder will determine when and how it will sell the Common Stock offered in this Prospectus. The prices at which the Selling Security Holder may sell the shares of Common Stock in this Offering will be determined by the prevailing market price for the shares of Common Stock or in negotiated transactions. | |
| Termination of the Offering | The Offering will conclude upon such time as all of the Common Stock has been sold pursuant to the Registration Statement. | |
| Trading Market | Our Common Stock is subject to quotation on the OTCQB Market under the symbol “SEII.” | |
| Use of proceeds | The Company is not selling any shares of the Common Stock covered by this Prospectus. As such, we will not receive any of the Offering proceeds from the registration of the shares of Common Stock covered by this Prospectus. See “Use of Proceeds.” | |
| Risk Factors | The Common Stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of his/her/its entire investment. See “Risk Factors”. |
(1) This total reflects the number of shares of Common Stock that will be outstanding assuming that the Selling Security Holder purchases all of the 294,117,647 shares of our common stock under the Investment Agreement.
SUMMARY FINANCIAL INFORMATION
The tables and information below are derived from our audited financial statements for the fiscal year ended December 31, 2020, and our unaudited financial statements for the six months ended June 30, 2021. Our working capital deficit as at June 30, 2021 was $(11,190,008).
For
the Fiscal Year December 31, | ||||
| Financial Summary (Audited) | ||||
| Cash and cash equivalents | $ | 1,805,417 | ||
| Total Assets | 4,610,801 | |||
| Total Liabilities | 16,647,717 | |||
| Total Stockholder’s Equity (Deficit) | $ | (12,036,916 | ) | |
5
| For the Fiscal Year ended December 31, 2020 | ||||
| Consolidated Statements of Expenses and Net Loss | ||||
| Total Operating Expenses | $ | 3,227,199 | ||
| Net Loss for the Period | $ | (6,788,645 | ) | |
For
the Fiscal Quarter ended | ||||
| Financial Summary (Unaudited) | ||||
| Cash and cash equivalents | $ | 532,320 | ||
| Total Assets | 5,087,776 | |||
| Total Liabilities | 16,277,784 | |||
| Total Stockholder’s Equity (Deficit) | $ | (11,190,008 | ) | |
For
the six months ended | ||||
| Total Operating Expenses | $ | 1,952,219 | ||
| Net Loss for the Period | $ | (1,546,351 | ) | |
6
RISK FACTORS
An investment in our common stock involves a number of very significant risks. You should carefully consider the following known material risks and uncertainties in addition to other information in this prospectus in evaluating our company and its business before purchasing shares of our company’s common stock. You could lose all or part of your investment due to any of these risks.
RISKS RELATING TO OUR COMPANY
Our auditors have expressed substantial doubt about our ability to continue as a going concern.
Our audited financial statements for the years ended December 31, 2020 and 2019, and our unaudited financial statements for the six months ended June 30, 2021, were prepared assuming that we will continue our operations as a going concern. We net revenues of $130,285, and net loss of $6,788,645, at December 31, 2020. As a result, our independent accountants in their audit report have expressed substantial doubt about our ability to continue as a going concern. Continued operations are dependent on our ability to complete equity or debt financings or generate profitable operations. Such financings may not be available or may not be available on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.
If our estimates related to future expenditures are erroneous or inaccurate, our business will fail and you could lose your entire investment.
Our success is dependent in part upon the accuracy of our management’s estimates of our future cost expenditures for legal and accounting services (including those we expect to incur as a publicly reporting company), for website marketing and development expenses, and for administrative expenses, which management estimates to be approximately $10,000,000 over the next twelve months. If such estimates are erroneous or inaccurate, or if we encounter unforeseen costs, we may not be able to carry out our business plan, which could result in the failure of our business and the loss of your entire investment.
If we are not able to develop out business as anticipated, we may not be able to generate meaningful revenues or achieve meaningful profitability and you may lose your investment.
We have few customers, and we have earned limited revenues to date. Our business prospects are difficult to predict because of our limited operating history, and unproven business strategy. Our primary business activities will be focused on the operation of our online platform, www.ecrent.com, which is a global marketplace for individuals and corporations to deploy the rental, social media and advertising services among all countries. Although we believe that our business plan has significant profit potential, we may not attain profitable operations and our management may not succeed in realizing our business objectives. If we are not able to develop out business as anticipated, we may not be able to generate revenues or achieve profitability and you may lose your entire investment.
We rely on short term financing to fund our operations.
We have historically financed our operations through short-term bank loans, which have been refinanced upon maturity. At December 31, 2020, we had outstanding short-term bank loans of $6.4 million. We cannot assure you that we would be able to obtain alternative financing in the event that our lenders did not renew our short-term loans. Our failure to have the bank loans refinanced could materially impair our ability to operate our business.
We expect to suffer losses in the immediate future that may cause us to curtail or discontinue our operations.
We expect to incur operating losses in future periods. These losses will occur because have limited revenues to offset the expenses associated with the development of brand and our business operations, generally. We cannot guarantee that we will ever be successful in generating revenues in the future. We recognize that if we are unable to generate meaningful revenues, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will almost certainly fail.
We may not be able to execute our business plan or stay in business without additional funding.
Our ability to generate future operating revenues depends in part on whether we can obtain the financing necessary to implement our business plan. We will likely require additional financing through the issuance of debt and/or equity in order to establish profitable operations, and such financing may not be forthcoming. As widely reported, the global and domestic financial markets have been extremely volatile in recent months. If such conditions and constraints continue or if there is no investor appetite to finance our specific business, we may not be able to acquire additional financing through credit markets or equity markets. Even if additional financing is available, it may not be available on terms favorable to us. At this time, we have not identified or secured sources of additional financing. Our failure to secure additional financing when it becomes required will have an adverse effect on our ability to remain in business.
7
We process, store and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy. Our actual or perceived failure to comply with such obligations could harm our business.
We receive, store and process personal information and other user data, including credit card information for certain users. There are numerous federal, state and local laws around the world regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other user data, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We generally comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third parties (including, in certain instances, voluntary third-party certification bodies such as TRUSTe). It is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to users or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation or negative publicity and could cause our users and advertisers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties with whom we work, such as advertisers, vendors or developers, violate applicable laws or our policies, such violations may also put our users’ information at risk and could have an adverse effect on our business.
Our business is subject to a variety of U.S. and foreign laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business.
We are subject to a variety of laws in the United States and abroad, including laws regarding data retention, privacy, distribution of user-generated content and consumer protection, that are frequently evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly outside the United States. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. In addition, regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning data protection and other matters that may be applicable to our business. It is also likely that if our business grows and evolves and our solutions are used in a greater number of countries, we will become subject to laws and regulations in additional jurisdictions. It is difficult to predict how existing laws will be applied to our business and the new laws to which we may become subject.
If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products or features, which would negatively affect our business. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred to prevent or mitigate this potential liability could also harm our business and operating results.
Any significant disruption in our website presence or services could result in a loss of customers.
Our plans call for our customers to access our service through our website, www.ECrent.com. Our reputation and ability to attract, retain and serve our customers will be dependent upon the reliable performance of our website, network infrastructure and fulfillment processes (how we deliver services purchased by our customers). Prolonged or frequent interruptions in any of these systems could make our website unavailable or unusable, which could diminish the overall attractiveness of our subscription service to existing and potential customers.
Our servers will likely be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions and delays in our service and operations and loss, misuse or theft of data. It is likely that our website will periodically experience directed attacks intended to cause a disruption in service, which is not uncommon for web-based businesses. Any attempts by hackers to disrupt our website service or our internal systems, if successful, could harm our business, be expensive to remedy and damage our reputation. Efforts to prevent hackers from entering our computer systems are expensive to implement and may limit the functionality of our services. Any significant disruption to our website or internal computer systems could result in a loss of subscribers and adversely affect our business and results of operations.
8
Our potential customers will require a high degree of reliability in the delivery of our services, and if we cannot meet their expectations for any reason, demand for our products and services will suffer.
Our success depends in large part on our ability to assure generally error-free services, uninterrupted operation of our network and software infrastructure, and a satisfactory experience for our customers’ end users when they use Internet-based communications services. To achieve these objectives, we depend on the quality, performance and scalability of our products and services, the responsiveness of our technical support and the capacity, reliability and security of our network operations. We also depend on third parties over which we have no control. For example, our ability to serve our customers is based solely on our network access agreement with one service provider and on that service provider’s ability to provide reliable Internet access. Due to the high level of performance required for critical communications traffic, any failure to deliver a satisfactory experience to end users, whether or not caused by our own failures could reduce demand for our products and services.
Technology changes rapidly in our business and if we fail to anticipate or successfully implement new technologies or the manner in which people play our game, the quality, timeliness and competitiveness of our products and services will suffer.
Rapid technology changes in our industry require us to anticipate, sometimes years in advance, which technologies we must implement and take advantage of in order to make our products and services competitive in the market. Therefore, we must start our product development with a range of technical development goals that we hope to be able to achieve. We may not be able to achieve these goals, or our competition may be able to achieve them more quickly and effectively than we can. In either case, our products and services may be technologically inferior to our competitors’, less appealing to consumers, or both. If we cannot achieve our technology goals within the original development schedule of our products and services, then we may delay their release until these technology goals can be achieved, which may delay or reduce revenue and increase our development expenses. Alternatively, we may increase the resources employed in research and development in an attempt to accelerate our development of new technologies, either to preserve our product or service launch schedule or to keep up with our competition, which would increase our development expenses. Any such failure to adapt to, and appropriately allocate resources among, emerging technologies would harm our competitive position, reduce our market share and significantly increase the time we take to bring our product to market.
The loss of the services of Chan Tin Chi, our majority shareholder, or our failure to timely identify and retain competent personnel could negatively impact our ability to develop our website and sell our services.
We are highly dependent on Chan Tin Chi, who beneficially owns approximately 48% of our issued and outstanding shares of common stock. The development of our brand licensing business will continue to place a significant strain on our limited personnel, management, and other resources. Our future success depends upon the continued services of our executive officers who are developing our business, and on our ability to identify and retain competent consultants and employees with the skills required to execute our business objectives. The loss of the services of Chan Tin Chi or our failure to timely identify and retain competent personnel would negatively impact our ability to develop our business and license our brand, which could adversely affect our financial results and impair our growth.
Our success depends on the value of our brand, and if the value of our brand were to diminish, our revenues, results of operations and prospects would be adversely affected.
Our success depends on our brand, ECrent.com, and its value. Our business would be adversely affected if:
| ● | ECrent.com’s public image or reputation were to be tarnished; |
| ● | The ECrent.com is integral to our marketing efforts and form the core of our brand name. Our continued success and the value of our brand name therefore depends, to a large degree, on the reputation of such brand; and |
| ● | Our licensees were to diminish the quality of our brand. |
While we will require that our licensees maintain the quality of our brands through specific contractual provisions, we cannot be certain that our licensees, or their manufacturers and distributors, will honor their contractual obligations or that they will not take other actions that will diminish the value of our brand name.
We operate an independent online rental platform, with no experience in the market, and failure to successfully compensate for this inexperience may adversely impact our operations and financial position.
We operate as an independent business, whose existence is predicated on the brand name ecrent.com, and we have no substantial tangible assets in a highly competitive industry. We have little operating history, a small customer base and little revenue to date. This makes it difficult to evaluate our future performance and prospects. Our business must be considered in light of the risks, expenses, delays and difficulties frequently encountered in establishing a new business in an emerging and evolving industry characterized by intense competition, including:
| ● | our business model and strategy are still evolving and are continually being reviewed and revised; |
| ● | we may not be able to raise the capital required to develop our initial customer base and reputation; |
9
| ● | we may not be able to successfully implement our business model and strategy; and |
| ● | we are reliant on Chan Tin Chi, the beneficial owner of approximately 48% of our shares of common stock. |
We cannot be sure that we will be successful in meeting these challenges and addressing these risks and uncertainties. If we are unable to do so, our business will not be successful and the value of your investment in our company will decline.
Our failure to protect our intellectual property and proprietary technology may significantly impair our competitive advantage.
Our success and ability to compete depends in large part upon protecting our proprietary technology. We rely on a combination of patent, trademark and trade secret protection, nondisclosure and nonuse agreements to protect our proprietary rights. The steps we have taken may not be sufficient to prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. The patent and trademark law and trade secret protection may not be adequate to deter third party infringement or misappropriation of our patents, trademarks and similar proprietary rights.
We may in the future initiate claims or litigation against third parties for infringement of our proprietary rights in order to determine the scope and validity of our proprietary rights or the proprietary rights of our competitors. These claims could result in costly litigation and the diversion of our technical and management personnel.
We may face costly intellectual property infringement claims, the result of which would decrease the amount of cash we would anticipate to operate and complete our business plan.
We anticipate that from time to time we will receive communications from third parties asserting that we are infringing certain copyright, trademark and other intellectual property rights of others or seeking indemnification against alleged infringement. If anticipated claims arise, we will evaluate their merits. Any claims of infringement brought of third parties could result in protracted and costly litigation, damages for infringement, and the necessity of obtaining a license relating to one or more of our products or current or future technologies, which may not be available on commercially reasonable terms or at all. Litigation, which could result in substantial cost to us and diversion of our resources, may be necessary to enforce our patents or other intellectual property rights or to defend us against claimed infringement of the rights of others. Any intellectual property litigation and the failure to obtain necessary licenses or other rights could have a material adverse effect on our business, financial condition and results of operations.
We incur costs associated with SEC reporting compliance, which may significantly affect our financial condition.
The Company made the decision to become an SEC “reporting company” in order to comply with applicable laws and regulations. We incur certain costs of compliance with applicable SEC reporting rules and regulations including, but not limited to attorneys’ fees, accounting and auditing fees, other professional fees, financial printing costs and Sarbanes-Oxley compliance costs in an amount estimated at approximately $200,000 per year. On balance, the Company determined that the incurrence of such costs and expenses was preferable to the Company being in a position where it had very limited access to additional capital funding.
We may be required to incur significant costs and require significant management resources to evaluate our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act, and any failure to comply or any adverse result from such evaluation may have an adverse effect on our stock price.
As a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, we are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Section 404 requires us to include an internal control report with our Annual Report on Form 10-K. This report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Failure to comply, or any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price of our equity securities. Achieving continued compliance with Section 404 may require us to incur significant costs and expend significant time and management resources. No assurance can be given that we will be able to fully comply with Section 404 or that we and our independent registered public accounting firm would be able to conclude that our internal control over financial reporting is effective at fiscal year-end. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our securities, as well as subject us to civil or criminal investigations and penalties. In addition, our independent registered public accounting firm may not agree with our management’s assessment or conclude that our internal control over financial reporting is operating effectively.
10
We may not be able to meet the internal control reporting requirements imposed by the SEC resulting in a possible decline in the price of our common stock and our inability to obtain future financing.
As directed by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports. Although the Dodd-Frank Wall Street Reform and Consumer Protection Act exempts companies with a public float of less than $75 million from the requirement that our independent registered public accounting firm attest to our financial controls, this exemption does not affect the requirement that we include a report of management on our internal control over financial reporting and does not affect the requirement to include the independent registered public accounting firm’s attestation if our public float exceeds $75 million.
While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. Regardless of whether we are required to receive a positive attestation from our independent registered public accounting firm with respect to our internal controls, if we are unable to do so, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.
In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K with the SEC, which could also adversely affect the market for and the market price of our common stock and our ability to secure additional financing as needed.
We face risks related to the Novel Coronavirus (COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results.
Our business will be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments will cause disruption to our operations and sales activities. Our third-party vendors, third-party distributors, and our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. Depending on the magnitude of such effects on our activities or the operations of our third-party vendors and third-party distributors, the supply of our products will be delayed, which could adversely affect our business, operations and customer relationships. In addition, the Novel Coronavirus (COVID-19) or other disease outbreak will in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that will affect demand for our products and services and impact our operating results. There can be no assurance that any decrease in sales resulting from the Novel Coronavirus (COVID-19) will be offset by increased sales in subsequent periods. Although the magnitude of the impact of the Novel Coronavirus (COVID-19) outbreak on our business and operations remains uncertain, the continued spread of the Novel Coronavirus (COVID-19) or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments.
It will be extremely difficult to acquire jurisdiction and enforce liabilities against our officers, directors and assets outside the United States.
Substantially all of our assets are currently located outside of the United States. Additionally, all of our directors and officers reside outside of the United States, in Hong Kong and China. As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws. Moreover, we have been advised Hong Kong and China do not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States. Further, there are no extradition treaties now in effect between the United States and, on the other hand, Hong Kong and China, which would permit effective enforcement of criminal penalties of the Federal securities laws.
11
RISKS RELATED TO DOING BUSINESS IN THE PEOPLE’S REPUBLIC OF CHINA
Changes in political, social and economic policies in China or the U.S. may materially and adversely affect our business, financial condition, results of operations and prospects.
A substantial portion of our business operations are primarily conducted in China. Accordingly, we are affected by the economic, political and legal environment in China.
In particular, China’s economy differs from the economies of most developed countries in many respects, including the fact that it:
| ● | has a high level of government involvement; |
| ● | is in the early stages of development of a market-oriented economy; |
| ● | has experienced rapid growth; and |
| ● | has a tightly controlled foreign exchange policy. |
China’s economy has been transitioning from a planned economy towards a more market-oriented economy. However, a substantial portion of productive assets in China remain state-owned and the PRC government exercises a high degree of control over these assets. In addition, the PRC government continues to play a significant role in regulating industrial development by imposing industrial policies. For the past three decades, the PRC government has implemented economic reform measures to emphasize the utilization of market forces in economic development.
China’s economy has grown significantly in recent years; however, there can be no assurance that such growth will continue. The PRC government exercises control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Some of these measures benefit the overall economy of China, but may also have a negative effect on our business. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. As such, our future success is, to some extent, dependent on the economic conditions in China, and any significant downturn in market conditions may materially and adversely affect our business prospects, financial condition, results of operations and prospects.
China’s legal system is evolving and has inherent uncertainties that could limit the legal protection available to you.
We have all of our operations in China. The legal system of China is a civil law system based on written statutes. Unlike common law systems, it is a system in which prior court decisions have limited value as precedents. Since 1979, the PRC government has promulgated laws and regulations governing economic matters in general, such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, China has not developed a fully integrated legal system. Recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published cases and their non-binding nature, interpretation and enforcement of these newer laws and regulations involve greater uncertainties than those in jurisdictions available to you. In addition, China’s legal system is based in part on government policies and administrative rules and many have retroactive effects. We cannot predict the effect of future developments in China’s legal system, including the promulgation of new laws, changes to existing laws, or the interpretation or enforcement thereof, or the pre-emption of local regulations by national laws.
12
Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.
The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.
We rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
We are a holding company incorporated in the State of Nevada, and we rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require a WOFE to adjust its taxable income under the contractual arrangements they currently have in place with our consolidated variable interest entity in a manner that would materially and adversely affect their ability to pay dividends and other distributions to us.
Under PRC laws and regulations, our PRC subsidiaries, as wholly foreign-owned enterprises in China, may pay dividends only out of their respective accumulated after-tax profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
Fluctuations in exchange rates could have a material adverse effect on our results of operations and the price of our ordinary shares.
Substantially all of our revenues and expenditures are denominated in RMB, whereas our reporting currency is the U.S. dollar. As a result, fluctuations in the exchange rate between the U.S. dollar and RMB will affect the relative purchasing power in RMB terms of our U.S. dollar assets. Our reporting currency is the U.S. dollar while the functional currency for our PRC subsidiaries and consolidated variable interest entity is RMB. Gains and losses from the remeasurement of assets and liabilities that are receivable or payable in RMB are included in our consolidated statements of operations. The remeasurement has caused the U.S. dollar value of our results of operations to vary with exchange rate fluctuations, and the U.S. dollar value of our results of operations will continue to vary with exchange rate fluctuations. A fluctuation in the value of RMB relative to the U.S. dollar could reduce our profits from operations and the translated value of our net assets when reported in U.S. dollars in our financial statements. This could have a negative impact on our business, financial condition or results of operations as reported in U.S. dollars. If we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations in currencies relative to the periods in which the earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations.
13
There remains significant international pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our ordinary shares in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from our initial public offering into RMB to pay our operating expenses, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ordinary shares.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on the price of our ordinary shares.
RISKS ASSOCIATED WITH OUR SECURITIES
Our shares of common stock presently has a limited trading market, with an average daily trading volume of approximately 209,760 shares, and the price may not reflect our value and there can be no assurance that there will be an active market for our shares of common stock either now or in the future.
Although our common stock is quoted on the OTC Markets, our shares of common stock do not trade and the price of our common stock, if traded, may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result holders of our securities may not find purchasers our securities should they to sell securities held by them. Consequently, our securities should be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time.
If a more active market should develop, the price of our shares of common stock may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms may not be willing to effect transactions in our securities. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of such shares of common stock as collateral for any loans.
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
Under U.S. federal securities legislation, our common stock will constitute “penny stock”. Penny stock is any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a potential investor’s account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve an investor’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination. Brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
14
We may, in the future, issue additional common shares, which would reduce investors’ percent of ownership and may dilute our share value.
Our Articles of Incorporation authorize the issuance of 7,400,000,000 shares of common stock and 50,000,000 shares of preferred stock, all of which have been designated as Series A Preferred Stock. As of the date of this Prospectus, the Company had 194,670,023 shares of common stock issued and outstanding, and 531,600 shares of Series A Preferred Stock issued or outstanding. Accordingly, we can issue an additional approximately 7,205,329,977 shares of common stock and 49,468,400 shares of preferred stock. The future issuance of common stock and/or preferred stock will result in substantial dilution in the percentage of our common stock held by our then existing shareholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.
State securities laws may limit secondary trading, which may restrict the states in which and conditions under which you can sell the shares offered by this prospectus.
Secondary trading in common stock sold in this offering will not be possible in any state until the common stock is qualified for sale under the applicable securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the common stock in any particular state, the common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the liquidity for the common stock could be significantly impacted thus causing you to realize a loss on your investment.
The Company does not intend to seek registration or qualification of its shares of common stock the subject of this offering in any State or territory of the United States. Aside from a “secondary trading” exemption, other exemptions under state law and the laws of US territories may be available to purchasers of the shares of common stock sold in this offering,
Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of us.
Though not now, we may be or in the future we may become subject to Nevada’s control share law. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and it does business in Nevada or through an affiliated corporation. The law focuses on the acquisition of a “controlling interest” which means the ownership of outstanding voting shares sufficient, but for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors:
(i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more. The ability to exercise such voting power may be direct or indirect, as well as individual or in association with others.
The effect of the control share law is that the acquiring person, and those acting in association with it, obtains only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to strip voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed by the control share law.
15
If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an acquiring person, who has not voted in favor of approval of voting rights is entitled to demand fair value for such stockholder’s shares.
Nevada’s control share law may have the effect of discouraging takeovers of the corporation.
In addition to the control share law, Nevada has a business combination law which prohibits certain business combinations between Nevada corporations and “interested stockholders” for three years after the “interested stockholder” first becomes an “interested stockholder,” unless the corporation’s board of directors approves the combination in advance. For purposes of Nevada law, an “interested stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquiror to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Nevada’s business combination law is to potentially discourage parties interested in taking control of us from doing so if it cannot obtain the approval of our board of directors.
Because we do not intend to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. Stockholders may never be able to sell shares when desired. Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.
USE OF PROCEEDS
Selling Security Holder may sell all of the common stock offered by this Prospectus from time-to-time. We will not receive any proceeds from the sale of those shares of common stock.
We will pay for expenses of this offering, except that the Selling Security Holder will pay any broker discounts or commissions or equivalent expenses and expenses of its legal counsel applicable to the sale of its shares.
DETERMINATION OF THE OFFERING PRICE
There currently is a limited public market for our common stock. The Selling Security Holder may sell their shares in the over-the-counter market or otherwise, at market prices prevailing at the time of sale, at prices related to the prevailing market price, or at negotiated prices.
SELLING SECURITY HOLDERS
This Prospectus relates to the resale of up to 294,117,647 shares of our Common Stock, issuable to Strattner, pursuant to that certain Investment Agreement (the “Investment Agreement”), dated May 5, 2021, by and between the Company and Strattner.
16
The Investment Agreement
Pursuant to that certain Investment Agreement (the “Investment Agreement”), dated May 5, 2021, by and between the Company and Strattner, pursuant to which Strattner is committed to purchase up to $5,000,000 to purchase the Company’s common stock. We may draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Investment Agreement.
This offering relates to the resale of up to an aggregate of $5,000,000 in put shares (“Put Shares”) that we may put to Strattner pursuant to the Investment Agreement. Assuming the resale of all 294,117,647 shares offered in this prospectus as Put Shares, this would constitute approximately 2.9% of our outstanding common stock, such 2.9% figure being calculated using the number of our outstanding common stock on a fully diluted basis. It is likely that the number of shares offered in this registration statement is insufficient to allow us to receive the full amount of proceeds under the Investment Agreement.
The maximum amount of common stock that the Company shall be entitled to put to Strattner under any applicable put notice shall be an amount of shares up to or equal to 200% of the average of the daily trading volume of our common stock for the ten (10) consecutive trading days immediately prior to the applicable date on which we make our put to Strattner, so long as such amount is at least $5,000 and does not exceed $250,000, as calculated by multiplying the number of shares under our put by the average daily volume weighted average price for the 10 consecutive trading days immediately prior the to the applicable date we submit our put to Strattner.
The Company shall not be entitled to submit a notice of put to Strattner until after the previous put closing has been completed. The Company may not deliver a notice of a put to Strattner on or earlier of the tenth (10th) trading day immediately following the preceding date on which the Company last submitted a put to Strattner.
The volume weighted average prices of the common stock of the Company on the OTC Markets for the 10 trading days prior to July 28, 2021, is $0.02. At such a price, we will be able to receive up to $4,329,004 in gross proceeds, assuming the sale of the entire 294,117,647 Put Shares being registered hereunder pursuant to the Investment Agreement.
The amount of $5,000,000 was selected based on our potential use of funds over the effective time period to acquire targeted businesses, including their intellectual property, and scale our business at a rapid rate. Our ability to receive the full amount is largely dependent on the daily dollar volume of stock traded during the effective period. Based strictly on the current daily trading dollar volume up to July 27, 2021, we believe it is unlikely that we will be able to receive the entire $5,000,000. We are not dependent on receiving the full amount to execute our business.
In order to sell shares to Strattner under the Investment Agreement, during the Commitment Period, the Company must deliver to Strattner a written put notice on any trading day (the “Put Date”), setting forth the dollar amount to be invested by Strattner (the “Put Notice”). For each share of our common stock purchased under the Investment Agreement, Strattner will pay of the arithmetic average of the lowest VWAPs reported by Bloomberg Finance L.P. in a five consecutive trading day period commencing with the date a put notice is delivered (the “Valuation Period”). The Company may, at its sole discretion, issue a Put Notice to Strattner and Strattner will then be irrevocably bound to acquire such shares.
The Investment Agreement provides that the number of Put Shares to be sold to Strattner shall not exceed the number of shares that when aggregated together with all other shares of the Company’s common stock which Strattner is deemed to beneficially own, would result in Strattner owning more than 9.99% of the Company’s outstanding common stock. The Investment Agreement provides that any provision of the Investment Agreement may be amended or waived only by an instrument in writing signed by the party to be charged with enforcement. The Company and Strattner have entered into an enforceable oral agreement that neither will amend or waive any provision in the Investment Agreement that alters the pricing mechanism or the 9.99% ownership cap which will result in the transaction becoming ineligible to be made on a shelf basis under Rule 415(a)(1)(i).
17
If, during the term of the Agreement, the Company (i) subdivides or combines the common stock; (ii) pays a dividend in shares of common stock or makes any other distribution of shares of common stock; (iii) issues any options or other rights to subscribe for or shares of common stock and the price per share is less than closing price in effect immediately prior to such issuance; (iv) issues any securities convertible into shares of common stock and the consideration per share for which shares of common stock may at any time thereafter be issuable pursuant to the terms of such convertible securities shall be less that the closing price in effect immediately prior to such issuance; (v) issue shares of common stock otherwise than as provided in the foregoing subsections (i) through (iv) at a price per share less than the closing price in effect immediately prior to such issuance, or without consideration; or (vi) makes a distribution of its assets or evidences of its indebtedness to the holders of common stock as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for dividends under applicable law (collectively, a “Valuation Event”), then a new Valuation Period shall begin on the trading day immediately after the occurrence of such Valuation Event and end on the fifth trading day thereafter.
We are relying on an exemption from the registration requirements of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder. The transaction involves a private offering, Strattner is an “accredited investor” and/or qualified institutional buyer and Strattner has access to information about us and its investment.
Assuming the sale of the entire $5,000,000 in Put Shares being registered hereunder pursuant to the Investment Agreement, we will be able to receive $5,000,000 in gross proceeds. Neither the Investment Agreement nor any rights or obligations of the parties under the Investment Agreement may be assigned by either party to any other person.
There are substantial risks to investors as a result of the issuance of shares of our common stock under the Investment Agreement. These risks include dilution of stockholders, significant decline in our stock price and our inability to draw sufficient funds when needed.
Strattner will periodically purchase our common stock under the Investment Agreement and will, in turn, sell such shares to investors in the market at the prevailing market price. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to Strattner to raise the same amount of funds, as our stock price declines.
The Selling Security Holder Table
The following table sets forth the names of the Selling Security Holder, the number of shares of common stock beneficially owned by each Selling Security Holder as of the date hereof and the number of shares of common stock being offered by each Selling Security Holder. The shares being offered hereby are being registered to permit public secondary trading, and the Selling Security Holder may offer all or part of the shares for resale from time to time. However, the Selling Security Holder are under no obligation to sell all or any portion of such shares nor are the Selling Security Holder obligated to sell any shares immediately upon effectiveness of this prospectus. All information with respect to share ownership has been furnished by the Selling Security Holder. The “Amount Beneficially Owned After Offering” column assumes the sale of all shares offered.
18
To our knowledge, the none of the Selling Security Holder is a broker-dealer or an affiliate of a broker-dealer. We may require the Selling Security Holder to suspend the sales of the shares of our common stock being offered pursuant to this Prospectus upon the occurrence of any event that makes any statement in this Prospectus or the related registration statement untrue in any material respect or that requires the changing of statements in those documents in order to make statements in those documents not misleading.
| Name of Selling Security Holder | Shares Beneficially Owned Prior to Offering(1) | Amount Beneficially Owned After Offering | Number
of Shares to Be Owned by Selling Security Holder After the Offering and Percent of Total Issued and Outstanding Shares(1) | |||||||||||||
| #
of Shares(2) | %
of Class(2) | |||||||||||||||
| Strattner Alternative Credit Fund LP (3) | 0 | 294,117,647 | 0 | * | ||||||||||||
| * | Less than 1% |
| (1) | Beneficial ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to shares of Common Stock. Shares of Common Stock subject to options and warrants currently exercisable, or exercisable within 60 days, are counted as outstanding for computing the percentage of the person holding such options or warrants but are not counted as outstanding for computing the percentage of any other person. |
| (2) | We have assumed that the Selling Security Holder will sell all of the shares being offered in this offering. |
| (3) | Strattner Capital Management Limited, a Hong Kong entity, is the general partner of Strattner Alternative Credit Fund LP and has voting and investment power over the shares beneficially owned by Strattner Alternative Credit Fund LP. Timo Strattner has voting and investment power over the shares beneficially owned by Strattner Capital Management Limited. |
PLAN OF DISTRIBUTION
This prospectus relates to the resale of shares of our common stock, par value $0.001 per share, by the Selling Security Holder, including 294,117,647 Put Shares that we will put to Strattner.
We will not receive any proceeds from the sale of the shares of common stock offered by the Selling Security Holder. We may receive proceeds of up to $5,000,000 from the sale of our Put Shares under the Investment Agreement.
The Selling Security Holder may, from time to time sell any or all of their shares of common stock on any market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Security Holder may use any one or more of the following methods when selling shares:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits the purchaser; | |
| ● | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal; | |
| ● | facilitate the transaction; | |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; | |
| ● | privately negotiated transactions; | |
| ● | broker-dealers may agree with the Selling Security Holder to sell a specified number of such shares at a stipulated price per share; | |
| ● | a combination of any such methods of sale; and | |
| ● | any other method permitted pursuant to applicable law. |
The Selling Security Holder may also sell securities under Rule 144 under the Securities Act of 1933, if available, rather than under this Prospectus.
19
The Selling Security Holder or their respective pledgees, donees, transferees or other successors in interest, may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Security Holder and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that the Selling Security Holder will attempt to sell shares of common stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. The Selling Security Holder cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the Selling Security Holder. In addition, the Selling Security Holder and any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus are “underwriters” as that term is defined under the Securities Act or the Exchange Act, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a Selling Security Holder. The Selling Security Holder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.
The Selling Security Holder may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them, and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or any other applicable provision of the Securities Act amending the list of Selling Security Holder to include the pledgee, transferee or other successors in interest as Selling Security Holder under this prospectus.
The Selling Security Holder also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of Selling Security Holder to include the pledgee, transferee or other successors in interest as a Selling Security Holder under this prospectus.
We are required to pay all fees and expenses incident to the registration of the shares of common stock. Otherwise, all discounts, commissions or fees incurred in connection with the sale of our common stock offered hereby will be paid by the Selling Security Holder.
The Selling Security Holder acquired or will acquire the securities offered hereby in the ordinary course of business and have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any Selling Security Holder. We will file a supplement to this prospectus if a Selling Security Holder enters into a material arrangement with a broker-dealer for sale of common stock being registered. If the Selling Security Holder use this prospectus for any sale of the shares of common stock, it will be subject to the prospectus delivery requirements of the Securities Act.
The anti-manipulation rules of Regulation M under the Exchange Act, may apply to sales of our common stock and activities of the Selling Security Holder. The Selling Security Holder will act independently of us in making decisions with respect to the timing, manner and size of each sale.
We will pay all expenses incident to the registration, offering and sale of the shares of our common stock to the public hereunder other than commissions, fees and discounts of underwriters, brokers, dealers and agents. If any of these other expenses exists, we expect the Selling Security Holder to pay those expenses. We estimate that the expenses of the offering to be borne by us will be approximately $30,000. We will not receive any proceeds from the resale of any of the shares of our common stock by the Selling Security Holder.
20
DESCRIPTION OF SECURITIES
General
The following summary includes a description of material provisions of our capital stock.
Authorized and Outstanding Securities
The Company is authorized to issue 7,400,000,000 shares of common stock, par value $0.001 per share, and 50,000,000 shares of Preferred Stock, par value $0.001 per share, and one (1) of which is designated as Series A Preferred Stock, par value $0.001 per share. As of June 9, 2021, there were issued and outstanding 194,670,023 shares of our common stock, and 531,600 shares of our Series A Preferred Stock issued and outstanding.
Common Stock
The holders of our common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights. Holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the board of directors in its discretion from funds legally available therefore. In the event of a liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share pro rata all assets remaining after payment in full of all liabilities. Holders of common stock have no preemptive rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock.
Series A Preferred Stock
Each shares of our Series A Preferred Stock is convertible into one (1) share of the Company’s common stock, at the option of the holder, six month after the shares are fully paid. Holders of Series A Preferred Stock, however, do not have any voting rights, the right to receive any dividend or liquidation preference, and may not convert that number of shares of Series A Preferred stock such that the holder thereof would be the beneficial holder of more than 9.99% of the outstanding shares of common stock of the Company immediately after giving effect to the conversion of the Series A Preferred Stock into shares of common stock of the Company.
Dividends
Dividends, if any, will be contingent upon our revenues and earnings, if any, capital requirements and financial conditions. The payment of dividends, if any, will be within the discretion of our board of directors. We intend to retain earnings, if any, for use in its business operations and accordingly, the board of directors does not anticipate declaring any dividends in the foreseeable future.
Warrants
We have no warrants issued or outstanding.
Convertible Notes
[insert list of notes with terms].
21
Registration Rights
In connection with the execution of the Investment Agreement, on May 5, 2021, the Company and Strattner also entered into the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Company has agreed to file the Registration Statement with the Commission to register an agreed upon number of Put Shares, on or prior to the Filing Deadline and have it declared effective on or before the Effectiveness Deadline.
We must use commercially reasonable best efforts to keep such registration statement continuously effective until all registrable securities covered by such registration statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect.
All fees and expenses incident to the performance of or compliance with, the Registration Rights Agreement by the Company shall be borne by the Company
Transfer Agent and Registrar
Our transfer agent is Empire Stock Transfer, whose address is 1859 Whitney Mesa Dr., Henderson, Nevada 89014, and whose telephone number is (702) 818-5898.
Indemnification of Officers and Directors
Subsection 7 of Section 78.138 of the Nevada Revised Statutes (the “Nevada Law”) provides that, subject to certain very limited statutory exceptions, a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer, unless it is proven that the act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and such breach of those duties involved intentional misconduct, fraud or a knowing violation of law. The statutory standard of liability established by Section 78.138 controls even if there is a provision in the corporation’s articles of incorporation unless a provision in the Company’s Articles of Incorporation provides for greater individual liability.
Subsection 1 of Section 78.7502 of the Nevada Law empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (any such person, a “Covered Person”), against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Covered Person in connection with such action, suit or proceeding if the Covered Person is not liable pursuant to Section 78.138 of the Nevada Law or the Covered Person acted in good faith and in a manner the Covered Person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe the Covered Person’s conduct was unlawful.
22
Subsection 2 of Section 78.7502 of the Nevada Law empowers a corporation to indemnify any Covered Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in the capacity of a Covered Person against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by the Covered Person in connection with the defense or settlement of such action or suit, if the Covered Person is not liable pursuant to Section 78.138 of the Nevada Law or the Covered Person acted in good faith and in a manner the Covered Person reasonably believed to be in or not opposed to the best interests of the Company. However, no indemnification may be made in respect of any claim, issue or matter as to which the Covered Person shall have been adjudged by a court of competent jurisdiction (after exhaustion of all appeals) to be liable to the corporation or for amounts paid in settlement to the corporation unless and only to the extent that the court in which such action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances the Covered Person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
Section 78.7502 of the Nevada Law further provides that to the extent a Covered Person has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in Subsection 1 or 2, as described above, or in the defense of any claim, issue or matter therein, the corporation shall indemnify the Covered Person against expenses (including attorneys’ fees) actually and reasonably incurred by the Covered Person in connection with the defense.
Subsection 1 of Section 78.751 of the Nevada Law provides that any discretionary indemnification pursuant to Section 78.7502 of the Nevada Law, unless ordered by a court or advanced pursuant to Subsection 2 of Section 78.751, may be made by a corporation only as authorized in the specific case upon a determination that indemnification of the Covered Person is proper in the circumstances. Such determination must be made (a) by the stockholders, (b) by the board of directors of the corporation by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding, (c) if a majority vote of a quorum of such non-party directors so orders, by independent legal counsel in a written opinion, or (d) by independent legal counsel in a written opinion if a quorum of such non-party directors cannot be obtained.
Subsection 2 of Section 78.751 of the Nevada Law provides that a corporation’s articles of incorporation or bylaws or an agreement made by the corporation may require the corporation to pay as incurred and in advance of the final disposition of a criminal or civil action, suit or proceeding, the expenses of officers and directors in defending such action, suit or proceeding upon receipt by the corporation of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the corporation. Subsection 2 of Section 78.751 further provides that its provisions do not affect any rights to advancement of expenses to which corporate personnel other than officers and directors may be entitled under contract or otherwise by law.
23
Subsection 3 of Section 78.751 of the Nevada Law provides that indemnification pursuant to Section 78.7502 of the Nevada Law and advancement of expenses authorized in or ordered by a court pursuant to Section 78.751 does not exclude any other rights to which the Covered Person may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his or her official capacity or in another capacity while holding his or her office. However, indemnification, unless ordered by a court pursuant to Section 78.7502 or for the advancement of expenses under Subsection 2 of Section 78.751 of the Nevada Law, may not be made to or on behalf of any director or officer of the corporation if a final adjudication establishes that his or her acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action. Additionally, the scope of such indemnification and advancement of expenses shall continue for a Covered Person who has ceased to be a director, officer, employee or agent of the corporation, and shall inure to the benefit of his or her heirs, exe
Section 78.752 of the Nevada Law empowers a corporation to purchase and maintain insurance or make other financial arrangements on behalf of a Covered Person for any liability asserted against such person and liabilities and expenses incurred by such person in his or her capacity as a Covered Person or arising out of such person’s status as a Covered Person whether or not the corporation has the authority to indemnify such person against such liability and expenses.
The Bylaws of the Company provide for indemnification of Covered Persons substantially identical in scope to that permitted under the Nevada Law. Such Bylaws provide that the expenses of directors and officers of the Company incurred in defending any action, suit or proceeding, whether civil, criminal, administrative or investigative, must be paid by the Company as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it is ultimately determined by a court of competent jurisdiction that the director or officer is not entitled to be indemnified by the Company.
DESCRIPTION OF BUSINESS
Our Corporate History and Background
We are a Nevada corporation. We were incorporated in Delaware on June 24, 1987, under the name Malex, Inc. We changed our corporate name to China Wind Systems, Inc. on December 18, 2007. On June 13, 2011, we changed our corporate name to Cleantech Solutions International, Inc. On August 7, 2012, we were converted into a Nevada corporation. On January 8, 2018, we changed our name to Sharing Economy International Inc.
Our Sharing Economy Business
Beginning in the second quarter of 2017 and throughout 2018, we established new business divisions to focus on the development of sharing economy platforms and related rental businesses. We believe a true peer-to-peer sharing economy based on rentals will take significant market share in both the business and consumer markets over the next few years.
Sharing economy business models are hosted through digital platforms that enable more precise, real-time measurement of spare capacity and have the ability to dynamically connect that capacity with those who need it. These digital platforms handle transactions that offer access over ownership through renting, lending, subscribing, reselling, swapping or donating. Consumers who use sharing economy business models are often more comfortable with transactions that involve deeper social interactions than traditional methods of exchange.
While we are retaining our Sharing Economy business, our primary business has changed, with the acquisition of the Peak Equity business.
24
Reverse Acquisition of Peak Equity
On December 27, 2019, Sharing Economy International Inc. entered into a Share Exchange Agreement (the “Share Exchange Agreement”), by and among the Company, Peak Equity International Limited, a British Virgin Islands corporation (“Peak Equity”), and all of the holders of ordinary shares of Peak Equity, which consisted of three shareholders.
Under the terms and conditions of the Share Exchange Agreement, the Company offered, sold and issued 7,200,000,000 shares of common stock in consideration for all the issued and outstanding ordinary shares of Peak Equity. The effect of the issuance is that Peak Equity shareholders now hold approximately 99.7% of the issued and outstanding shares of common stock of the Company.
Our Articles of Incorporation authorize us to issue 200,000,000 of common stock. The Company is still obligated to issue an additional 7,018,360,787 shares of common stock to the Peak Equity shareholders, and plans to amend its Articles of Incorporation, as amended, to increase its number of authorized shares of common stock for such purpose. Assuming the issuance of such additional 7,018,360,787 shares of common stock to the Peak Equity shareholders, the Peak Equity shareholders will hold approximately 99.7% of the issued and outstanding shares of common stock of the Company.
None of our officers or directors have resigned in connection with the acquisition of the Peak Equity business.
As a result of the share exchange Peak Equity is now a wholly-owned subsidiary of the Company.
The transactions consummated with Peak Equity pursuant to the terms and conditions of the Share Exchange Agreement were treated as a reverse acquisition, with Peak Equity as the acquiror and the Company as the acquired party. Unless the context suggests otherwise, when we refer in this Form 8-K to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of Peak Equity.
Organization & Subsidiaries
The following is a list of our subsidiaries:
| Name | Ownership % | |||
| Fulland, Limited, a Cayman Islands limited liability company | 100 | % | ||
| Green Power Environment Technology (Shanghai) Co., Ltd., a wholly foreign-owned enterprise organized under the laws of the People’s Republic of China and wholly-owned by Fulland Limited | 100 | % | ||
| Vantage Ultimate Limited (“Vantage”), a company incorporated under the laws of British Virgin Islands | 100 | % | ||
| 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. | 100 | % | ||
| EC Advertising Limited, a company incorporated under the laws of Hong Kong on March 17, 2017 and is a wholly-owned by Sharing Economy. | 100 | % | ||
| 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. | 100 | % | ||
| EC Assets Management Limited, a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage. | 100 | % | ||
| Cleantech Solutions Limited (formerly 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. | 100 | % | ||
| 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. | 100 | % | ||
25
| Name | Ownership % | |||
| 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. | 100 | % | ||
| ECPower (HK) Company Limited, a company incorporated under the laws of Hong Kong on June 23, 2017 and is wholly-owned by EC Power. | 100 | % | ||
| EC Manpower Limited, a company incorporated under the laws of Hong Kong on July 3, 2017 and is wholly-owned by Vantage. | 100 | % | ||
| 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. | 100 | % | ||
| Inspirit Studio Limited, a company incorporated under the laws of Hong Kong on August 24, 2015, and 51% of its shareholding was acquired by EC Technology on December 8, 2017. | 51 | % | ||
| 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. | 100 | % | ||
| 3D Discovery Co. Limited, a company incorporated under the laws of Hong Kong on February 24, 2015, and 60% of its shareholdings was acquired by EC Technology on January 19, 2018 | 60 | % | ||
| 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. | 100 | % | ||
| Anyworkspace Limited, a company incorporated under the laws of Hong Kong on November 12, 2015, and 80% of its shareholding was acquired by Sharing Economy on January 30, 2018. | 80 | % | ||
| 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. | 100 | % | ||
Overview of Peak Equity and its Ecrent business
Summary Financial Information
The tables and information below are derived from our unaudited financial statements as of June 30, 2021.
March 31, | ||||
| Financial Summary | ||||
| Cash and Cash Equivalents | $ | 581,320 | ||
| Total Assets | 5,087,776 | |||
| Total Liabilities | 11,413,207 | |||
| Total Stockholders’ Equity (Deficit) | $ | (11,190,008 | ) | |
Our transfer agent is Empire Stock Transfer, whose address is 1859 Whitney Mesa Dr., Henderson, Nevada 89014, and whose telephone number is (702) 818-5898.
Description of Business
ECrent Worldwide Company Limited has developed and operates an online rental classified platform named ECrent.com, which provides a marketplace for individuals and companies to view, list and search for rental products and services.
ECrent’s mission is to become the largest, most extensive sharing economy network, allowing individuals and companies to view, list and search for rental products and services on the platform, creating the conditions for collaborative consumption. Collaborative consumption is the trigger for more sustainable business and consumer practices that will protect the planet’s well-being as well as generate an entire class of new business opportunities based on the sharing economy ecosystem.
ECrent’s business model is designed to bring sustainability, entrepreneurship and sharing together.
ECrent operates an online platform, www.ecrent.com, which connects owners (businesses and individuals) and consumers in a robust growing community. The platform consists of a set of web portals and mobile applications which facilitate the online search for a wide and expanding range of rental products and services. The ECrent platform is designed to enable members of the rapidly growing global community to seek and rent items everywhere worldwide. The highly scalable ECrent platform is designed to consolidate all sharing and rental information (supply side) from all geographies into one single source, across multiple categories, and then rebroadcast available rental supply to the demand side. The ECremt platform is coded using advanced algorithms which leverage the central database to provide greater convenience to users through an intelligent matching system. The intelligent matching system incorporates specific product and/or service criteria, product/service pairings, geography and browsing behaviors. ECrent believes these features form the basis for a more comprehensive and extensive user experience than is otherwise available from well-known, first generation, single purpose sharing economy
businesses such as Uber and Airbnb.
26
After proof of concept by ECrent Worldwide in other markets, notably Asia and selected regions of Europe, ECrent started operations in the United States in mid-spring 2016 after obtaining a license to use ECrent Worldwide’s software and trademark. Among the most significant findings, ECrent learned that companies across all segments covet highly targeted and active markets, which historically were believed to generate a greater rate of investment. ECrent believes the demand side is and will be dominated by environmentally and socially conscious users, which will be considered a targeted and active market that will make the platform more attractive and valuable.
PwC’s accompanying survey showed that 44% of U.S. adults are familiar with the sharing economy; 18% of U.S. adults say they have participated in the sharing economy as a consumer; and 7% say they have participated as a provider. Based on the PwC research, the global sharing and rental market would generate a potential revenue opportunity worth a total of $670 billion by 2025.
We believe ECrent is uniquely positioned to capitalize on these trends, and the groundwork has laid in the course of the soft launch will help to achieve the goal to lead the sharing economy development. While the traditional purchase-based consumer discretionary companies have mostly utilitarian relationships with their customers, sharing economy participants are passionate about social responsibility, environmentalism and are committed to leading more sustainable lives. This commitment, fortified by continued momentum, will allow us to build a more
captive, engaged, true community of users.
The ECrent extensive and scalable platform is engineered to serve the business-to-business, business-to-consumer, and consumer-to-consumer market segments. By covering across these multiple segments positions ECrent for balanced growth regardless of macro-economic conditions as we will not rely on a single market. We envision the strategy will also provide us with ample opportunity to further lead the market by regularly introducing new features, functions, categories, and pricing.
We believe businesses will find the ECrent platform highly appealing because it will allow them to monetize unused or little used assets as well as expand their business by opening up new channels created by the sharing economy. In addition, we believe their affiliation with us will allow these companies to reinforce their brand to consumers and investors. A study published by MIT Sloan Management Review and Boston Consulting Group in May 2016 (the “MIT BCG Study”) found that 60% of investment firm board members are willing to divest from companies with poor sustainability performance and 75% feel increased operational efficiency often accompanies sustainability progress. By contrast, this same study revealed that only 60% of the 3,000 executives and managers surveyed have a sustainability strategy in place, while only 25% can present a clear sustainability business case. We believe the ECremt platform will be a highly cost effective vehicle for closing this significant gap between companies and the markets they serve as well as their investors on the basis that our fully branded microsite will provide a cost-effective vehicle for them to develop and implement improved sustainability performance to meet the needs of sustainability conscious investors, notably building awareness and focus on tangible and measureable sustainability (business) outcomes.
The ECrent revenue model is to charge only the supply side; demand side registrants are not subject to any fee in the present model. Businesses or individuals can either pay to post a single item or service just as they would for a classified ad or they can post an unlimited number of items as well as brand themselves through an online rental store (microsite) on the ECrent platform. Microsites represent a recurring revenue model, offering a value proposition beyond renting items to other businesses or individuals. The MIT/BCG Study included steps business leaders could take to meet the needs of sustainability-conscious investors, notably building greater awareness and focus on tangible and measurable sustainability (business) outcomes. We believe the ECrent platform will be an ideal cost-effective vehicle for meeting these objectives.
The ECrent business is an emerging company in an emerging field. Accordingly, the approach to the market seeks to exploit early market entry opportunities in the sharing economy with a sense-and-respond strategy within our growing community. In the second fully operational phase we will employ both in-house sales professionals and engage market channel partners to solicit business from supply side. We will also build a team of Community Relations specialists who will cultivate tight relationships with users for by soliciting user feedback for ongoing improvements to the platform and expansion. We believe aggressive marketing and strategic partnerships with various agencies, such as marketing firms and trade associations will further propel our business once fully operational.
27
Revenue and User Model
ECrent revenue will be derived from online item postings. We do not charge any fees based on transaction value nor do we plan to do so in the near future. Set forth below are our current listing fee arrangements, which fees are to be paid prior to posting:
| 1. | A listing fee of $6.00 per item for two consecutive months for posting a product or service; and |
| 2. | Online rental stores, or microsite for $2,500 per year. |
The microsite is an enhanced online advertising package that allows for unlimited number of postings for a defined period of time, and a personalized online web storefront, providing customers with unique branding opportunities. We believe our microsites will represent a recurring revenue model as it will not be cost effective for the users to terminate our services once they have expended efforts to design and promote their microsites and they have received reoccurring traffic from their customers.
Intellectual Property
ECrent Worldwide Company Limited develops and owns all intellectual properties and knowhow to develop and operate the whole ECrent.com platform, which is fully owned and control by the group.
Government Regulation and Approvals
ECrent will be subject to a number of local laws and regulations that involve matters such as privacy, rights of publicity, data protection, content regulation, intellectual property, competition, protection of minors, consumer protection, taxation or other subjects. Many of these laws and regulations are still evolving and being tested in courts and could be interpreted in ways that could harm our business. In addition, the application and interpretation of these laws and regulations often are uncertain, particularly in the new and rapidly evolving industry in which we operate.
In certain countries, such as China, an Internet Content Provider license may be required.
Employees
The Company has ___ full-time employees and ___, ___ part-time employees.
DESCRIPTION OF PROPERTIES
Our executive offices are located No. 85 Castle Peak Road, Castle Peak Bay, Tuen Mun, N.T., Hong Kong, China. Our telephone number is +852 3583-2186.
We also maintain executive offices are located No. 9 Yanyu Middle Road, Qianzhou Village, Huishan District, Wuxi City, Jiangsu Province, China.
We do not own any real estate or other physical properties.
Reports to Security Holders
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and accordingly, file current and periodic reports, proxy statements and other information with the SEC. We have also filed with the Commission a Registration Statement on Form S-1, under the Securities Act of 1933, as amended, with respect to the securities offered by this prospectus. This prospectus, which forms a part of the registration statement, does not contain all the information set forth in the registration statement, as permitted by the rules and regulations of the Commission. You may obtain copies of our reports from the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on official business days during the hours of 10 A.M. to 3 P.M. or on the SEC’s website, at www.sec.gov. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
28
PROPERTIES
Our executive offices are located at No. 85 Castle Peak Road, Castle Peak Bay, Tuen Mun, N.T., Hong Kong, China.
LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Since December 5, 2018, our shares of common stock have been quoted on the OTCQX or Pink tier of the OTC Markets Group, Inc., under the stock symbol “SEII.” Our common stock was traded on the NASDAQ Capital Market under the symbol “CLNT” from December 29, 2011 to January 7, 2018 and on January 8, 2018, our trading symbol was changed its symbol to “SEII”. On December 5, 2018 our common stock was delisted from the NASDAQ Capital Market. The following table shows the reported high and low closing bid prices per share for our common stock based on information provided by the OTC Markets. The over-the-counter market quotations set forth for our common stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
On July 23, 2021, the closing bid price on the OTCQX for our common stock was $0.205.
Stockholders
As of the date of this Prospectus, there were 194,670,023 shares of common stock issued and outstanding held by approximately _______ stockholders of record, and 531,600 shares of our Series A Preferred Stock held by one stockholder of record.
Transfer Agent
Our transfer agent is Empire Stock Transfer, whose address is 1859 Whitney Mesa Dr., Henderson, Nevada 89014, and whose telephone number is (702) 818-5898.
Dividends
We have not paid dividends to date and do not anticipate paying any dividends in the foreseeable future. Our Board of Directors intends to follow a policy of retaining earnings, if any, to finance our growth. The declaration and payment of dividends in the future will be determined by our Board of Directors in light of conditions then existing, including our earnings, financial condition, capital requirements and other factors.
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance Under Equity Compensation Plans
We have not established any compensation plans under which equity securities are authorized for issuance.
29
SECURITIES AUTHORIZED UNDER EQUITY COMPENSATION PLANS
On October 19, 2020, the Company approved its 2020 Stock Incentive Plan (the “Plan”) and authorized the Chan Che Chung Anthony, the Company’s Chief Executive Officer, to issue up to 18,500,000 shares of common stock under the Plan. As of the date of this Prospectus, _______ shares of common stock are issued under the Plan, and ______ shares of common stock are remaining authorized shares for issuance under the Plan.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Cautionary Statement Regarding Forward-Looking Information
The statements in this registration statement that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements appear in a number of different places in this report and can be identified by words such as “estimates”, “projects”, “expects”, “intends”, “believes”, “plans”, or their negatives or other comparable words. Also look for discussions of strategy that involve risks and uncertainties. Forward-looking statements include, among others, statements regarding our business plans and availability of financing for our business.
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 six months ended June 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.
30
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.
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.
31
Currency Exchange Rates
Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries is the RMB and Hong Kong Dollar.
Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiary. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.
Our financial statements are expressed in U.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB and the Hong Kong dollar. To the extent we hold assets denominated in U.S. dollars, any appreciation of the RMB or HKD against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB or HKD against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Under ASU 2016-02, lessees will be required to recognize all leases (with the exception of short-term leases) at the commencement date including a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use (ROU) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In December 2017, January 2018, July 2018, December 2018, December 2019 and March 2020, the FASB issued ASU 2017-13, ASU 2018-01, ASU 2018-10 & 11, ASU 2018-20 and ASU 2019-01, respectively, which contain modifications and improvements to ASU 2016-02. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under the Optional Transition Method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. On January 1, 2019, the Company adopted ASC Topic 842 using the modified retrospective approach and elected to utilize the Optional Transition Method. In addition, the Company elected the land easement transition practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease. The adoption did not impact the Company’s previously reported consolidated financial statements nor did it result in a cumulative effect adjustment to retained earnings as of January 1, 2019.
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment. ASU 2018-07 aligns the accounting for share based payments granted to non-employees with that of share based payments granted to employees. The Company early adopted ASU No. 2018-07 in the fourth quarter of 2018 and there was no cumulative effect of adoption. The adoption of this ASU did not have a material impact on our financial position, results of operations, cash flows, or presentation thereof.
32
RESULTS OF OPERATIONS
Three months ended June 30, 2021 and 2020
The following table sets forth the results of our operations for the three months ended June 30, 2021 and 2020:
| Three Months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 42,078 | $ | 56,073 | ||||
| Cost of revenues | - | 36,364 | ||||||
| Gross profit | 42,078 | 19,709 | ||||||
| Operating expenses | 1,653,162 | 1,539,590 | ||||||
| Loss from operations | (1,611,084 | ) | (1,519,881 | ) | ||||
| Other (expense) income, net | 295,959 | (413,377 | ) | |||||
| Loss from continuing operations before provision for income taxes | (1,315,125 | ) | (1,933,258 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (1,315,125 | ) | $ | (1,933,258 | ) | ||
Revenues.
During the three months ended June 30, 2021, we recognized revenues from our sharing economy business of $42,078 compared to $56,073 for the three months ended June 30, 2020, a decrease of $13,995, or 25.0%.
Cost of revenues.
Cost of revenues includes commission costs. For the three months ended June 30, 2021, cost of revenues was $0 as compared to $36,364 for the three months ended June 30, 2020, a decrease of $36,364, or 100%.
Gross profit and gross margin.
Our gross profit was $42,078 for the three months ended June 30, 2021 as compared to gross profit of $19,709 for the three months ended June 30, 2020, representing gross margins of 100% and 35%, respectively. The increase in our gross margin for the three months ended June 30, 2021 was primarily attributed to the new business revenue from acquisition of a wholly owned subsidiary.
Operating expenses.
For the three months ended June 30, 2021, operating expenses were $1,653,162 as compared to $1,539,590 for the three months ended June 30, 2020, an increase of $113,572, or 7.38%, due to increase in selling, general and administrative expense.
33
Loss from operations.
As a result of the factors described above, for the three months ended June 30, 2021, loss from operations amounted to $1,611,084 as compared to $1,519,881 for the three months ended June 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 June 30, 2021, total other income, net, amounted to $295,959 as compared to other expense, net, of $413,377 for the three months ended June 30, 2020, an increase of $709,336. The increase in other income, net, was primarily attributable to gain on sale of marketable securities incurred in the three months ended June 30, 2021.
Income tax provision. Income tax expense was $0 for the three months ended June 30, 2021 and 2020.
Net loss.
As a result of the foregoing, our net loss was $1,315,125, or $(0.01) per share (basic and diluted), for the three months ended June 30, 2021, as compared with net loss $1,933,258, or $(0.00) per share (basic and diluted), for the three months ended June 30, 2020, a change of approximately $618,134, or 32.0%.
Six months ended June 30, 2021 and 2020
The following table sets forth the results of our operations for the six months ended June 30, 2021 and 2020:
| Six Months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 130,285 | $ | 67,982 | ||||
| Cost of revenues | - | 37,145 | ||||||
| Gross profit | 130,285 | 30,837 | ||||||
| Operating expenses | 2,082,504 | 4,132,108 | ||||||
| Loss from operations | (1,952,219 | ) | (4,101,271 | ) | ||||
| Other income (expense), net | 405,868 | (509,642 | ) | |||||
| Loss from continuing operations before provision for income taxes | (1,546,351 | ) | (4,610,913 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (1,546,351 | ) | $ | (4,610,913 | ) | ||
Revenues.
During the six months ended June 30, 2021, we recognized revenues from our sharing economy business of $130,285 compared to $67,982 for the six months ended June 30, 2020, an increase of $62,303, or 91.6%.
Cost of revenues.
Cost of revenues includes commission costs. For the six months ended June 30, 2021, cost of revenues was $0 as compared to $37,145 for the six months ended June 30, 2020, a decrease of $37,145, or 100%.
Gross profit and gross margin.
Our gross profit was $130,285 for the six months ended June 30, 2021 as compared to gross profit of $30,837 for the six months ended June 30, 2020, representing gross margins of 100% and 45%, respectively. The increase in our gross margin for the six months ended June 30, 2021 was primarily attributed to the increase revenue generated from engineering service income of the new acquired wholly owned subsidiary.
34
Operating expenses.
For the six months ended June 30, 2021, operating expenses were $2,082,504 as compared to $4,132,108 for the six months ended June 30, 2020, a decrease of $2,049,604, or 49.6%, due to decrease in impairment loss on goodwill and impairment loss on marketable securities.
Loss from operations.
As a result of the factors described above, for the six months ended June 30, 2021, loss from operations amounted to $1,952,219, as compared to $4,101,271 for the six months ended June 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 six months ended June 30, 2021, total other income, net, amounted to $405,868 as compared to total other expense $509,642 for the six months ended June 30, 2020, an increase of $915,510, or 179.6%. The increase in other income, net, was primarily gain on sale of marketable securities incurred in the six months ended June 30, 2021.
Income tax provision. Income tax expense was $0 for the six months ended June 30, 2021 and 2020.
Net loss.
As a result of the foregoing, our net loss was $1,546,351, or $(0.01) per share (basic and diluted), for the six months ended June 30, 2021, as compared with net loss $4,610,913, or $(0.00) per share (basic and diluted), for the six months ended June 30, 2020, a change of approximately $3,064,562, or 66.5%.
Liquidity and Capital Resources
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
As of June 30, 2021 and December 31, 2020, we had cash and cash equivalents of approximately $581,320 and $1,805,417, respectively.
The following table sets forth a summary of our cash flows for the periods as indicated:
| For the Six Months ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (795,531 | ) | $ | (755,715 | ) | ||
| Net cash used in investing activities | $ | (724,349 | ) | $ | (200,388 | |||
| Net cash provided by financing activities | $ | 320,062 | $ | 1,886,407 | ||||
| Effect of exchange rate changes on cash and cash equivalents | $ | (24,279 | ) | $ | (20,564 | ) | ||
| Net increase (decrease) in cash and cash equivalents | $ | (1,224,097 | $ | 909,740 | ) | |||
| Cash and cash equivalents at beginning of period | $ | 1,805,417 | $ | 83,667 | ||||
| Cash and cash equivalents at end of period | $ | 581,320 | $ | 993,407 | ||||
The following table sets forth a summary of changes in our working capital from December 31, 2020 to June 30, 2021 (dollars in thousands):
| June 30, 2021 | December 31, 2020 | Change in Working Capital | Percentage Change | |||||||||||||
| Working capital: | ||||||||||||||||
| Total current assets | $ | 4,554 | $ | 3,967 | $ | 487 | 12.2 | % | ||||||||
| Total current liabilities | 11,413 | 11,707 | (294 | ) | (2.5 | )% | ||||||||||
| Working capital | $ | (6,859 | ) | $ | (7,740 | ) | $ | (881 | ) | (11.4 | )% | |||||
35
Working Capital. Total working capital deficit as of June 30, 2021 amounted to approximately $6.8 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 $802,753 for the six months ended June 30, 2021, and consisted primarily of a net loss of $1,546,351, adjusted for depreciation and amortization of $115,844, stock-based consultancy fee of $1,051,410, stock-based business promotion fee of $599,220, gain on disposal of marketable securities of $1,051,410, an increase in accounts receivable of $25,607, an increase in prepaid expenses and other receivables of $429,979, a decrease in accounts payable and accrual of $74,113, an increase in other payable of $120,750, and a decrease in deferred revenue of $107.
Net cash flow used in investing activities was $724,349 for the six months ended June 30, 2021 as compared to $200,838 for the six months ended June 30, 2020. For the six months ended June 30, 2021, net cash flow used in investing activities reflects cash received from dividend of $7,222, purchase of marketable securities of $17,381,542 and proceeds from sale of marketable securities of $16,649,971.
Net cash flow provided by financing activities was $320,062 for the six months ended June 30, 2021 as compared to $1,886,407 for the six months ended June 30, 2020. During the six months ended June 30, 2021, we received advances from related party of $149,884, received from issuance of note payable of $230,770, offset by repayments for bank loans of approximately $60,592. During the six months ended June 30, 2020, we received advances from related party of $329,982 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 June 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 | $ | 11,290 | $ | 6,426 | $ | 4,864 | $ | - | $ | - | ||||||||||
| Convertible note (1) | 634 | 634 | - | - | - | |||||||||||||||
| Total | $ | 11,924 | $ | 7,060 | $ | 4,864 | $ | - | $ | - | ||||||||||
| (1) | Convertible note is currently in default with the outstanding balance of $634,341 in principal and $853,080 accrued interest at June 30, 2021. At the date of filing, both parties have not reached into the mutual agreement. |
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.
36
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
| Name | Age | Position | ||
| Chan Che Chung Anthony | 49 | Chief Executive Officer and President, and Director | ||
| Lam Ka Man | 40 | Chief Financial Officer, Secretary and Treasurer | ||
| Ping Kee Lau | 71 | Director | ||
| Cheng Wai Yin 2,3 | 27 | Director | ||
| Shao Yuan Guo 1,2,3 | 63 | Director | ||
| Michael Bibat Bautista | 60 | Director |
| 1 | Member of the audit committee. |
| 2 | Member of the compensation committee. |
| 3 | Member of the corporate governance/ nominating committee. |
Che Chung Anthony Chan
Chief Executive Officer, President and Chairman of the Board of Directors
Che Chung Anthony Chan has served as a director since November 4, 2019, and as President and Chief Executive Officer since July 28, 2020. Mr. Chan has over 20 years’ experience in sales and general management. Previously, he was the managing director of Nibou Transmission Machinery Co., Ltd (Hong King & China). He has a Master Business Administration degree from the University of Wales. We believe Anthony Chan has relevant sales and management experience which is useful for the development of our business in Hong Kong.
Lam Ka Man
Chief Financial Officer, Secretary and Treasurer
Lam Ka Man has served as our Chief Financial Officer and Treasurer since December 3, 2019. She has over 20 years’ experience in accounting and general management. She has previously acted as an internal auditor of manufacturing factories in Hong Kong and China. We believe Lam Ka Man has relevant accounting and management experience which is useful for the development our business in Hong Kong & China. Lam Ka Man’s background an internal auditor led to our conclusion that she should be serving as our Chief Financial Officer, in light of our business and structure.
37
Ping Kee Lau
Director
Ping Kee Lau has served as a director since March 2017, and has been a director of Golden Creation Enterprise Limited since late 2014 and a director of Y.R.P. Investment Limited since 2013, both of which are investment entities. For more than two years prior thereto, Mr. Lau was a consultant to Y.R.P. Investment Limited. Mr. Lau received a B.A. in history from Chu Hai College in Hong Kong and his M.A. in philosophy for Ecole Pratique des Hautes Edudes in Paris. Mr. Lau’s experience with investment entities is important to us. We nominated Mr. Lau as a director because we believe that his experience as a director and in investment is important for the Company as we continue to grow and develop our business.
Cheng Wai Yin
Director
[insert biography]
Cho Fu Li
Director
Cho Fu Li has served a director since December 2017. Mr. Li has over ten years of experience in auditing, accounting and banking, and is a member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants. We nominated Mr. Li as a director because we believe that his accounting and finance experience is important to improve our financial accounting controls.
Shao Yuan Guo
Director
Shao Yuan Guo has served as a director since December 3, 2019, and has over 10 years of experience in banking and financial services with Industrial and Commercial Bank of China and The People’s Bank of China in China. He has over 20 years of management experience in the weaving and garment manufacturing industries. We nominated Mr. Guo as a director because we believe his investment and management experience in China is important for the future development of the Company in the market.
Michael Bibat Bautista
Director
Michael Bibat Bautista has served as a director since May 14, 2021. Mr. Bautista has over 15 years’ experience as an educator in Hong Kong, with 10 years teaching at Highgate House International School. With a Certificate in Child Psychology and diplomas in teaching and education, we believe Mr. Bautista can provide directions to the company’s strategies to spread sharing economy practices in the education sectors.
Our directors are elected for a term of one (1) year and until their successors are elected and qualified.
Committees
Our business, property and affairs are managed by or under the direction of the board of directors. Members of the board are kept informed of our business through discussion with the chief executive and financial officers and other officers, by reviewing materials provided to them and by participating at meetings of the board and its committees.
38
Our board of directors has three committees - the audit committee, the compensation committee and the corporate governance/nominating committee. The audit committee is comprised of Mr. Shao and Mr. Bautista, with Mr. Bautista serving as Chairman. The compensation committee is comprised of Mr. Shao, Mr. Bautista and Mr. Cheng, with Mr. Shao serving as Chairman. The corporate governance/nominating committee is comprised of Mr. Shao, Mr. Bautista and Mr. Cheng, with Mr. Cheng serving as Chairman. Our Plan is administered by the compensation committee.
Our audit committee is involved in discussions with our independent auditor with respect to the scope and results of our year-end audit, our quarterly results of operations, our internal accounting controls and the professional services furnished by the independent auditor. Our board of directors has adopted a written charter for the audit committee which the audit committee reviews and reassesses for adequacy on an annual basis.
The compensation committee oversees the compensation of our chief executive officer and our other executive officers and reviews our overall compensation policies for employees generally. If so authorized by the board of directors, the committee may also serve as the granting and administrative committee under any option or other equity-based compensation plans which we may adopt. The compensation committee does not delegate its authority to fix compensation; however, as to officers who report to the chief executive officer, the compensation committee consults with the chief executive officer, who may make recommendations to the compensation committee. Any recommendations by the chief executive officer are accompanied by an analysis of the basis for the recommendations. The committee will also discuss compensation policies for employees who are not officers with the chief executive officer and other responsible officers. The compensation committee has the responsibilities and authority relating to the retention, compensation, oversight and funding of compensation consultants, legal counsel and other compensation advisers, as well as the requirement to consider six independence factors before selecting, or receiving advice from, such advisers.
The corporate governance/nominating committee is involved in evaluating the desirability of and recommending to the board any changes in the size and composition of the board, evaluation of and successor planning for the chief executive officer and other executive officers. The qualifications of any candidate for director will be subject to the same extensive general and specific criteria applicable to director candidates generally.
The board and its committees held the following number of meetings during 2020:
| Board of directors | 4 | |||
| Audit committee | 4 | |||
| Compensation committee | 1 | |||
| Nomination committee | 1 |
The meetings include meetings that were held by means of a conference telephone call, but do not include actions taken by unanimous written consent.
Each director attended at least 75% of the total number of meetings of the board and those committees on which he served during the year.
Our non-management directors had no meetings during 2020.
39
Director Qualifications
We believe that our directors should have the highest professional and personal ethics and values, consistent with our values and standards. They should have broad experience at the policy-making level in business or banking. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties for us. Each director must represent the interests of all stockholders. When considering potential director candidates, the Board also considers the candidate’s character, judgment, diversity, age and skills, including financial literacy and experience in the context of our needs and the needs of the Board.
Term of Office
All directors hold office until the next annual meeting of the stockholders of the Company and until their successors have been duly elected and qualified. The Company’s Bylaws provide that the Board of Directors will consist of no less than three members. Officers are elected by and serve at the discretion of the Board of Directors.
Certain Legal Proceedings
To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:
| ● | Any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| ● | Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| ● | Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; | |
| ● | Being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| ● | Being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| ● | Being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Significant Employees and Consultants
As of the date of this Prospectus, the Company has no significant employees, other than its officers and directors acting in such capacity.
Family Relationships
There are no family relationships among our directors or officers. Other than as described above, we are not aware of any other conflicts of interest with any of our executive officers or directors.
Stockholder Communications with the Board Of Directors
We have not implemented a formal policy or procedure by which our stockholders can communicate directly with our Board of Directors. Nevertheless, every effort has been made to ensure that the views of stockholders are heard by the Board of Directors or individual directors, as applicable, and that appropriate responses are provided to stockholders in a timely manner. We believe that we are responsive to stockholder communications, and therefore have not considered it necessary to adopt a formal process for stockholder communications with our Board. During the upcoming year, our Board will continue to monitor whether it would be appropriate to adopt such a process.
40
Code of Ethics
The Company has adopted a code of ethics that applies to its principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Employment Agreements
We have no employment agreements with our officers, directors or any other person.
Indemnification Agreements
We have no indemnification agreements with our officers, directors or any other person.
Family Relationships
No family relationships exist between our officers and directors or any person who is an affiliate of the Company.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The summary compensation table below shows certain compensation information for services rendered in all capacities to us by our principal executive officer and principal financial officer and by each other executive officer whose total annual salary and bonus exceeded $100,000 during the fiscal periods ended December 31, 2020 and 2019. Other than as set forth below, no executive officer’s total annual compensation exceeded $100,000 during our last fiscal period.
| Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
| Jianhua Wu, | 2020 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
| Chief Executive Officer (1) | 2019 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
| Wanfen Xu, | 2020 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
| Chief Financial Officer, Treasurer (2) | 2019 | 8,584 | 0 | 0 | 0 | 8,584 | ||||||||||||||||||
| Lam Ka Man, | 2020 | 23,077 | 0 | 0 | 0 | 23,077 | ||||||||||||||||||
| Chief Financial Officer, Treasurer, Secretary (3) | 2019 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
| Chan Che Chung Anthony, | 2020 | 309,853 | 0 | 0 | 0 | 23,077 | ||||||||||||||||||
| Chief Executive Officer and President (4) | 2019 | 357,949 | 0 | 0 | 0 | 357,949 | ||||||||||||||||||
| (1) | Appointed Chief Executive Officer, President and Secretary in November 2017. Resigned as Chief Executive Officer, President and Secretary on July 28, 2020. |
| (2) | Appointed Chief Financial Officer and Treasurer on March 1, 2016. Resigned as Chief Executive Officer and Treasurer on December 3, 2019. |
| (3) | Appointed Chief Financial Officer and President on December 3, 2019. Appointed Secretary on July 28, 2020. |
| (4) | Appointed Chief Executive Officer and President on July 28, 2020. |
41
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
None of our executive officers currently have employment agreements with us.
Potential Payments Upon Termination or Change-in-Control
We currently have no employment agreements with any of our executive officers, nor any compensatory plans or arrangements resulting from the resignation, retirement or any other termination of any of our executive officers, from a change-in-control, or from a change in any executive officer’s responsibilities following a change-in-control. As a result, we have omitted this table.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between our Board of Directors and the Board of Directors or compensation committee of any other company, nor has any interlocking relationship existed in the past.
Option Exercises and Fiscal Year-End Option Value Table
We have not issued nor have a stock option plan and as such, there were no stock options exercised by the named executive officers as of the end of the fiscal period ended December 31, 2020.
Long-Term Incentive Plans and Awards
There were no awards made to a named executive officer, under any long-term incentive plan, as of the end of the fiscal period ended December 31, 2020.
We currently do not pay any compensation to our directors serving on our board of directors.
42
Stock Option Grants
The following table sets forth stock option grants and compensation for the fiscal year ended December 31, 2020:
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||||||||
| Jianhua Wu (1) | -0- | -0- | -0- | $ | -0- | N/A | -0- | -0- | -0- | -0- | ||||||||||||||||||||||||
| Wanfen Xu (2) | -0- | -0- | -0- | $ | -0- | N/A | -0- | -0- | -0- | -0- | ||||||||||||||||||||||||
| Lam Ka Man (3) | -0- | -0- | -0- | $ | -0- | N/A | -0- | -0- | -0- | -0- | ||||||||||||||||||||||||
| Chan Che Chung Anthony (4) | -0- | -0- | -0- | $ | -0- | N/A | -0- | -0- | -0- | -0- | ||||||||||||||||||||||||
| (1) | Appointed Chief Executive Officer on February 13, 2015; resigned from such position on July 28, 2020. |
| (2) | Appointed Chief Financial Officer on February 13, 2015; resigned from such position on May 27, 2020. |
| (3) | Appointed Chief Operating Officer on February 13, 2015; resigned from such position on May 27, 2020. |
| (4) | Appointed a director on February 13, 2015; resigned from such position on May 27, 2020. |
| (5) | Appointed President, Secretary, Treasurer and director on May 27, 2020. |
43
Option Exercises and Fiscal Year-End Option Value Table.
There were no stock options exercised by the named executive officers as of the end of the fiscal period ended December 31, 2020.
Long-Term Incentive Plans and Awards
There were no awards made to a named executive officer, under any long-term incentive plan, as of the end of the fiscal period ended December 31, 2020.
Other Compensation
There are no annuity, pension or retirement benefits proposed to be paid to officers, directors, or employees of our company in the event of retirement at normal retirement date as there was no existing plan as of the end of the fiscal year ended December 31, 2020, provided for or contributed to by our company.
DIRECTOR COMPENSATION
The following table sets forth director compensation or the fiscal year ended December 31, 2020:
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation($) | Total ($) | |||||||||||||||||||||
| Ping Kee Lau (1) | 27,692 | -0- | -0- | -0- | -0- | -0- | 27,962 | |||||||||||||||||||||
| Cho Fu Li (2) | 7,662 | -0- | -0- | -0- | -0- | -0- | 7,662 | |||||||||||||||||||||
| Shao Yuan Guo (3) | 32,077 | -0- | -0- | -0- | -0- | -0- | 32,077 | |||||||||||||||||||||
| Lo Yu Ming (4) | 13,154 | -0- | -0- | -0- | -0- | -0- | 13,154 | |||||||||||||||||||||
| Ying Ying Wong (5) | 40,569 | -0- | -0- | -0- | -0- | -0- | 40,569 | |||||||||||||||||||||
| Cheng Wai Yin (6) | 9,237 | -0- | -0- | -0- | -0- | -0- | 9,237 | |||||||||||||||||||||
| Michael Bibat Bautista (7) | -0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||
| (1) | Appointed director on March 20, 2017. |
| (2) | Appointed director on December 14, 2017. |
| (3) | Appointed director on December 3, 2019. |
| (4) | Appointed director on July 20, 2020. Resigned as director May 14, 2021. |
| (5) | Appointed director on December 14, 2017. Resigned as director on August 24, 2020. |
| (6) | Appointed director on August 31, 2020. |
| (7) | Appointed director on May 19, 2021. |
We currently do not pay any compensation to our directors for serving on our board of directors.
44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table lists, as of the date of this Prospectus, the number of shares of common stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
The percentages below are calculated based on 194,670,023 shares of our common stock issued and outstanding as of the date of this Prospectus.
| Name and Address of Beneficial Owner (2) | Amount and Nature of Beneficial Ownership | % of Common Stock (1) | ||||||
| Chan Che Chung Anthony | 2,136,752 | 1.0 | ||||||
| Lam Ka Man | 100 | * | ||||||
| Ping Kee Lau | 1,068,576 | * | ||||||
| Shao Yuan Guo | 854,701 | * | ||||||
| Cheng Wai Yin | 854,701 | * | ||||||
| Michael Bibat Bautista | 9,237 | * | ||||||
| All current officers and directors as a group (6 persons) | 4,924,067 | 2.5 | % | |||||
| ECinteract Company Limited (3) | 43,368,894 | 22.2 | % | |||||
| Chan Tin Chi Family Company Limited (4)(5) | 93,585,201 | 48.0 | % | |||||
| Total | 141,878,162 | 72.7 | % | |||||
* less than 1%
| (1) | Calculated based on 194,670,023 shares of common stock issued and outstanding as of the date of this Prospectus. |
| (2) | Unless otherwise noted, the address of each person listed is c/o Sharing Economy International Inc., No. 85 Castle Peak Road, Castle Peak Bay, Tuen Mun, N.T., Hong Kong. |
| (3) | Voting and dispositive control held by Wong Hiu Chun. |
| (4) | 666,249 shares held by Chan Tin Chi Family Company Limited. Mr. Chan Tin Chi owns 99% of the issued and outstanding ordinary shares of Chan Tin Chi Family Company Limited (formerly known as YSK 1860 Co., Limited). |
| (5) | Redhill Peninsula, House 74 Cedar Drive, Tai Tam, Hong Kong, China |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
From time to time, during 2020 and 2019, the Company receive advances from Chan Tin Chi Family Company Limited (formerly known as YSK 1860 Co., Limited), who is the major shareholder of the Company for working capital purposes. These advances are non-interest bearing and are payable on demand. During the years ended December 31, 2020, the Company repaid to Chan Tin Chi Family Company Limited for working capital totaled $228,393. During the years ended December 31, 2019, the Company received advances from Chan Tin Chi Family Company Limited for working capital totaled $788,457. As of December 31, 2020 and 2019, amounts due to Chan Tin Chi Family Company Limited amounted to $1,817,569 and $2,045,962, respectively.
45
At March 31, 2020 and December 31, 2019, amount due to related companies amounted to $803,152.
As of December 31, 2020 and 2019, amounts due to related companies amounted to $650,806 and $319,542, respectively.
The amounts are unsecured, interest-free and have no fixed terms of repayment.
Director Independence
Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his background, employment and affiliations, our board of directors has determined that one of our two directors or director nominees is independent, and does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that this director is “independent” as that term is defined under the listing standards of NASDAQ. In making such determination, our board of directors considered the relationship that such non-employee director has with us and all other facts and circumstances that our board of directors deemed relevant in determining his independence, including the beneficial ownership of our capital stock by each non-employee director.
INTEREST OF NAMED EXPERTS AND COUNSEL
Thomas Puzzo, of Law Offices of Thomas E. Puzzo, PLLC, counsel to the Company, is the holder of 1,789,475 shares of Common Stock of the Company. Law Offices of Thomas E. Puzzo, PLLC, is counsel named in this Prospectus as having prepared part of this Prospectus. Except with respect to Mr. Puzzo, no expert named in this Prospectus as having prepared or certified any part of this Prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Common Stock was employed on a contingency basis, or had, or is to receive, in connection with the Offering, a substantial interest, direct or indirect, in the Company or any of its subsidiaries.
EXPERTS
The financial statements included in this Prospectus for the years ended December 31, 2020 and 2019 have been audited by Audit Alliance LLP, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
Unless otherwise indicated in the applicable prospectus supplement, Law Offices of Thomas Puzzo, PLLC, will provide opinions regarding the validity of the shares of our common stock. Law Offices of Thomas Puzzo, PLLC may also provide opinions regarding certain other matters. Any underwriters will also be advised about legal matters by their own counsel, which will be named in the prospectus supplement.
46
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Bylaws provide to the fullest extent permitted by law that our directors or officers, former directors and officers, and persons who act at our request as a director or officer of a body corporate of which we are a shareholder or creditor shall be indemnified by us. We believe that the indemnification provisions in our By-laws are necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to provisions of the State of Nevada, the Company has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1, together with all amendments and exhibits, with the SEC. This Prospectus, which forms a part of that registration statement, does not contain all information included in the registration statement. Certain information is omitted and you should refer to the registration statement and its exhibits. With respect to references made in this Prospectus to any of our contracts or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contracts or documents. You may read and copy any document that we file at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our filings and the registration statement can also be reviewed by accessing the SEC’s website at http://www.sec.gov.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Audit Alliance LLP, is our independent registered public accounting firm. There have not been any changes in or disagreements with accountants on accounting and financial disclosure or any other matter.
47
SHARING ECONOMY INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENTS
Fiscal Years ended December 31, 2020 and 2019 (Audited)
Six months ended June 30, 2021 and 2020 (Unaudited)
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Sharing Economy International Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sharing Economy International Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, consolidated statements of changes in stockholders’ equity, and consolidated statements of cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the notes to consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the accompanying financial statements, the Company has suffered recurring losses from operations, generated negative cash flows from operating activities, has an accumulated deficit that raise substantial doubt exists about Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans in regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| /s/Audit Alliance LLP |
We have served as the Company’s auditor since 2020.
April 16, 2021
F-2
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (Restated) | ||||||||
| 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’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Convertible note payable, net of unamortized debt discount | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Due to related parties | ||||||||
| Deferred revenue | - | |||||||
| Income taxes payable | - | |||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Long-term loan | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock, Series A $ | - | |||||||
| Common stock $ | ||||||||
| Common stock to be issued | - | |||||||
| Additional paid-in capital | ||||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Accumulated other comprehensive (loss) income - foreign currency translation adjustment | ( | ) | ||||||
| Total stockholders’ deficit attributed to SEII | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
| # | Post a fifty for one (50:1) reverse split effective on October 13, 2020. |
See notes to consolidated financial statements.
F-3
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| REVENUES | $ | $ | ||||||
| COST OF REVENUES | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| OPERATING EXPENSES: | ||||||||
| Depreciation and amortization | ||||||||
| Selling, general and administrative | ||||||||
| Written-off prepayments | ||||||||
| Impairment loss on goodwill | ||||||||
| Total operating expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Dividend income | ||||||||
| Impairment loss on intangible asset | ( | ) | ||||||
| Impairment loss on other receivables | ( | ) | ||||||
| Impairment loss on marketable securities | ( | ) | ||||||
| Gain on disposal of marketable securities | ||||||||
| Unrealised gain on marketable securities | ||||||||
| Loss on disposal of a subsidiary | ( | ) | ||||||
| Gain from deconsolidation of VIE | ||||||||
| Loss on foreign currency translation | ( | ) | ||||||
| Other income | ||||||||
| Total other (expense) income, net | ( | ) | ||||||
| LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||
| Income taxes provision | ||||||||
| LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ||||
| DISCONTINUTED OPERATIONS: | ||||||||
| Income (loss) from discontinued operations, net of income taxes | ( | ) | ||||||
| NET LOSS | ( | ) | ( | ) | ||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | ( | ) | ( | ) | ||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | ||
| COMPREHENSIVE LOSS: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation (loss) gain | ( | ) | ||||||
| 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: | ||||||||
| Continuing operations - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Discontinued operations - basic and diluted | ( | ) | ||||||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and diluted | ||||||||
| # | Post a fifty for one (50:1) reverse split effective on October 13, 2020. |
See notes to consolidated financial statements.
F-4
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Years Ended December 31, 2020 and 2019
| For the year ended December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||
| Common Stock | Common stock to be issued | Additional | Accumulated
Other | Non- | Total | |||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Retained | Statutory | Comprehensive | controlling | Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Reserve | Income | Interest | Deficit | |||||||||||||||||||||||||||||||
| Balance, December 31, 2018 (restated) | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Common stock issued for cash | - | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for services to consultants and service providers | - | |||||||||||||||||||||||||||||||||||||||
| Common stock surrendered for services from consultants and service providers | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Common stock issued upon conversion of debt | - | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for donation | - | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for acquisition of ECoin’s Redemption Codes | - | |||||||||||||||||||||||||||||||||||||||
| Gain from bargain purchase of ECRent | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Common stock issued for acquisition of G-Coin | - | |||||||||||||||||||||||||||||||||||||||
| De-consolidation of VIEs | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss for the year | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 (restated) | $ | $ | $ | ( | ) | $ | - | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
F-5
| For the year ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common stock to be issued | Accumulated | |||||||||||||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | Number of Shares | Amount | Additional Paid-in Capital | Retained Earnings | Other Comprehensive Income | Non- controlling Interest | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||
| Balance, January 1, 2020 | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued for acquisition of Peak Equity Group | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| 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 | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fractional shares from reverse split | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the year | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| # | Post a fifty for one (50:1) reverse split effective on October 13, 2020. |
See notes to consolidated financial statements.
F-6
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| (Restated) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: net income (loss) from discontinued operations | - | ( | ) | |||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss from operations to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Allowance for doubtful accounts | - | |||||||
| Amortization of intangible assets | ||||||||
| Impairment loss of intangible assets | - | |||||||
| Impairment loss of other receivables | - | |||||||
| Impairment loss of marketable securities | ||||||||
| Impairment loss of goodwill | ||||||||
| Gain from deconsolidation of VIE & subsidary | - | ( | ) | |||||
| Written-off prepayment | ||||||||
| Stock-based employment compensation | - | |||||||
| Stock-based professional fees | ||||||||
| Stock-based donation | - | |||||||
| Loss on disposal of a subsidiary | - | |||||||
| Amortization of debt discount | ||||||||
| Gain on sale of marketable securities | ( | ) | - | |||||
| Unrealised gain on marketable securities | ( | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Notes receivable | - | |||||||
| 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 – continuing operations | ( | ) | ( | ) | ||||
| CASH FLOWS USED IN OPERATING ACTIVITIES – discontinued operations | - | ( | ) | |||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | - | ( | ) | |||||
| Purchase of marketable securities | ( | ) | ( | ) | ||||
| Purchase of non-controlling interest | ( | ) | - | |||||
| Proceeds from disposal of marketable securities | - | |||||||
| Proceeds from disposal of a subsidiary | - | |||||||
| Dividend received | - | |||||||
| CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES – continuing operations | ( | ) | ||||||
| CASH FLOWS PROVIDED BY INVESTING ACTIVITIES – discontinued operations | ||||||||
| CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repayments of bank loan | ( | ) | - | |||||
| Proceeds from bank loan | ||||||||
| Proceeds from issuance of note payable | - | |||||||
| Advances from related party | ||||||||
| Repayment to related party | - | ( | ) | |||||
| Proceeds from sale of common stock, net | - | |||||||
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES – continuing operation | ||||||||
| CASH FLOWS USED IN FINANCING ACTIVITIES – discontinued operations | - | ( | ) | |||||
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | ||||||||
| Effect of exchange rate changes | ( | ) | ( | ) | ||||
| Net decrease in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents - beginning of year | ||||||||
| Cash and cash equivalents - end of year | 1,805,417 | 117,612 | ||||||
| Less: Cash and cash equivalents from discontinued operations | - | ( | ) | |||||
| Cash and cash equivalents from continuing operations - end of year | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid in continuing operations for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Cash paid in discontinued operations for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Stock issued for redemption of convertible note and accrued interest | $ | $ | ||||||
| Stock issued for acquisition of non-wholly owned subsidiaries | $ | - | $ | |||||
| Stock issued for services from consultants and vendors | $ | $ | - | |||||
| Stock issued for accrued liabilities | $ | - | $ | |||||
See notes to consolidated financial statements.
F-7
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION
Sharing Economy International Inc. (the “Company”) was incorporated in Delaware on June 24, 1987 under the name of Malex, Inc. On December 18, 2007, the Company’s corporate name was changed to China Wind Systems, Inc. and on June 13, 2011, the Company changed its corporate name to Cleantech Solutions International, Inc. On August 7, 2012, the Company was converted into a Nevada corporation. On January 8, 2018, the Company changed its corporate name to Sharing Economy International Inc.
Through its affiliated companies, the Company
manufactures and sells textile dyeing and finishing machines. The Company is the sole owner of Fulland Limited (“Fulland”),
a Cayman Island limited liability company, which was organized on May 9, 2007. Fulland owns
Fulland was organized by the owners of the Huayang Companies as a special purpose vehicle for purposes of raising capital in accordance with requirements of the PRC State Administration of Foreign Exchange (“SAFE”). On May 31, 2007, SAFE issued an official notice known as Hui Zong Fa [2007] No. 106 (“Circular 106”), which requires the owners of any Chinese company to obtain SAFE’s approval before establishing any offshore holding company structure for foreign financing as well as subsequent acquisition matters in China. Accordingly, the owners of the Huayang Companies, Mr. Jianhua Wu and his wife, Ms. Lihua Tang, submitted their application to SAFE in early September 2007. On October 11, 2007, SAFE approved their application, permitting these Chinese citizens to establish Fulland as a special purpose vehicle for any foreign ownership and capital raising activities by the Huayang Companies.
Dyeing, which was formed on August 17,
1995, produces and sells a variety of high and low temperature dyeing and finishing machinery for the textile industry. The Company
refers to this segment as the dyeing and finishing equipment segment. On December 26, 2016, Dyeing and an unrelated individual
formed Wuxi Shengxin New Energy Engineering Co., Ltd. (“Shengxin”), a limited liability company organized under the
laws of the PRC in which Dyeing has a
Fulland Wind was formed on August 27, 2008. In 2009, the Company began to produce and sell forged products through Fulland Wind. Through Fulland Wind, the Company manufactured and sold forged products, including wind products such as shafts, rolled rings, gear rims, gearboxes, bearings and other components and finished products and assemblies for the wind power and other industries, including large-scale equipment used in the manufacturing process for the various industries.
On November 20, 2019, EC Advertising Limited
and Au Chi Tong entered into a Consulting Agreement, whereby Sharing Economy International, Inc. (the “Company”) shall
issue
On December 14, 2019, ECoin Global Limited
and EC Power (Global) Technology Limited entered into a Transfer Agreement relating to the transfer of redemption codes in exchange
for
On December 18, 2019, Ying Huihao and EC
Advertising Limited entered into a Sale and Purchase Agreement with respect to G-Coin Worldwide Limited (“G-Coin”),
whereby the Company shall issue
On December 16, 2019, Sharing Economy International,
Inc. (the “Company”) entered into a Stock Purchase Agreement (the “Agreement”) with Sze Man Cheung, a Hong
Kong citizen, for the purchase and sale of
On December 27, 2019, the Company completed
the Acquisition of Peak Equity International Limited and Subsidiaries (collectively “Peak Equity”) (the “Acquisition”)
for its
On December 30, 2019, Green Power Environment Technology (Shanghai) Co., Ltd. And Wuxi Huayang Dye Machinery Co. Ltd. entered into a VIE Termination Agreement relating to the termination of the Consulting Services Agreement, Operating Agreement, Equity Pledge agreement, Option Agreement, Voting Rights Proxy Agreement dated October 12, 2007. The operation in China was considered as discontinued operations and fully written-off at December 31, 2019.
F-8
On March 24, 2020, the Company sold its
equity interest of
On August 14, 2020, the Company acquired the
remaining equity interest of
On December 30, 2020, the Company’s Board of Directors approved to enter into a Termination Agreement with Jebe Production Group Limited.
The Company’s latest business initiatives are focused on targeting the technology and global sharing economy markets, by developing online platforms and rental business partnerships that will drive the global development of sharing through economical rental business models. In connection with the new business initiatives, the Company formed or acquired the following subsidiaries:
| ● | Vantage Ultimate Limited (“Vantage”), a company incorporated under the laws of British Virgin Islands on February 1, 2017 and is wholly-owned by the Company. | |
| ● | Sharing Economy Investment Limited (“Sharing Economy”), a company incorporated under the laws of British Virgin Islands on May 18, 2017 and is wholly-owned by Vantage. | |
| ● | EC Advertising Limited (“EC Advertising”), a company incorporated under the laws of Hong Kong on March 17, 2017 and is a wholly-owned by Sharing Economy. | |
| ● | EC Rental Limited (“EC Rental”), a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage. | |
| ● | EC Assets Management Limited (“EC Assets”), a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage. |
| ● | Cleantech Solutions Limited (formerly known as EC (Fly Car) Limited), a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is a wholly-owned by Sharing Economy. | |
| ● | Global Bike Share (Mobile App) Limited, a company incorporated under the laws of British Virgin Islands on May 23, 2017 and is a wholly-owned by Sharing Economy. | |
| ● | EC Power (Global) Technology Limited (“EC Power”), a company incorporated under the laws of British Virgin Islands on May 26, 2017 and is wholly-owned by EC Rental. | |
| ● | ECPower (HK) Company Limited, a company incorporated under the laws of Hong Kong on June 23, 2017 and is wholly-owned by EC Power. | |
| ● | EC Manpower Limited, a company incorporated under the laws of Hong Kong on July 3, 2017 and is wholly-owned by Vantage. | |
| ● | EC Technology & Innovations Limited (“EC Technology”), a company incorporated under the laws of British Virgin Islands on September 1, 2017 and is wholly-owned by Vantage. | |
| ● | Inspirit Studio Limited (“Inspirit Studios”), a company incorporated under the laws of Hong Kong on August 24, 2015, and | |
| ● | 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. |
F-9
NOTE 2 – GOING CONCERN UNCERTAINTIES
These 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 consolidated financial statements, the Company had a net loss of approximately
$
Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – SIGIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company is on a fiscal year ending December 31; as such the year ended December 31, 2020 is referred to as “fiscal 2020”, and the year ended December 31, 2019 is referred to as “fiscal 2019”.
Principles of Consolidation
The Company’s consolidated financial statements include the financial statements of its wholly-owned and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation.
Discontinued Operations
On December 30, 2019 the Company’s Board of Directors approved to enter into a VIE Termination Agreement relating to the termination of the Consulting Services Agreement, Operating Agreement, Equity Pledge Agreement, Option Agreement, Voting Rights Proxy Agreement dated October 12, 2007 with Huayang Companies. The operations in China were closed down and fully written-off at December 31, 2019. The assets and liabilities of Huayang Companies have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all years presented. The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated statements of operations for all years presented.
F-10
Use of estimates
The preparation of the 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 years ended December 31, 2020 and 2019 include the allowance for doubtful accounts on accounts and other receivables, the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, the fair value of equity method investment, the fair value of assets held for sale, accruals for taxes due, 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 December 31, 2020 and 2019, 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. |
During the year ended December 31, 2020
and 2019, $
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 Company did not measure these assets at fair value at December 31, 2020 and 2019.
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, prepaid expenses and other receivables, short-term bank loans, convertible notes payable, note payable, accounts payable, accrued liabilities, amount due to a related party and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.
ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
F-11
The following table presents information about the Company’s assets and liabilities that were measured at fair value as of December 31, 2020 and 2019, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
| 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 | $ | $ | $ | $ | ||||||||||||
| December 31, | Quoted Prices In Active Markets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||
| Description | 2019 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Marketable securities, available-for-sale | $ | $ | $ | $ | ||||||||||||
As of December 31, 2020 and 2019, the Company did not have any nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements, at least annually, on a recurring basis, nor did the Company have any assets or liabilities measured at fair value on a non-recurring basis.
Concentrations of credit risk
The Company’s operations are carried out in the PRC and Hong Kong. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC and Hong Kong, and by the general state of the economies in the PRC and Hong Kong. The Company’s operations in the PRC 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 PRC and 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.
F-12
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 December 31, 2020 and 2019, the Company has established,
based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $
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.
| Useful life | ||
| Office equipment and furniture | ||
| Vehicles | ||
| Vessels |
Depreciation expense from continuing operations
for the year ended December 31, 2020 and 2019 amounted to $
Depreciation expense from discontinued
operations for the year ended December 31, 2020 and 2019 amounted to $
F-13
Impairment of long-lived assets and intangible asset
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 December 31, 2020 and 2019, the Company conducted an impairment
assessment on property, equipment and intangible asset based on the guidelines established in ASC Topic 360 to determine the estimated
fair market value of property, equipment and intangible asset as of December 31, 2020 and 2011. 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 2020 impairment analysis, the Company recorded impairment charges on long-lived assets of $
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.
Continuing operations
The Company derives its revenues from the sale of license and advertising right and in a term of certain periods. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
Discontinued operations
The Company recognizes revenues from the sale of equipment upon shipment and transfer of title. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person hours to complete a service and generally is recognized over the contract period.
All other product sales with customer specific acceptance provisions are recognized upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.
F-14
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.
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 December 31, 2020 and 2019, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if fully vested and non-forfeitable. The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
F-15
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 HKD into US$ has been made at the following exchange rates for the years ended December 31, 2020 and 2019:
| December 31, 2020 | December 31, 2019 | |||||||
| Year-end RMB:US$ exchange rate | ||||||||
| Year average RMB:US$ exchange rate | ||||||||
| Year-end HK$:US$ exchange rate | ||||||||
| Year 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.
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 years ended December 31, 2020 and 2019. 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:
| Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net loss for basic and diluted attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| From continuing operations | ( | ) | ( | ) | ||||
| From discontinued operations | $ | $ | ( | ) | ||||
| Weighted average common stock outstanding | ||||||||
| - Basic | ||||||||
| - Diluted | ||||||||
| Net loss per share of common stock | ||||||||
| From continuing operations – basic | $ | ( | ) | $ | ( | ) | ||
| From discontinued operations – basic | ( | ) | ||||||
| Net loss per common share - basic | $ | ( | ) | $ | ( | ) | ||
| Net loss per share of common stock | ||||||||
| From continuing operations – diluted | $ | ( | ) | $ | ( | ) | ||
| From discontinued operations – diluted | ( | ) | ||||||
| Net loss per common share - diluted | $ | ( | ) | $ | ( | ) | ||
F-16
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 for the years ended December 31, 2020 and 2019 included net loss and unrealized (loss) gain from foreign currency translation adjustments.
Reclassification
Certain reclassifications have been made in prior year’s consolidated financial statements to conform to the current year’s financial presentation. The reclassifications have no effect on previously reported net income (loss) and related to the reclassification of discontinued operations.
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
Accounting Standards Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”) in order to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous generally accepted accounting principles. ASU 2016-02 requires a lessee to recognize a lease liability for future lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term on the balance sheet for most lease arrangements. The new standard also changes many key definitions, including the definition of a lease. The new standard includes a short-term lease exception for leases with a term of 12 months or less, as part of which a lessee can make an accounting policy election not to recognize right-of-use assets and lease liabilities. Lessees will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases using classification criteria that are substantially similar to the previous guidance in ASC 840.
ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) and early adoption is permitted. In August 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements, which provides a new transition option in which an entity initially applies ASU 2016-02 at the adoption date and recognizes a cumulative-effect adjustment in the period of adoption. Prior period comparative balances will not be adjusted. The Company used the new transition option and was also utilizing the package of practical expedients that allows it to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. We also used the short-term lease exception for leases with a term of 12 months or less. Additionally, the Company used the practical expedient that allowed each separate lease component of a contract and the associated non-lease components to be treated as a single lease component. The exercise of lease renewal options is at our discretion and the renewal to extend the lease terms are not included in the Company’s Right-Of-Use assets and lease liabilities as they are not reasonably certain of exercise. The Company will evaluate the renewal options and when they are reasonably certain of exercise, the Company will include the renewal period in its lease term. As of the January 1, 2019, effective date the Company identified one finance lease arrangement in which it is a lessee.
In calculating the present value of the lease payments, the Company applied an individual discount rate for each of its leases, and determined the appropriate discount rate based on the remaining lease terms at the date of adoption. As the lessee to several lease agreements, the Company did not have insight into the relevant information that would be required to arrive at the rate implicit in the lease. Therefore, the Company utilized its outstanding borrowings as a benchmark to determine the incremental borrowing rate for its leases. The benchmark rate was adjusted to arrive at an appropriate discount rate for each lease.
In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of Compensation – Stock Compensation (“Topic 718”) to include share-based payment transactions for acquiring goods and services from nonemployees. This amendment applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company adopted ASU 2018-07 on January 1, 2019. The impact was immaterial to the financial statements.
F-17
In June 2018, the FASB issued ASU No. 2018-08, Not-For-Profit Entities – Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (“ASU 2018-08”). ASU 2018-08 clarifies how an entity determines whether a resource provider is participating in an exchange transaction by evaluating whether the resource provider is receiving commensurate value in return for the resources transferred. The guidance is effective for annual periods beginning after June 15, 2018, including interim periods within those annual periods, and has been adopted on a modified prospective basis. The modified prospective adoption is applied to agreements that are not completed as of the effective date, or entered into after the effective date. Under the modified prospective adoption approach, prior period results have not been restated and no cumulative-effect adjustment has been recorded. The Company does not expect this standard to have a material impact on its financial statements.
Accounting Standards Issued, Not Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This ASU requires measurement and recognition of expected credit losses for financial assets. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. ASU 2016-13 is effective for the Company beginning January 1, 2023. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the potential effect of this standard on its financial statements. The Company does not expect this standard to have a material impact on its financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The amendment is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact this will have on the financial statements.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (“ASU 2018-18”), which clarifies the interaction between ASC 808, Collaborative Arrangements and ASC 606, Revenue from Contracts with Customers. Certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, ASU 2018-18 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that transaction. ASU 2018-18 should be applied retrospectively to the date of initial application of ASC 606. This guidance is effective for interim and fiscal periods beginning after December 15, 2019. The Company is currently assessing the impact this will have on the financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020, with early adoption permitted. Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively. The Company does not expect the adoption of this standard to have a material impact on our financial position, results of operations or cash flows.
F-18
NOTE 4 – BUSINESS COMBINATION AND DECONSOLIDATION OF SUBSIDIARY
On August 14, 2020, the Company completed
the acquisition of
The purchase price allocation resulted
in $
| Acquired assets: | US$ | |||
| Cash and cash equivalents | $ | |||
| Trade receivables | ||||
| Other receivables | ||||
| Non-current assets | ||||
| Less: Assumed liabilities | ||||
| Accrued liabilities | ( | ) | ||
| Other payable | ( | ) | ||
| Amount due to related parties | ( | ) | ||
| ( | ) | |||
| Fair value of net assets acquired | ( | ) | ||
| Goodwill recorded | ||||
| Cash consideration allocated | $ | |||
The Acquisition was accounted for as a business combination in accordance with ASC 805 “Business Combinations”. The Company has allocated the purchase price consideration based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from management estimation. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.
The goodwill is fully impaired for the year ended December 31, 2020.
F-19
NOTE 5 – DISCONTINUED OPERATIONS
On December 30, 2019 the Company’s Board of Directors approved to enter into a VIE Termination Agreement relating to the termination of the Consulting Services Agreement, Operating Agreement, Equity Pledge Agreement, Option Agreement, Voting Rights Proxy Agreement dated October 12, 2007 with Huayang Companies. The operations in China were closed down and fully written-off at December 31, 2019. The assets and liabilities of Huayang Companies have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all years presented. The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated statements of operations for all years presented.
On March 24, 2020, the Company sold its
equity interest of
The summarized operating result of discontinued operations included in the Company’s consolidated statements of operations is as follows:
Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ( | ) | ||||||
| Gross profit (loss) | ( | ) | ||||||
| Operating expenses | ( | ) | ||||||
| Loss from operations | ( | ) | ||||||
| Other income (expense), net | ( | ) | ||||||
| Income (loss) from discontinued operations, net of income taxes | $ | $ | ( | ) | ||||
NOTE 6 – PROPERTY AND EQUIPMENT
At December 31, 2020 and 2019, property and equipment consisted of the following:
| Useful life | December 31, 2020 | December 31, 2019 | ||||||||
| Office equipment | ||||||||||
| Motor vehicle | ||||||||||
| Yacht | infinite | |||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
Depreciation expense from continuing operations
for the years ended December 31, 2020 and 2019 amounted to $
NOTE 7 – INTANGIBLE ASSETS
At December 31, 2020 and 2019, intangible assets consisted of the following:
| Useful life | December 31, 2020 | December 31, 2019 | ||||||||
| Other intangible assets | ||||||||||
| Redemption code | ||||||||||
| Goodwill | infinite | |||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||
| Less: impairment loss | ( | ) | ||||||||
| $ | $ | |||||||||
F-20
Amortization of intangible assets attributable to future periods is as follows:
| Year ending December 31: | Amount | |||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| Thereafter | ||||
| $ | ||||
Amortization expense from continuing operations for the years
ended December 31, 2020 and 2019 amounted to $
NOTE 8 – BANK LOANS
Bank loans of $
Revolving credit line of $
At December 31, 2020, the banking facilities of the Company were secured by:
| ● | Personal guarantee by the directors of the Company’s subsidiary; | |
| ● | Legal charge and rental assignment over the leasehold land and buildings owned by its related companies which are controlled by the major shareholder of the Company, Mr. Chan Tin Chi; and | |
| ● | Hong Kong Mortgage Corporation Limited. |
At December 31, 2020 and 2019, bank loans consisted of the following:
| December 31, 2020 | December 31, 2019 | |||||||
| Mortgage loan | $ | $ | ||||||
| Line of revolving loan | ||||||||
| Short-term bank loans | ||||||||
| Total bank loans | ||||||||
| Less: Total bank loans – discontinued operations | ( | ) | ||||||
| Total bank loans – continuing operations | $ | $ | ||||||
| Reclassifying as: | ||||||||
| Current portion | $ | $ | ||||||
| Long-term portion (more than 12 months) | ||||||||
| Total bank loans | $ | $ | ||||||
Interest related to the bank loans from
continuing operations was $
Interest related to the bank loans from
discontinued operations was $
All interests are included in interest expense on the accompanying consolidated statements of operations.
F-21
NOTE 9 – 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 $
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,
F-22
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
During the December, 2020, the Company
converted an aggregate of $
At December 31, 2020 and 2019, convertible debt consisted of the following:
| December 31, 2020 | December 31, 2019 | |||||||
| Principal | $ | $ | ||||||
| Unamortized discount | ( | ) | ||||||
| Convertible debt, net | $ | $ | ||||||
The amortization
of discount was $
As of December
31, 2020 and 2019, accrued interest amounted to $
NOTE 10 – RELATED PARTY TRANSACTIONS
Due to related parties
From time to time, during 2020 and 2019, the Company receive advances from Chan Tin Chi Family Company Limited (formerly known as YSK 1860 Co., Limited), who is the major shareholder of the Company for working capital purposes. These advances are non-interest bearing and are payable on demand. During the years ended December 31, 2020, the Company repaid to Chan Tin Chi Family Company Limited for working capital totaled $228,393. During the years ended December 31, 2019, the Company received advances from Chan Tin Chi Family Company Limited for working capital totaled $788,457. As of December 31, 2020 and 2019, amounts due to Chan Tin Chi Family Company Limited amounted to $1,817,569 and $2,045,962, respectively.
As of December 31, 2020 and 2019, amounts due
to related companies amounted to $
The amounts are unsecured, interest-free and have no fixed terms of repayment.
F-23
NOTE 11 – STOCKHOLDERS’ DEFICIT
In March 2020,
an amendment to The Company’s Articles of Incorporation to increase the number of shares of common stock which the Company
is authorized to issue from
As of December
31, 2020 and 2019, the Company has
As of December 31, 2020
and 2019, the Company has
Preferred stock issued for services and acquisition of a non-wholly owned subsidiary
During the year
ended December 31, 2020, the Company issued an aggregate of
Common stock issued for services
During the year
ended December 31, 2020, pursuant to consulting and service agreements, the Company issued an aggregate of
Common stock issued for debt conversion
In April 2020,
the
In December 2020,
the Company issued
F-24
NOTE 12 – CONCENTRATIONS
Customers
For the years ended December 31, 2020 and
2019, there are no customers representing more than
Suppliers
For the years ended December 31, 2020 and
2019, there are no vendors representing more than
NOTE 13 – 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,
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.
F-25
NOTE 14 – 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 December 31, 2020, up through April 16, 2021, the Company issued the audited consolidated financial statements.
The Company is currently in default under Iliad
Note with the outstanding balance of $
On April 8, 2020, the Company and shareholder of OOB HK Media HK Limited (“OOB HK”) Entered into a Share Exchange Agreement, whereby the Company shall issue 239,387,189 shares of series A convertible preferred stock at a price of $0.33 per share, in exchange of 100% ownership of OOB HK, which owns 100% of Tone Rich (Shanghai) Limited that holds 69.6% of OOB Media (Sichuan) Company Limited, an advertising media technology and agency company.
On March 3, 2021,
the Company approved to grant a bonus in aggregate of
F-26
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2021 AND DECEMBER 31, 2020
| June 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.
F-27
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (Restated) | (Restated) | |||||||||||||||
| 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 | ||||||||||||||||
| Other income | ||||||||||||||||
| Total other (expense) income, 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 (loss) gain | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net (loss) income attributable to non-controlling interest | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Foreign currency translation gain (loss) from non-controlling interest | ||||||||||||||||
| Comprehensive loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER COMMON SHARE: | ||||||||||||||||
| Continuing operations – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations – basic and diluted | ) | ( | ) | ( | ) | |||||||||||
| Net loss per common share - basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
F-28
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||
| Equity attributable to SEII shareholders | ||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Additional | Accumulated other | Total | ||||||||||||||||||||||||||||||||
| Number of shares | Amount | Number of
shares | Amount | paid-in capital | comprehensive (loss) income | Accumulated deficits | Noncontrolling interests | shareholders’ equity (deficit) | ||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Common stock issued upon conversion of debt | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for services from consultants and service providers | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for business marketing services | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Cancellation of common stock | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| For the three months ended June 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, March 31, 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 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | - | - | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
F-29
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||
| Equity attributable to SEII shareholders | ||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Additional | Accumulated other | Total | ||||||||||||||||||||||||||||||||
| Number of shares | Amount | Number of shares | Amount | paid-in capital | comprehensive (loss) income | Accumulated deficits | Noncontrolling interests | shareholders’ equity (deficit) | ||||||||||||||||||||||||||||
| Balance as of January 1, 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 June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| For the six months ended June 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 | - | - | 199,418,592 | $ | 199,418 | 7,018,942,195 | $ | 7,018,942 | $ | 53,699,861 | $ | (66,300,687 | ) | $ | 42,597 | $ | (960,202 | ) | $ | (6,300,071 | ) | |||||||||||||||||||||||
| 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 | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | - | - | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
F-30
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| (Restated) | ||||||||
| 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 | ( | ) | ( | ) | ||||
| 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 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.
F-31
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 |
F-32
| ● | 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 June 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.
F-33
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 six months ended June 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 June 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. |
F-34
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 June 30, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
| June 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 June 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.
F-35
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 June 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 June 30, 2021 and 2020 amounted to $
Depreciation expense from continuing operations
for the six months ended June 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 June 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 June 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.
F-36
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.
F-37
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 June 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 June 30, 2021 and 2020:
| June 30, 2021 | June 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.
F-38
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 six months ended June 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:
| Six months ended June 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 six months ended June 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.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Although the new standard, known as the current expected credit loss (“CECL”) model, has a greater impact on financial institutions, most other organizations with financial instruments or other assets (trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity (HTM) debt securities) are subject to the CECL model and will need to use forward-looking information to better evaluate their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for public companies for fiscal years beginning after December 15, 2019. In November of 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
F-39
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASC 350). The standard eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (the Step 2 test) from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. The guidance is effective for the Company beginning after December 15, 2022 and aligns with the effective date of ASU 2016-13. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. For public business entities, it is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In June 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of this standard on its 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 June 30, 2021 and December 31, 2020, property and equipment consisted of the following:
| Useful life | June 30, 2021 | December 31, 2020 | ||||||||
| Office equipment | ||||||||||
| Motor vehicle | ||||||||||
| Yacht | ||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
Depreciation expense for the six months ended
June 30, 2021 and 2020 amounted to $
Depreciation expense for the three months ended
June 30, 2021 and 2020 amounted to $
F-40
NOTE 3 –INTANGIBLE ASSETS
As of June 30, 2021 and December 31, 2020, intangible assets consisted of the following:
| Useful life | June 30, 2021 | December 31, 220 | ||||||||
| Other intangible assets | ||||||||||
| Redemption code | ||||||||||
| Goodwill | infinite | |||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||
| Less: impairment loss | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
Annual amortization of intangible assets attributable to future periods is as follows:
| Year ending June 30: | Amount | |||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| $ | ||||
For the six months ended
June 30, 2021 and 2020, amortization of intangible assets amounted to $
For the three months
ended June 30, 2021 and 2020, amortization of intangible assets amounted to $
NOTE 4 – BANK LOANS
Bank loans of $
Revolving credit line of $
At June 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. |
F-41
At June 30, 2021 and December 31, 2020, bank loans consisted of the following:
| June 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 $
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 $
F-42
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,
On May 13, 2021, pursuant
to a securities purchase agreement,
F-43
On June 29, 2021, pursuant
to a securities purchase agreement,
As of June 30, 2021 and December 31, 2020, convertible debt consisted of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| Principal | $ | $ | ||||||
| Unamortized discount | ( | ) | ||||||
| Convertible debt, net | $ | $ | ||||||
The amortization of discount
was $
The amortization of discount
was $
As of June 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 June 30, 2021, the Company repaid to Chan Tin Chi Family Company Limited for working capital totaled $106,657. During the period ended June 30, 2020, the Company repaid to Chan Tin Chi Family Company Limited for working capital totaled $110,113. As of June 30, 2021 and December 31, 2020, amounts due to Chan Tin Chi Family Company Limited amounted to $1,710,912 and $1,817,569, respectively.
At June 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 June 30, 2021 and
December 31, 2020, the Company has
F-44
Preferred stock issued for services and acquisition of a non-wholly owned subsidiary
During the year ended
December 31, 2020,
Common stock issued for services
During the period ended June 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 June 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 June 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 June 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 June 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
F-45
NOTE 8 – CONCENTRATIONS
Customers
For the three and six
months ended June 30, 2021 and 2020, there are no customers representing more than
Vendors
For the three and six
months ended June 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,
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 June 30, 2021, up through September 7, 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 July 29, 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 $102,564. The Pyram Note is a convertible into shares of the common stock of the Company at a price equal to 70% of the average closing prices for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date.
F-46
[OUTSIDE BACK COVER PAGE]
PROSPECTUS
SHARING ECONOMY INTERNATIONAL INC.
294,117,647 SHARES OF
COMMON STOCK
We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or a solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein nor the affairs of the Issuer have not changed since the date hereof.
Until ___________, 2021 (90 days after the date of this prospectus), all dealers that effect transactions in these shares of common stock may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.
THE DATE OF THIS PROSPECTUS IS ____________, 2021
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the issuance and distribution of the securities being registered hereby. All such expenses will be borne by the Company; none shall be borne by any Selling Security Holder.
| Item | Amount ($) | |||
| SEC Registration Fee | $ | 545.50 | ||
| Accounting Fees | 3,500.00 | |||
| Printing Costs | 1,500.00 | |||
| Legal fees and expenses | 20,000.00 | |||
| TOTAL | $ | 25,545.50 | ||
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company’s Bylaws and Articles of Incorporation provide that we shall, to the full extent permitted by the Nevada Revised Statutes, as amended from time to time (the “Nevada Corporate Law”), indemnify all of our directors and officers. Section 78.7502 of the Nevada Corporate Law provides in part that a corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of another corporation or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
Similar indemnity is authorized for such persons against expenses (including attorneys’ fees) actually and reasonably incurred in defense or settlement of any threatened, pending or completed action or suit by or in the right of the corporation, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and provided further that (unless a court of competent jurisdiction otherwise provides) such person shall not have been adjudged liable to the corporation. Any such indemnification may be made only as authorized in each specific case upon a determination by the stockholders or disinterested directors that indemnification is proper because the indemnitee has met the applicable standard of conduct. Under our Bylaws and Articles of Incorporation, the indemnitee is presumed to be entitled to indemnification and we have the burden of proof to overcome that presumption. Where an officer or a director is successful on the merits or otherwise in the defense of any action referred to above, we must indemnify him against the expenses which such offer or director actually or reasonably incurred. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
II-1
RECENT SALES OF UNREGISTERED SECURITIES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this registration statement:
| (1) | Incorporated by reference to Current Report on Form 8-K (File No. 001-34591), filed with the Securities and Exchange Commission on December 31, 2019. |
| (2) | Incorporated by reference to Annual Report on Form 10-K (File No. 001-34591), filed with the Securities and Exchange Commission on April 11, 2013. |
| (3) | Incorporated by reference to Current Report on Form 8-K (File No. 001-34591), with the Securities and Exchange Commission on March 1, 2017. |
| (4) | Incorporated by reference to the Current Report on Form 8-K (File No. 001-34591), filed with the Securities and Exchange Commission on September 12, 2018. |
| (5) | Incorporated by reference to the Form 10-K (File No. 001-34591), with the Securities and Exchange Commission on April 16, 2019. |
| (6) | Incorporated by reference to the Amendment No. 1 to Preliminary Information Statement on Schedule 14C (File No. 001-34591), with the Securities and Exchange Commission on February 26, 2020. |
| (7) | Incorporated by reference to the Form 8-K (File No. 001-34591), with the Securities and Exchange Commission on August 9, 2012. |
| (8) | Incorporated by reference to Registration Statement on Form S-8 (File No. 333-251861), filed with the Securities and Exchange Commission on December 31, 2020. |
| (9) | Incorporated by reference to the Form 10-K (File No. 001-34591), filed with the Securities and Exchange Commission on March 31, 2009. |
| (10) | Incorporated by reference to Annual Report on Form 10-K (File No. 001-34591), filed with the Securities and Exchange Commission on April 16, 2021. |
*Filed herewith.
II-2
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales of securities are being made, a post-effective amendment to this registration statement to: |
| (i) | Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
| (i) | If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| (5) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; | |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; | |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or our securities provided by or on behalf of the undersigned registrant; and | |
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in Hong Kong, Special Administrative Region of the People’s Republic of China, on October 26, 2021.
SHARING ECONOMY INTERNATIONAL INC. (Registrant) |
||
| Dated: October 26, 2021 | By: | /s/ Chan Che Chung Anthony |
| Name: | Chan Che Chung Anthony | |
| Title: | Chief Executive Officer (principal executive officer) |
|
| Dated: October 26, 2021 | By: | /s/ Ka Man Lam |
| Name: | Ka Man Lam | |
| Title: | Chief Financial Officer (principal financial officer and principal accounting officer) |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Chan Che Chung Anthony, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement on Form S-1 of Sharing Economy International Inc., and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, grant unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.
| Dated: October 26, 2021 | By: | /s/ Chan Che Chung Anthony |
| Name: | Chan Che Chung Anthony | |
| Title: | Chief Executive Officer, President, Chairman of the Board of Directors (principal executive officer) |
| Dated: October 26, 2021 | By: | /s/ Ka Man Lam |
| Name: | Ka Man Lam | |
| Title: | Chief Financial Officer, Secretary and Treasurer (principal financial
officer and principal accounting officer) |
| Dated: October 26, 2021 | By: | /s/ Ping Kee Lau |
| Name: | Ping Kee Lau | |
| Title: | Director |
| Dated: October 26, 2021 | By: | /s/ Cheng Wai Yin |
| Name: | Cheng Wai Yin | |
| Title: | Director |
| Dated: October 26, 2021 | By: | /s/ Shao Yuan Guo |
| Name: | Shao Yuan Guo | |
| Title: | Director |
| Dated: October 26, 2021 | By: | /s/ Michael Bibat Bautista |
| Name: | Michael Bibat Bautista | |
| Title: | Director |
II-4
EXHIBIT 5.1
Law Offices of Thomas E. Puzzo, PLLC
3823 44th Ave. NE
Seattle, WA 98105
USA
Direct: (206) 522-2256
E-mail: tpuzzo@puzzolaw.com
October 26, 2021
VIA ELECTRONIC TRANSMISSION
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
| Re: | Sharing Economy International, Inc., a Nevada corporation; Registration Statement on Form S-1 |
Ladies and Gentlemen:
We have acted as counsel to Sharing Economy International, Inc., a Nevada corporation (the “Company”), in connection with the registration statement on Form S-1 (the “Registration Statement”), filed by the Company with the Securities and Exchange Commission, pursuant to the Securities Act of 1933, as amended (the “Securities Act”), with respect to the registration, offer and resale of up to 294,117,647 shares of common stock, par value $0.001 per share (the “Shares”), of the Company, by certain selling stockholders of the Company.
We have examined the originals, photocopies, certified copies or other evidence of such records of the Company, certificates of officers of the Company and public officials, and other documents we have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as certified copies or photocopies and the authenticity of the originals of such latter documents.
Based on our examination mentioned above, we are of the opinion that the Shares being sold pursuant to the Registration Statement are duly authorized, and will be, when issued in the manner described in the Registration Statement, legally and validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm in the related Prospectus. In giving the foregoing consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Act, or the rules and regulations of the Securities and Exchange Commission.
|
Very truly yours,
/s/ Law Offices of Thomas E. Puzzo, PLLC |
|||
Exhibit 10.1
INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (the “Agreement”), dated as of May 05, 2021 (the “Execution Date”), is entered into by and between Sharing Economy International Inc., (the “Company”), a Nevada corporation organized under the laws of the united States, with its principal executive offices at No. 85 Castle Peak Road Castle Peak Bay, Tuen Mun, N.T., Hong Kong, and Strattner Alternative Credit Fund LP (the “Investor”), a Delaware limited partnership company, with its principal executive offices at 30 Wall Street, 8th Floor, 10005, New York. Each of the Company and the Investor may be referred to herein as a “Party” and collectively as the “Parties.”
RECITALS:
A. The Parties desire that, upon the terms and subject to the conditions contained herein, the Investor shall invest up to Five Million Dollars ($5,000,000) (the “Commitment Amount”) to purchase the Company’s Common Shares, No par value per share (the “Common Shares”).
A. Such investments will be made in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”), Rule 506 of Regulation D promulgated by the SEC under the 1933 Act, and/or upon such other exemption from the registration requirements of the 1933 Act as may be available with respect to any or all of the investments in Common Shares to be made hereunder.
A. Such investments will also be made in reliance upon an exemption from the prospectus requirements of applicable securities laws in _______________.
A. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto as Exhibit A (the “Registration Rights Agreement”) pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act, and the rules and regulations promulgated thereunder, and applicable state securities laws.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing recitals, which shall be considered an integral part of this Agreement, the covenants and agreements set forth hereafter, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Investor hereby agree as follows:
SECTION I.
DEFINITIONS
For all purposes of and under this Agreement, the following terms shall have the respective meanings below, and such meanings shall be equally applicable to the singular and plural forms of such defined terms.
“1933 Act” shall have the meaning set forth in the recitals.
“1934 Act” shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the SEC thereunder, all as the same will then be in effect.
“Affiliate” shall mean any individual or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with another individual or entity as such terms are used in and construed under Rule 405 under the 1933 Act.
“Agreement” shall have the meaning set forth in the preamble.
“Articles of Incorporation” shall have the meaning set forth in Section 4.3.
“By-laws” shall have the meaning set forth in Section 4.3.
“Certificate” shall have the meaning set forth in Section 2.6.
“Closing” shall have the meaning set forth in Section 2.6.
“Closing Date” shall have the meaning set forth in Section 2.6.
“Commitment Amount” shall have the meaning set forth in the recitals.
“Commitment Fee Shares” shall have the meaning set forth in Section 10.17.
“Common Shares” shall have the meaning set forth in the recitals.
“Company” shall have the meaning set forth in the preamble.
“DTC” shall have the meaning set forth in Section 2.5.
“DWAC” shall mean Deposit and Withdrawal at Custodian service provided by the Depository Trust Company.
“Effective Date” shall mean the date the SEC declares effective under the 1933 Act the Registration Statement covering the Securities.
“Execution Date” shall have the meaning set forth in the preamble.
“S-1 Filing Deadline” shall have the meaning set forth in Section 10.17.
“FAST” shall have the meaning set forth in Section 2.5.
“Investor” shall have the meaning set forth in the preamble.
“Material Adverse Effect” shall have the meaning set forth in Section 4.1.
“Maximum Common Share Issuance” shall have the meaning set forth in Section 2.67.
“Open Period” shall mean the period beginning on and including the Trading Day immediately following the Effective Date and ending on the earlier to occur of (i) the date which is thirty-six (36) months from the Effective Date; or (ii) termination of the Agreement in accordance with Section 8.
“PCAOB” shall have the meaning set forth in Section 4.6.
“Pricing Period” shall mean, with respect to a particular Put Notice, the five (5) consecutive Trading Days including and immediately following the applicable Put Notice Date.
“Principal Market” shall mean the New York Stock Exchange, the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the OTC Bulletin Board or the OTC Markets Group, whichever is the principal market on which the Common Shares are traded.
“Purchase Amount” shall mean the total amount being paid by the Investor on a particular Closing Date to purchase the Securities, calculated by multiplying the Purchase Price by the Put Amount.
2
“Purchase Price” shall mean the 85% of the lowest VWAP (defined below) of the Common Shares during the Pricing Period applicable to the Put Notice, provided, however, an additional 10% will be added to the discount of each Put if (i) the Company is not DWAC eligible and (ii) an additional 15% will be added to the discount of each Put if the Company is under DTC “chill” status on the applicable Put Notice Date.
“Put” shall have the meaning set forth in Section 2.2.
“Put Amount” shall have the meaning set forth in Section 2.3.
“Put Notice” shall mean a written notice sent to the Investor by the Company stating the Put Amount in U.S. dollars that the Company intends to sell to the Investor pursuant to the terms of the Agreement and stating the current number of Shares issued and outstanding on such date.
“Put Notice Date” shall mean the Trading Day on which the Investor receives a Put Notice, determined as follows: a Put Notice shall be deemed delivered on (a) the Trading Day it is received by electronic mail or otherwise by the Investor if such notice is received prior to 9:30 a.m. (Pacific time), or (b) the immediately succeeding Trading Day if it is received by electronic mail or otherwise after 9:30 a.m. (Pacific time) on a Trading Day. No Put Notice may be deemed delivered on a day that is not a Trading Day.
“Put Settlement Sheet” shall mean a written letter to the Company by the Investor, evidencing acceptance of the Put and providing instructions for delivery of the Securities to the Investor.
“Put Shares Due” shall mean the Shares to be sold to the Investor pursuant to the Put.
“Registered Offering Transaction Documents” shall mean this Agreement and the Registration Rights Agreement between the Company and the Investor as of the date herewith.
“Registration Rights Agreement” shall have the meaning set forth in the recitals.
“Registration Statement” or “S-1” means the registration statement of the Company filed under the 1933 Act covering the resale of the Securities issuable hereunder to the Investor, in the manner described in such Registration Statement.
“Resolutions” shall have the meaning set forth in Section 7.5.
“SEC” shall mean the U.S. Securities and Exchange Commission.
“SEC Documents” shall have the meaning set forth in Section 4.6.
“Securities” shall mean the Common Shares issued pursuant to the terms of the Agreement.
“Shares” shall mean the Common Shares of the Company.
“Trading Day” shall mean any day on which the Principal Market for the Common Shares is open for trading, from the hours of 9:30 am until 4:00 pm.
“VWAP” shall mean, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Shares are then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Shares for such date (or the nearest preceding date) on the Trading Market on which the Common Shares are then listed or quoted for trading as reported by (i) Bloomberg Financial L.P. or (ii) Stock Charts/Quote Media if the Investor does not promptly provide the Company the Bloomberg quote/pricing charts for the days involved upon the Company’s request (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)) and (b) in all other cases, the fair market value of a Common Share as determined by an independent appraiser selected in good faith by the Investor and to the Company.
3
“Waiting Period” shall have the meaning set forth in Section 2.3.
SECTION II
PURCHASE AND SALE OF COMMON SHARES
2.1 PURCHASE AND SALE OF COMMON SHARES. Subject to the terms and conditions set forth herein, the Company may issue and sell to the Investor, and the Investor shall purchase from the Company, up to that number of Shares having an aggregate Purchase Price of Five Million Dollars ($5,000,000).
2.2 DELIVERY OF PUT NOTICES. Subject to the terms and conditions of the Registered Offering Transaction Documents, and from time to time during the Open Period, the Company may, in its sole discretion, deliver to the Investor: (i) a Put Notice which states the share amount (designated in whole Common Shares of the Company), which the Company intends to sell to the Investor on a Closing date (the “Put”), and (ii) an issuance resolution, which shall be in the form as required by the Company’s transfer agent. The Put Notice shall be in the form attached hereto as Exhibit B and incorporated herein by reference. The Investor shall deliver to the Company a Put Settlement Sheet on each applicable Closing Date. The Put Settlement Sheet shall be in the form attached hereto as Exhibit C and incorporated herein by reference.
2.3 PUT FORMULA. The maximum amount of Common Shares that the Company shall be entitled to Put to the Investor per any applicable Put Notice shall be an amount of shares up to or equal to two hundred percent (200%) of the average of the daily trading volume of the Common Shares for the ten (10) consecutive Trading Days immediately prior to the applicable Put Notice Date (the “Put Amount”) so long as such amount is at least Five Thousand Dollars ($5,000) and does not exceed Two Hundred Fifty Thousand Dollars ($250,000), as calculated by multiplying the Put Amount by the average daily VWAP for the ten (10) consecutive Trading Days immediately prior to the applicable Put Notice Date. During the Open Period, the Company shall not be entitled to submit a Put Notice until after the previous Closing has been completed. Notwithstanding the foregoing, the Company may not deliver a Put Notice on or earlier of the tenth (10th) Trading Day immediately following the preceding Put Notice Date (the “Waiting Period”), unless a written waiver to deliver Put Notice during the Waiting Period is obtained by the Company from the Investor in advance.
2.4 CONDITIONS TO INVESTOR’S OBLIGATION TO PURCHASE SHARES. Notwithstanding anything to the contrary in this Agreement, the Company shall not be entitled to deliver a Put Notice and the Investor shall not be obligated to purchase any Shares at a Closing unless each of the following conditions are satisfied:
i. a Registration Statement shall have been declared effective and shall remain effective, usable and available for the resale of all the Put Shares Due at all times until the Closing with respect to the applicable Put Notice;
ii. at all times during the period beginning on the related Put Notice Date and ending on and including the related Closing Date, the Common Shares shall have been listed or quoted for trading on the Principal Market and shall not have been suspended from trading thereon during the Pricing Period (excluding suspensions of not more than one (1) Trading Day resulting from business announcements by the Company, provided that such suspensions occur prior to the Company’s delivery of a Put Notice);
iii. the Company has complied with its obligations and is otherwise not in material breach of or in material default under, this Agreement, the Registration Rights Agreement or any other agreement executed in connection herewith which has not been cured prior to delivery to the Investor of the applicable Put Notice;
iv. No injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Securities; and
v. the issuance of the Securities will not violate any shareholder approval requirements of the Principal Market.
4
If any of the events described in clauses (i) through (v) above occurs during a Pricing Period, then the Investor shall have No obligation to purchase the Put Amount of Common Shares set forth in the applicable Put Notice.
2.5 MECHANICS OF PURCHASE OF SHARES BY INVESTOR. If the Company’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, and the Securities are eligible for inclusion in the FAST program, the Company shall use all commercially reasonable efforts to cause its transfer agent to electronically transmit the Securities to the Investor within one (1) Trading Day following delivery by the Company of a Put Notice by crediting the account of the Investor’s prime broker, as specified by the Investor, with DTC through its DWAC or DRS service. If the Company is not DWAC or DRS eligible or the Company is under DTC “chill” on such Closing Date (defined below), the Company shall deliver to the Investor pursuant to this Agreement, certificate or certificates representing the Securities to be issued to the Investor on such date and registered in the name of the Investor (the “Certificate”). Subject to the satisfaction of the conditions set forth in Sections 2.6 and 7 of this Agreement, the closing of the purchase by the Investor of Securities (a “Closing”) shall occur on the date which is No earlier than five (5) Trading Days following and No later than seven (7) Trading Days following the applicable Put Notice Date (each, a “Closing Date”). On such Closing, but not prior to receipt of confirmation of delivery of such Securities to the Investor, the Investor shall disburse the funds constituting the Purchase Amount to an account designated by the Company by wire transfer of (i) immediately available funds if the Investor receives the Securities by 10:00 a.m. (Pacific time) or (ii) next day available funds if the Investor receives the Securities thereafter.
2.6 OVERALL LIMIT ON COMMON SHARES ISSUABLE. Notwithstanding anything contained herein to the contrary, if during the Open Period the Company becomes listed on an exchange that limits the number of Common Shares that may be issued without shareholder approval, if applicable, then the number of Shares issuable by the Company and purchasable by the Investor, shall not exceed that number of the Common Shares that may be issuable without shareholder approval (the “Maximum Common Share Issuance”). If such issuance of Common Shares could cause a delisting on the Principal Market, then the Maximum Common Share Issuance shall first be approved by the Company’s shareholders in accordance with applicable law and the By-laws and the Articles of Incorporation of the Company, if such issuance of shares of Common Share could cause a delisting on the Principal Market. The parties understand and agree that the Company’s failure to seek or obtain such shareholder approval shall in No way adversely affect the validity and due authorization of the issuance and sale of Securities or the Investor’s obligation in accordance with the terms and conditions hereof to purchase a number of Shares in the aggregate up to the Maximum Common Share Issuance limitation, and that such approval pertains only to the applicability of the Maximum Common Share Issuance limitation provided in this Section 2.6.
2.7 LIMITATION ON AMOUNT OF OWNERSHIP. Notwithstanding anything to the contrary in this Agreement, in No event shall the Investor be entitled to purchase that number of Shares, which when added to the sum of the number of Common Shares beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the 1934 Act), by the Investor, would exceed 9.99% of the number of Common Shares outstanding on the Closing Date, as determined in accordance with Rule 13d-1(j) of the 1934 Act.
SECTION III
INVESTOR’S REPRESENTATIONS, WARRANTIES AND COVENANTS
The Investor represents and warrants to the Company, and covenants, that:
3.1 SOPHISTICATED INVESTOR. The Investor has, by reason of its business and financial experience, such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that it is capable of (i) evaluating the merits and risks of an investment in the Securities and making an informed investment decision, and has so evaluated the merits and risks of such investment; (ii) protecting its own interest; and (iii) bearing the economic risk of such investment for an indefinite period of time. The Investor is not resident in Australia, it is not formed under the laws of Australia or any of its provinces or territories, and does not have a physical or operational presence in Australia other than occasional investments in publicly traded companies from time to time.
5
3.2 AUTHORIZATION; ENFORCEMENT. This Agreement and the purchase by the Investor of the Securities hereunder has been duly and validly authorized, executed and delivered on behalf of the Investor and constitutes the valid and binding agreement of the Investor enforceable against the Investor in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors ’rights and remedies.
3.3 SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the Investor will comply with the provisions of Section 9 of the 1934 Act, and the rules promulgated thereunder, with respect to transactions involving the Common Shares. The Investor agrees not to short sell or hedge the Company’s stock either directly or indirectly through its affiliates, parent or subsidiary companies, principals or advisors, the Common Shares during the term of this Agreement. The Investor will only sell Company stock that it has in its possession.
3.4 ACCREDITED INVESTOR. The Investor is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D of the 1933 Act or a “qualified institutional buyer” as defined in Rule 144A(a) under the 1933 Act, and has completed and provided to the Company the U.S. Accredited Investor Certificate, as set forth on Exhibit D to this Agreement. Investor is not a “disqualified investor” by virtue of the investor being subject to a “disqualifying event” as defined under Rule 506(b) through (e) of Regulation D of the 1933 Act as amended.
3.5 UNDERWRITER STATUS. The Investor is deemed an “underwriter” (as that term is defined in Section 2(a)(11) of the Securities Act) in connection with the registration of the Registrable Securities and will be identified as such in the Registration Statement. As an underwriter, the Investor will not have Rule 144 of the Securities Act available as a resale exemption from registration under the U.S. securities laws.
3.6 No CONFLICTS. The execution, delivery and performance of the Registered Offering Transaction Documents by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby will not (i) result in a violation of limited liability company agreement or other organizational documents of the Investor and/or (ii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Investor, except in the case of this clause (ii), for such that are not material and do not otherwise affect the ability of such Investor to consummate the transactions contemplated hereby. The business of the Investor is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for violations the sanctions for which either, individually or in the aggregate, would not have or reasonably be expected to have a material adverse effect on the Investor. Except as specifically contemplated by this Agreement and as required under the 1933 Act or any securities laws of any states, to the Investor’s knowledge, the Investor is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing of a registration statement as outlined in the Registration Rights Agreement) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Registered Offering Transaction Documents in accordance with the terms hereof or thereof except for those consents, authorizations, permits, orders or filings as have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof.
3.7 OPPORTUNITY TO DISCUSS. The Investor has had access to and received all materials and information relating to the Company’s business, finance and operations which it has requested. The Investor has had an opportunity to discuss the business, management and financial affairs of the Company with the Company’s management in order to evaluate the merits and risks of investing in the Securities.
3.8 INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own account for investment purposes and not with a view towards distribution and agrees to resell or otherwise dispose of the Securities solely in accordance with the registration provisions of the 1933 Act (or pursuant to an exemption from such registration provisions) and in compliance with applicable federal and state securities laws.
6
3.9 No REGISTRATION AS A DEALER. The Investor is not engaged in the business of being a broker-dealer and will not be required to be registered as a “dealer” under the 1934 Act, either as a result of its execution and performance of its obligations under this Agreement or otherwise.
3.10 GOOD STANDING. The Investor is a limited liability company, duly organized, validly existing and in good standing in the State of Wyoming with the requisite corporate, partnership or other power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder.
3.11 TAX LIABILITIES. The Investor understands that it is liable for its own tax liabilities and that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Investor in connection with the purchase of the Securities constitutes legal, tax or investment advice.
3.12 REGULATION M. The Investor will comply and be solely responsible with the requirements of Regulation M under the 1934 Act, if applicable.
3.13 GENERAL SOLICITATION. The Investor is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
3.14 TRANSFER RESTRICTIONS. The Securities may only be disposed of in compliance with federal and state securities laws of the United States. In connection with any transfer of Securities, other than pursuant to an effective registration statement, to the Company or to an affiliate of the Investor, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the 1933 Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of the Investor under this Agreement and the Registration Rights Agreement, as to issued Securities only.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedules attached hereto, or as disclosed on the Company’s SEC Documents, the Company represents and warrants to the Investor that:
4.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and validly existing in good standing under applicable laws of ___________________ and has the requisite corporate power and authorization to own its properties and to carry on its business as now being conducted. The Company is duly qualified to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect ” means a change, event, circumstance, effect or state of facts that has had or is reasonably likely to have, a material adverse effect on the business, properties, assets, operations, results of operations, financial condition or prospects of the Company, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Registered Offering Transaction Documents.
7
4.2 AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
i. The Company has the requisite corporate power and authority to enter into and perform the Registered Offering Transaction Documents, and to issue the Securities in accordance with the terms hereof and thereof.
ii. The execution and delivery of the Registered Offering Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the issuance of the Securities pursuant to this Agreement, have been duly and validly authorized by the Company’s board of directors and No further consent or authorization is required by the Company, its board of directors, or its shareholders.
iii. The Registered Offering Transaction Documents have been duly and validly executed and delivered by the Company.
iv. The Registered Offering Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors ’rights and remedies.
4.3 CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of an _____________________ shares of common stock, __________ par value per share, of which __________ were issued and outstanding as of March ___, 2021. All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and non-assessable.
Except as disclosed in the Company’s publicly available filings with the SEC, or as otherwise set forth on Schedule 4.3:
i. No shares of the Company’s capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company;
ii. there are no outstanding debt securities;
iii. there are no outstanding shares of capital stock, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company;
iv. there are no agreements or arrangements under which the Company is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement);
v. there are no outstanding securities of the Company which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company;
vi. there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in this Agreement;
vii. the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and
viii. there is no dispute as to the classification of any shares of the Company’s capital stock.
The Company has furnished to the Investor true and correct copies of the Company’s Articles of Incorporation, as in effect on the date hereof (the “Articles of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Shares and the material rights of the holders thereof in respect thereto.
4.4 ISSUANCE OF SHARES. The Company is authorized to issue an unlimited numbers of common shares voting and participating, without par value per share. Upon issuance in accordance with this Agreement, the Securities will be validly issued, fully paid for and non-assessable and free from all taxes, liens and charges with respect to the issue thereof.
8
4.5 NO CONFLICTS. The execution, delivery and performance of the Registered Offering Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (i) result in a violation of the Articles of Incorporation or the By-laws; or (ii) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Company is a party, or to the Company’s knowledge result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the rules and regulations of the Principal Market or principal securities exchange or trading market on which the Common Shares are traded or listed) applicable to the Company or by which any property or asset of the Company is bound or affected. The Company is not in violation of any term of, or in default under, the Articles of Incorporation or the By-laws or its organizational charter or by-laws, respectively, or any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company, except for possible conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not individually or in the aggregate have or constitute a Material Adverse Effect. To the knowledge of the Company, the business of the Company is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for possible violations the sanctions for which either individually or in the aggregate would not be likely to have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act, any securities laws of any states, or any other jurisdiction to which the Company is subject, to the Company’s knowledge, the Company is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing of a registration statement as outlined in the Registration Rights Agreement between the parties) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Registered Offering Transaction Documents in accordance with the terms hereof or thereof, except for the filing with and approval of the Registration Statement with the SEC. All consents, authorizations, permits, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof. The Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company is not, and will not be, in violation of the listing requirements of the Principal Market as in effect on the date hereof and on each of the Closing Dates and is not aware of any facts which would reasonably lead to delisting of the Common Shares by the Principal Market in the foreseeable future.
4. 6 SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, and amendments thereto, being hereinafter referred to as the “SEC Documents”). The Company has delivered to the Investor or its representatives, or they have had access through EDGAR to true and complete copies of the SEC Documents. As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC or the time they were amended, if amended, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with the International Financial Reporting Standards, by a firm that is a member of the Public Companies Accounting Oversight Board (“PCAOB”) consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other written information provided by or on behalf of the Company to the Investor which is not included in the SEC Documents, including, without limitation, information referred to in Section 4.3 of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. To the Company’s knowledge, neither it nor any of its officers, directors, employees or agents have provided the Investor with any material, nonpublic information which was not publicly disclosed prior to the date hereof and any material, nonpublic information provided to the Investor by the Company or any of their officers, directors, employees or agents prior to any Closing Date shall be publicly disclosed by the Company prior to such Closing Date.
9
4.7 ABSENCE OF CERTAIN CHANGES. Except as otherwise set forth in the SEC Documents and/or any press releases, the Company does not intend to change the business operations of the Company in any material way. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings.
4.8 ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS. Except as set forth in the SEC Documents, there is No action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of Company, threatened against or affecting the Company, the Common Shares or any of the Company ’s officers or directors in their capacities as such, in which an adverse decision could have a Material Adverse Effect.
4.9 ACKNOWLEDGMENT REGARDING INVESTOR’S PURCHASE OF SHARES. The Company acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length purchaser with respect to the Registered Offering Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Registered Offering Transaction Documents and the transactions contemplated hereby and thereby and any advice given by the Investor or any of its respective representatives or agents in connection with the Registered Offering Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Investor’s purchase of the Securities, and is not being relied on by the Company. The Company further represents to the Investor that the Company’s decision to enter into the Registered Offering Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.
4. 10 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as set forth in the SEC Documents or required with respect to the Registered Offering Transaction Documents, as of the date hereof, No event, liability, development or circumstance has occurred or exists, or to the Company’s knowledge is contemplated to occur, with respect to the Company or its business, properties, assets, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement filed with the SEC relating to an issuance and sale by the Company of its Common Shares and which has not been publicly announced.
4.11 EMPLOYEE RELATIONS. The Company is not involved in any union labor dispute nor, to the knowledge of the Company, is any such dispute threatened. The Company is not a party to a collective bargaining agreement, and the Company believes that relations with its employees are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company’s employ or otherwise terminate such officer’s employment with the Company.
4.12 INTELLECTUAL PROPERTY RIGHTS. The Company owns or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. Except as set forth in the SEC Documents, none of the Company’s trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights necessary to conduct its business as now or as proposed to be conducted have expired or terminated, or are expected to expire or terminate within two (2) years from the date of this Agreement, except as to certain trademarks that may remain pending. The Company does not have any knowledge of any infringement by the Company of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth in the SEC Documents, there is No claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company has taken commercially reasonable security measures to protect the secrecy, confidentiality and value of all of its intellectual properties.
10
4.13 [Reserved].
4.14 TITLE. The Company has good and marketable title to all personal property owned by it which is material to the business of the Company, free and clear of all liens, encumbrances and defects except such as are described in the SEC Documents or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company. Any real property and facilities held under lease by the Company is held by it under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company.
4.15 INSURANCE. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company reasonably believes to be prudent and customary in the businesses in which the Company is engaged. The Company has not been refused any insurance coverage sought or applied for and the Company has No reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.
4.16 REGULATORY PERMITS. The Company has in full force and effect all certificates, approvals, authorizations and permits from the appropriate federal, state, local or foreign regulatory authorities and comparable foreign regulatory agencies, necessary to own, lease or operate their respective properties and assets and conduct their respective businesses in the manner currently being conducted, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, approval, authorization or permit, except for such certificates, approvals, authorizations or permits which if not obtained, or such revocations or modifications which, would not have a Material Adverse Effect.
4.17 INTERNAL ACCOUNTING CONTROLS. Except as otherwise set forth in the SEC Documents, the Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles by a firm with membership to the PCAOB and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company’s management has determined that the Company’s internal accounting controls were not effective as of the date of this Agreement as further described in the SEC Documents.
4.18 NO MATERIALLY ADVERSE CONTRACTS, ETC. The Company is not subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. The Company is not a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.
4.19 TAX STATUS. The Company has made or filed all income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. The Company has not received written notice of unpaid taxes in any material amount claimed by the taxing authority of any jurisdiction, and the officers of the Company know of No basis for any such claim.
11
4.20 CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents and except for transactions pursuant to which the Company makes payments in the ordinary course of business upon terms No less favorable than the Company could obtain from disinterested third parties and other than the grant of stock options disclosed in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, consultants, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, such that disclosure would be required in the SEC Documents..
4.21 DILUTIVE EFFECT. The Company understands and acknowledges that the number of Common Shares issuable upon purchases pursuant to this Agreement will increase in certain circumstances including, but not necessarily limited to, the circumstance wherein the trading price of the Common Share declines during the period between the Effective Date and the end of the Open Period. The Company’s executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Agreement and recognize that they have a potential dilutive effect on the shareholders of the Company. The board of directors of the Company has concluded, in its good faith business judgment, and with full understanding of the implications, that such issuance is in the best interests of the Company. The Company specifically acknowledges that, subject to such limitations as are expressly set forth in the Registered Offering Transaction Documents, its obligation to issue shares of Common Share upon purchases pursuant to this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
4.22 NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Common Shares to be offered as set forth in this Agreement.
4.23 NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS. No brokers, finders or financial advisory fees or commissions will be payable by the Company, or its agents, with respect to the transactions contemplated by this Agreement.
SECTION V
COVENANTS OF THE COMPANY
5.1 BEST EFFORTS. The Company shall use all commercially reasonable efforts to timely satisfy each of the conditions set forth in Section 7 of this Agreement.
5.2 REPORTING STATUS. Until one of the following occurs, the Company shall concurrently file all reports with the SEC as and when required to be filed pursuant to applicable U.S., and the Company shall not terminate its status, or take an action or fail to take any action, which would terminate its status as a reporting company under the 1934 Act: (i) this Agreement terminates pursuant to Section 8 and the Investor has the right to sell all of the Securities without volume restrictions pursuant to Rule 144, if available, promulgated under the 1933 Act, or such other available exemption, or (ii) the date on which the Investor has sold all the Securities and this Agreement has been terminated pursuant to Section 8.
5.3 USE OF PROCEEDS. The Company will use the proceeds from the sale of the Securities (excluding amounts paid or to be paid by the Company for fees as set forth in the Registered Offering Transaction Documents, if any) for general corporate and working capital purposes, for acquisitions of assets, businesses or operations or for other purposes that the board of directors of the Company, in its good faith deem to be in the best interest of the Company and its shareholders.
5.4 FINANCIAL INFORMATION. During the Open Period, the Company agrees to make available to the Investor via EDGAR or other electronic means the following documents and information on the forms set forth: (i) within five (5) Trading Days after the filing thereof, a copy of its Annual Reports on Form 20-F, and any reports on Form 6-K and any Registration Statements or amendments filed pursuant to the 1933 Act; (ii) copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with the making available or giving thereof to the shareholders; and (iii) within two (2) calendar days of filing or delivery thereof, copies of all documents filed with, and all correspondence sent to, the Principal Market, any securities exchange or market, or the Financial Industry Regulatory Association, unless such information is material nonpublic information.
12
5.5 [Reserved].
5.6 LISTING. The Company shall use all commercially reasonable efforts to promptly secure and maintain the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) on the Principal Market and each other national securities exchange and automated quotation system, if any, upon which shares of Common Share are then listed (subject to official notice of issuance) and shall maintain, such listing of all Registrable Securities from time to time issuable under the terms of the Registered Offering Transaction Documents. The Company shall not take any action which would be reasonably expected to result in the delisting or suspension of the Common Shares on the Principal Market (excluding suspensions of not more than one (1) Trading Day resulting from business announcements by the Company). The Company shall promptly provide to the Investor copies of any notices it receives from the Principal Market regarding the continued eligibility of the Common Shares for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 5.6.
5.7 FILING OF FORM 6-K. On or before the date which is four (4) Trading Days after the Execution Date, the Company shall file a report on Form 6-K with the SEC describing the terms of the transaction contemplated by the Registered Offering Transaction Documents in the form required by the 1934 Act, if such filing is required.
5.8 CORPORATE EXISTENCE. The Company shall use all commercially reasonable efforts to preserve and continue the corporate existence of the Company.
5.9 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall promptly notify the Investor upon the occurrence of any of the following events in respect of a Registration Statement or related prospectus in respect of an offering of the Securities: (i) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Securities for sale in any jurisdiction or the initiation or notice of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company’s reasonable determination that a post-effective amendment or supplement to the Registration Statement would be appropriate, and the Company shall promptly make available to Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to Investor any Put Notice during the continuation of any of the foregoing events in this Section 5.9.
5.10 TRANSFER AGENT. Upon effectiveness of the Registration Statement, and for so long as the Registration Statement is effective, following delivery of a Put Notice, the Company shall deliver instructions to its transfer agent to issue Shares to the Investor that are covered for resale by the Registration Statement free of restrictive legends.
5.11 ACKNOWLEDGEMENT OF TERMS. The Company hereby represents and warrants to the Investor that: (i) it is voluntarily entering into this Agreement of its own freewill, (ii) it is not entering this Agreement under economic duress, (iii) the terms of this Agreement are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Agreement, advise the Company with respect to this Agreement, and represent the Company in connection with this Agreement.
13
SECTION VI
CONDITIONS OF THE COMPANY’S ELECTION TO SELL
There is no obligation hereunder of the Company to issue and sell the Securities to the Investor. However, an election by the Company to issue and sell the Securities hereunder, from time to time as permitted hereunder, is further subject to the satisfaction, at or before each Closing Date, of each of the following conditions set forth below. These conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion.
6.1 The Investor shall have executed this Agreement and the Registration Rights Agreement and delivered the same to the Company.
6.2 The Investor shall have delivered to the Company the Purchase Price for the Securities being purchased by the Investor between the end of the Pricing Period and the Closing Date via a Put Settlement Sheet; and the Investor shall have delivered to the Company a Put Settlement Sheet in the form attached here to as Exhibit C on each applicable Closing Date.
6.3 The representations and warranties of the Investor shall be true and correct in all material respects as of the date when made and as of the applicable Closing Date as though made at that time and the Investor shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by the Registered Offering Transaction Documents to be performed, satisfied or complied with by the Investor on or before such Closing Date.
6.4 No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.
SECTION VII
FURTHER CONDITIONS OF THE INVESTOR’S OBLIGATION TO PURCHASE
The obligation of the Investor hereunder to purchase Securities is subject to the satisfaction, on or before each Closing Date, of each of the following conditions set forth below.
7.1 The Company shall have executed the Registered Offering Transaction Documents and delivered the same to the Investor.
7.2 The Common Shares shall be authorized for quotation on the Principal Market and trading in the Common Shares shall not have been suspended by the Principal Market, the SEC, or the CSE, at any time beginning on the date hereof and through and including the respective Closing Date (excluding suspensions of not more than one (1) Trading Day resulting from business announcements by the Company, provided that such suspensions occur prior to the Company’s delivery of the Put Notice related to such Closing).
7.3 The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the applicable Closing Date as though made at that time and the Company shall have materially performed, satisfied and complied with the covenants, agreements and conditions required by the Registered Offering Transaction Documents to be performed, satisfied or complied with by the Company on or before such Closing Date. The Investor may request an update as of such Closing Date regarding the representation contained in Section 4.3.
14
7.4 The Company shall have executed and delivered to the Investor the certificate or certificates representing, or have executed electronic book-entry transfer of, the Securities (in such denominations as the Investor shall request) being purchased by the Investor at such Closing.
7.5 The board of directors of the Company shall have adopted resolutions consistent with Section 4.2(ii) (the “Resolutions”) and such Resolutions shall not have been materially amended or rescinded prior to such Closing Date.
7.6 No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.
7.7 The Registration Statement shall be effective and useable on each Closing Date and No stop order suspending the effectiveness of the Registration statement shall be in effect or to the Company’s knowledge shall be pending or threatened. Furthermore, on each Closing Date (i) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC ’s concerns have been addressed), and (ii) No other suspension of the use or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist.
7.8 At the time of each Closing, the Registration Statement (including information or documents incorporated by reference therein) and any amendments or supplements thereto shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or which would require public disclosure or an updated supplement to the prospectus.
7.9 [Reserved].
7.10 The conditions to such Closing set forth in Section 2.4 shall have been satisfied on or before such Closing Date.
7.11 The Company shall have certified to the Investor the number of Common Shares outstanding when a Put Notice is given to the Investor. The Company’s delivery of a Put Notice to the Investor constitutes the Company’s certification of the existence of the necessary number of Common Shares reserved for issuance.
SECTION VIII
TERMINATION
This Agreement shall terminate upon any of the following events:
i. when the Investor has purchased an aggregate of Five Million Dollars ($5,000,000) in the Common Shares of the Company pursuant to this Agreement;
ii. on the date which is thirty-six (36) months after the Effective Date; or
iii. at such time that the Registration Statement is No longer in effect; or
iv. at any time at the election of the Company upon 15 days written notice.
Any and all shares, or penalties, if any, due under this Agreement shall be immediately payable and due upon termination of this Agreement.
15
SECTION IX
SUSPENSION
This Agreement shall be suspended upon any of the following events, and shall remain suspended until such event is rectified:
i. The trading of the Common Shares is suspended by the SEC, the CSE, the Principal Market or FINRA for a period of two (2) consecutive Trading Days during the Open Period, but following the lifting of any suspension under this clause I, then this Agreement shall be immediately reinstated and effective until its earlier termination or expiration; or,
ii. During the Open Period the Common Shares ceases to be registered under the 1934 Act or listed or traded on the Principal Market or the Registration Statement is No longer effective (except as permitted hereunder).
Immediately upon the occurrence of one of the above-described events, the Company shall send written notice of such event to the Investor. Immediately upon the occurrence of one of the above-described event items (i) or (ii) of this Section IX, the Company shall send written notice of such event to the Investor. Upon the rectifying, curing or the lifting of an suspension/event noted in items (i) or (ii) above, the Company shall send written notice (which may take the form of an email) to Investor, the date of which (or the cure date set forth in such notice) shall be the date that the Agreement shall be once again effective.
SECTION X
MISCELLANEOUS
10.1 LAW GOVERNING THIS AGREEMENT. This Agreement shall be governed by, and construed and interpreted in accordance with, the substantive laws of the State of New York without giving effect to any conflict of laws rule or principle that might require the application of the laws of another jurisdiction. Any dispute, claim, suit, action or other legal proceeding arising out of the transactions contemplated by this Agreement or the rights and obligations of each of the parties shall be brought only in a competent court in State and City of New York or in the federal courts of the United States of America located in the Southern District of New York. The parties to this Agreement hereby irrevocably waive (i) any right to a jury trial and (ii) any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The parties executing this Agreement and other agreements referred to herein or delivered in connection herewith agree to submit to the in personam jurisdiction of such courts. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Documents by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
10.2 LEGAL FEES; AND MISCELLANEOUS FEES. Except as set forth in the Registered Offering Transaction Documents (including but not limited to Section 5 of the Registration Rights Agreement), each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. Any attorneys ’fees and expenses incurred by either the Company or the Investor in connection with the preparation, negotiation, execution and delivery of any amendments to this Agreement or relating to the enforcement of the rights of any party, after the occurrence of any breach of the terms of this Agreement by another party or any default by another party in respect of the transactions contemplated hereunder, to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, expense or liability resulted directly from any such act or failure to act undertaken or omitted to be taken by such party through its gross negligence or willful misconduct, shall be paid on demand by the party which breached the Agreement and/or defaulted, as the case may be. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of any Securities.
16
10.3 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by facsimile transmission, PDF, electronic signature or other similar electronic means with the same force and effect as if such signature page were an original thereof.
10.4 HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine.
10.5 SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisiction.
10.6 ENTIRE AGREEMENT; AMENDMENTS. This Agreement is the final Agreement between the Company and the Investor with respect to the terms and conditions set forth herein, and, the terms of this Agreement may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the Parties.
10.7 NOTICES. Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by electronic mail (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and email addresses for such communications shall be:
| If to the Company: | |||
| If to the Investor | Strattner Alternative Credit Fund LP | ||
| 30 Wall Street, 8th Floor | |||
| New York. NY 10005 | |||
| Email: compliance@strattners.com | |||
| With a copy (which shall | |||
| not constitute notice) to: | Kirton McConkie, P.C. | ||
| 50 East South Temple Street, Suite 400 | |||
| Salt Lake City, UT 84111 | |||
| ATTN: C. Parkinson Lloyd | |||
| Email: plloyd@kmclaw.com |
Each party shall provide five (5) business days prior written notice to the other party of any change in address or email address.
10.8 No ASSIGNMENT. This Agreement may not be assigned.
10.9 No THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
10.10 SURVIVAL. The representations and warranties of the Company and the Investor contained in Sections 3 and 4, the agreements and covenants set forth in Section 5 and this Section 11, shall survive each of the Closings and the termination of this Agreement.
17
10.11 PUBLICITY. The Company and the Investor shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and No party shall issue any such press release or otherwise make any such public statement without the prior consent of the other party, which consent shall not be unreasonably withheld or delayed, except that No prior consent shall be required if such disclosure is required by law, as determined solely by the Company in consultation with its counsel. The Investor acknowledges that this Agreement and all or part of the Registered Offering Transaction Documents may be deemed to be “material contracts” as that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore be required to file such documents as exhibits to reports or registration statements filed under the 1933 Act or the 1934 Act. The Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by the Company, in consultation with its counsel.
10.12 EXCLUSIVITY. The Company shall not pursue an equity line transaction similar to the transactions contemplated in this Agreement with any other person or entity until the earlier of (i) the Effective Date and (ii) termination of this Agreement in accordance with Section 8.
10.13 FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
10.14 No STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and No rules of strict construction will be applied against any party, as the parties mutually agree that each has had a full and fair opportunity to review this Agreement and seek the advice of counsel on it.
10.15 REMEDIES. The Investor shall have all rights and remedies set forth in this Agreement and the Registration Rights Agreement and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which the Investor has by law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any default or breach of any provision of this Agreement, including the recovery of reasonable attorney’s fees and costs, and to exercise all other rights granted by law.
10.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Investor hereunder or under the Registration Rights Agreement or the Investor enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
10.17 COMMITMENT FEE SHARES. Upon entry into this Investment Agreement, the Company commits to issue to the Investor 250,000 of its Common Shares as a commitment fee for this financing facility (the “Commitment Fee Shares”), which shall be issued and delivered to Investor within ten (10) Trading Days of the Execution Date. The Company agrees that the issuance of the Commitment Fee Shares is a material obligation and that the Commitment Fee Shares are considered fully-earned as of the Execution Date of this Agreement, regardless of whether or not the Company files the S-1 or is successful in having it deemed effective by the SEC.
18
SECTION XI
NON-DISCLOSURE OF NON-PUBLIC INFORMATION
11.1 NO DISCLOSURE OF NON-PUBLIC INFORMATION. The Company shall not disclose non-public information to the Investor, its advisors, or its representatives.
11.2 NO REQUIREMENT TO DISCLOSE NON-PUBLIC INFORMATION. Nothing in the Registered Offering Transaction Documents shall require or be deemed to require the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money Managing Members or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 12 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading.
SECTION XII
ACKNOWLEDGEMENTS OF THE PARTIES
Notwithstanding anything in this Agreement to the contrary, the parties hereto hereby acknowledge and agree to the following: (i) the Investor makes No representations or covenants that it will not engage in trading in the securities of the Company, other than the Investor will not short or pre-sell, either directly or indirectly through its affiliates, principals or advisors, the Common Shares at any time during the Open Period; (ii) the Company shall comply with its obligations under Section 5.8 in a timely manner; (iii) the Company has not and shall not provide material non-public information to the Investor unless prior thereto the Investor shall have executed a written agreement regarding the confidentiality and use of such information; and (iv) the Company understands and confirms that the Investor will be relying on the acknowledgements set forth in clauses (i) through (iii) above if the Investor effects any transactions in the securities of the Company.
[Signature page follows.]
19
Your signature on this Signature Page evidences your agreement to be bound by the terms and conditions of the Investment Agreement as of the date first written above. The undersigned signatory hereby certifies that he has read and understands the Investment Agreement, and the representations made by the undersigned in this Investment Agreement are true and accurate, and agrees to be bound by its terms.
| INVESTOR | ||
| Strattner Alternative Credit Fund LP | ||
| By: | /s/ Timo Strattner | |
| Name: | TIMO STRATTNER | |
| Title: | DIRECTOR | |
| COMPANY | ||
| Sharing Economy International Inc. | ||
| By: | /s/ Chan Che Chung Anthony | |
| Name: | Chan Che Chung Anthony | |
| Title: | Chairman | |
20
LIST OF EXHIBITS
| EXHIBIT A | Registration Rights Agreement |
| EXHIBIT B | Put Notice |
| EXHIBIT C | Put Settlement Sheet |
| EXHIBIT D | U.S. Accredited Investor Certificate |
21
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
See attached.
22
EXHIBIT B
FORM OF PUT NOTICE
Date:
RE: Put Notice Number __________________________________
Dear Mr. ____________________________________________,
This is to inform you that as of today, ________________________, a ___________________ corporation (the “Company”), hereby elects to exercise its right pursuant to the Investment Agreement to require Strattner Alternative Credit Fund LP, to purchase shares of its Common Share. The Company hereby certifies that:
Put Amount in Shares: ______________________________________.
The Pricing Period runs from ________________________________ until ___________________________________.
The current number of Common Shares issued and outstanding is: ___________________________________________.
The number of shares currently available for resale on the S-1 is: ____________________________________________.
| Regards, | ||
| By: | ||
| Name: | ||
| Title: | ||
23
EXHIBIT C
PUT SETTLEMENT SHEET
| Date: | ||
| Dear | , |
Pursuant to the Put given by ___________________________, a corporation organized under the laws of ___________________ (the “Company”), to Strattner Alternative Credit Fund LP (the “Investor”) on _________________, 202_, we are now submitting the purchase price for the Common Shares.
Purchase Price per Common Share: _______________________________________.
Shares Being Purchased _______________________________________________.
Total Purchase Price: _________________________________________________.
Please have a certificate bearing no restrictive legend issued to the Investor immediately and sent via DWAC to the following account:
[INSERT]
If not DWAC eligible, please send FedEx Priority Overnight to:
[INSERT ADDRESS]
Once the conditions of Section 2.5 have been met, we will have the funds wired to the Company.
| Regards, | ||
| By: | ||
| Name: | ||
| Title: | ||
24
EXHIBIT D
[TO BE PROVIDED}
25
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the “Agreement”), dated as of July 12, 2021 (the “Execution Date”), is entered into by and between Sharing Economy International inc., (the “Company”), a corporation organized under the laws of Delaware, with its principal executive offices at Cornwall Centre, no. 85 Castle Peak Road, Castle Peak Bay, Tuen Mun, N.T., Hong Kong, and Strattner Alternative Credit Fund LP, (the “Investor”), a Delaware limited partnership, with its principal executive offices at 30 Wall Street, 8th Floor, 10005, New York, NY.
RECITALS:
| A. | Pursuant to the Investment Agreement entered into by and between the Company and the Investor of this even date (the “Investment Agreement”), the Company has agreed to issue and sell to the Investor an indeterminate number of Common Shares of the Company, $0.0001 par value per share (the “Common Shares”), up to an aggregate purchase price of Five Million Dollars ($5,000,000). |
| B. | As an inducement to the Investor to execute and deliver the Investment Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder (the “1933 Act”), and applicable state securities laws, with respect to the Common Shares issuable pursuant to the Investment Agreement. |
AGREEMENT
NOW THEREFORE, in consideration of the foregoing promises and the mutual covenants contained hereinafter and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:
SECTION I DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings:
“1933 Act” shall have the meaning set forth in the recitals.
“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, or any similar successor statute.
“Agreement” shall have the meaning set forth in the preamble.
“Claims” shall have the meaning set forth in Section 6.1.
“Common Shares” shall have the meaning set forth in the recitals.
“Company” shall have the meaning set forth in the preamble.
“Execution Date” shall have the meaning set forth in the preamble.
“Indemnified Damages” shall have the meaning set forth in Section 6.1.
“Indemnified Party” shall have the meaning set forth in Section 6.1.
“Indemnified Person” shall have the meaning set forth in Section 6.1.
“Investment Agreement” shall have the meaning set forth in the recitals.
“Investor” shall have the meaning set forth in the preamble.
“Investor’s Delay” shall have the meaning set forth in Section 3.5.
“New Registration Statement” shall have the meaning set forth in Section 2.3.
“Person” means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.
“Principal Market” shall mean Canadian Securities Exchange, Nasdaq Capital Market, the NYSE Amex, the New York Stock Exchange, the Nasdaq Global Market, the Nasdaq Global Select Market or the OTCQB, or whichever is the principal market on which the Common Shares of the Company are listed.
“Register,” ”Registered,” and “Registration” refer to the Registration effected by preparing and filing one (1) or more Registration Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis, and the declaration or ordering of effectiveness of such Registration Statement(s) by the SEC.
“Registration Period” shall have the meaning set forth in Section 3.1.
“Registrable Securities” means (i) the Common Shares issuable pursuant to the Investment Agreement, (ii) the Common Stock set forth on Exhibit A hereto, and (iii) any shares of capital stock issuable with respect to such Common Shares, if any, as a result of any stock splits, stock dividends, or similar transactions, which have not been (x) included in the Registration Statement that has been declared effective by the SEC, or (y) sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the 1933 Act.
“Registration Default” shall have the meaning set forth in Section 3.3.
“Registration Statement” means the registration statement of the Company filed under the 1933 Act covering the Registrable Securities.
“Rule 144” means Rule 144 promulgated under the 1933 Act or any successor rule of the SEC.
“SEC” shall mean the U.S. Securities and Exchange Commission.
“Staff” shall have the meaning set forth in Section 2.3.
“Violations” shall have the meaning set forth in Section 6.1.
All capitalized terms used in this Agreement and not otherwise defined herein shall have the same meaning ascribed to them as in the Investment Agreement.
SECTION II REGISTRATION
2.1 The Company shall use its best efforts to, within ninety (90) days of the Execution Date file with the SEC a Registration Statement or Registration Statements (as is necessary) on Form S-3 or S-1 (or, if such form is unavailable for such a registration, on such other form as is available for such registration), covering the resale of up to $____________of the Registrable Securities, which Registration Statement(s) shall state that, in accordance with Rule 416 promulgated under the 1933 Act, such Registration Statement also covers such indeterminate number of additional Common Shares as may become issuable upon stock splits, stock dividends or similar transactions. The Company shall initially register for resale ___________ shares of Registrable Securities, except to the extent that the SEC may require such share amount to be reduced as a condition of effectiveness.
2.2 The Company shall use commercially reasonable efforts to have the Registration Statement(s) declared effective by the SEC within one hundred twenty (120) days but no more than one hundred fifty (150) days after the Company has filed the Registration Statement(s), subject to any SEC comments or objections which may remain unresolved on or after the 150th day that prevent the effectiveness of such Registration Statement, which shall not be a default hereunder or under the Investment Agreement.
2.3 Notwithstanding the registration obligations set forth in Section 2.1, if the staff of the SEC (the “Staff”) or the SEC informs the Company that all of the unregistered Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single Registration Statement, the Company agrees to promptly (i) inform the Investor and use its commercially reasonable efforts to file amendments to the Registration Statement as required by the SEC and/or (ii) withdraw the Registration Statement and file a new registration statement (the “New Registration Statement”), in either case covering the maximum number of Registrable Securities permitted to be registered by the SEC, on Form S-3 or S-1 to register for resale the Registrable Securities as a secondary offering. If the Company amends the Registration Statement or files a New Registration Statement, as the case may be, under clauses (i) or (ii) above, the Company shall use its commercially reasonable efforts to file with the SEC, as promptly as allowed by the Staff or SEC, one or more registration statements on Form S-3 or S-1 to register for resale those Registrable Securities that were not registered for resale on the Registration Statement, as amended, or the New Registration Statement. Additionally, the Company shall have the ability to file one or more New Registration Statements, without penalty or default, to cover the Registrable Securities once the Shares under the initial Registration Statement referenced in Section 2.1 have been sold.
2,4 Notwithstanding anything to the contrary herein, the Company shall not be obligated to file any Registration Statements with respect to Registrable Securities that have not been issued pursuant to the Investment Agreement prior to the expiration or termination of the Investment Agreement.
2
SECTION III RELATED OBLIGATIONS
At such time as the Company is obligated to prepare and file the Registration Statement with the SEC pursuant to Section 2, the Company shall effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, with respect thereto, the Company shall have the following obligations:
3.1 Upon the effectiveness of such Registration Statement relating to the Registrable Securities, the Company shall keep such Registration Statement effective until the earlier to occur of the date on which (A) the Investor shall have sold all the Registrable Securities actually issued under the Investment Agreement; or (B) the Investor has no right to acquire any additional Common Shares under the Investment Agreement; or (C) the Investor becomes eligible sell the Registrable Securities without volume limitations under Rule 144 (the “Registration Period”). The Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. The Investor agrees to provide all information which it is required by law to provide to the Company, including the intended method of disposition of the Registrable Securities, and the Company’s obligations set forth in this Agreement shall be conditioned on the receipt of such information.
3.2 The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement. In the event the number of Common Shares covered by the Registration Statement filed pursuant to this Agreement is at any time insufficient to cover all of the Registrable Securities and subject to Section 2.4 hereof, the Company shall amend such Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities, in each case, as soon as practicable, but in any event within thirty (30) calendar days after the necessity therefor arises (based on the then Purchase Price of the Common Shares and other relevant factors on which the Company reasonably elects to rely), assuming the Company has sufficient authorized shares at that time, and if it does not, within thirty (30) calendar days after such shares are authorized. The Company shall use commercially reasonable efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof.
3.3 As promptly as practicable after becoming aware of such event, the Company shall notify Investor in writing of the happening of any event as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (“Registration Default”) and use all diligent efforts to promptly prepare a supplement or amendment to such Registration Statement and take any other necessary steps to cure the Registration Default (which, if such Registration Statement is on Form F-3, may consist of a document to be filed by the Company with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act and to be incorporated by reference in the prospectus) to correct such untrue statement or omission, and make available copies of such supplement or amendment to the Investor. During the Registration Period, the Company shall also promptly notify the Investor (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when the Registration Statement or any posteffective amendment has become effective; (ii) of any request by the SEC for amendments or supplements to the Registration Statement or related prospectus or related information, (iii) of the Company’s reasonable determination that a post-effective amendment to the Registration Statement would be appropriate, (iv) in the event the Registration Statement is No longer effective, or (v) if the Registration Statement is stale as a result of the Company’s failure to timely file its financials or otherwise
3.4 The Company shall use all commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of the Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor holding Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding concerning the effectiveness of the Registration Statement.
3
3.5 The Company shall permit the Investor and one (1) legal counsel, designated by the Investor, to review and comment upon the Registration Statement and all amendments and supplements thereto at least one (1) calendar day prior to their filing with the SEC. However, any postponement of a filing of a Registration Statement or any postponement of a request for acceleration or any postponement of the effective date or effectiveness of a Registration Statement by written request of the Investor (collectively, the “Investor’s Delay”) shall not act to trigger any penalty of any kind, or any cash amount due or any in-kind amount due the Investor from the Company under any and all agreements of any nature or kind between the Company and the Investor. The event(s) of an Investor’s Delay shall act to suspend all obligations of any kind or nature of the Company under any and all agreements of any nature or kind between the Company and the Investor.
3.6 The Company shall hold in confidence and not make any disclosure of information concerning the Investor unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, (iv) such information is required to be submitted or disclosed in response to an SEC comment or pursuant to the 1933 Act and/or the 1934 Act, and the rules and regulations applicable thereto or (v) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning the Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Investor and allow the Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order covering such information.
3.7 The Company shall use all commercially reasonable efforts to maintain designation and quotation of all the Registrable Securities covered by any Registration Statement on the Principal Market. If, despite the Company’s commercially reasonable efforts, the Company is unsuccessful in satisfying the preceding sentence, it shall use commercially reasonable efforts to cause all the Registrable Securities covered by any Registration Statement to be listed on each other national securities exchange and automated quotation system, if any, on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or system. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3.7.
3.8 If requested by the Investor, the Company shall (i) as soon as reasonably practical incorporate in a prospectus supplement or post-effective amendment such information as the Investor reasonably determines should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the offering of the Registrable Securities to be sold in such offering; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as reasonably possible after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement if reasonably requested by the Investor.
3.9 The Company shall use all commercially reasonable efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to facilitate the disposition of such Registrable Securities.
3.10 The Company shall otherwise use all commercially reasonable efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.
3.11 The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to the Registration Statement.
SECTION IV OBLIGATIONS OF THE INVESTOR
4.1 At least five (5) calendar days prior to the first anticipated filing date of the Registration Statement, the Company shall notify the Investor in writing of the information the Company requires from the Investor for the Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities and the Investor agrees to furnish to the Company that information regarding itself, the Registrable Securities and the intended method of disposition of the Registrable Securities as shall reasonably be required to effect the registration of such Registrable Securities and the Investor shall execute such documents in connection with such registration as the Company may reasonably request. The Investor covenants and agrees that, in connection with any sale of Registrable Securities by it pursuant to the Registration Statement, it shall comply with the “Plan of Distribution” section of the then current prospectus relating to such Registration Statement.
4
4.2 The Investor, by its acceptance of the Registrable Securities, agrees to timely cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless the Investor has notified the Company in writing of an election to exclude all of the Investor’s Registrable Securities from such Registration Statement.
4.3 The Investor agrees that, upon receipt of written notice from the Company of the happening of any event of the kind described in Section 3.4 or the first sentence of Section 3.3, the Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until the Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.4 or the first sentence of Section 3.3.
SECTION V EXPENSES OF REGISTRATION
All legal expenses of the Company incurred in connection with registrations shall be paid by the Company.
SECTION VI INDEMNIFICATION
In the event any Registrable Securities are included in the Registration Statement under this Agreement:
6.1 To the fullest extent permitted by law, the Company, under this Agreement, will, and hereby does, indemnify, hold harmless and defend the Investor who holds Registrable Securities, the directors, officers, partners, employees, agents and representatives of, and each Person, if any, who controls, the Investor within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys’ fees, amounts paid in settlement or expenses, joint or several (collectively, “Claims”), incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in the Registration Statement or any post-effective amendment thereto, or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which the statements therein were made, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to the Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). Subject to the restrictions set forth in Section 6.3 the Company shall reimburse the Investor and each such controlling person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.1: (i) shall not apply to a Claim arising out of or based upon a Violation which is due to the inclusion in the Registration Statement of the information furnished to the Company by any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not be available to the extent such Claim is based on (a) a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company or (b) the Indemnified Person’s use of an incorrect prospectus despite being promptly advised in advance by the Company in writing not to use such incorrect prospectus; (iii) any claims based on the manner of sale of the Registrable Securities by the Investor or of the Investor’s failure to register as a dealer under applicable securities laws; (iv) any omission of the Investor to notify the Company of any material fact that should be stated in the Registration Statement or prospectus relating to the Investor or the manner of sale; and (v) any amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the resale of the Registrable Securities by the Investor pursuant to the Registration Statement. Notwithstanding anything to the contrary herein, the Company shall only be liable under this Section 6.1 for that amount of a Claim or Indemnified Damages as does not exceed _____________.
5
6.2 In connection with any Registration Statement in which Investor is participating, the Investor agrees to indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6.1, the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act and the Company’s agents (collectively and together with an Indemnified Person, an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation is due to the inclusion in the Registration Statement of the written information furnished to the Company by the Investor expressly for use in connection with such Registration Statement; and, subject to Section 6.3, the Investor shall reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6.2 and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Investor, which consent shall not be unreasonably withheld or delayed; provided, further, however, that the Investor shall only be liable under this Section 6.2 for that amount of a Claim or Indemnified Damages as does not exceed greater of the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement, and with respect to any portion of the Registrable Securities that are unsold, the value of such unsold Registrable Securities. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the resale of the Registrable Securities by the Investor pursuant to the Registration Statement. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.2 with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus were corrected on a timely basis in the prospectus, as then amended or supplemented.
6.3 Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the Indemnified Person or Indemnified Party, the representation by counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The indemnifying party shall pay for only one (1) separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such counsel shall be selected by the Investor, if the Investor is entitled to indemnification hereunder, or the Company, if the Company is entitled to indemnification hereunder, as applicable. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding affected without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such Claim. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.
6
6.4 The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
SECTION VII CONTRIBUTION
7.1 To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) No contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6; (ii) No seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities, or, if Registrable Securities are unsold, the value of such Registrable Securities.
SECTION VIII REPORTS UNDER THE 1934 ACT
8.1 After the Execution Date of the Registration Statement and with a view to making available to the Investor the benefits of Rule 144 that may at any time permit the Investor to sell securities of the Company to the public without registration, provided that the Investor holds any Registrable Securities that are eligible for resale under Rule 144, the Company agrees to:
| a. | make and keep public information available, as those terms are understood and defined in Rule 144; |
| b. | file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and |
| c. | furnish to the Investor, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, as applicable, and (ii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration. |
7
SECTION IX MISCELLANEOUS
9.1 NOTICES. Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by electronic mail (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and email addresses for such communications shall be:
| If to the Company: | Sharing Economy International Inc. | |
| Cornwall Centre, no. 85 Castle Peak Road, | ||
| Castle Peak Bay, Tuen Mun, N.T., | ||
| Hong Kong | ||
| ATTN: Lam Ka Man | ||
| If to the Investor: | Strattner Alternative Credit Fund LP | |
| 30 Wall Street, 8th Floor | ||
| New York, NY 10005 | ||
| ATTN: Dr. Timo Bernd Strattner | ||
| With a copy | Kirton McConkie, P.C | |
| (which shall not | 50 East South Temple Street, Suite 400 | |
| constitute notice) to: | Salt Lake City, UT 84111 | |
| ATTN: C. Parkinson Lloyd, Esq. | ||
| plloyd@kmclaw.com |
Each party shall provide five (5) business days prior written notice to the other party of any change in address or email address.
9.2 NO WAIVERS. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
9.3 NO ASSIGNMENTS. The rights and obligations under this Agreement shall not be assignable.
9.4 ENTIRE AGREEMENT/AMENDMENT. This Agreement and the Registered Offering Transaction Documents constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are No restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Registered Offering Transaction Documents supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. The provisions of this Agreement may be amended only with the written consent of the Company and Investor.
9.5 HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if all the parties had prepared the same.
9.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by facsimile transmission, PDF, electronic signature or other similar electronic means with the same force and effect as if such signature page were an original thereof.
8
9.7 FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
9.8 SEVERABILITY. In case any provision of this Agreement is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired thereby.
9.9 LAW GOVERNING THIS AGREEMENT. This Agreement shall be governed by, and construed and interpreted in accordance with the laws of the State of New York without giving effect to any conflict of laws rule or principle that might require the application of the laws of another jurisdiction. Any dispute, claim, suit, action or other legal proceeding arising out of the transactions contemplated by this Agreement or the rights and obligations of each of the parties shall be brought only in a competent court in the State and City of New York or in the federal courts of the United States of America located in the Southern District of New York. The parties to this Agreement hereby irrevocably waive (i) any right to a jury trial and (ii) any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The parties executing this Agreement and other agreements referred to herein or delivered in connection herewith agree to submit to the in personam jurisdiction of such courts. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Documents by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
9.10 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
[Signature page follows.]
9
Your signature on this Signature Page evidences your agreement to be bound by the terms and conditions of the Registration Rights Agreement as of the date first written above. The undersigned signatory hereby certifies that he has read and understands the Registration Rights Agreement, and the representations made by the undersigned in this Registration Rights Agreement are true and accurate, and agrees to be bound by its terms.
| STRATTNER ALTERNATIVE CREDIT FUND LP | ||
| By: | /s/ Timo Bernd Strattner | |
| Name: | Timo Bernd Strattner | |
| Title: | ||
| Sharing Economy International inc. | ||
| By: | /s/ Chan Che Chung Anthony | |
| Name: | Chan Che Chung Anthony | |
| Title: | Director | |
10
EXHIBIT 23.1
Sharing Economy International Inc.
No. 85 Castle Peak Road,
Castle Peak Bay
Tuen Mun, N.T., Hong Kong
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion in the Registration Statement on Form S-1 of Sharing Economy International Inc. of our report dated April 16, 2021, relating to our audit of the consolidated financial statements of Sharing Economy International Inc. and its subsidiaries for the years ended December 31, 2020 and 2019.
We also consent to the reference to us under the caption “Interest of Named Experts and Counsel” in the Registration Statement.
/s/ Audit Alliance LLP
Audit Alliance LLP
Singapore
October 26, 2021
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in this Registration Statement on Form S-1 and to all references to our firm included in this Registration Statement.
Certified Public Accountants
Lakewood, CO
October 26, 2021