NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
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 o
n
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 100% of the capital stock of Green Power Environment Technology (Shanghai) Co., Ltd. (“Green Power”) and, until
December 30, 2016, Fulland owned 100% of Wuxi Fulland Wind Energy Equipment Co., Ltd. (“Fulland Wind”). Green Power
is and Fulland Wind was a wholly foreign-owned enterprise (“WFOE”) organized under the laws of the People’s
Republic of China (“PRC” or “China”). Green Power is a party to a series of contractual arrangements,
as fully described below, dated October 12, 2007 with Wuxi Huayang Heavy Industries, Co., Ltd. (“Heavy Industries”),
formerly known as Wuxi Huayang Electrical Power Equipment Co., Ltd., and Wuxi Huayang Dyeing Machinery Co., Ltd. (“Dyeing”),
both of which are limited liability companies organized under the laws of, and based in, the PRC. Heavy Industries and Dyeing
are sometimes collectively referred to as the “Huayang Companies.”
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 30% equity interest and the unrelated third
party holds a 70% interest, pursuant to an agreement dated December 23, 2016. Shengxin intends to develop, construct and maintain
photovoltaic power generation projects, known as solar farms, in China, mainly in the provinces of GuiZhou and YunNan. However,
given the decrease in the Chinese government subsidies for utility scale solar projects in 2017 as well as the high cost of solar
components, Shengxin has not been able to locate any project. At December 31, 2017, Shengxin has not yet commenced operations.
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. The Company referred to this segment of its
business as the forged rolled rings and related components segment. On December 30, 2016, Fulland sold the stock of Fulland Wind
and accordingly, the forged rolled rings and related components business is reflected as a discontinued operation for all periods
presented (See Note 3).
Beginning
in February 2015, Heavy Industries began to produce equipment for the petroleum and chemical industries. The Company referred
to this segment of its business as the petroleum and chemical equipment segment. Because of a significant decline in revenues
from this segment, the Company determined it would not continue to operate in this segment and accordingly, the petroleum and
chemical equipment segment is reflected as a discontinued operations for all periods presented (See Note 3). As a result of the
discontinuation of the forged rolled rings and the petroleum and chemical equipment business, the Company’s business primarily
consists of the dyeing and finishing equipment business as its primary continuing operations since December 31, 2016.
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, recently, 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.
|
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
|
●
|
EC
Advertising Limited, 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, a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned
by Vantage.
|
|
●
|
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, a company incorporated under the laws of Hong Kong on August 24, 2015, and 51% of its shareholding was
acquired by EC Technology on December 8, 2017.
|
|
●
|
EC Creative Limited (“EC Creative”), a company incorporated under the laws of British Virgin
Islands on January 9, 2018 and is wholly-owned by Vantage.
|
|
●
|
3D
Discovery Co. Limited, 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
|
|
●
|
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.
|
|
●
|
Any
workspace 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.
|
Reverse
split; change in authorized common stock
On
February 24, 2017, the Company filed a certificate of change which effected a one-for-four reverse split, which became effective
in the marketplace on March 20, 2017, and a reduction in the Company’s authorized common stock from 50,000,000 shares to
12,500,000 shares. These consolidated financial statements have been retroactively restated to reflect this reverse split.
Going
concern
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 loss from continuing operations of $12,828,393 for the year ended December 31, 2017. The
net cash used in operations were $409,791 for the year ended December 31, 2017. Additionally, during the year ended December 31,
2017, revenues, substantially all of which are derived from the manufacture and sales of textile dyeing and finishing equipment,
decreased by 22.1% as compared to the year ended December 31, 2016. Management believes that these matters raise substantial doubt
about the Company’s ability to continue as a going concern. Management cannot provide assurance that the Company will ultimately
achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes
that its capital resources are not currently adequate to continue operating and maintaining its business strategy for twelve months
from the date of this report.
The
Company may seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although
the Company has historically raised capital from sales of equity and from bank loans, there is no assurance that it will be able
to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management
expects that the Company will need to curtail or cease operations. The accompanying consolidated financial statements do not include
any adjustments related to the recoverability and or classification of recorded asset amounts and or classification of liabilities
that might be necessary should the Company be unable to continue as a going concern.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Basis
of presentation
The
Company is on a fiscal year ending December 31; as such the year ended December 31, 2017 is referred to as “fiscal 2017”,
and the year ended December 31, 2016 is referred to as “fiscal 2016”.
Principles
of Consolidation
The
Company’s consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Fulland,
Green Power, Fulland Wind through the date of disposition, and its new subsidiaries discussed above, and the financial statements
of the Company’s variable interest entities Huayang Companies Dyeing, which conducts the Company’s continuing operations,
and Heavy Industries, which operated discontinued operations. All significant intercompany accounts and transactions have been
eliminated in consolidation.
On
December 30, 2016, the Company sold and transferred its 100% interest in Fulland Wind to an unrelated party and discontinued
the Company’s forged rolled rings and related components business
. Additionally,
the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant declines
in revenues and the loss of its major customer. As such,
forged rolled rings and related
components segment
’s and petroleum and chemical segment’s assets and liabilities have been classified on the
consolidated balance sheets as assets and liabilities of discontinued operations as of December 31, 2017 and 2016. The operating
results of the
forged rolled rings and related components
and petroleum and chemical
segments have been classified as discontinued operations in our consolidated statements of operations for all years presented.
Unless otherwise indicated, all disclosures and amounts in the notes to the consolidated financial statements are related to the
Company’s continuing operations.
Pursuant
to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities
(“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies
and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s wholly foreign-owned
enterprise in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC
laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities
incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements.
Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance
with the laws of the PRC. On October 12, 2007, the Company entered into the following contractual arrangements with each of Dyeing
and Heavy Industries:
Consulting
Services Agreement.
Pursuant to the exclusive consulting services agreements between Green Power and the Huayang Companies,
Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice
and strategic planning, as well as consulting services related to the technological research and development of dyeing and finishing
machines, electrical equipment and related components (the “Services”). Under this agreement, Green Power owns the
intellectual property rights developed or discovered through research and development, in the course of providing the Services,
or derived from the provision of the Services. The Huayang Companies shall pay a quarterly consulting service fees in Renminbi
(“RMB”) to Fulland that is equal to all of the Huayang Companies’ profits for such quarter. To date, no such
payments have been made and all profits were reinvested in the Company’s operations.
Operating
Agreement.
Pursuant to the operating agreement among Green Power, the Huayang Companies and all shareholders of the Huayang
Companies, Green Power provides guidance and instructions on the Huayang Companies’ daily operations, financial management
and employment issues. The Huayang Companies’ shareholders must designate the candidates recommended by Green Power as their
representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives
of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements
or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in
return, agree to pledge their accounts receivable and all of their assets to Green Power. Moreover, each of the Huayang Companies
agrees that, without the prior consent of Green Power, it will not engage in any transactions that could materially affect its
assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or
purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor
of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement,
as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation
prior to the expiration of the this agreement, with the extended term to be mutually agreed upon by the parties.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Equity
Pledge Agreement.
Under the equity pledge agreement between the Huayang Companies’ shareholders and Green Power,
the Huayang Companies’ shareholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee
the Huayang Companies’ performance of their respective obligations under the consulting services agreement. If the Huayang
Companies or the Huayang Companies’ shareholders breach their respective contractual obligations, Green Power, as pledgee,
will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies’ shareholders
also agreed that, upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney
to take actions in the place and stead of the Huayang Companies’ shareholders to carry out the security provisions of the
equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish
the purposes of the equity pledge agreement. The Huayang Companies’ shareholders agreed not to dispose of the pledged equity
interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years
after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.
Option
Agreement.
Under the option agreement between the Huayang Companies’ shareholders and Green Power, the Huayang
Companies’ shareholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the
extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions
to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated
person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended
on November 1, 2008, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the
parties.
Pursuant
to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, the accounts of the Huayang
Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies’ sales are included
in the Company’s total sales, its income from operations is consolidated with the Company’s, and the Company’s
net income includes all of the Huayang Companies net income. The Company does not record non-controlling interest on these VIE’s
and, accordingly, did not subtract any net income in calculating the net income of the VIEs that is attributable to the Company.
Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires consolidation
of the Company’s and the Huayang Companies’ financial statements.
There
are substantial uncertainties regarding the interpretation, application and enforcement of PRC laws and regulations, including
but not limited to the laws and regulations governing the Company’s business or the enforcement and performance of its contractual
arrangements. These contractual arrangements may not be as effective in providing the Company with control over the VIEs as direct
ownership. Due to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs,
which exposes it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example,
their interests as shareholders of the VIEs and the interests of the Company may conflict and the Company may fail to resolve
such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the
shareholders may otherwise act in bad faith. If any of the foregoing were to happen, the Company may have to rely on legal or
arbitral proceedings to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages.
Such arbitral and legal proceedings may cost substantial financial and other resources, and result in a disruption of its business,
and the Company cannot assure that the outcome will be in its favor. In addition, as all of these contractual arrangements are
governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would
be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal
environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in
the PRC legal system could further limit the Company’s ability to enforce these contractual arrangements. Furthermore, these
contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC
laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company is unable to enforce
any of these agreements, the Company would not be able to exert effective control over the affected VIEs and consequently, the
results of operations, assets and liabilities of the affected VIEs and their subsidiaries would not be included in the Company's
consolidated financial statements. If such were the case, the Company's cash flows, financial position and operating performance
would be materially adversely affected.
The
Company's agreements with respect to its consolidated VIEs are approved and in place. The Company's management believes that such
agreements are enforceable, and considers it a remote possibility that PRC regulatory authorities with jurisdiction over the Company's
operations and contractual relationships would find the agreements to be unenforceable under existing laws.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The
carrying amount of the VIE’s assets and liabilities are included in the accompanying consolidated financial statements of
the Company and are summarized as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
|
$
|
806,672
|
|
|
$
|
1,477,593
|
|
Accounts receivable, net
|
|
|
9,059,015
|
|
|
|
13,922,371
|
|
Inventory, net
|
|
|
4,553,559
|
|
|
|
2,394,179
|
|
Other current assets
|
|
|
5,901,119
|
|
|
|
8,157,961
|
|
Total current assets
|
|
|
20,320,365
|
|
|
|
25,952,104
|
|
|
|
|
|
|
|
|
|
|
Equity method investment
|
|
|
9,053,859
|
|
|
|
8,610,759
|
|
Property and equipment, net
|
|
|
33,115,975
|
|
|
|
29,878,675
|
|
Intangible assets, net
|
|
|
5,302,047
|
|
|
|
5,283,695
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
67,792,346
|
|
|
|
69,725,233
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
7,629,783
|
|
|
|
4,389,641
|
|
Intercompany payables
|
|
|
13,855,768
|
|
|
|
12,194,352
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
21,485,551
|
|
|
|
16,583,993
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
46,306,795
|
|
|
$
|
53,141,240
|
|
*
Intercompany payables are eliminated in consolidation.
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, 2017 and 2016 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, 2017 and 2016, cash balances held in PRC and Hong Kong banks of $952,663
and $1,480,941, respectively, are uninsured.
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
.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The
Company did not measure these assets at fair value at December 31, 2017. The following table presents information about equipment
held for sale – discontinued operations measured at fair value on a nonrecurring basis at December 31, 2016.
|
|
Quoted
Prices in
Active
Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
Balance at December 31,
2016
|
|
Equipment held for sale – discontinued operations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,147,035
|
|
|
$
|
1,147,035
|
|
The
Company conducted an impairment assessment on the equipment held for sale of discontinued operations based on the guidelines established
in ASC Topic 360 to determine the estimated fair market value of the equipment held for sale of discontinued operations as of
December 31, 2016. Upon completion of its 2016 impairment analysis, the Company determined that the carrying value exceeded the
fair market value on the equipment held for sale of discontinued operations. Accordingly, the Company recorded an impairment loss
of $1,660,305 at December 31, 2016, which has been included in loss from discontinued operations, net of income taxes in the accompanying
statements of operations. The Company did not have any equipment held for sale of discontinued operations at December 31, 2017.
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
.
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
.
At
December 31, 2017 and 2016, the Company’s cash balances by geographic area were as follows:
Country:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
United States
|
|
$
|
66,774
|
|
|
|
6.55
|
%
|
|
$
|
557
|
|
|
|
|
*
|
Hong Kong
|
|
|
142,944
|
|
|
|
14.02
|
%
|
|
|
-
|
|
|
|
-
|
|
China
|
|
|
809,719
|
|
|
|
79.43
|
%
|
|
|
1,480,941
|
|
|
|
99.96
|
%
|
Total cash and cash equivalents
|
|
$
|
1,019,437
|
|
|
|
100.00
|
%
|
|
$
|
1,481,498
|
|
|
|
100.00
|
%
|
*
Less than 0.1%
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Restricted
cash
Restricted
cash mainly consists of cash deposits held by various banks to secure bank acceptance notes payable. The Company’s restricted
cash totaled $272,991 and $551,047 at December 31, 2017 and 2016, respectively.
Notes
receivable
Notes
receivable represents trade accounts receivable due from customers where the customers’ bank has guaranteed the payment
of the receivable. This amount is non-interest bearing and is normally paid within six months. Historically, the Company has experienced
no losses on notes receivable. The Company’s notes receivable totaled $461,292 and $133,913 at December 31, 2017 and 2016,
respectively.
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,
2017 and 2016, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts
in the amounts of $8,115,876 and $1,797,476, respectively.
Inventories
Inventories,
consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower
of cost or market utilizing the weighted average method. A reserve is established when management determines that certain inventories
may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand,
the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on
estimates. The Company recorded an inventory reserve of $313,930 and $21,177 at December 31, 2017 and 2016, respectively.
Advances
to suppliers
Advances
to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended
to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $2,023,779 and $1,116,525 at
December 31, 2017 and 2016, respectively.
Equipment
held for sale
Long-lived
assets are classified as held for sale when certain criteria are met. These criteria include: management’s commitment to
a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to
locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is
expected to qualify for recognition as a completed sale within one year; the assets are being marketed at reasonable prices in
relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. We measure
long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell. At December
31, 2016, the Company reflected certain manufacturing equipment that was previously used in the petroleum and chemical equipment
segment as part of assets of discontinued operations as equipment held for sale, which was included in the assets of discontinued
operations on the accompanying consolidated balance sheets. This equipment was sold in March 2017 to a third party.
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.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Equity
method investment
Investments
in which the Company has the ability to exercise significant influence, but do not control, are accounted for under the equity
method of accounting and are included in the long term assets on the consolidated balance sheets. Under this method of accounting,
the Company’s share of the net earnings or losses of the investee is presented below the income tax line on the consolidated
statements of operations. The Company evaluates its equity method investment whenever events or changes in circumstance indicate
that the carrying amounts of such investment may be impaired. If a decline in the value of an equity method investment is determined
to be other than temporary, a loss is recorded in the current period. (See Note 6).
Impairment
of long-lived 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
December 31, 2017 and 2016, the Company conducted an impairment assessment on property and equipment based on the guidelines established
in ASC Topic 360 to determine the estimated fair market value of property and equipment as of December 31, 2017 and 2016. 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 2017 and 2016 impairment analysis, the Company determined that
the carrying value exceeded the fair market value on certain equipment formerly used in the Company’s forging and related
components, and petroleum and chemical equipment segments. Accordingly, in connection with the impairment of such equipment, the
Company recorded impairment charges of $0 and $1,660,305 for the years at December 31, 2017 and 2016, respectively, which was
included in loss from discontinued operations on the accompanying consolidated statements of operations and comprehensive loss.
Advances
from customers
Advances
from customers at December 31, 2017 and 2016 amounted to $2,454,375 and $427,446, respectively, and consist of prepayments from
customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue when customers take
delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition
policy.
Revenue
recognition
Pursuant
to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured
.
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
.
The
Company recognizes revenue from the rental of batteries when earned.
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.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On
December 22, 2017, President Trump 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 21% from 34%. The rate reduction is effective
January 1, 2018, and is permanent.
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, 2017, 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, 2017 and 2016, 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
.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the vesting period of the award or on issuance if fully-vested
and non-forfeitable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company
records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties
are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting
date
.
Shipping
costs
Shipping
costs are included in selling expenses, general and administrative and totaled $111,776 and $141,180 for the years ended December
31, 2017 and 2016, respectively.
Employee
benefits
The
Company’s operations and employees are all located in the PRC and Hong Kong. The Company makes mandatory contributions to
the PRC and Hong Kong governments’ health, retirement benefit and unemployment funds in accordance with the relevant Chinese
social security laws and law of Mandatory Provident Fund in Hong Kong. The costs of these payments are charged to the same accounts
as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $162,531 and
$100,045 for the years ended December 31, 2017 and 2016, respectively.
Research
and development
Research
and development costs are expensed as incurred. The costs primarily consist of raw materials and salaries incurred for the development
and improvement of the Company’s dyeing and finishing machine product line. Research and development costs totaled
$420,023 and $304,054 for the years ended December 31, 2017 and 2016, respectively.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
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 cumulative translation adjustment and effect of exchange rate changes on cash
for the years ended December 31, 2017 and 2016 was $66,437 and $(519,152), respectively. Transactions denominated in foreign
currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities
denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance
sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency
other than the functional currency are included in the results of operations as incurred.
All
of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries and affiliates.
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.
For
operating subsidiaries and VIE’s located in the People’s Republic of China (“PRC”), asset and liability
accounts at December 31, 2017 and December 31, 2016 were translated at 6.5075 RMB to $1.00 and at 6.9448 RMB to $1.00, respectively,
which were the exchange rates on the balance sheet dates. For operating subsidiaries in Hong Kong, asset and liability accounts
at December 31, 2017 were translated at 7.8128 HKD to $1.00, which were the exchange rates on the balance sheet date. For operating
subsidiaries and VIE’s located in the PRC, the average translation rates applied to the statements of operations for the
years ended December 31, 2017 and 2016 were 6.7588 RMB and 6.6435 RMB to $1.00, respectively. For operating subsidiaries located
in Hong Kong, the average translation rates applied to the statements of operations for the year ended December 31, 2017 was 7.8
HKD to $1.00. The Company did not have operations in Hong Kong during the 2016 periods. Cash flows from the Company’s operations
are calculated based upon the local currencies using the average translation 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) income per share is computed by dividing net (loss) income 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)
income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities
outstanding during each period. At December 31, 2017, common stock equivalents and potentially dilutive common stock outstanding
consisted of
200,100 shares of common stock issuable
upon conversion of a note payable.
The Company did not have any common stock equivalents
and potentially dilutive common stock outstanding during the year ended December 31, 2016. 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.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The
following table presents a reconciliation of basic and diluted net loss per share:
|
|
Years Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net Loss for basic and diluted attributable to common shareholders
|
|
$
|
(12,906,769
|
)
|
|
$
|
(11,679,154
|
)
|
From continuing operations
|
|
|
(12,808,812
|
)
|
|
|
(1,393,222
|
)
|
From discontinued operations
|
|
$
|
(97,957
|
)
|
|
$
|
(10,285,932
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding– basic and diluted
|
|
|
1,832,900
|
|
|
|
1,189,940
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share of common stock
|
|
|
|
|
|
|
|
|
From continuing operations – basic and diluted
|
|
$
|
(6.99
|
)
|
|
$
|
(1.17
|
)
|
From discontinued operations – basic and diluted
|
|
|
(0.05
|
)
|
|
|
(8.64
|
)
|
Net (loss) income per common share - basic and diluted
|
|
$
|
(7.04
|
)
|
|
$
|
(9.81
|
)
|
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 income/(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, 2017 and 2016 included net loss and unrealized loss 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.
Reverse
stock split
The
Company effected a one-for-four reverse stock split of its common stock on March 20, 2017. All share and per share information
has been retroactively adjusted to reflect this reverse stock split.
Recent
accounting pronouncements
In
May 2014, FASB issued an update (“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 will not have a material impact on the process for, timing of, and presentation and
disclosure of revenue recognition from customers.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
In
August 2016, the FASB issued ASU 2016-15 which addresses eight cash flow classification issues, eliminating the diversity in practice.
This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted.
The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable
for some of the amendments, in which case those amendments would be prospectively applied as of the earliest date practicable.
The adoption of ASU will not have a material impact on the Company’s consolidated financial statements.
In
January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition
of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted
for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance did not have any impact
on the Company’s financial statements.
In
May 2017, the FASB issued ASU 2017-09,
Compensation—Stock Compensation
(Topic 718): Scope of Modification Accounting,
or ASU 2017-09. ASC 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require
an entity to apply modification accounting in Topic 718. The guidance is effective for annual periods beginning after December 15,
2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been
issued. The adoption of ASU will not have a material impact on the Company’s consolidated financial statements.
In
July 2017, the FASB issued ASU 2017-11,
Accounting for Certain Financial Instruments with Down Round Features
, or ASU
2017-11, which updates the guidance related to the classification analysis of certain equity-linked financial instruments (or
embedded features) with down round features. Under ASU 2017-11, a down round feature no longer precludes equity classification
when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial
instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result
of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities
that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is
triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. ASU
2017-11 is effective for public entities for all annual and interim periods beginning after December 15, 2019. Early adoption
is permitted. We are currently evaluating the impact that the adoption of ASU 2017-11 will have on our consolidated financial
statements.
On
December 22, 2017 the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting
for the tax effects of the Tax Cuts and Jobs Act (the TCJA). SAB 118 provides a measurement period that should not
extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with
SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740
is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but
for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional
treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the
Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements,
it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the
enactment of the TCJA. The Company has applied this guidance to its financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements
that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations,
cash flows or disclosures.
NOTE
2 –
ACQUISITION
On
December 8, 2017 (the “Closing Date”), the Company completed the acquisition of 51% of the issued and outstanding
capital stock of Inspirit Studio Limited (“Inspirit”), a company incorporation in Hong Kong, from its shareholders
pursuant to the terms and conditions of a Sale and Purchase Agreement entered into among the Company and the Inspirit Stockholders
on the Closing Date (the “Acquisition Agreement”). Inspirit is engaged in the development of a mobile app platform
which provides instant errand services in a peer to peer network and will generate revenue from commission charged on each errand
service transaction.
In
connection with the acquisition, the Company issued 85,473 unregistered shares of its common stock valued at $507,710, based on
the acquisition-date fair value of our common stock of $5.94 per share based on the quoted market price of the Company’s
common stock on the Closing date. The fair value of the assets acquired and liabilities assumed were based on management estimates
of the fair values on December 8, 2017.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Based
upon the purchase price allocation, the following table summarizes the estimated fair value of the assets acquired and liabilities
assumed at the date of acquisition:
Goodwill
|
|
$
|
462,111
|
|
Account receivable and prepayment
|
|
|
22,898
|
|
Other intangible assets
|
|
|
92,249
|
|
Total assets acquired at fair value
|
|
|
577,258
|
|
|
|
|
|
|
Bank Overdraft
|
|
|
(20
|
)
|
Accounts payable and accrued expenses
|
|
|
(25,717
|
)
|
Non-controlling interest assumed
|
|
|
(43,811
|
)
|
Total liabilities and non-controlling interest assumed
|
|
|
(69,548
|
)
|
|
|
|
|
|
Total purchase consideration
|
|
$
|
507,710
|
|
The
assets acquired and liabilities assumed are recorded at their estimated fair value on the acquisition date with subsequent changes
recognized in earnings or loss. These estimates are inherently uncertain and are subject to refinement. Management develops estimates
based on assumptions as a part of the purchase price allocation process to value the assets acquired and liabilities assumed as
of the business combination date. As a result, during the purchase price measurement period, which may be up to one year from
the business acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding
offset to goodwill. After the purchase price measurement period, the Company will record adjustments to assets acquired or liabilities
assumed in operating expenses in the period in which the adjustments were determined.
The
purchase price exceeded the fair value of the net assets acquired by approximately $462,111, which was initially recorded as goodwill.
Goodwill assigned represents the amount of consideration transferred in excess of the fair value assigned to identifiable assets
acquired and liabilities assumed. ASC 350-30-35-4 requires that goodwill be tested for impairment on an annual basis and between
annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application
of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities
to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate
the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions.
Based on the Company’s annual analysis of goodwill, in December 2017, the Company recorded an impairment expense of $462,111
which is included in operating expenses on the accompanying consolidated statement of operation and comprehensive loss.
NOTE
3 –
DISCONTINUED OPERATIONS
Pursuant
to an agreement dated December 23, 2016, the Company, through its wholly-owned subsidiary Fulland, sold the stock of Fulland Wind
to a third party for a sales price of RMB 48 million (approximately $6.9 million). The Company’s forging and related
components business was conducted through Fulland Wind. The purchase price is payable in three installments. The Company received
the first installment of RMB 14,400,000 (approximately $2.1 million) on December 28, 2016, and received the second installment
of RMB14,400,000 (approximately $2.1 million) on April 10, 2017. The Company delivered Fulland Wind’s business license,
seals, books and records, business contracts and personnel roster to the third party buyer on December 30, 2016, effectively the
sale date. If the equity transfer registration formalities are completed within one year without any third party claims on the
equity transfer, a final payment of RMB 19,200,000 (approximately $2.7 million) was due 25 working days after the expiration of
such period. Pursuant to extension agreement dated December 31, 2017, the Company agreed the above third party buyer could
paid off the final payment of RMB 19,200,000 (approximately $2.7 million) by December 31, 2018. As a result of the sale, the forged
rolled rings and related components business is treated as a discontinued operation.
Additionally,
in December 2016, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant
decline in revenues and the loss of its major customers. Accordingly, the petroleum and chemical equipment segment business is
treated as a discontinued operation.
Pursuant
to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the business of the forging and related components
segment and petroleum and chemical equipment segment are considered discontinued operations because: (a) the operations and cash
flows of the forging and related components segment and petroleum and chemical equipment segment were eliminated from the Company’s
operations; and (b) the Company has no interest in the divested operations.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
As
of December 31, 2016, Fulland Wind had bank loans payable of RMB 4,500,000 (approximately $647,967)
which
was guaranteed by Dyeing and the Company’s chief executive officer and his wife. In May 2017, the loan was repaid.
The
sale of Fulland Wind resulted in a loss on disposal of discontinued operations of $6,459,407 in 2016. This loss plus the results
of operations from Fulland Wind and petroleum and chemical equipment segment for the years ended December 31, 2017 and 2016 have
been classified to the loss from discontinued operations line on the accompanying consolidated statements of operations and comprehensive
loss presented herein. In addition, the historical consolidated balance sheet and consolidated statement of cash flow amounts
have also been reclassified to reflect the forging and related components segment and petroleum and chemical equipment segment
businesses as discontinued operations.
Contemporaneously
with the sale of the Fulland Wind stock, pursuant to an agreement dated December 23, 2016, Heavy Industry entered into a lease
with Wang Jiahong for a factory building owned by Heavy Industry at an annual rental of RMB 680,566 (approximately $98,000). The
lease had a ten-year term, commencing January 1, 2017. During 2017, the Company received RMB 324,078 (approximately $49,800) in
lease payments from the tenant. During the fourth quarter of 2017, Wang Jiahong orally terminated the above lease agreement and
the Company is no longer received rental income.
The
assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as
of and for the fiscal years ended December 31, 2017 and 2016 is set forth below.
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Assets:
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
33,646
|
|
|
$
|
78,407
|
|
Inventories, net of reserve for obsolete inventories
|
|
|
-
|
|
|
|
31,019
|
|
Advances to suppliers
|
|
|
144,583
|
|
|
|
200,275
|
|
Equipment held for sale
|
|
|
-
|
|
|
|
1,147,035
|
|
Prepaid expenses and other
|
|
|
229,281
|
|
|
|
302,250
|
|
Total current assets
|
|
|
407,510
|
|
|
|
1,758,986
|
|
Total assets
|
|
$
|
407,510
|
|
|
$
|
1,758,986
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
387,887
|
|
|
$
|
458,433
|
|
Accrued expenses and other liabilities
|
|
|
1,746
|
|
|
|
45,280
|
|
Accrues from customers
|
|
|
-
|
|
|
|
54,948
|
|
Total current liabilities
|
|
|
389,633
|
|
|
|
558,661
|
|
Total liabilities
|
|
$
|
389,633
|
|
|
$
|
558,661
|
|
The
summarized operating result of discontinued operations included in the Company’s consolidated statements of operations is
as follows:
|
|
Years
Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
595,855
|
|
Cost
of revenues
|
|
|
31,872
|
|
|
|
1,562,774
|
|
Gross
(loss) profit
|
|
|
(31,872
|
)
|
|
|
(966,919
|
)
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Impairment
losses
|
|
|
-
|
|
|
|
1,660,305
|
|
Other
operating expenses
|
|
|
66,085
|
|
|
|
1,124,304
|
|
Total
operating expenses
|
|
|
66,085
|
|
|
|
2,784,609
|
|
Loss
from operations
|
|
|
(97,957
|
)
|
|
|
(3,751,528
|
)
|
Other
expense, net
|
|
|
-
|
|
|
|
(74,997
|
)
|
Loss
from discontinued operations before income taxes
|
|
|
(97,957
|
)
|
|
|
(3,826,525
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
Loss
from discontinued operations, net of income taxes
|
|
|
(97,957
|
)
|
|
|
(3,826,525
|
)
|
Loss
on sale / disposal of discontinued operations, net of income taxes
|
|
|
-
|
|
|
|
(6,459,407
|
)
|
Loss
from discontinued operations, net of income taxes
|
|
$
|
(97,957
|
)
|
|
$
|
(10,285,932
|
)
|
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE
4 –
ACCOUNTS RECEIVABLE
At
December 31, 2017 and 2016, accounts receivable consisted of the following:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Accounts receivable
|
|
$
|
17,208,585
|
|
|
$
|
15,719,847
|
|
Less: allowance for doubtful accounts
|
|
|
(8,115,876
|
)
|
|
|
(1,797,476
|
)
|
|
|
$
|
9,092,709
|
|
|
$
|
13,922,371
|
|
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.
NOTE
5 –
INVENTORIES
At
December 31, 2017 and 2016, inventories consisted of the following:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Raw materials
|
|
$
|
998,751
|
|
|
$
|
1,003,359
|
|
Work-in-process
|
|
|
2,629,570
|
|
|
|
639,345
|
|
Finished goods
|
|
|
1,239,168
|
|
|
|
772,652
|
|
|
|
|
4,867,489
|
|
|
|
2,415,356
|
|
Less: reserve for obsolete inventories
|
|
|
(313,930
|
)
|
|
|
(21,177
|
)
|
|
|
$
|
4,553,559
|
|
|
$
|
2,394,179
|
|
The Company establishes a reserve to mark
down its inventories for estimated unmarketable inventories equal to the difference between the cost of inventories and the estimated
net realizable value based on assumptions about the usability of the inventories, future demand and market conditions. For the
year ended December 31, 2017 and 2016, the Company increased its reserve for obsolete inventory by approximately $285,334 and
$0, respectively, which has been included in cost of revenues on the accompanying consolidated statements of operations and comprehensive
loss.
NOTE
6 –
EQUITY METHOD INVESTMENT
On
December 26, 2016, Dyeing and Xue Miao, an unrelated individual, formed Shengxin pursuant to an agreement dated December 23, 2016.
The agreement sets forth general terms relating to the proposed business, but does not set forth specific funding obligations
for either party. Dyeing has agreed to invest RMB 60,000,000 (approximately $9,200,000) and had invested RMB 59.8 million ($9,189,397
at December 31, 2017), for which it received a 30% interest, and Mr. Xue has a commitment to invest RMB 140,000,000 (approximately
$21.5 million), of which Mr. Xue has contributed RMB 60,000,000 (approximately $9.2 million), for which Mr. Xue received a 70%
interest in Shengxin. Shengxin’s registered capital is RMB 200 million (approximately $30.7 million). Mr. Xue has advised
Dyeing that he anticipates that he will fund the remaining RMB 80,000,000 (approximately $12.2 million) of his commitment during
2018. Since Mr. Xue did not make this payment by the end of 2017, Dyeing has the right to amend the contract, and both parties
may adjust each side’s equity interest to reflect the amount of capital each side has actually invested. As of December
31, 2017, no changes have been made to such contract.
Shengxin
intends to develop, construct and maintain photovoltaic power generation projects, known as solar farms, in China, mainly in the
provinces of GuiZhou and YunNan. As of December 31, 2017, Shengxin had not yet commenced any material operations.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The
solar farm industry is China is subject to significant government regulation. In order to construct and operate solar farms in
China, it is necessary to obtain a permit for a specific location, to obtain leasehold rights to a significant amount of contiguous
land parcels in provinces where there is significant sunlight for most of the year to support a solar farm and to have an agreement
to connect with the local grid. The development of solar farms requires significant funding, which, if financing is not available,
would have to be provided by Dyeing and Mr. Xue. There are no agreements relating to the funding obligations of either Dyeing
or Mr. Xue with respect to any specific project. Shengxin anticipates that to the extent that it obtains permits for solar farms,
it will form a new subsidiary for the sole purpose of obtaining the permit for a specific location and constructing the solar
farm at that location. The nature of the parties’ respective investments and the respective equity interest in any solar
farm project will be determined on a case-by-case basis.
To
the extent that Mr. Xue develops the project, he may receive an equity interest in the project greater than the percentage of
his equity investment, with the specific amount being subject to mutual agreement of the parties.
The
Company’s investment in Shengxin is subject to a high degree of risk. The Company cannot give any assurance that Shengxin
will be able to obtain any permits, raise any required funding, develop and operate or sell any solar farms or operate profitably
or that Dyeing will have the resources to provide any funds that may be required in order to fund any solar farm projects for
which Shengxin may obtain permits. There may be a significant delay between the time funds are advanced for any project and the
realization of revenue or cash flow from any project.
For
the years ended December 31, 2017 and 2016, the Company’s share of Shengxin’s net loss were $130,498 and $0, respectively.
At December 31, 2017, Shengxin’s assets consisted of cash and advances to supplier of approximately $17.3 million and $614,675,
respectively, and had no liabilities. At December 31, 2016, Shengxin’s assets consisted of cash and advances to supplier
of approximately $11.3 million and $144,000, respectively, and had no liabilities.
NOTE
7 –
PROPERTY AND EQUIPMENT
At
December 31, 2017 and 2016, property and equipment consisted of the following:
|
|
Useful life
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Office equipment and furniture
|
|
5 years
|
|
|
$
|
71,120
|
|
|
$
|
65,209
|
|
Manufacturing equipment
|
|
5 -10 years
|
|
|
|
34,419,653
|
|
|
|
32,240,010
|
|
Vehicles
|
|
5 years
|
|
|
|
253,564
|
|
|
|
169,773
|
|
Building and building improvements
|
|
5 - 20 years
|
|
|
|
22,556,026
|
|
|
|
21,135,718
|
|
Manufacturing equipment in progress
|
|
-
|
|
|
|
3,657,936
|
|
|
|
-
|
|
Construction in progress
|
|
-
|
|
|
|
1,652,859
|
|
|
|
-
|
|
|
|
|
|
|
|
62,611,158
|
|
|
|
53,610,710
|
|
Less: accumulated depreciation
|
|
|
|
|
|
(29,430,039
|
)
|
|
|
(23,732,035
|
)
|
|
|
|
|
|
$
|
33,181,119
|
|
|
$
|
29,878,675
|
|
For
the years ended December 31, 2017 and 2016, depreciation expense amounted to $3,950,932 and $3,829,345, respectively, of which
$2,849,988 and $3,311,410, respectively, was included in cost of revenues, and the remainder was included in operating expenses.
At
December 31, 2017 and 2016, the Company conducted an impairment assessment on property and equipment based on the guidelines established
in ASC Topic 360 to determine the estimated fair market value of property and equipment as of December 31, 2017 and 2016. Such
analysis considered future use of such equipment, consultation with equipment resellers, and other industry factors.
Upon
completion of the 2017 and 2016 impairment analysis, the Company determined that the carrying value exceeded the fair market value
on certain equipment formerly used in the Company’s forging and related components, and petroleum and chemical equipment
segments, which have been accounted for as discontinued operations as of December 31, 2017 and 2016. Accordingly, in connection
with the impairment of such equipment, the Company recorded impairment charges of $0 and $1,660,305 for the years at December
31, 2017 and 2016, respectively, which was included in loss from discontinued operations on the accompanying consolidated statements
of operations and comprehensive loss.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE
8 –
INTANGIBLE ASSETS
At
December 31, 2017 and 2016, intangible assets
consisted
of the following:
|
|
Useful life
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Land use rights
|
|
45 - 50 years
|
|
$
|
4,149,181
|
|
|
$
|
3,887,915
|
|
Patent use rights
|
|
10 years
|
|
|
2,458,701
|
|
|
|
2,303,882
|
|
Other intangible assets
|
|
3 years
|
|
|
92,249
|
|
|
|
-
|
|
|
|
|
|
|
6,700,131
|
|
|
|
6,191,797
|
|
Less: accumulated amortization
|
|
|
|
|
(1,305,835
|
)
|
|
|
(908,102
|
)
|
|
|
|
|
$
|
5,394,296
|
|
|
$
|
5,283,695
|
|
Amortization
of intangible assets attributable to future periods is as follows:
Year ending December 31:
|
|
Amount
|
|
2018
|
|
$
|
354,940
|
|
2019
|
|
|
354,940
|
|
2020
|
|
|
354,940
|
|
2021
|
|
|
324,190
|
|
2022
|
|
|
324,190
|
|
Thereafter
|
|
|
3,681,096
|
|
|
|
$
|
5,394,296
|
|
There
is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified
terms. The Company’s land use rights have terms of 45 and 50 years and expire on January 1, 2053 and October 30, 2053. The
Company amortizes the land use rights over the term of the respective land use right.
In
August 2016, the Company purchased a
patent
technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. The
Company amortizes the exclusive patent use right over the term of the patent.
For
the years ended December 31, 2017 and 2016, amortization of intangible assets amounted to $324,190 and $189,329, respectively.
NOTE
9 –
SHORT-TERM BANK LOANS
Short-term
bank loans represent amounts due to various banks that are due within one year. These loans can be renewed with these banks upon
maturities. At December 31, 2017 and 2016, short-term bank loans consisted of the following
:
|
|
December 31,
2017
|
|
|
December 31, 2016
|
|
Loan from Jiangsu Huishan Mintai Village Town Bank, due on July 5, 2017 with annual interest rate of 10.56% and repaid on May 26, 2017
|
|
$
|
-
|
|
|
$
|
719,963
|
|
Loan from Bank of Communications, due on September 5, 2017 with annual interest rate of 5.62% and repaid on September 5, 2017
|
|
|
-
|
|
|
|
719,963
|
|
Loan from Bank of China, due on December 4, 2018 with annual interest rate of 6.09%, secured by certain assets of the Company
|
|
|
384,172
|
|
|
|
359,982
|
|
Loan from Bank of China, due on December 6, 2018 with annual interest rate of 6.09%, secured by certain assets of the Company
|
|
|
384,172
|
|
|
|
359,981
|
|
Loan from Bank of Wuxi Nongshuang, due on April 25, 2018 with annual interest rate of 5.87%, secured by certain assets of the Company
|
|
|
691,510
|
|
|
|
-
|
|
Loan from Bank of Communication, due on September 25, 2018 with annual interest rate of 5.85%, secured by certain assets of the Company
|
|
|
614,675
|
|
|
|
-
|
|
Total short-term bank loans
|
|
$
|
2,074,529
|
|
|
$
|
2,159,889
|
|
Interest
related to the short-term bank loans, which was $134,459 and $124,937 for the years ended December 31, 2017 and 2016, respectively,
is included in interest expense on the accompanying consolidated statements of operations and comprehensive loss
.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE
10 –
BANK ACCEPTANCE NOTES PAYABLE
Bank
acceptance notes payable represent amounts due to banks which are collateralized. All bank acceptance notes payable are secured
by the Company’s restricted cash which are deposits with various lenders. At December 31, 2017 and 2016, the Company’s
bank acceptance notes payables consisted of the following
:
|
|
December 31,
2017
|
|
|
December 31, 2016
|
|
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 29, 2017, collateralized by 100% of restricted cash deposited
|
|
$
|
-
|
|
|
$
|
71,996
|
|
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on May 9, 2017, collateralized by 100% of restricted cash deposited
|
|
|
-
|
|
|
|
431,978
|
|
Bank of China, non-interest bearing, due and paid on January 6, 2017, collateralized by 100% of restricted cash deposited
|
|
|
-
|
|
|
|
43,198
|
|
Bank of China, non-interest bearing, due on June 25, 2018, collateralized by 100% of restricted cash deposited
|
|
|
115,252
|
|
|
|
-
|
|
Bank of Communication, non-interest bearing, due on March 24, 2018, collateralized by 100% of restricted cash deposited
|
|
|
307,337
|
|
|
|
-
|
|
Total
|
|
$
|
422,589
|
|
|
$
|
547,172
|
|
NOTE
11 –
CONVERTIBLE
NOTE PAYABLE
On
October 9, 2017, the Company entered into a Note Purchase Agreement (the “NPA”) with Chong Ou Holdings Group Company
Limited, a BVI company (the “Investor”) pursuant to which the Investor purchased a note for $670,000, bearing two
percent (2%) interest per annum (the “Note”). The Note automatically converts into shares of common stock of the Company
at a conversion price equal to $3.35 per share on January 8, 2018. The Company shall have the option, in its sole and absolute
discretion, to repay the Outstanding Amount in full on or before the Conversion Date. On January 8, 2018, the Note was converted
into 200,100 shares of common stock.
Interest
related to this note payable, which was $3,350 and $0 for the years ended December 31, 2017 and 2016, respectively, is included
in interest expense on the accompanying consolidated statements of operations and comprehensive loss
.
NOTE
12 –
RELATED PARTY TRANSACTIONS
Due
to related party
From time to time,
during 2017, the Company receive advances from YSK 1860 Co., Limited, which is a principal shareholder of the Company for working
capital purposes. These advanced and non-interest bearing and are payable on demand. At December 31, 2017 and 2016, amounts due
to this related party amounted to $347,589 and $0, respectively.
Exclusivity
agreement
On June 11, 2017,
the Company entered into an Exclusivity Agreement (the “Exclusivity Agreement”) with ECrent Capital Holdings Limited
(“ECrent”) the terms of which became effective on the same day. Pursuant to the Exclusivity Agreement, the Company
and ECrent agreed to engage in exclusive discussions regarding a potential acquisition by the Company of ECrent and/or any of its
subsidiaries or otherwise all or part of ECrent’s business and potential business cooperation between the two companies (collectively,
the “Potential Transactions”) for a period of three months commencing from the date of the Exclusivity Agreement (the
“Exclusive Period”). Ms. Deborah Yuen, an affiliate of YSK 1860 Co., Limited, which is a principal shareholder of the
Company, controls ECrent. ECrent agreed that, during the Exclusive Period, neither ECrent nor its agents, representatives or advisors
will contact, solicit, discuss or negotiate with any third party with respect to any transaction relating to a transfer or pledge
of securities of ECrent and/or its subsidiaries, a sale of ECrent’s business, a business cooperation or any other matters
that may adversely affect the Potential Transactions or the parties’ discussion related thereto. The exclusivity period has
been further extended to 10 June 2018 pursuant to two amendment agreements dated September 11, 2017 and January 23, 2018.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE
13 –
ACCRUED EXPENSES
At
December 31, 2017 and 2016, accrued expenses consisted of the following:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Accrued salaries and related benefits
|
|
$
|
62,726
|
|
|
$
|
143,622
|
|
Other payables
|
|
|
103,023
|
|
|
|
224,773
|
|
|
|
$
|
165,749
|
|
|
$
|
368,395
|
|
NOTE
14 –
INCOME TAXES
The Company accounts
for income taxes pursuant to ASC 740 “Accounting for Income Taxes” that requires the recognition of deferred tax assets
and liabilities for the differences between the financial statements and the tax basis of assets and liabilities, and for the expected
future tax benefit to be derived from tax losses and tax credit carry forwards. Additionally, the accounting standards require
the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred
tax assets, including those related to the U.S. net operating loss carry forwards for income tax purposes as compared to financial
statement purposes, are dependent upon future taxable income and timing of reversals of future taxable differences along with any
other positive and negative evidence during the periods in which those temporary differences become deductible or are utilized.
The Company is
governed by the Income Tax Laws of the PRC,
Inland Revenue Ordinance of Hong Kong
,
and the U.S. Internal Revenue Code of 1986, as amended. Under the Income Tax Laws of PRC and Inland Revenue Ordinance of Hong Kong,
Chinese companies are generally subject to an income tax at an effective rate of 25% and 16.5%, respectively, on income reported
in the statutory financial statements after appropriate tax adjustments. The Company’s subsidiary, Green Power, and VIEs
(Dyeing and Heavy Industries) are subject to PRC statutory rates and certain subsidiaries domiciled in Hong Kong are subject to
the Hong Kong statutory rate. The Company’s wholly-owned subsidiary, Fulland Limited was incorporated in the Cayman Islands
and certain subsidiaries were incorporated in the British Virgin Islands. Under the current laws of the Cayman Islands and British
Virgin Islands, these entities are not subject to income taxes.
Sharing Economy
International Inc. was incorporated in the United States and has incurred an aggregate net operating loss of approximately $8,402,000
for income taxes purposes through December 31, 2017 and Foreign Tax Credits related to the Income Tax Laws of the PRC of approximately
$982,409, subject to the Internal Revenue Code (“IRC”) Section 382, which places a limitation on the amount of taxable
income that can be offset by net operating losses after a change in ownership. The Company has not calculated its IRC Section 382
change of ownership to date, but there seems to have been a change of ownership within the meaning of IRC Section 382, which has
not limited the use of net operating losses, nor foreign tax credits as of December 31, 2017, based upon Managements review. The
net operating loss carries forward and foreign tax credit carry forward for United States income taxes may be available to reduce
future years’ taxable income. These net operating loss carry forwards will expire, if not utilized, through 2037 and the
remaining foreign tax credits expire, if not utilized, through 2026. As of December 31, 2017, the Company had net operating loss
carryforwards of approximately $4,462,000 for PRC income tax purposes, such losses are set to expire in 2022 for PRC income tax
purposes. As of December 31, 2017, the Company had net operating loss carryforwards of approximately $827,000 for Hong Kong income
tax purposes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the
Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to,
a United States corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 and a one-time
transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company believes
it is subject to the one-time transition tax on the mandatory deemed repatriation of foreign earnings. Such deemed repatriation
tax was estimated to be approximately $5,256,000, which has been reduced to zero by the use of Foreign Tax Credit carryforward
utilization at December 31, 2017 related to the Income Tax Laws of the PRC. Management is in the process of reviewing its IRC Section
382 change of ownership, relating to such amount.
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, 2017, 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.
As a result of the reduction of the United
States federal corporate income tax rate, the Company reduced the value of its net deferred tax asset by $1,092,239 which was recorded
as a corresponding reduction to the valuation allowance during the fourth quarter of 2017.
Management believes
that it appears more likely than not that the Company will not realize these tax benefits due to the Company’s continuing
losses for United States income taxes purposes, and losses in PRC and Hong Kong. Accordingly, the Company has provided a 100% valuation
allowance on the deferred tax asset benefit related to its U.S. and foreign net operating loss carry forwards to reduce the asset
to zero. Management will review this valuation allowance periodically and make adjustments as necessary.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The Company has cumulative undistributed
earnings from its China subsidiary and VIEs of approximately $40.2 million and $45.2 million as of December 31, 2017 and 2016,
respectively, which is included in the consolidated retained earnings and will continue to be indefinitely reinvested in the Company’s
PRC operations. Accordingly, a provision has been made for deferred taxes related to the mandatory deemed repatriation of foreign
earnings. Such deemed repatriation tax was estimated to be approximately $5,256,000, which has been reduced to zero by the use
of Foreign Tax Credit carryforward utilization at December 31, 2017 related to the Income Tax Laws of the PRC. Management is in
the process of reviewing its IRC Section 382 change of ownership, relating to such amount.
The
table below summarizes the differences between the U.S. statutory federal rate and the Company’s effective tax rate for
the years ended December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
U.S. statutory rates
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
U.S. effective rate in excess of China tax rate
|
|
|
(3.3
|
)%
|
|
|
(4.2
|
)%
|
Bad debt allowance
|
|
|
(17.9
|
)%
|
|
|
(8.8
|
)%
|
Effect of change in U.S statutory rate from 34% to 21%
|
|
|
(2.1
|
)%
|
|
|
-
|
|
China valuation allowance
|
|
|
(7.2
|
)%
|
|
|
(11.6
|
)%
|
U.S. valuation allowance
|
|
|
(3.5
|
)%
|
|
|
(9.4
|
)%
|
Total current provision for income taxes
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
For
the years ended December 31, 2017 and 2016, current and deferred income taxes expense was related to our operations in the
PRC and amounted to $408,287 and $0, respectively.
The
tax effects of temporary differences under ASC 740 “Accounting for Income Taxes” that give rise to significant portions
of deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net U.S. operating loss carry forward
|
|
$
|
1,764,385
|
|
|
$
|
2,694,569
|
|
Net PRC and Hong Kong operating loss carry forward
|
|
|
1,252,015
|
|
|
|
754,143
|
|
Foreign tax credit
|
|
|
206,306
|
|
|
|
-
|
|
Allowance for doubtful accounts and reserve for obsolete inventories
|
|
|
-
|
|
|
|
454,663
|
|
Total gross deferred tax assets
|
|
|
3,222,706
|
|
|
|
3,903,375
|
|
Less: valuation allowance
|
|
|
(3,222,706
|
)
|
|
|
(3,516,994
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
386,381
|
|
At December
31, 2017 and 2016, the valuation allowance were $3,222,706 and $3,448,712 related to the U.S. and foreign net operating loss carry
forwards, and $0 and $68,282 related to allowance for doubtful accounts and reserve for obsolete inventories, respectively. During
the year ended December 31, 2017, the valuation allowance increased by approximately $797,951.
The
Company had incurred a significant loss from discontinued operations of $10,285,932 for the year ended December 31, 2016. Such
loss is attributable to the Company’s China operations from the forged rolled rings and related component segment and the
petroleum and chemical equipment segment. Management believes there will be no tax benefit from such loss and accordingly, no
deferred tax asset and corresponding valuation reserve has been provided for at December 31, 2017 and 2016.
NOTE
15 –
STOCKHOLDERS’ EQUITY
Common
stock issued for services
On
March 1, 2016, the Company issued 40,000 shares of common stock pursuant to its amended 2010 long-term incentive plan, including
18,750 shares to its former chief financial officer. The shares were valued at $209,600, the fair market value on the grant date
using the reported closing share price on the date of grant, and the Company reduced accrued liabilities of $54,000 and recorded
stock-based compensation and fees of $155,600 for the year ended December 31, 2016
.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On
March 1, 2016, Company issued a total of 75,000 shares of common stock to two companies which performed services relating to preparing
and implementing a new business plan for the Company with the objective of improving the Company’s long-term growth. Of
these shares, 25,000 shares were issued pursuant to an agreement with one consultant and 50,000 shares were issued pursuant to
an agreement with a second consultant. The agreements provide for the issuance of an additional 25,000 shares to one consultant
and 50,000 to the second consultant if the agreement is in effect in July 2016.
On
July
1, 2016, the Company issued an additional 25,000 shares of its common stock to the first consultant pursuant to the agreement.
A consulting agreement with the second consultant was terminated, and no additional shares of common stock were issued or are
issuable pursuant to the consulting agreement with the second consultant
.
The
shares were valued at fair market value using the reported closing share price on the dates of grant, and the Company recorded
stock-based compensation and fees of $490,980 for the year ended December 31, 2016.
On
June
30, 2016, the Company issued 3,125 shares of common stock pursuant to its amended 2010 long-term incentive plan to a consultant.
The shares were valued at $12,500, the fair market value on the grant date using the reported closing share price on the date
of grant, and the Company recorded stock-based compensation and fees of $12,500 for the year ended December 31, 2016
.
On
December 28, 2016, the Company issued 105,000 shares of common stock pursuant to its 2016 long-term incentive plan, including
50,000 shares to its chief executive officer. The shares were valued at $277,200, the fair market value on the grant date using
the reported closing share price on the date of grant, and the Company recorded stock-based compensation and fees of $268,126
for the year ended December 31, 2016
and recorded
prepaid expenses of $9,074 which will be amortized over the rest of the corresponding service periods.
On
May 12, 2017, the Company issued 15,000 shares of common stock pursuant to its 2016 long-term incentive plan for legal services.
The shares were valued at $50,400, the fair market value on the grant date using the reported closing share price on the date
of grant. In connection with this issuance, the Company reduced accounts payable by $28,400 and recorded stock-based professional
fees of $22,000 in fiscal 2017.
On
May
22, 2017, pursuant to a seven-month consulting agreement effective May 11, 2017, the Company issued 25,000 shares of its common
stock to a consultant for business development services rendered and to be rendered through December 31, 2017. These shares were
valued at $106,500, the fair market value on the grant date using the reported closing share price on the date of grant
.
Pursuant to this consulting agreement, on September 5, 2017, the Company issued an additional 25,000 share of common stock to
this consultant.
These shares were valued at $82,000 or $3.28 per share, using the reported
closing share price on the date of issuance
. For fiscal 2017, in connection with these issuances, the Company recorded
stock-based professional fees of $188,500.
On
June
30, 2017, pursuant to a one-year consulting agreement effective May 16, 2017, the Company issued 65,200 shares of common stock
to a consultant for business development services rendered and to be rendered. These shares were valued at $272,536, or $4.18
per share, the fair market value on the grant date using the reported closing share price on the date of grant
. For fiscal
2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $170,701 and prepaid
expenses of $101,835 which is amortized over the remaining service period. Additionally, pursuant to this consulting agreement,
the Company issued an additional 20,000 share of common stock to this consultant on October 19, 2017.
These
shares were valued at $99,400, or $4.97 per share, using the reported closing share price on the date of issuance
. For
fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $62,259 and
prepaid expenses of $37,141 which is amortized over the remaining service period through May 2018.
On August
8
, 2017, pursuant to one-year consulting agreements effective July 19, 2017, the Company
issued an aggregate of 120,000 shares of common stock to two consultants (60,000 shares each) for business development services
rendered and to be rendered. These shares were valued at $492,000, or $4.10 per share, the fair market value on the grant date
using the reported closing share price on the date of grant
. For fiscal 2017, in connection with the issuance of these
shares, the Company recorded stock-based professional fees of $222,194 and prepaid expenses of $269,806 which is amortized over
the remaining service period. Additionally, pursuant to these consulting agreements, the Company issued an additional 40,000 share
of common stock to these consultants (20,000 shares each) on November 2, 2017.
These shares
were valued at $169,600, or $4.24 per share, using the reported closing share price on the date of issuance.
For fiscal
2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $76,594 and prepaid
expenses of $93,006 which is amortized over the remaining service period through July 2018.
On August
8,
2017, pursuant to a one-year consulting agreement effective July 1, 2017, the Company
issued 8,000 shares of common stock to a consultant for investor relations services rendered and to be rendered. These shares
were valued at $32,560, or $4.07 per share, the fair market value on the grant date using the reported closing share price on
the date of grant
. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional
fees of $15,466 and prepaid expenses of $17,094 which is amortized over the remaining service period.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On August
8
, 2017, pursuant to a one-year consulting agreement effective July 1, 2017, the Company
issued 23,230 shares of common stock to a consultant for accounting services rendered and to be rendered. These shares were valued
at $94,546, or $4.07 per share, the fair market value on the grant date using the reported closing share price on the date of
grant
. For fiscal 2017, in connection with the issuance of these shares, the Company reduced accrued expense by $9,435,
and the Company recorded stock-based professional fees of $42,556 and prepaid expenses of $42,555 which is amortized over the
remaining service period.
On September
5, 2017
, pursuant to one-year consulting agreements effective August 21, 2017, the Company
issued an aggregate of 125,000 shares of common stock to two consultants (65,000 and 60,000 shares, respectively) for business
development services rendered and to be rendered. These shares were valued at $408,750, or $3.27 per share, the fair market value
on the grant date using the reported closing share price on the date of grant
. For fiscal 2017, in connection with the
issuance of these shares, the Company recorded stock-based professional fees of $148,337 and prepaid expenses of $260,413 which
is amortized over the remaining service period. Additionally, pursuant to these consulting agreements, the Company issued an additional
35,000 share of common stock to these consultants (17,000 and 18,000, respectively) in January 2018. The initial fair values of
these shares
were valued at the fair market value on the contract date using the reported
closing share price on the date of grant
. The Company will recognize stock-based professional fees over the period during
which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares,
the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal
2017, the Company recorded stock-based professional fees of $96,278 related to these issuable shares share-based reserve of $96,278
as of December 31, 2017.
On October
3
, 2017, pursuant to a two-year consulting agreement between the Company’s wholly-owned
subsidiary, EC Manpower Limited and an individual for investor relation services to be rendered, the Company agreed to pay this
consultant $202,000 per year to be paid by the issuance of an aggregate of 134,688 shares as follows: 33,672 shares were issued
in October 2017, 33,672 shares were issued in February 2018, 33,672 shares during the twelfth month from the agreement date, and
33,672 shares during the eighteenth month from the agreement date. The initial 33,672 shares were valued at $112,801, or $3.35
per share, the fair market value on the grant date using the reported closing share price on the date of grant
. For fiscal
2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $16,137 and prepaid
expenses of $96,664 which is amortized over the remaining service period. Additionally, pursuant to this consulting agreement,
the Company will issue an additional 101,016 share of common stock to this consultant as outlined above, provided that this Agreement
is not terminated prior to date of the issuance of these shares. The initial fair values of these shares
were
valued at the fair market value on the contract date using the reported closing share price on the date of grant
. The Company
will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the
end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the
then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees
of $109,538 related to these issuable shares and share-based reserve of $109,538 as of December 31, 2017. If, on the first date
when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed
and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares
drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will
be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall").
The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading
days immediately before the first and second anniversary date of the date of this agreement, provided that the maximum number
of shares issued for the Shortfall shall not exceed 13,500 Shares per year of services.
On
October 9, 2017,
pursuant to a consulting agreement,
the Company agreed to issue
7,615 shares of its common stock to an entity for development services rendered. Such shares were issued in November 2017 upon
completion of the services rendered. T
hese shares were valued at $25,282, or $3.32 per share,
the fair market value on the grant date using the reported closing share price on the date of grant
. In connection with
the issuance of these shares, the Company recorded stock-based professional fees of $25,282 for fiscal 2017.
On
October 23, 2017,
pursuant to a consulting agreement,
the Company agreed to issue
6,000 shares of its common stock to an entity for public relations services rendered. T
hese
shares were valued at $28,920, or $4.82 per share, the fair market value on the grant date using the reported closing share price
on the date of grant
. In connection with the issuance of these shares, the Company recorded stock-based professional fees
of $11,039 and prepaid expenses of $17,881 which is amortized over the remaining service period through April 2018.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On October
30
, 2017, pursuant to a two-year consulting agreement between the Company’s wholly-owned
subsidiary, EC Advertising Limited and an individual, the Company issued 65,089 shares of common stock to a consultant for advertising
and marketing services to be rendered. These shares were valued at $216,095, or $3.32 per share, the fair market value on the
grant date using the reported closing share price on the date of grant
. For fiscal 2017, in connection with the issuance
of these shares, the Company recorded stock-based professional fees of $24,688 and prepaid expenses of $191,407 which is amortized
over the remaining service period. Additionally, pursuant to this consulting agreement, the Company issued an additional 65,089
share of common stock to this consultant in
February 2018
. The initial fair values
of these shares
were valued at the fair market value on the contract date using the reported
closing share price on the date of grant
. The Company will recognize stock-based professional fees over the period during
which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares,
the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal
2017, the Company recorded stock-based professional fees of $56,367 related to these issuable shares and share-based reserve of
$56,367 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the shares
issued to the Consultant pursuant this agreement is removed and such lot of shares becomes freely tradeable in the NASDAQ Capital
Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant
for the drop in value of such lot of shares, which will be calculated by multiplying the number of Shares by the difference between
the closing price and the issue price ("Shortfall"). The Company will pay for all the Shortfalls, within the first 3
months of the second year of Services, by causing the Company to issue shares at the average closing price of the 5 trading days
immediately before the shares are issued pursuant to this agreement, provided that the maximum number of shares issued for the
Shortfall shall not exceed 26,036 Shares. Additionally, the Company shall, within one month from the date of this Agreement, issue
such number of ordinary shares of
EC Advertising Limited
to the Consultant (or his
nominee) so that he (or his nominee) will hold 15% of
EC Advertising Limited
issued
share capital as enlarged by the share issue pursuant to this agreement. Additionally, within one month after the Consultant achieves
all the performance targets as outlined in the agreement,
EC Advertising Limited
shall issue, or shall cause its major shareholder to transfer, such number of
EC Advertising
Limited
's ordinary shares to the Consultant (or its nominee) so that he (and his nominee) will, together with the 15% issued
share capital discussed above, hold a total of 49% of
EC Advertising Limited’
s
issued share capital as enlarged by the share issue or after the transfer (as the case may be). Performance targets include the
achievement by the Company of total revenue of $10,000,000 and profit after tax of $4,000,000 during the term of the agreement.
On November
3, 2017, pursuant to a two-year consulting agreement effective November 6, 2017 between the Company’s wholly-owned subsidiary,
EC Manpower Limited and an individual for advertising consultancy services to be rendered, the Company agreed to pay this consultant
$141,026 per year to be paid by the issuance of an aggregate of 67,966 shares as follows: 33,983 shares within 30 days from the
agreement date, 33,983 during the sixth month from the agreement date. On January 27, 2018, this agreement was terminated. The
Company agreed to pay by the issuance of 7,728 share for the service were rendered by such consultant from November 2017 to January
2018. These shares were valued at $32,767, or $4.24 per share, the fair market value on the grant date using the reported closing
share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. For fiscal 2017, the Company recorded stock-based professional fees of $21,978 related to these
issuable shares and share-based reserve of $21,978 as of December 31, 2017.
On
November 10, 2017, pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower
Limited and a consultant for information and technology, policy making and management services to be rendered, the Company agreed
to pay this consultant $192,308 per year to be paid by the issuance of an aggregate of 101,216 shares as follows: 50,608 shares
were issued in January 2018, 50,608 shares during the twelfth month from the agreement date. The initial 50,608 shares were valued
at $203,444, or $4.02 per share, the fair market value on the grant date using the reported closing share price on the date of
grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $203,444 over
the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 50,608 share of
common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance
of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported
closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which
the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares,
the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal
2017, the Company recorded stock-based professional fees of $41,583 related to these issuable shares and share-based reserve of
$41,583 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the Shares
issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital
Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant
for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between
the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall, within the first 3 months
of the second half of the second year of services, by causing the Company to issue shares at the average closing price of the
5 trading days immediately before the shares are issued, provided that the maximum number of shares issued for the Shortfall of
two lots shall not exceed 20,243 shares.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On November
15, 2017, pursuant to one-year consulting agreements effective November 1, 2017, the Company issued 38,000 shares of common stock
to an individual for market research services to be rendered. These shares were valued at $165,300, or $4.35 per share, the fair
market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with
the issuance of these shares, the Company recorded stock-based professional fees of $27,550 and prepaid expenses of $137,750 which
is amortized over the remaining service period. Additionally, pursuant to these consulting agreements, the Company will issue
an additional 11,148 share of common stock to this consultant during the sixth month of this agreement, provided that this agreement
is not terminated prior to the issuance of such shares. The initial fair value of these shares was valued at the fair market value
on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional
fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period
prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s
common stock. For fiscal 2017, the Company recorded stock-based professional fees of $14,084 related to these issuable shares
and share-based reserve of $14,084 as of December 31, 2017.
On November
15, 2017, pursuant to a one-year consulting agreement effective November 1, 2017, the Company issued 20,000 shares of common stock
to a consultant for information technology business development services rendered and to be rendered. These shares were valued
at $87,000, or $4.35 per share, the fair market value on the issue date using the reported closing share price on the date of
issue. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of
$14,500 and prepaid expenses of $72,500 which is amortized over the remaining service period. Additionally, pursuant to this consulting
agreements, the Company will issue an additional 6,800 share of common stock to this consultant in April 2018. The initial fair
values of these shares were valued at the fair market value on the contract date using the reported closing share price on the
date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered
by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair values of these
shares were remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded
stock-based professional fees of $8,591 related to these issuable shares and share-based reserve of $8,591 as of December 31,
2017.
On November
15, 2017, pursuant to one-year consulting agreement effective November 1, 2017, the Company issued an aggregate of 100,000 shares
of common stock to two entities (50,000 shares each) for assets management development services rendered and to be rendered. These
shares were valued at $435,000, or $4.35 per share, the fair market value on the grant date using the reported closing share price
on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional
fees of $72,500 and prepaid expense of $362,500 which is amortized over the remaining service period. Additionally, pursuant to
these consulting agreements, the Company will issue an additional 24,052 share of common stock to these consultants (12,000 and
12,052 shares, respectively) during the sixth month of this agreement, provided that these agreements are not terminated prior
to the issuance of such shares. The initial fair value of these shares was valued at the fair market value on the contract date
using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the
period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance
of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common
stock. For fiscal 2017, the Company recorded stock-based professional fees of $30,386 related to these issuable shares and share-based
reserve of $30,386 as of December 31, 2017.
On
November 20, 2017, pursuant to a one-year consulting agreement effective January 1, 2018 between the Company’s wholly-owned
subsidiary, EC Manpower Limited and an individual for government official relation services to be rendered, the Company agreed
to pay this consultant $128,208 to be paid by the issuance of 32,052 shares as follows: 22,436 shares were issued in February
2018, 9,616 shares during the fourth month from the agreement date. The initial 22,436 shares were valued at $98,718, or $4.40
per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $98,718 over the service period.
Additionally, pursuant to this consulting agreement, the Company will issue an additional 9,616 share of common stock to this
consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The
initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share
price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value
of these shares is remeasured using the then-current fair value of the Company’s common stock.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On
December 6, 2017, pursuant to a two-year consulting agreement effective December 27, 2017 between the Company’s wholly-owned
subsidiary, EC Manpower Limited and a consultant for space rental or leasing business development services to be rendered, the
Company agreed to pay this consultant $120,000 annually to be paid by the issuance of an aggregate of 45,628 shares as follows:
11,407 shares were issued in February 2018. 11,407 shares during the sixth month from the agreement date, 11,407 shares during
the twelfth month from the agreement date, and 11,407 shares during the eighteenth month from the agreement date. The initial
11,407 shares were valued at $60,571, or $5.31 per share, the fair market value on the grant date using the reported closing share
price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $60,571 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional
34,221 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date
of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract
date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over
the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance
of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common
stock. For fiscal 2017, the Company recorded stock-based professional fees of $2,150 related to these issuable shares and share-based
reserve of $2,150 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of
the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the
NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate
the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the
difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually
by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first and second
anniversary date of the date of this agreement, provided that the maximum number of shares issued for the Shortfall shall not
exceed 4,563 Shares per year of services.
On
December 15, 2017, pursuant to a two-year consulting agreement effective November 21, 2017 between the Company’s wholly-owned
subsidiary, EC Manpower Limited and an individual for information technology services rendered and to be rendered, the Company
agreed to pay this consultant $153,846 per year to be paid by the issuance of an aggregate of 71,560 shares as follows: 17,890
shares were issued in January 2018, 17,890 shares during the sixth month from the agreement date, 17,890 shares during the twelfth
month from the agreement date, and 17,890 shares during the eighteenth month from the agreement date. The initial 17,890 shares
were valued at $107,698, or $6.02 per share, the fair market value on the grant date using the reported closing share price on
the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of
$107,698 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue the remaining 53,670
shares of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the
issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using
the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period
during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of
these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
For fiscal 2017, the Company recorded stock-based professional fees of $28,584 related to these issuable shares and share-based
reserve of $28,584 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of
the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the
NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate
the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the
difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually
by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first and second
anniversary date of the date of this agreement, provided that the maximum number of shares issued for the Shortfall shall not
exceed 7,156 Shares per year of services.
On
December 15, 2017, pursuant to a one-year consulting agreement effective May 16, 2018 between the Company and a consultant for
business development services to be rendered, the Company agreed to pay this consultant $400,000 to be paid by the issuance of
an aggregate of 100,000 shares as follows: 50,000 shares were issued in January 2018, 50,000 shares during the sixth month from
the agreement date. The initial 50,000 shares were valued at $301,000, or $6.02 per share, the fair market value on the grant
date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company
shall record stock-based professional fees of $301,000 over the service period. Additionally, pursuant to this consulting agreement,
the Company will issue an additional 50,000 share of common stock to this consultant as outlined above, provided that this Agreement
is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair
market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based
professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting
period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the
Company’s common stock. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued
to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market
without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for
the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between
the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall by causing the Company to
issue shares at the average closing price of the 5 trading days immediately before shares are issued, provided that the maximum
number of shares issued for the Shortfall of two lots shall not exceed 20,000 shares.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On
December 18, 2017, pursuant to a one-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower
Limited and a consultant for user experience and user interface design and information technology development services to be rendered,
the Company agreed to pay this consultant $157,692 to be paid by the issuance of 28,672 shares. The shares were issued in January
2018 and were valued at $173,466, or $6.05 per share, the fair market value on the grant date using the reported closing share
price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $173,466 over the service period. For fiscal 2017, the Company recorded stock-based professional fees of $6,528 related
to these issuable shares and share-based reserve of $6,528 as of December 31, 2017.
On
December 22, 2017, pursuant to a one-year consulting agreement effective December 21, 2017 between the Company’s wholly-owned
subsidiary, EC Manpower Limited and a consultant for business development services to be rendered, the Company agreed to pay this
consultant $961,538 to be paid by the issuance of an aggregate of 160,256 shares as follows: 80,128 shares were issued in January
2018, 80,128 shares during the sixth month from the agreement date. The initial 80,128 shares were valued at $521,633, or $6.51
per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $521,633 over the service period.
Additionally, pursuant to this consulting agreement, the Company will issue an additional 80,128 share of common stock to this
consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The
initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share
price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value
of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company
recorded stock-based professional fees of $32,426 related to these issuable shares and share-based reserve of $32,426 as of December
31, 2017.
Common
stock sold for cash
The
Company sold a total of 180,000 shares of common stock to an investor during June and July 2016 pursuant to stock purchase agreements.
On
June 6, 2016, the Company sold 57,500 shares of common stock at a purchase price
of $4.00 per share, from which the Company received net proceeds of $230,000
. On June 24, 2016, the Company sold 57,500
shares of common stock at a purchase price of $4.40 per share, from which it received net proceeds of $253,000. On July 18, 2016,
the Company sold 65,000 shares of common stock at a purchase price of $4.16 per share, from which it received gross proceeds of
$270,400. The Company did not engage a placement agent with respect to these sales.
In
June 2017, pursuant to stock purchase agreements, the Company sold an aggregate of 290,000 shares of common stock to three investors
at a purchase price of $3.00 per share for net cash proceeds a total of $860,000
.
The Company did not engage a placement agent with respect to these sales.
Common
stock issued in connection with acquisition
On
December 8, 2017 (the “Closing Date”), the Company completed the acquisition of 51% of the issued and outstanding
capital stock of Inspirit.
In connection with the acquisition, the Company issued 85,473
unregistered shares of its common stock valued at $507,710, based on the acquisition-date fair value of our common stock of $5.94
per share based on the quoted market price of the Company’s common stock on the Closing date
(See Note 2)
.
2010
long-term incentive plan
In
January 2010, the Company’s board of directors adopted, and in March 2010, the stockholders approved the Company’s
2010 long-term incentive plan, which initially covered 50,000 shares of common stock. In October 2013, the Company’s
board of directors adopted, and in December 2013, the stockholders approved, an amendment to the 2010 long-term incentive plan
to increase the number of shares of common stock subject to the plan, to 125,000 shares. The plan provides for the grant of incentive
and non-qualified options and stock grants to employees, including officers, directors and consultants. The plan is to be administered
by a committee of not less than three directors, each of whom is to be an independent director. In the absence of a
committee, the plan is administered by the board of directors. Members of the committee are not eligible for stock
options or stock grants pursuant to the plan unless such stock options or stock grant are granted by a majority of the Company’s
independent directors other than the proposed grantee. As of December 31, 2016, the Company had issued a total of 124,998
shares of common stock under the plan and the Company terminated this 2010 long-term incentive plan in year 2017.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
2016
long-term incentive plan
In
September 2016, the Company’s board of directors adopted, and in November 2016, the stockholders approved the Company’s
2016 long-term incentive plan, which covers 125,000 shares of common stock. The plan provides for the grant of incentive and non-qualified
options and stock grants to employees, including officers, directors and consultants. The plan is to be administered by a committee
of not less than three directors, each of whom is to be an independent director. In the absence of a committee, the
plan is administered by the board of directors. Members of the committee are not eligible for stock options or stock
grants pursuant to the plan unless such stock options or stock grant are granted by a majority of the Company’s independent
directors other than the proposed grantee. As of December 31, 2017, the Company had issued a total of 125,000 shares
of common stock under the plan.
NOTE
16 –
STATUTORY RESERVE
The
Company is required to make appropriations to statutory reserve, based on after-tax net income determined in accordance with generally
accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory reserve should be at least
10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities’
registered capital or members’ equity. The profit arrived at must be set off against any accumulated losses sustained by
the Company in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be
made before distribution of dividends to shareholders. The appropriation is required until the statutory reserve reaches 50% of
the registered capital. This statutory reserve is not distributable in the form of cash dividends. As of December 31, 2017 and
2016, the Company appropriated the required 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries.
Accordingly, no additional statutory reserve for Dyeing and Heavy Industries are required for the year ended December 31, 2017.
Green Power had loss since its establishment. No appropriation to statutory reserves for it was required as it incurred recurring
net loss.
NOTE
17 –
SEGMENT INFORMATION
During
the year ended December 31, 2016, the Company operated in three reportable business segments - (1) the manufacture of textile
dyeing and finishing equipment segment, (2) the manufacture of forged rolled rings and related components segment, and (3) the
manufacture of petroleum and chemical equipment segment. The Company’s reportable segments were strategic business units
that offered different products. They were managed separately based on the fundamental differences in their operations. During
2016 and part of 2017, all of the Company’s operations were conducted in the PRC.
Because
of significant declines in revenues from the forged rolled rings and related components segment and
petroleum
and chemical equipment segment,
the Company discontinued these segments and sold
the
forged rolled rings and related components segment
in the fourth quarter of 2016.
Pursuant
to ASC Topic 205-20, Presentation of Financial Statements-Discontinued Operations, the business of forged rolled rings and related
components segment, and petroleum and chemical equipment segment are considered as discontinued operations because: (a) the operations
and cash flows of these segments were eliminated from the Company’s operations; and (b) the Company would not have ability
to influence the operation or financial policies of the
forged rolled rings and related components
segment
subsequent to the sale. The results of operation of the forged rolled rings and related components and the petroleum and chemical
equipment segments have been presented as discontinued operations for the years ended December 31, 2017 and 2016. In 2017, the
Company entered to new lines of business
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. This reporting segment is referred to as the Sharing Economy Segment and is
managed
separately based on its fundamental differences in its operations
and is based in Hong Kong.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Information
with respect to these reportable business segments for the years ended December 31, 2017 and 2016 was as follows:
|
|
For the Years Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
Dyeing and finishing equipment
|
|
$
|
13,463,557
|
|
|
$
|
17,364,332
|
|
Sharing economy
|
|
|
58,499
|
|
|
|
-
|
|
|
|
|
13,522,056
|
|
|
|
17,364,332
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
Dyeing and finishing equipment
|
|
|
3,943,694
|
|
|
|
3,829,345
|
|
Sharing economy
|
|
|
7,238
|
|
|
|
-
|
|
|
|
|
3,950,932
|
|
|
|
3,829,345
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Dyeing and finishing equipment
|
|
|
134,459
|
|
|
|
124,937
|
|
Sharing economy
|
|
|
3,364
|
|
|
|
-
|
|
|
|
|
137,823
|
|
|
|
124,937
|
|
Net loss
|
|
|
|
|
|
|
|
|
Dyeing and finishing equipment
|
|
|
(9,914,743
|
)
|
|
|
(286,106
|
)
|
Sharing economy
|
|
|
(1,211,499
|
)
|
|
|
-
|
|
Discontinued segments
|
|
|
(97,957
|
)
|
|
|
(10,285,932
|
)
|
Other (a)
|
|
|
(1,702,151
|
)
|
|
|
(1,107,116
|
)
|
|
|
$
|
(12,926,350
|
)
|
|
$
|
(11,679,154
|
)
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Identifiable long-lived tangible assets at December 31, 2017 and 2016 by segment
|
|
|
|
|
|
|
Dyeing and finishing equipment
|
|
$
|
27,805,180
|
|
|
$
|
29,878,675
|
|
Sharing economy
|
|
|
65,144
|
|
|
|
-
|
|
Other (b)
|
|
|
5,310,795
|
|
|
|
-
|
|
|
|
$
|
33,181,119
|
|
|
$
|
29,878,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
December 31, 2016
|
|
Identifiable long-lived tangible assets at December 31, 2017 and 2016 by geographical location
|
|
|
|
|
|
|
|
|
China
|
|
$
|
33,115,975
|
|
|
$
|
29,878,675
|
|
Hong Kong
|
|
|
65,144
|
|
|
|
-
|
|
United States
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
33,181,119
|
|
|
$
|
29,878,675
|
|
|
(a)
|
The
Company does not allocate any general and administrative expense of its U.S. activities
to its reportable segments, because these activities are managed at a corporate level.
|
|
(b)
|
Represents
amount of net tangible assets not in use and to be used by for new segment being developed.
|
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE
18 –
CONCENTRATIONS
Customers
One
customer accounted for 14% of the Company’s revenues for the years ended December 31, 2017 and no customer accounted for
10% or more of the Company’s revenues for the years ended December 31, 2016.
No
customer accounted for 10% of the Company’s total outstanding accounts receivable at December 31, 2017 and one customer
accounted for 11% of the Company’s total outstanding accounts receivable at December 31, 2016.
Suppliers
The
following table sets forth information as to each supplier that accounted for 10% or more of the Company’s inventories purchases
for the years ended December 31, 2017 and 2016.
|
|
Year Ended
December 31,
|
|
Supplier
|
|
2017
|
|
|
2016
|
|
A
|
|
|
17
|
%
|
|
|
17
|
%
|
B
|
|
|
12
|
%
|
|
|
14
|
%
|
C
|
|
|
10
|
%
|
|
|
10
|
%
|
D
|
|
|
10
|
%
|
|
|
|
*
|
*
Less than 10%.
One
supplier accounted for 15% or more of the Company’s total outstanding accounts payable at December 31, 2017. No supplier
accounted for 10% or more of the Company’s total outstanding accounts payable at December 31, 2016.
NOTE
19 – COMMITMENT AND CONTINGENCIES
Equity
investment commitment
On
December 26, 2016, Dyeing made an equity investment with one unrelated company in Shengxin, a newly-formed entity which plans
to develop, construct and maintain photovoltaic power generation projects in China. Shengxin’s total registered capital
is RMB 200 million (approximately $30.7 million).
Dyeing
has agreed to invest RMB 60,000,000 (approximately $8,640,000) for a 30% equity interest and had invested RMB 59,800,000 (approximately
$9,189,000) as of December 31, 2017. Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $21.5 million) for a 70%
interest. Mr. Xue contributed RMB 60,000,000 (approximately $9.2 million), and he advised Dyeing that he anticipates that he will
fund the balance of his commitment during 2018. Since Mr. Xue did not make this payment by the end of 2017, Dyeing has the right
to amend the contract, and both parties may adjust each sides’ equity interest to reflect the amount of capital each side
has actually invested. As of the date of this report, the contract had not been amended. As of December 31, 2017, Shengxin had
minimal operations. For the years ended December 31, 2017 and 2016, the Company recorded a loss on equity method investment of
$130,498 and $0, respectively.
Litigation:
On
or about November 14, 2017, a complaint was filed in the United States District Court for the Eastern District of New York, captioned
Morris
Ackerman v. Cleantech Solutions International, Inc.
The complaint alleged that the Company’s proxy
statement, which included a proposal to amend the Company’s long-term incentive plan to provide for the grant of incentive
and non-qualified options and stock grants to employees and others, did not comply with the disclosure requirements for proxy
statements. The parties reached a confidential settlement on or about December 20, 2017, and the plaintiff voluntarily dismissed
the action with prejudice on or about January 2, 2018. In connection with this settlement, the Company paid $50,000.
On
February 2, 2018, the law firm of Ellenoff Grossman & Schole LLP (“EGS”) filed a complaint against the Company
along with a number of companies and individuals in an effort to recover their legal fees in connection with services provided
to the other defendants. The lawsuit contends that the Company is the alter ego or successor in interest of those other defendants.
The Company believe that the lawsuit is without merit and will defend it vigorously.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
From
time to time the Company may become a party to litigation in the normal course of business. Management believes that there are
no current legal matters that would have a material effect on the Company’s financial position or results of operations.
Transfer
agreement
On
August 4, 2017, the Company’s wholly-owned subsidiary, EC Power (Global) Technology Limited (“EC Power”), entered
into a Transfer Agreement (the “Transfer Agreement”) with ECoin Global Limited (“ECoin”), to purchase
ECoin Redemption Codes (the “Codes”) produced by ECoin for total future consideration of $20,000,000 (the “Transfer
Consideration”). In accordance with the Agreement, EC Power will market the Codes, which contain a value that enables subscribers
to upload certain number of items onto ECrent’s website for rental. The Codes have a validity period of four years, and
will not expire until August 3, 2021 (the “Expiry Date”). The Transfer Consideration will be paid by EC Power to ECoin
in installments, with each installment payable not later than thirty days after the end of December 31
st
in each calendar
year.
Each
installment will represent an amount equal to 50% of the net sale proceeds of the Codes sold during each calendar year. The aggregate
of installments shall not exceed the Transfer Consideration. Any balance outstanding of the Transfer Consideration at the Expiry
Date will be paid and discharged by the issuance and delivery to ECoin of common stock of the Company in accordance with the terms
of the Agreement. The number of shares to be issued or delivered shall be an amount equal to (i) the balance due; divided by (ii)
the VWAP of the shares for the period of twenty trading days immediately preceding the Expiry Date, provided always that in no
circumstances shall shares be issued or delivered hereunder to the ECoin in excess of 19% of the issued and outstanding ordinary
Shares of the Company.
As of the date of this report, EC Power has not taken possession
of any redemption codes and as of December 31, 2017, EC Power has not sold any redemption codes.
NOTE
20 –
RESTRICTED NET ASSETS
Regulations
in the PRC permit payments of dividends by the Company’s PRC subsidiary and VIEs only out of their retained earnings, if
any, as determined in accordance with PRC accounting standards and regulations. Subject to certain cumulative limit, a statutory
reserve fund requires annual appropriations of at least 10% of after-tax profit, if any, of the relevant PRC VIEs and subsidiary.
Heavy Industries and Dyeing had reached the cumulative limit as of December 31, 2017. The statutory reserve funds are not distributable
as cash dividends. As a result of these PRC laws and regulations, the Company’s PRC VIEs and its PRC subsidiary are restricted
in their abilities to transfer a portion of their net assets to the Company. Foreign exchange and other regulations in PRC may
further restrict the Company’s PRC VIEs and its subsidiary from transferring funds to the Company in the form of loans and/or
advances
.
As
of December 31, 2017 and 2016, substantially all of the Company’s net assets are attributable to the PRC VIEs and its subsidiary
located in the PRC. Accordingly, the Company’s restricted net assets at December 31, 2017 and 2016 were approximately $50,873,000
and $57,324,000, respectively
.
NOTE
21–
SUBSEQUENT EVENTS
Shares
issued or to be issued for services
On January
2, 2018, pursuant to a one-year consulting agreement between the Company and a consultant for business development services to
be rendered, the Company agreed to pay this consultant $300,000 to be paid by the issuance of an aggregate of 75,000 shares as
follows: 40,000 shares were issued in January 2018, 35,000 shares during the sixth month from the agreement date. The initial
40,000 shares were valued at $303,200, or $7.58 per share, the fair market value on the grant date using the reported closing
share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $303,200 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional
35,000 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to
date of the issuance of these shares. The initial fair value of these shares was valued at the fair market value on the contract
date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over
the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance
of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common
stock.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On January
5, 2018 pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and
an individual for business development services to be rendered, the Company agreed to pay this consultant $276,000 per year to
be paid by the issuance of an aggregate of 80,000 shares as follows: 20,000 shares were issued in February 2018, 20,000 shares
during the sixth month from the agreement date, and 40,000 shares during the twelfth month from the agreement date. The initial
20,000 shares were valued at $181,800, or $9.09 per share, the fair market value on the grant date using the reported closing
share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $181,800 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional
60,000 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to
date of the issuance of these shares. The initial fair value of these shares was valued at the fair market value on the contract
date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over
the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance
of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common
stock.
On January
17, 2018, pursuant to a one-year consulting agreement effective January 17, 2018 between the Company’s wholly-owned subsidiary,
EC Technology & Innovations Limited and a consultant for blockchain technological development services to be rendered, the
Company agreed to pay this consultant $360,000 to be paid by the issuance of 45,000 shares within 30 days from the date of agreement
(or such longer period as shall be required to fulfil the relevant laws, regulations and rules in the United States of America
for the issue of shares). The shares were valued at $312,750, or $6.95 per share, the fair market value on the grant date using
the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record
stock-based professional fees of $312,750 over the service period.
On January
19, 2018, pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited
and three consultants for business development services to be rendered, the Company agreed to pay these consultant $384,618 per
year to be paid by the issuance of an aggregate of 139,872 shares (46,624 shares each) as follows: 34,968 shares (11,656 shares
each) were issued in February 2018. 34,968 shares (11,656 shares each) during the sixth month from the agreement date, 34,968
shares (11,656 shares each) during the 12
th
month from the agreement date, and 34,968 shares (11,656 shares each)
during the 18
th
month from the agreement date. The initial 34,968 shares were valued at $225,544, or $6.45 per
share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with
the issuance of these shares, the Company shall record stock-based professional fees of $225,544 over the service period. Additionally,
pursuant to these consulting agreements, the Company will issue an additional 104,904 share of common stock to these consultants
as outlined above, provided that these Agreement are not terminated prior to date of the issuance of these shares. The initial
fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on
the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered
by such consultants. At the end of each financial reporting period prior to issuance of these shares, the fair value of these
shares is remeasured using the then-current fair value of the Company’s common stock. If, on the first date when the restrictive
legend on the certificate of each lot of the Shares issued to the Consultants pursuant these agreement are removed and such lot
of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below
the issue price, the Company will compensate the Consultants for the drop in value of such lot of shares, which will be calculated
by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The
Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading
days immediately before the first and second anniversary date of the date of this agreement, provided that the maximum number
of shares issued for the Shortfall shall not exceed 13,989 Shares per year of services.
On January
24, 2018, pursuant to a one-year consulting agreement between the Company’s subsidiary, Inspirit Studio Limited and four
individuals for business development services to be rendered, the Company agreed to pay these consultants $412,106 to be paid
by the issuance of 70,206 shares (27,931 , 15,455 , 14,065 and 12,755 shares, respectively) The shares were issued in February
2018 and were valued at $353,838, or $5.04 per share, the fair market value on the grant date using the reported closing share
price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $353,838 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of
the Shares issued to the Consultant pursuant these agreement are removed and such lot of Shares becomes freely tradeable in the
NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate
the Consultants for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the
difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within
30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading
days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed
14,041 Shares (5,586, 3,091, 2,813 and 2,551 shares, respectively)
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On January
24, 2018, pursuant to a one-year consulting agreement effective January 1, 2018 between the Company’s wholly-owned subsidiary,
EC Manpower Limited and an individual for market education development services rendered and to be rendered, the Company agreed
to pay this consultant $1,282 per month payable in arrear; and $128,205 to be paid by the issuance of 18,315 shares. The shares
were issued in February 2018 and were valued at $92,308, or $5.04 per share, the fair market value on the grant date using the
reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based
professional fees of $92,308 over the service period.
On
January 28, 2018, pursuant to a two-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned
subsidiary, EC Rental Limited and an individual for business development services to be rendered, the Company agreed to pay this
consultant $230,769 annually to be paid by the issuance of an aggregate of 92,308 shares as follows: 46,154 shares were issued
in February 2018, 46,154 shares during the sixth month from the agreement date. The initial 46,154 shares were valued at $238,154,
or $5.16 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $238,154 over the service period.
Additionally, pursuant to this consulting agreement, the Company will issue an additional 46,154 share of common stock to this
consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The
initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share
price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value
of these shares is remeasured using the then-current fair value of the Company’s common stock.
On
January 31, 2018, pursuant to a one-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned
subsidiary, EC Advertising Limited and an individual for marketing and advertising services to be rendered, the Company agreed
to pay this consultant $192,308 to be paid by the issuance of 38,617. The share were issued in March 2018 and were valued at $184,975,
or $4.79 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $184,975 over the service period.
On
January 31, 2018, pursuant to a one-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned
subsidiary, EC Rental Limited and an individual for business development services to be rendered, the Company agreed to pay this
consultant $128,205 to be paid by the issuance of an aggregate of 26,325 shares as follows: 17,550 shares were issued in February
2018, 8,775 shares during the third month from the agreement date. The initial 17,550 shares were valued at $84,065, or $4.79
per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $84,065 over the service period.
Additionally, pursuant to this consulting agreement, the Company will issue an additional 8,775 share of common stock to this
consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The
initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share
price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value
of these shares is remeasured using the then-current fair value of the Company’s common stock.
On
February 5, 2018, pursuant to a two-year consulting agreement effective February 20, 2018 between the Company’s wholly-owned
subsidiary, EC Advertising Limited and an individual for advertising services to be rendered, the Company agreed to pay this consultant
$192,308 annually to be paid by the issuance of an aggregate of 88,500 shares as follows: 44,250 shares were issued in February
2018, 44,250 shares during the sixth month from the agreement date. The initial 44,250 shares were valued at $192,930, or $4.36
per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $192,930 over the service period.
Additionally, pursuant to this consulting agreement, the Company will issue an additional 44,250 share of common stock to this
consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The
initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share
price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value
of these shares is remeasured using the then-current fair value of the Company’s common stock.
On
February 6, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned
subsidiary, Sharing Economy Investment Limited and a consultant for legal support services to be rendered, the Company agreed
to pay this consultant $230,769 to be paid by the issuance of an aggregate of 51,800 shares as follows: 35,000 shares were issued
in March 2018, 16,800 shares during the third month from the agreement date. The initial 35,000 shares were valued at $153,650,
or $4.39 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $153,650 over the service period.
Additionally, pursuant to this consulting agreement, the Company will issue an additional 16,800 share of common stock to this
consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The
initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share
price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value
of these shares is remeasured using the then-current fair value of the Company’s common stock.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On
February 6, 2018, pursuant to a one-year consulting agreement effective April 16, 2018 between the Company’s subsidiary,
Inspirit Studio Limited and an individual for business development services to be rendered, the Company agreed to pay this consultant
$107,770 to be paid by the issuance of 24,164 shares. The shares were issued in March 2018 and were valued at $106,080, or $4.39
per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $106,080 over the service period.
If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant
this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the
closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such
lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the
issue price ("Shortfall"). The Company will pay for the Shortfall within 30 days after the end of the service period
by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first day, provided
that the maximum number of shares issued for the Shortfall shall not exceed 4,833 Shares.
On
February 9, 2018, pursuant to a one-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned
subsidiary, Sharing Economy Investment Limited and an individual for executive program management services rendered and to be
rendered, the Company agreed to pay this consultant $192,308 to be paid by the issuance of 45,143 shares. The shares were issued
in March 2018 and were valued at $180,572, or $4.00 per share, the fair market value on the grant date using the reported closing
share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $180,572 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of
the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the
NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate
the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the
difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within
30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading
days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed
9,029 Shares.
On
February 14, 2018, pursuant to a one-year consulting agreement effective February 20, 2018 between the Company’s wholly-owned
subsidiary, EC Manpower Limited and an individual for interior renovation consultancy services to be rendered, the Company agreed
to pay this consultant $256,410 to be paid by the issuance of 63,156 shares. The shares were issued in February 2018 and were
valued at $256,413, or $4.06 per share, the fair market value on the grant date using the reported closing share price on the
date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $256,413
over the service period.
On
February 15, 2018, pursuant to a two-year consulting agreement effective February 20, 2018 between the Company’s wholly-owned
subsidiary, EC Advertising Limited and an individual for advertising consultancy services to be rendered, the Company agreed to
pay this consultant $166,667 annually to be paid by the issuance of an aggregate of 83,334 shares as follows: 41,667 shares were
issued in February 2018, 41,667 shares during the sixth month from the agreement date. The initial 41,667 shares were valued at
$176,668, or $4.24 per share, the fair market value on the grant date using the reported closing share price on the date of grant.
In connection with the issuance of these shares, the Company shall record stock-based professional fees of $176,668 over the service
period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 41,667 share of common stock
to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares.
The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share
price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value
of these shares is remeasured using the then-current fair value of the Company’s common stock.
On
February 19, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned
subsidiary, EC Creative Limited and an individual for consultancy services of HR and Administration to be rendered, the Company
agreed to pay this consultant $64,103 to be paid by the issuance of an aggregate of 15,410 shares as follows: 10,787 shares were
issued in March 2018, 4,623 shares during the fourth month from the agreement date. The initial 10,787 shares were valued at $45,305,
or $4.20 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $45,305 over the service period.
Additionally, pursuant to this consulting agreement, the Company will issue an additional 4,623 share of common stock to this
consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The
initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share
price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value
of these shares is remeasured using the then-current fair value of the Company’s common stock.
SHARING
ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On
February 22, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned
subsidiary, EC Manpower Limited and an individual for IT consultancy services to be rendered, the Company agreed to pay this consultant
$82,051 to be paid by the issuance of an aggregate of 19,724 shares as follows: 13,807 shares were issued in March 2018, 5,917
shares during the fourth month from the agreement date. The initial 13,807 shares were valued at $57,851, or $4.19 per share,
the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance
of these shares, the Company shall record stock-based professional fees of $57,851 over the service period. Additionally, pursuant
to this consulting agreement, the Company will issue an additional 5,917 share of common stock to this consultant as outlined
above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of
these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant.
The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant.
At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured
using the then-current fair value of the Company’s common stock.
On
February 28, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned
subsidiary, EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to
be rendered, the Company agreed to pay this consultant $60,000 to be paid by the issuance of 14,635 shares. The shares were issued
in March 2018 and were valued at $59,272, or $4.05 per share, the fair market value on the grant date using the reported closing
share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $59,272 over the service period.
On
February 28, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned
subsidiary, EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to
be rendered, the Company agreed to pay this consultant $60,000 to be paid by the issuance of 15,000 shares. The shares were issued
in March 2018 and were valued at $60,750, or $4.05 per share, the fair market value on the grant date using the reported closing
share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $60,750 over the service period.
On
February 28, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s subsidiary,
Inspirit Studio Limited and an individual for marketing and advertising services to be rendered, the Company agreed to pay this
consultant $347,436 to be paid by the issuance of 84,741 shares. The shares were issued in March 2018 and valued at $343,201,
or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $343,201 over the service period.
On
February 28, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned
subsidiary, EC Manpower Limited and a consultant for consultancy and advisory services to be rendered, the Company agreed to pay
this consultant $242,308 to be paid by the issuance of an aggregate of 59,100 shares as follows: 41,370 shares were issued in
March 2018. 17,730 shares during the fourth month from the agreement date. The initial 41,370 shares were valued at $167,549,
or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $167,549 over the service period.
Additionally, pursuant to this consulting agreement, the Company will issue an additional 17,730 share of common stock to this
consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The
initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share
price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value
of these shares is remeasured using the then-current fair value of the Company’s common stock.
On
February 28, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned
subsidiary, EC Manpower Limited and a consultant for computer and cloud infrastructure support advisory services to be rendered,
the Company agreed to pay this consultant $138,462 to be paid by the issuance of an aggregate of 33,772 shares. The shares were
valued at $136,777, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the
date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $136,777
over the service period.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On
March 1, 2018, pursuant to a one-year consulting agreement effective July 1, 2018 between the Company’s wholly owned subsidiary,
Sharing Film International Limited and an individual for movie and video development and production management services to be
rendered, the Company agreed to pay this consultant $55,846 to be paid by the issuance of 13,722 shares. The shares were issued
in March 2018 and were valued at $55,711, or $4.06 per share, the fair market value on the grant date using the reported closing
share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $55,711 over the service period.
On
March 5, 2018, pursuant to a four-month consulting agreement effective March 1, 2018 between the Company’s subsidiary, Inspirit
Studio Limited and an individual for international business development services rendered and to be rendered, the Company agreed
to pay this consultant $17,310 to be paid by the issuance of 4,132 shares. The shares were issued in March 2018 and were valued
at $18,759, or $4.54 per share, the fair market value on the grant date using the reported closing share price on the date of
grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $18,759 over
the service period.
On
March 5, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary,
EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to be rendered,
the Company agreed to pay this consultant $60,000 to be paid by the issuance of 14,320 shares. The shares were issued in March
2018 and were valued at $65,013, or $4.54 per share, the fair market value on the grant date using the reported closing share
price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $65,013 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of the
Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ
Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the
Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference
between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within 30 days after
the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately
before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed 2,745 Shares.
On
March 6, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary,
EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to be rendered,
the Company agreed to pay this consultant $60,000 to be paid by the issuance of 14,319 shares. The shares were issued in March
2018 and were valued at $68,445, or $4.78 per share, the fair market value on the grant date using the reported closing share
price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional
fees of $68,445 over the service period.
On
April 4, 2018, pursuant to a two-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary,
EC Manpower Limited and an individual for business strategy and management consultancy services to be rendered, the Company agreed
to pay an individual $372,000 to be paid in cash of $75,000 for the service rendered in first six months and paid by the issuance
of an aggregate of 90,826 shares for the service from the seventh month as follows: 45,413 shares within 30 days from the agreement
date, 45,413 shares during the seventh month from the agreement date. The initial 45,413 shares were valued at $146,230, or $3.22
per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection
with the issuance of these shares, the Company shall record stock-based professional fees of $146,230 over the service period.
Additionally, pursuant to this consulting agreement, the Company will issue an additional 45,413 share of common stock to this
consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The
initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share
price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services
are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value
of these shares is remeasured using the then-current fair value of the Company’s common stock. If, on the first date when
the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed
and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares
drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will
be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall").
The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading
days immediately before the first or the second anniversary date of the agreement date, provided that the maximum number of shares
issued for the Shortfall shall not exceed 18,166 Shares.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On
April 4, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary,
Sharing Economy Investment Limited and an individual for business development and operation services to be rendered, the Company
agreed to pay an individual $128,205 to be paid by the issuance of an aggregate of 37,270 shares as follows: 26,089 shares within
30 days from the agreement date, 11,181 shares during the fourth month from the agreement date. The initial 26,089 shares were
valued at $84,007, or $3.22 per share, the fair market value on the grant date using the reported closing share price on the date
of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $84,007 over
the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 11,181 share of
common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance
of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported
closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which
the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares,
the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
Shares
issued for bonus to directors and employees
In
January 2018, the Company has issued 249,870 shares as bonus to certain directors and employees for performance targets to be
achieved for the year in 2018.
Common
stock sold for cash
In
January 2018, the Note was converted into 200,100 shares of common stock (see Note 11).
In
March 2018, pursuant to a stock purchase agreement, the Company sold 69,676 shares of common stock to an investor
at
a purchase price of $3.68 per share for net cash proceeds a total of $256,410
. The Company did not engage a placement agent
with respect to these sales.
Acquisition
On
January 19, 2018 (the “Closing Date”), the Company completed the acquisition of 60% of the issued and outstanding
capital stock of 3D Discovery Co. Limited (“3D Discovery”), a company incorporation in Hong Kong, from its shareholders
pursuant to the terms and conditions of a Sale and Purchase Agreement entered into among the Company and the 3D Discovery Stockholders
on the Closing Date (the “Acquisition Agreement”). 3D Discovery is a digital marketing services provider which provides
various solution such as 3D scanning and modeling, website and mobile app development, video production, and graphic design to
its clients. Apart from its existing business, 3D Discovery plans to develop a mobile app which allows users to create an interactive
virtual tour of a physical space by using a mobile phone camera.
In connection with the
acquisition, the Company issued 68,610 unregistered shares of its common stock valued at $442,535, based on the acquisition-date
fair value of our common stock of $6.45 per share based on the quoted market price of the Company’s common stock on the
Closing date.
On
January 30, 2018 (the “Closing Date”), the Company completed the acquisition of 80% of the issued and outstanding
capital stock of AnyWorkspace Limited (“AnyWorkspace”), a company incorporation in Hong Kong, from its shareholders
pursuant to the terms and conditions of a Sale and Purchase Agreement entered into among the Company and the AnyWorkspace Stockholders
on the Closing Date (the “Acquisition Agreement”). AnyWorkspace develops an online, real-time marketplace that connects
workspace providers with clients who need temporary office and meeting spaces.
In connection
with the acquisition, the Company issued 106,464 unregistered shares of its common stock valued at $534,449, based on the acquisition-date
fair value of our common stock of $5.02 per share based on the quoted market price of the Company’s common stock on the
Closing date.