UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number: 001-34591
|
SHARING ECONOMY INTERNATIONAL
INC. |
| (Exact name of registrant as specified in its
charter) |
|
NEVADA |
|
90-0648920 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.)
|
No.85 Castle Peak Road
Castle Peak Bay
Tuen Mun, N.T., Hong Kong
(Address of principal executive
offices)
(852)
2583-2186
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Act: common stock,
par value $0.001 per share
Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes
☐
No ☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
No ☒
Indicate by check whether the issuer: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
☒
No ☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference Part III of this Form 10-K or
any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, smaller reporting company, or an
emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
| Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
| Non-accelerated
filer |
☒ |
Smaller reporting
company |
☒ |
| |
|
Emerging growth
company |
☐ |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to
Section13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the
price at which the common equity was sold, or the average bid and
asked prices of such common equity, as of the last business day of
the registrant’s most recently completed second fiscal quarter.
Approximately $1,564,691 on June 30, 2021.
Indicate the number of shares outstanding of each of the
registrant’s classes of common stock, as of the latest practicable
date: 239,278,847 shares of common stock are outstanding as of
March 8, 2022.
Documents Incorporated by Reference: None.
SHARING ECONOMY INTERNATIONAL INC.
FORM 10-K
TABLE OF CONTENTS
INTRODUCTORY COMMENT
We are not a Hong Kong operating company but a Nevada holding
company with operations conducted through our wholly owned
subsidiaries based in Hong Kong and the People’s Republic of China
(“the PRC”). Our investors hold shares of common stock in Sharing
Economy International Inc, the Nevada holding company. This
structure presents unique risks as our investors may never directly
hold equity interests in our Hong Kong and PRC subsidiaries and
will be dependent upon contributions from our subsidiaries to
finance our cash flow needs. Our ability to obtain contributions
from our subsidiaries is significantly affected by regulations
promulgated by Hong Kong and PRC authorities. Any change in the
interpretation of existing rules and regulations or the
promulgation of new rules and regulations may materially affect our
operations and or the value of our securities, including causing
the value of our securities to significantly decline or become
worthless. For a detailed description of the risks facing the
Company associated with our structure, please refer to “Risk
Factors – Risks Relating to Doing Business in Hong Kong and the
PRC”.
Sharing Economy International Inc. and our Hong Kong and PRC
subsidiaries are not required to obtain permission from the Chinese
authorities including the China Securities Regulatory Commission,
or CSRC, or Cybersecurity Administration Committee, or CAC, to
operate or to issue securities to foreign investors. However, in
light of the recent statements and regulatory actions by the
People’s Republic of China (“the PRC”) government, such as those
related to Hong Kong’s national security, the promulgation of
regulations prohibiting foreign ownership of Chinese companies
operating in certain industries, which are constantly evolving, and
anti-monopoly concerns, we may be subject to the risks of
uncertainty of any future actions of the PRC government in this
regard including the risk that we inadvertently conclude that such
approvals are not required, that applicable laws, regulations or
interpretations change such that we are required to obtain
approvals in the future, or that the PRC government could disallow
our holding company structure, which would likely result in a
material change in our operations, including our ability to
continue our existing holding company structure, carry on our
current business, accept foreign investments, and offer or continue
to offer securities to our investors. These adverse actions could
cause the value of our common stock to significantly decline or
become worthless. We may also be subject to penalties and sanctions
imposed by the PRC regulatory agencies, including the Chinese
Securities Regulatory Commission, if we fail to comply with such
rules and regulations, which would likely adversely affect the
ability of the Company’s securities to continue to trade on the
Over-the-Counter Bulletin Board, which would likely cause the value
of our securities to significantly decline or become worthless.
There may be prominent risks associated with our operations being
in Hong Kong. For example, as a U.S.-listed Hong Kong public
company, we may face heightened scrutiny, criticism and
negative publicity, which could result in a material change in our
operations and the value of our common stock. It could also
significantly limit or completely hinder our ability to offer or
continue to offer securities to investors and cause the value of
such securities to significantly decline or be worthless.
Additionally, changes in Chinese internal regulatory mandates, such
as the M&A rules, Anti-Monopoly Law, and Data Security Law, may
target the Company’s corporate structure and impact our ability to
conduct business in Hong Kong, accept foreign investments, or list
on an U.S. or other foreign exchange. Recently, the PRC government
initiated a series of regulatory actions and statements to regulate
business operations in China with little advance notice, including
cracking down on illegal activities in the securities market,
enhancing supervision over China-based companies listed overseas
using variable interest entity structure, adopting new measures to
extend the scope of cybersecurity reviews, and expanding the
efforts in anti-monopoly enforcement, The business of our
subsidiaries are not subject to cybersecurity review with the
Cyberspace Administration of China, or CAC, given that: (i)
our sharing economy platform allows individual users to rent and
make use of the access to the sharing contents; (ii) we do not
possess a large amount of personal information in our business
operations. In addition, we are not subject to merger control
review by China’s anti-monopoly enforcement agency due to the level
of our revenues which provided from us and audited by our auditor
and the fact that we currently do not expect to propose or
implement any acquisition of control of, or decisive influence
over, any company with revenues within China of more than RMB400
million. Currently, these statements and regulatory actions have
had no impact on our daily business operations, the ability to
accept foreign investments and list our securities on an U.S. or
other foreign exchange. However, since these statements and
regulatory actions are new, it is highly uncertain how soon
legislative or administrative regulation making bodies will respond
and what existing or new laws or regulations or detailed
implementations and interpretations will be modified or
promulgated, if any, and the potential impact such modified or new
laws and regulations will have on our daily business operation, the
ability to accept foreign investments and list our securities on an
U.S. or other foreign exchange. For a detailed description of the
risks the Company is facing and the offering associated with our
operations in Hong Kong and PRC, please refer to “Risk Factors –
Risks Relating to Doing Business in Hong Kong and PRC.”
The recent joint statement by the SEC and PCAOB, and the Holding
Foreign Companies Accountable Act all call for additional and more
stringent criteria to be applied to emerging market companies upon
assessing the qualification of their auditors, especially the
non-U.S. auditors who are not inspected by the PCAOB. Trading in
our securities may be prohibited under the Holding Foreign
Companies Accountable Act if the PCAOB determines that it cannot
inspect or investigate completely our auditor, and that as a
result, an exchange may determine to delist our securities. On June
22, 2021, the U.S. Senate passed the Accelerating Holding Foreign
Companies Accountable Act (HFCAA) which would reduce the number of
consecutive non-inspection years required for triggering the
prohibitions under the HFCAA from three years to two thus reducing
the time before our securities may be prohibited from trading or
being delisted. On December 2, 2021, the U.S. Securities and
Exchange Commission adopted rules to implement the HFCAA. Pursuant
to the HFCAA, the Public Company Accounting Oversight Board (PCAOB)
issued its report notifying the Commission that it is unable to
inspect or investigate completely accounting firms headquartered in
mainland China or Hong Kong due to positions taken by authorities
in mainland China and Hong Kong. Our auditor is based in
United States of America and is subject to PCAOB inspection. It is
not subject to the determinations announced by the PCAOB on
December 16, 2021. Furthermore, due to the recent developments in
connection with the implementation of the Holding Foreign Companies
Accountable Act, we cannot assure you whether the SEC or other
regulatory authorities would apply additional and more stringent
criteria to us after considering the effectiveness of our auditor’s
audit procedures and quality control procedures, adequacy of
personnel and training, or sufficiency of resources, geographic
reach or experience as it relates to the audit of our financial
statements. The requirement in the HFCA Act that the PCAOB be
permitted to inspect the issuer’s public accounting firm within two
or three years, may result in the delisting of our securities from
applicable trading markets in the U.S, in the future if the PCAOB
is unable to inspect our accounting firm at such future time.
Please see “Risk Factors - The Holding Foreign Companies
Accountable Act requires the Public Company Accounting Oversight
Board (PCAOB) to be permitted to inspect the issuer’s public
accounting firm within three years. This three year period will be
shortened to two years if the Accelerating Holding Foreign
Companies Accountable Act is enacted. There are
uncertainties under the PRC Securities Law relating to the
procedures and requisite timing for the U.S. securities regulatory
agencies to conduct investigations and collect evidence within the
territory of the PRC. If the U.S. securities regulatory agencies
are unable to conduct such investigations, they may suspend or
de-register our registration with the SEC and delist our securities
from applicable trading market within the US.”
In addition to the foregoing risks, we face various legal and
operational risks and uncertainties arising from doing business in
Hong Kong and PRC as summarized below and in “Risk Factors —
Risks Relating to Doing Business in Hong Kong and PRC.”.
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Adverse
changes in economic and political policies of the PRC government
could have a material and adverse effect on overall economic growth
in China and Hong Kong, which could materially and adversely affect
our business. Please see “Risk Factors-We face the risk that
changes in the policies of the PRC government could have a
significant impact upon the business we may be able to conduct in
Hong Kong and the profitability of such business.” and
“Substantial uncertainties and restrictions with respect to
the political and economic policies of the PRC government and PRC
laws and regulations could have a significant impact upon the
business that we may be able to conduct in the PRC and accordingly
on the results of our operations and financial condition.”
set forth in the Form 10. |
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● |
We
are a holding company with operations conducted through our wholly
owned subsidiaries based in Hong Kong and PRC. This structure
presents unique risks as our investors may never directly hold
equity interests in our Hong Kong subsidiaries and will be
dependent upon contributions from our subsidiaries to finance our
cash flow needs. Any limitation on the ability of our subsidiaries
to make payments to us could have a material adverse effect on our
ability to conduct business. We do not anticipate paying dividends
in the foreseeable future; you should not buy our stock if you
expect dividends. Please see “Risk Factors- Because our
holding company structure creates restrictions on the payment of
dividends, our ability to pay dividends is
limited. |
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● |
PRC
regulation of loans to and direct investments in PRC entities by
offshore holding companies may delay or prevent us from using the
proceeds of this offering to make loans or additional capital
contributions to our operating subsidiaries in Hong Kong.
Substantial uncertainties exist with respect to the interpretation
of the PRC Foreign Investment Law and how it may impact the
viability of our current corporate structure, corporate governance
and business operations. Please see ’Risk Factors- PRC
regulation of loans to and direct investment in PRC entities by
offshore holding companies and governmental control of currency
conversion may delay or prevent us from using the proceeds we
receive from offshore financing activities to make loans to or make
additional capital contributions to our Hong Kong subsidiaries,
which could materially and adversely affect our liquidity and our
ability to fund and expand business.” set forth in the Form
10. |
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In
light of China’s extension of its authority into Hong Kong, the
Chinese government can change Hong Kong’s rules and regulations at
any time with little or no advance notice, and can intervene and
influence our operations and business activities in Hong Kong. We
are currently not required to obtain approval from Chinese
authorities to list on U.S. exchanges. However, if our subsidiaries
or the holding company were required to obtain approval in the
future, or we erroneously conclude that approvals were not
required, or we were denied permission from Chinese authorities to
operate or to list on U.S. exchanges, we will not be able to
continue listing on a U.S. exchange and the value of our common
stock would likely significantly decline or become worthless, which
would materially affect the interest of the investors. There is a
risk that the Chinese government may intervene or influence our
operations at any time, or may exert more control over offerings
conducted overseas and/or foreign investment in Hong Kong-based
issuers, which could result in a material change in our operations
and/or the value of our securities. Further, any actions by the
Chinese government to exert more oversight and control over
offerings that are conducted overseas and/or foreign investment in
China-based issuers would likely significantly limit or completely
hinder our ability to offer or continue to offer securities to
investors and cause the value of such securities to significantly
decline or be worthless. Please see “Risk Factors-We face the
risk that changes in the policies of the PRC government could have
a significant impact upon the business we may be able to conduct in
the Hong Kong and the profitability of such business.” and
“Substantial uncertainties and restrictions with respect to
the political and economic policies of the PRC government and PRC
laws and regulations could have a significant impact upon the
business that we may be able to conduct in Hong Kong and
accordingly on the results of our operations and financial
condition.” and “The Chinese government exerts
substantial influence over the manner in which we must conduct our
business activities. We are currently not required to obtain
approval from Chinese authorities to list on U.S. exchanges.
However, to the extent that the Chinese government exerts more
control over offerings conducted overseas and/or foreign investment
in China-based issuers over time and if our PRC subsidiaries or the
holding company were required to obtain approval in the future and
were denied permission from Chinese authorities to list on U.S.
exchanges, we will not be able to continue listing on U.S. exchange
and the value of our common stock may significantly decline or
become worthless, which would materially affect the interest of the
investors.” |
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Governmental
control of currency conversion may limit our ability to utilize our
revenues effectively and affect the value of your
investment. |
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We
may become subject to a variety of laws and regulations in the PRC
regarding privacy, data security, cybersecurity, and data
protection. We may be liable for improper use or appropriation of
personal information provided by our customers. Please see
“Risk Factors- The Chinese government exerts substantial
influence over the manner in which we must conduct our business
activities. We are currently not required to obtain approval from
Chinese authorities to list on U.S exchanges. However, to the
extent that the Chinese government exerts more control over
offerings conducted overseas and/or foreign investment in
China-based issuers over time and if our PRC subsidiaries or the
holding company were required to obtain approval in the future and
were denied permission from Chinese authorities to list on U.S.
exchanges, we will not be able to continue listing on U.S. exchange
and the value of our common stock may significantly decline or
become worthless, which would materially affect the interest of the
investors.” set forth in the Form 10. |
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Under
the Enterprise Income Tax (“EIT”) Law, we may be classified as a
“Resident Enterprise” of China. Such classification will likely
result in unfavorable tax consequences to us and our non-PRC
shareholders. Please see “Risk Factors- Our global income may
be subject to PRC taxes under the PRC Enterprise Income Tax Law,
which could have a material adverse effect on our results of
operations.” |
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● |
Failure
to comply with PRC regulations relating to the establishment of
offshore special purpose companies by PRC residents may subject our
PRC resident Shareholders to personal liability, may limit our
ability to acquire Hong Kong and PRC companies or to inject capital
into our Hong Kong and PRC subsidiaries, may limit the ability of
our Hong Kong and PRC subsidiaries to distribute profits to us or
may otherwise materially and adversely affect us. |
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● |
The
recent joint statement by the SEC and PCAOB, and the Holding
Foreign Companies Accountable Act all call for additional and more
stringent criteria to be applied to emerging market companies upon
assessing the qualification of their auditors, especially the
non-U.S. auditors who are not inspected by the PCAOB. Trading in
our securities may be prohibited under the Holding Foreign
Companies Accountable Act if the PCAOB determines that it cannot
inspect or investigate completely our auditor, and that as a result
an exchange may determine to delist our securities. On June 22,
2021, the U.S. Senate passed the Accelerating Holding Foreign
Companies Accountable Act (HFCAA) which would reduce the number of
consecutive non-inspection years required for triggering the
prohibitions under the HFCAA from three years to two thus reducing
the time before our securities may be prohibited from trading or
being delisted. On December 2, 2021, the U.S. Securities and
Exchange Commission adopted rules to implement the HFCAA. Pursuant
to the HFCAA, the Public Company Accounting Oversight Board (PCAOB)
issued its report notifying the Commission that it is unable to
inspect or investigate completely accounting firms headquartered in
mainland China or Hong Kong due to positions taken by authorities
in mainland China and Hong Kong. Our auditor is not subject
to the determinations announced by the PCAOB on December 16, 2021.
However, in the event the Malaysian authorities subsequently take a
position disallowing the PCAOB to inspect our auditor, then we
would need to change our auditor to avoid having our securities
delisted. Please see “Risk Factors- The Holding Foreign
Companies Accountable Act requires the Public Company Accounting
Oversight Board (PCAOB) to be permitted to inspect the issuer’s
public accounting firm within three years. This three year period
will be shortened to two years if the Accelerating Holding Foreign
Companies Accountable Act is enacted. There are uncertainties under
the PRC Securities Law relating to the procedures and requisite
timing for the U.S. securities regulatory agencies to conduct
investigations and collect evidence within the territory of the
PRC. If the U.S. securities regulatory agencies are unable to
conduct such investigations, they may suspend or de-register our
registration with the SEC and delist our securities from applicable
trading market within the US.” |
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You
may be subject to PRC income tax on dividends from us or on any
gain realized on the transfer of shares of our common stock. Please
see “Risk Factors- Dividends payable to our foreign investors
and gains on the sale of our shares of common stock by our foreign
investors may become subject to tax by the
PRC.” |
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We
face uncertainties with respect to indirect transfers of equity
interests in PRC resident enterprises by their non-PRC holding
companies. Please see “Risk Factors- We and our shareholders
face uncertainties with respect to indirect transfers of equity
interests in PRC resident enterprises by their non-PRC holding
companies.” |
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We
are organized under the laws of the State of Nevada as a holding
company that conducts its business through a number of subsidiaries
organized under the laws of foreign jurisdictions such as Hong
Kong, PRC and the British Virgin Islands. This may have an adverse
impact on the ability of U.S. investors to enforce a judgment
obtained in U.S. Courts against these entities, bring actions in
Hong Kong against us or our management or to effect service of
process on the officers and directors managing the foreign
subsidiaries. Please see “Risk Factors- It may be difficult
for stockholders to enforce any judgment obtained in the United
States against us, which may limit the remedies otherwise available
to our stockholders.” |
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U.S.
regulatory bodies may be limited in their ability to conduct
investigations or inspections of our operations in
China. |
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There are
significant uncertainties under the EIT Law relating to the
withholding tax liabilities of our PRC subsidiary, and dividends
payable by our PRC subsidiary to our offshore subsidiaries may not
qualify to enjoy certain treaty benefits. Please see “Risk
Factors- Our global income may be subject to PRC taxes under the
PRC Enterprise Income Tax Law, which could have a material adverse
effect on our results of operations.”
|
References in this registration statement to the “Company,”
“SEII,” “we,” “us” and “our” refer to Sharing Economy International
Inc., a Nevada company and all of its subsidiaries on a
consolidated basis. Where reference to a specific entity is
required, the name of such specific entity will be
referenced.
Transfers of Cash to and from Our Subsidiaries
Sharing Economy International Inc. is a Nevada holding company with
no operations of its own. We conduct our operations in Hong Kong
primarily through our subsidiaries in Hong Kong and PRC. We may
rely on dividends to be paid by our Hong Kong and PRC subsidiaries
to fund our cash and financing requirements, including the funds
necessary to pay dividends and other cash distributions to our
shareholders, to service any debt we may incur and to pay our
operating expenses. If our Hong Kong and PRC subsidiaries incur
debt on their own behalf in the future, the instruments governing
the debt may restrict their ability to pay dividends or make other
distributions to us. To date, our subsidiaries have not made any
transfers, dividends or distributions to Sharing Economy
International Inc. and Sharing Economy International Inc. has not
made any transfers, dividends or distributions to our
subsidiaries.
Sharing Economy International Inc. is permitted under the Nevada
laws to provide funding to our subsidiaries in Hong Kong through
loans or capital contributions without restrictions on the amount
of the funds, subject to satisfaction of applicable government
registration, approval and filing requirements. Our Hong Kong
subsidiaries are permitted under the laws of Hong Kong to provide
funding to Sharing Economy International Inc. through dividend
distribution without restrictions on the amount of the funds. As of
the date of this prospectus, there have been no dividends or
distributions among the holding company or the subsidiaries nor do
we expect such dividends or distributions to occur in the
foreseeable future among the holding company and its
subsidiaries.
We currently intend to retain all available funds and future
earnings, if any, for the operation and expansion of our business
and do not anticipate declaring or paying any dividends in the
foreseeable future. Any future determination related to our
dividend policy will be made at the discretion of our board of
directors after considering our financial condition, results of
operations, capital requirements, contractual requirements,
business prospects and other factors the board of directors deems
relevant, and subject to the restrictions contained in any future
financing instruments.
Subject to the Nevada Revised Statutes and our bylaws, our board of
directors may authorize and declare a dividend to shareholders at
such time and of such an amount as they think fit if they are
satisfied, on reasonable grounds, that immediately following the
dividend the value of our assets will exceed our liabilities and we
will be able to pay our debts as they become due. There is no
further Nevada statutory restriction on the amount of funds which
may be distributed by us by dividend.
Under the current practice of the Inland Revenue Department of
Hong Kong, no tax is payable in Hong Kong in respect of
dividends paid by us. The laws and regulations of the PRC do not
currently have any material impact on transfer of cash from Sharing
Economy International Inc. to our Hong Kong subsidiaries or from
our Hong Kong subsidiaries to Sharing Economy International Inc.
There are no restrictions or limitation under the laws of Hong Kong
imposed on the conversion of Hong Kong dollar (“HKD”) into foreign
currencies and the remittance of currencies out of Hong Kong or
across borders and to U.S. investors.
Current PRC regulations permit PRC subsidiaries to pay dividends to
Hong Kong subsidiaries only out of their accumulated profits, if
any, determined in accordance with Chinese accounting standards and
regulations. In addition, each of our subsidiaries in China is
required to set aside at least 10% of its after-tax profits each
year, if any, to fund a statutory reserve until such reserve
reaches 50% of its registered capital. Each of such entity in China
is also required to further set aside a portion of its after-tax
profits to fund the employee welfare fund, although the amount to
be set aside, if any, is determined at the discretion of its board
of directors. Although the statutory reserves can be used, among
other ways, to increase the registered capital and eliminate future
losses in excess of retained earnings of the respective companies,
the reserve funds are not distributable as cash dividends except in
the event of liquidation. As of the date of this prospectus, we do
not have any PRC subsidiaries.
The PRC government also imposes controls on the conversion of
Renminbi (“RMB”) into foreign currencies and the remittance of
currencies out of the PRC. Therefore, we may experience
difficulties in completing the administrative procedures necessary
to obtain and remit foreign currency for the payment of dividends
from our profits, if any. Furthermore, if our subsidiaries in the
PRC incur debt on their own in the future, the instruments
governing the debt may restrict their ability to pay dividends or
make other payments. If we or our subsidiaries are unable to
receive all of the revenues from our operations, we may be unable
to pay dividends on our common stock.
Cash dividends, if any, on our common stock will be paid in U.S.
dollars. If we are considered a PRC tax resident enterprise for tax
purposes, any dividends we pay to our overseas shareholders may be
regarded as China-sourced income and as a result may be subject to
PRC withholding tax at a rate of up to 10.0%.
In order for us to pay dividends to our shareholders, we will rely
on payments made from our Hong Kong subsidiaries to Sharing Economy
International Inc. If in the future we have PRC subsidiaries,
certain payments from such PRC subsidiaries to Hong Kong
subsidiaries will be subject to PRC taxes, including business taxes
and VAT. As of the date of this prospectus, we do not have any PRC
subsidiaries and our Hong Kong subsidiaries have not made any
transfers, dividends or distributions nor do we expect to make such
transfers, dividends or distributions in the foreseeable
future.
Pursuant to the Arrangement between Mainland China and the Hong
Kong Special Administrative Region for the Avoidance of Double
Taxation and Tax Evasion on Income, or the Double Tax Avoidance
Arrangement, the 10% withholding tax rate may be lowered to 5% if a
Hong Kong resident enterprise owns no less than 25% of a PRC
entity. However, the 5% withholding tax rate does not automatically
apply and certain requirements must be satisfied, including,
without limitation, that (a) the Hong Kong entity must be the
beneficial owner of the relevant dividends; and (b) the Hong Kong
entity must directly hold no less than 25% share ownership in the
PRC entity during the 12 consecutive months preceding its receipt
of the dividends. In current practice, a Hong Kong entity must
obtain a tax resident certificate from the Hong Kong tax authority
to apply for the 5% lower PRC withholding tax rate. As the Hong
Kong tax authority will issue such a tax resident certificate on a
case-by-case basis, we cannot assure you that we will be able to
obtain the tax resident certificate from the relevant Hong Kong tax
authority and enjoy the preferential withholding tax rate of 5%
under the Double Taxation Arrangement with respect to dividends to
be paid by a PRC subsidiary to its immediate holding company. As of
the date of this prospectus, we do not have a PRC subsidiary. In
the event that we acquire or form a PRC subsidiary in the future
and such PRC subsidiary desires to declare and pay dividends to our
Hong Kong subsidiary, our Hong Kong subsidiary will be required to
apply for the tax resident certificate from the relevant Hong Kong
tax authority. In such event, we plan to inform the investors
through SEC filings, such as a current report on Form 8-K, prior to
such actions. See “Risk Factors – Risks Relating to Doing
Business in Hong Kong and PRC.”
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended that are not historical facts, and involve
risks and uncertainties that could cause actual results to differ
materially from those expected and projected. All statements, other
than statements of historical facts, included in this Form 10-K
including, without limitation, statements in the “Market Overview”
and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” regarding the Company’s market
projections, financial position, business strategy and the plans
and objectives of management for future operations, events or
developments which the Company expects or anticipates will or may
occur in the future, including such things as future capital
expenditures (including the amount and nature thereof); expansion
and growth of the Company’s business and operations; and other such
matters are forward-looking statements. These statements are based
on certain assumptions and analyses made by the Company in light of
its experience and its perception of historical trends, current
conditions and expected future developments, as well as other
factors it believes are appropriate under the circumstances.
However, whether actual results or developments will conform with
the Company’s expectations and predictions is subject to a number
of risks and uncertainties, including general economic, market and
business conditions; the business opportunities (or lack thereof)
that may be presented to and pursued by the Company; changes in
laws or regulation; and other factors, most of which are beyond the
control of the Company.
These forward-looking statements can be identified by the use of
predictive, future-tense or forward-looking terminology, such as
“believes,” “anticipates,” “expects,” “estimates,” “plans,” “may,”
“will,” or similar terms. These statements appear in a number of
places in this filing and include statements regarding the intent,
belief or current expectations of the Company, and its directors or
its officers with respect to, among other things: (i) trends
affecting the Company’s financial condition or results of
operations for its limited history; (ii) the Company’s business and
growth strategies; and (iii) the Company’s financing plans.
Investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve significant
risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements
as a result of various factors. Such factors that could adversely
affect actual results and performance include, but are not limited
to, the Company’s limited operating history, potential fluctuations
in quarterly operating results and expenses, government regulation,
technological change and competition. For information identifying
important factors that could cause actual results to differ
materially from those anticipated in the forward-looking
statements, please refer to the “Item 1A. - Risk Factors” and “Item
7 – Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” Except for our ongoing obligations to
disclose material information under the federal securities laws, we
undertake no obligation to release publicly any revisions to any
forward-looking statements, to report events or to report the
occurrence of unanticipated events. These forward-looking
statements speak only as of the date of this report, and you should
not rely on these statements without also considering the risks and
uncertainties associated with these statements and our
business.
Consequently, all of the forward-looking statements made in this
Form 10-K are qualified by these cautionary statements and there
can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected
consequence to or effects on the Company or its business or
operations. The Company assumes no obligations to update any such
forward-looking statements.
PART I
ITEM 1. BUSINESS
Overview of Our Sharing Economy Business
Our business focuses on the development of sharing economy
platforms and related rental businesses. We believe a true
peer-to-peer sharing economy based on rentals will take significant
market share in both the business and consumer markets over the
next few years.
Sharing economy business models are hosted through digital
platforms that enable more precise, real-time measurement of spare
capacity and have the ability to dynamically connect that capacity
with those who need it. These digital platforms handle transactions
that offer access over ownership through renting, lending,
subscribing, reselling, swapping or donating. Consumers who use
sharing economy business models are often more comfortable with
transactions that involve deeper social interactions than
traditional methods of exchange.
With the market situation of the global sharing economy markets, we
continued to pursue what we believe are high growth opportunities
for the Company, particularly our new business divisions focused on
the development of sharing economy platforms and related rental
businesses within the company. These initiatives are still in an
early stage and are dependent in large part on availability of
capital to fund their future growth. We did not generate
significant revenues from our sharing economy business initiatives
in 2021. COVID-19 has continued to cause the global consumer
behavior changes in 2021, which affects P2P sharing development.
While the world is implanting vaccination for COVID-19, we believe
P2P sharing activities will resume to normal activity level during
the second half of 2022.
Listing Status
On November 26, 2018, we received a staff determination notice from
The Nasdaq Stock Market (“Nasdaq”) informing the Company that as a
result of its failure to comply with Nasdaq’s shareholder approval
requirements set forth in Listing Rule 5635(c) (the “Rule”), the
staff determined to deny the Company’s request for continued
listing based on a plan of compliance submitted on October 26,
2018. Our common stock was delisted from Nasdaq at the open of
trading on December 5, 2018. Our common stock is currently trading
on the OTC Markets under the symbol “SEII.”
Our Corporate History and Background
We are a Nevada corporation. We were incorporated in Delaware on
June 24, 1987, under the name Malex, Inc. We changed our corporate
name to China Wind Systems, Inc. on December 18, 2007. On June 13,
2011, we changed our corporate name to Cleantech Solutions
International, Inc. On August 7, 2012, we were converted into a
Nevada corporation. On January 8, 2018, we changed our name to
Sharing Economy International Inc.
Beginning in the second quarter of 2017 and throughout 2018, we
established new business divisions to focus on the development of
sharing economy platforms and related rental businesses. We believe
a true peer-to-peer sharing economy based on rentals will take
significant market share in both the business and consumer markets
over the next few years.
Sharing economy business models are hosted through digital
platforms that enable more precise, real-time measurement of spare
capacity and have the ability to dynamically connect that capacity
with those who need it. These digital platforms handle transactions
that offer access over ownership through renting, lending,
subscribing, reselling, swapping or donating. Consumers who use
sharing economy business models are often more comfortable with
transactions that involve deeper social interactions than
traditional methods of exchange.
While we are retaining our Sharing Economy business, our primary
business has changed, with the acquisition of the Peak Equity
business.
Reverse Acquisition of Peak Equity
On December 27, 2019, Sharing Economy International Inc. entered
into a Share Exchange Agreement (the “Share Exchange Agreement”),
by and among the Company, Peak Equity International Limited, a
British Virgin Islands corporation (“Peak Equity”), and all of the
holders of ordinary shares of Peak Equity, which consisted of three
shareholders.
Under the terms and conditions of the Share Exchange Agreement, the
Company offered, sold and issued 7,200,000,000 shares of
common stock in consideration for all the issued and outstanding
ordinary shares of Peak Equity. The effect of the issuance is that
Peak Equity shareholders now hold approximately 99.7% of the issued
and outstanding shares of common stock of the Company.
Our Articles of Incorporation authorize us to issue 200,000,000 of
common stock. The Company is still obligated to issue an additional
7,018,360,787 shares of common stock to the Peak Equity
shareholders, and plans to amend its Articles of Incorporation, as
amended, to increase its number of authorized shares of common
stock for such purpose. Assuming the issuance of such
additional 7,018,360,787 shares of common stock to the Peak Equity
shareholders, the Peak Equity shareholders will hold approximately
99.7% of the issued and outstanding shares of common stock of the
Company.
None of our officers or directors have resigned in connection with
the acquisition of the Peak Equity business.
As a result of the share exchange Peak Equity is now a wholly-owned
subsidiary of the Company.
The transactions consummated with Peak Equity pursuant to the terms
and conditions of the Share Exchange Agreement were treated as a
reverse acquisition, with Peak Equity as the acquiror and the
Company as the acquired party. Unless the context suggests
otherwise, when we refer in this Form 8-K to business and financial
information for periods prior to the consummation of the reverse
acquisition, we are referring to the business and financial
information of Peak Equity.
Organization & Subsidiaries
The following table sets forth our relationship our subsidiaries
whose financial statements are consolidated.
|
Name of Entity |
|
Relationship to Us |
|
Nature of Business |
|
Sharing Economy International
Inc. |
|
N.A. |
|
Holding
company |
|
Vantage Ultimate Limited (“Vantage”),
a British Virgin Island (“BVI”) company |
|
100% owned by us |
|
Holding
company |
|
EC Assets Management Limited, a BVI
company |
|
100% owned by Vantage |
|
Operates
real estate and property management business |
|
EC Rental Limited (“EC Rental”), a
BVI company |
|
100% owned by Vantage |
|
Holding
company |
|
EC Power (Global) Technology Limited
(“EC Power”), a BVI company |
|
100% owned by EC
Rental |
|
Holding
company |
|
ECPower (HK) Company Limited, a HK
company |
|
100% owned by EC
Power |
|
Operates
rental stations offering power banks for mobile charging on-demand
and other items |
|
Sharing Economy Investment Limited
(“Sharing Economy”), a BVI company |
|
100% owned by Vantage |
|
Holding
company and provision of management services |
|
Global Bike Share (Mobile App)
Limited, a BVI company |
|
100% owned by Sharing
Economy |
|
Operates
global bike sharing mobile app business |
|
EC Advertising Limited (“EC
Advertising”), a HK company |
|
100% owned by Sharing
Economy |
|
Operates
online media and advertising business |
|
Xiamen Great Media Company Limited, a
WFOE in the PRC |
|
100% owned by EC
Advertising |
|
Operates
marketing and advertising business, the business has not yet
commenced |
|
G-Coin Global Limited |
|
100% owned by EC
Advertising |
|
Investment holding |
|
Cleantech Solutions Limited (formerly
known as EC (Fly Car) Limited), a BVI company |
|
100% owned by Sharing
Economy |
|
Operates
business that builds parts for flying car manufacturers, the
business has not yet commenced |
|
EC Manpower Limited, a HK
company |
|
100% owned by Vantage |
|
Provision of consulting and office support
services to group companies |
|
EC Technology & Innovations Limited (“EC Technology”), a BVI
company
|
|
100% owned by Vantage |
|
Holding
company and provision of management services |
|
Inspirit Studio Limited, a HK
company |
|
51% owned by EC
Technology |
|
Develops
and operates a sharing economy mobile platform for courier
services |
|
3D Discovery Co., Limited, a HK
company |
|
100% owned by EC
Technology |
|
Develops
an interactive virtual tour of a physical space using a mobile
phone camera |
|
EC Creative Limited (“EC Creative”),
a BVI company |
|
100% owned by Vantage |
|
Holding
company and provision of management services |
|
Sharing Film International Limited, a
HK company |
|
100% owned by EC
Creative |
|
Production of films |
|
Peak Equity International Limited
(“Peak Equity”), a BVI company |
|
100% owned by Vantage |
|
Holding
company |
|
Universal Sharing Limited, a BVI
company |
|
100% owned by Peak
Equity |
|
Sales
and marketing in Hong Kong |
|
ECrent Worldwide Company Limited, a
HK company |
|
100% owned by Peak
Equity |
|
Operation of online platform in Hong
Kong |
|
ECrent Capital Holdings Limited, a
BVI company |
|
100% owned by Peak
Equity |
|
Licensing service |
Our website is www.seii.com. Information on our website or any
other website does not constitute a part of this annual report.
We are not a Hong Kong operating company but a Nevada holding
company with operations conducted through our wholly owned
subsidiaries based in Hong Kong and PRC. This structure presents
unique risks as our investors may never directly hold equity
interests in our Hong Kong and PRC subsidiaries and will be
dependent upon contributions from our subsidiaries to finance our
cash flow needs. Sharing Economy International Inc. and its Hong
Kong and PRC subsidiaries are not required to obtain permission
from the Chinese authorities including the China Securities
Regulatory Commission, or CSRC, or Cybersecurity Administration
Committee, or CAC, to operate or to issue securities to foreign
investors. However, in light of the recent statements and
regulatory actions by the PRC government, such as those related to
Hong Kong’s national security, the promulgation of regulations
prohibiting foreign ownership of Chinese companies operating in
certain industries, which are constantly evolving, and
anti-monopoly concerns, we (the parent company and our
subsidiaries) may be subject to the risks of uncertainty of any
future actions of the PRC government in this regard including the
risk that we inadvertently conclude that such approvals are not
required, that applicable laws, regulations or interpretations
change such that we are required to obtain approvals in the future,
or that the PRC government could disallow our holding company
structure, which would likely result in a material change in our
operations, including our ability to continue our existing holding
company structure, carry on our current business, accept foreign
investments, and offer or continue to offer securities to our
investors. These adverse actions would likely cause the value of
our common stock to significantly decline or become worthless. We
may also be subject to penalties and sanctions imposed by the PRC
regulatory agencies, including the Chinese Securities Regulatory
Commission, if we fail to comply with such rules and regulations,
which would likely adversely affect the ability of the Company’s
securities to continue to trade on the Over-the-Counter Bulletin
Board, which would likely cause the value of our securities to
significantly decline or become worthless. For a detailed
description of the risks facing the Company associated with our
operations in Hong Kong, please refer to “Risk Factors – Risk
Relating to Doing Business in Hong Kong and PRC.”
Overview of Peak Equity and its ECrent business
Summary Financial Information
The tables and information below are derived from our audited
consolidated financial statements as of December 31, 2021.
| |
|
December 31,
2021 |
|
| Financial
Summary |
|
|
|
| Cash and Cash Equivalents |
|
$ |
66,273 |
|
| Total Assets |
|
|
4,566,744 |
|
| Total Liabilities |
|
|
16,989,621 |
|
| Total Stockholders’ Equity (Deficit) |
|
$ |
(11,535,734 |
) |
Description of Business
We have developed and operated an online rental classified platform
named ECrent.com, which provides a marketplace for individuals and
companies to view, list and search for rental products and
services.
Our mission is to become the largest, most extensive sharing
economy network, allowing individuals and companies to view, list
and search for rental products and services on the platform,
creating the conditions for collaborative consumption.
Collaborative consumption is the trigger for more sustainable
business and consumer practices that will protect the planet’s
well-being as well as generate an entire class of new business
opportunities based on the sharing economy ecosystem.
Our model is designed to bring sustainability, entrepreneurship and
sharing together.
We operate an online platform, www.ecrent.com, which connects
owners (businesses and individuals) and consumers in a robust
growing community. The platform consists of a set of web portals
and mobile applications which facilitate the online search for a
wide and expanding range of rental products and services. The
ECrent platform is designed to enable members of the rapidly
growing global community to seek and rent items everywhere
worldwide. The highly scalable ECrent platform is designed to
consolidate all sharing and rental information (supply side) from
all geographies into one single source, across multiple categories,
and then rebroadcast available rental supply to the demand side.
The ECremt platform is coded using advanced algorithms which
leverage the central database to provide greater convenience to
users through an intelligent matching system. The intelligent
matching system incorporates specific product and/or service
criteria, product/service pairings, geography and browsing
behaviors. ECrent believes these features form the basis for a more
comprehensive and extensive user experience than is otherwise
available from well-known, first generation, single purpose sharing
economy businesses such as Uber and Airbnb.
After proof of concept by our ECrent Worldwide in other markets,
notably Asia and selected regions of Europe, we started operations
in the United States in mid-spring 2016 after obtaining a license
to use our ECrent Worldwide’s software and trademark. Among the
most significant findings, we learned that companies across all
segments covet highly targeted and active markets, which
historically were believed to generate a greater rate of
investment. We believe the demand side is and will be dominated by
environmentally and socially conscious users, which will be
considered a targeted and active market that will make the platform
more attractive and valuable.
PwC’s accompanying survey showed that 44% of U.S. adults are
familiar with the sharing economy; 18% of U.S. adults say they have
participated in the sharing economy as a consumer; and 7% say they
have participated as a provider. Based on the PwC research, the
global sharing and rental market would generate a potential revenue
opportunity worth a total of $670 billion by 2025.
We believe ECrent is uniquely positioned to capitalize on these
trends, and the groundwork has laid in the course of the soft
launch will help to achieve the goal to lead the sharing economy
development. While the traditional purchase-based consumer
discretionary companies have mostly utilitarian relationships with
their customers, sharing economy participants are passionate about
social responsibility, environmentalism and are committed to
leading more sustainable lives. This commitment, fortified by
continued momentum, will allow us to build a more captive, engaged,
true community of users.
The ECrent extensive and scalable platform is engineered to serve
the business-to-business, business-to-consumer, and
consumer-to-consumer market segments. By covering across these
multiple segments positions ECrent for balanced growth regardless
of macro-economic conditions as we will not rely on a single
market. We envision the strategy will also provide us with ample
opportunity to further lead the market by regularly introducing new
features, functions, categories, and pricing.
We believe businesses will find the ECrent platform highly
appealing because it will allow them to monetize unused or little
used assets as well as expand their business by opening up new
channels created by the sharing economy. In addition, we believe
their affiliation with us will allow these companies to reinforce
their brand to consumers and investors. A study published by MIT
Sloan Management Review and Boston Consulting Group in May 2016
(the “MIT BCG Study”) found that 60% of investment firm board
members are willing to divest from companies with poor
sustainability performance and 75% feel increased operational
efficiency often accompanies sustainability progress. By contrast,
this same study revealed that only 60% of the 3,000 executives and
managers surveyed have a sustainability strategy in place, while
only 25% can present a clear sustainability business case. We
believe the ECrent platform will be a highly cost effective vehicle
for closing this significant gap between companies and the markets
they serve as well as their investors on the basis that our fully
branded microsite will provide a cost-effective vehicle for them to
develop and implement improved sustainability performance to meet
the needs of sustainability conscious investors, notably building
awareness and focus on tangible and measureable sustainability
(business) outcomes.
The ECrent revenue model is to charge only the supply side; demand
side registrants are not subject to any fee in the present model.
Businesses or individuals can either pay to post a single item or
service just as they would for a classified ad or they can post an
unlimited number of items as well as brand themselves through an
online rental store (microsite) on the ECrent platform. Microsites
represent a recurring revenue model, offering a value proposition
beyond renting items to other businesses or individuals. The
MIT/BCG Study included steps business leaders could take to meet
the needs of sustainability-conscious investors, notably building
greater awareness and focus on tangible and measurable
sustainability (business) outcomes. We believe the ECrent platform
will be an ideal cost-effective vehicle for meeting these
objectives.
The ECrent business is an emerging company in an emerging field.
Accordingly, the approach to the market seeks to exploit early
market entry opportunities in the sharing economy with a
sense-and-respond strategy within our growing community. In the
second fully operational phase we will employ both in-house sales
professionals and engage market channel partners to solicit
business from supply side. We will also build a team of Community
Relations specialists who will cultivate tight relationships with
users for by soliciting user feedback for ongoing improvements to
the platform and expansion. We believe aggressive marketing and
strategic partnerships with various agencies, such as marketing
firms and trade associations will further propel our business once
fully operational.
Revenue and User Model
ECrent revenue will be derived from online item postings. We do not
charge any fees based on transaction value nor do we plan to do so
in the near future. Set forth below is the current listing fee
arrangements, which fees are to be paid prior to posting:
| |
1. |
A monthly fee
of HK$50,000 for the advertisement posting (unlimited basis);
and |
| |
2. |
Online rental
stores, or microsite for $2,500 per year. |
The microsite is an enhanced online advertising package that allows
for unlimited number of postings for a defined period of time, and
a personalized online web storefront, providing customers with
unique branding opportunities. We believe our microsites will
represent a recurring revenue model as it will not be cost
effective for the users to terminate our services once they have
expended efforts to design and promote their microsites and they
have received reoccurring traffic from their customers.
Intellectual Property
We develop and own all intellectual properties and knowhow to
develop and operate the whole ECrent.com platform, which is fully
owned and control by the group.
Employees
As of March 24, 2022, we had two employees and several consultants
who are engaged with us either individually or as a business
entity.
Properties
Our executive offices are located at No. 85 Castle Peak Road,
Castle Peak Bay, Tuen Mun, N.T., Hong Kong, China. Our telephone
number is +852 3583-2186.
We do not own any real estate or other physical properties.
Government and Industry Regulations
Governing Regulations
Sharing Economy International Inc. is a Nevada corporation with
operating businesses located in Hong Kong. As such, the parent
holding company, Sharing Economy International Inc. is subject to
the laws and regulations of the United States of America while our
operating businesses are subject to the laws and regulations of
Hong Kong and PRC, as applicable, including labor, occupational
safety and health, contracts, tort and intellectual property laws.
Furthermore, we need to comply with the rules and regulations of
Hong Kong and PRC governing the data usage and regular terms of
service applicable to our potential customers or clients. As the
information of our potential customers or clients are preserved in
both Hong Kong and PRC, we need to comply with the Hong Kong
Personal Data (Privacy) Ordinance.
If PRC authorities reinterpret PRC laws to apply to Hong Kong
companies, we may become subject to the laws and regulations of
China governing businesses in general, including labor,
occupational safety and health, contracts, tort and intellectual
property. We may also become subject to foreign exchange
regulations that might limit our ability to convert foreign
currency into Renminbi (“RMB”), acquire any other PRC companies,
establish VIEs in the PRC, or make dividend payments from any
future WFOEs to us.
Environmental Regulations
Environmental commitments from the global communities will continue
to help the development of sharing economy businesses in the coming
years.
Business Licenses
We believe our sharing economy businesses are properly licensed
with the appropriate government entities.
Employment Ordinance
Hong Kong
The Employment Ordinance is the main piece of legislation governing
conditions of employment in Hong Kong since 1968. It covers a
comprehensive range of employment protection and benefits for
employees, including Wage Protection, Rest Days, Holidays with Pay,
Paid Annual Leave, Sickness Allowance, Maternity Protection,
Statutory Paternity Leave, Severance Payment, Long Service Payment,
Employment Protection, Termination of Employment Contract,
Protection Against Anti-Union Discrimination. In addition, every
employer must take out employees’ compensation insurance to protect
the claims made by employees in respect of accidents occurred
during the course of their employment.
An employer must also comply with all legal obligations under the
Mandatory Provident Fund Schemes Ordinance, (CAP485). These include
enrolling all qualifying employees in MPF schemes and making MPF
contributions for them. Except for exempt persons, employer should
enroll both full-time and part-time employees who are at least 18
but under 65 years of age in an MPF scheme within the first 60 days
of employment. The 60-day employment rule does not apply to casual
employees in the construction and catering industries. Pursuant to
the said Ordinance, we are required to make MPF contributions for
our Hong Kong employees once every contribution period (generally
the wage period within 1 month). Employers and employees are each
required to make regular mandatory contributions of 5% of the
employee’s relevant income to an MPF scheme, subject to the minimum
and maximum relevant income levels. For a monthly-paid employee,
the minimum and maximum relevant income levels are HK$7,100 and
HK$30,000 respectively.
China
Depending upon the political climate, we may also become subject to
the laws and regulations of China governing businesses in general,
including labor, occupational safety and health, contracts, tort
and intellectual property. We may also become subject to foreign
exchange regulations might limit our ability to convert foreign
currency into Renminbi, acquire PRC companies, or make dividend
payments to SEII.
PRC Regulations on Tax
Enterprise Income Tax
The Enterprise Income Tax Law of the People’s Republic of China
(the “EIT Law”) was promulgated by the Standing Committee of the
National People’s Congress on March 16, 2007 and became
effective on January 1, 2008, and was later amended on
February 24, 2017. The Implementation Rules of the EIT
Law (the “Implementation Rules”) were promulgated by the State
Council on December 6, 2007 and became effective on
January 1, 2008. According to the EIT Law and the
Implementation Rules, enterprises are divided into resident
enterprises and non-resident enterprises. Resident enterprises
shall pay enterprise income tax on their incomes obtained in and
outside the PRC at the rate of 25%. Non-resident enterprises
setting up institutions in the PRC shall pay enterprise income tax
on the incomes obtained by such institutions in and outside the PRC
at the rate of 25%. Non-resident enterprises with no institutions
in the PRC, and non-resident enterprises whose incomes having no
substantial connection with their institutions in the PRC, shall
pay enterprise income tax on their incomes obtained in the PRC at a
reduced rate of 10%.
The Arrangement between the PRC and Hong Kong Special
Administrative Region for the Avoidance of Double Taxation the
Prevention of Fiscal Evasion with respect to Taxes on Income (the
“Arrangement”) was promulgated by the State Administration of
Taxation (“SAT”) on August 21, 2006 and came into effect on
December 8, 2006. According to the Arrangement, a company
incorporated in Hong Kong will be subject to withholding tax at the
lower rate of 5% on dividends it receives from a company
incorporated in the PRC if it holds a 25% interest or more in the
PRC company. The Notice on the Understanding and Identification of
the Beneficial Owners in the Tax Treaty (the “Notice”) was
promulgated by SAT and became effective on October 27, 2009.
According to the Notice, a beneficial ownership analysis will be
used based on a substance-over-form principle to determine whether
or not to grant tax treaty benefits.
In April 2009, the Ministry of Finance, or MOF, and SAT
jointly issued the Notice on Issues Concerning Process of
Enterprise Income Tax in Enterprise Restructuring Business, or
Circular 59. In December 2009, SAT issued the Notice on
Strengthening Administration of Enterprise Income Tax for Share
Transfers by Non-PRC Resident Enterprises, or Circular 698.
Both Circular 59 and Circular 698 became effective
retroactively as of January 2008. In February 2011, SAT
issued the Notice on Several Issues Regarding the Income Tax of
Non-PRC Resident Enterprises, or SAT Circular 24, effective
April 2011. By promulgating and implementing these circulars,
the PRC tax authorities have enhanced their scrutiny over the
direct or indirect transfer of equity interests in a PRC resident
enterprise by a non-resident enterprise.
Under Circular 698, where a non-resident enterprise conducts an
“indirect transfer” by transferring the equity interests of a PRC
“resident enterprise” indirectly by disposing of the equity
interests of an overseas holding company, the non-resident
enterprise, being the transferor, may be subject to PRC enterprise
income tax, if the indirect transfer is considered to be an abusive
use of company structure without reasonable commercial purposes. As
a result, gains derived from such indirect transfer may be subject
to PRC tax at a rate of up to 10%. Circular 698 also provides that,
where a non-PRC resident enterprise transfers its equity interests
in a PRC resident enterprise to its related parties at a price
lower than the fair market value, the relevant tax authority has
the power to make a reasonable adjustment to the taxable income of
the transaction.
In February 2015, the SAT issued Circular 7 to replace the rules
relating to indirect transfers in Circular 698. Circular 7 has
introduced a new tax regime that is significantly different from
that under Circular 698. Circular 7 extends its tax jurisdiction to
not only indirect transfers set forth under Circular 698 but also
transactions involving transfer of other taxable assets, through
the offshore transfer of a foreign intermediate holding company. In
addition, Circular 7 provides clearer criteria than Circular 698 on
how to assess reasonable commercial purposes and has introduced
safe harbors for internal group restructurings and the purchase and
sale of equity through a public securities market. Circular 7 also
brings challenges to both the foreign transferor and transferee (or
other person who is obligated to pay for the transfer) of the
taxable assets. Where a non-resident enterprise conducts an
“indirect transfer” by transferring the taxable assets indirectly
by disposing of the equity interests of an overseas holding
company, the non-resident enterprise being the transferor, or the
transferee, or the PRC entity which directly owned the taxable
assets may report to the relevant tax authority such indirect
transfer. Using a “substance over form” principle, the PRC tax
authority may disregard the existence of the overseas holding
company if it lacks a reasonable commercial purpose and was
established for the purpose of reducing, avoiding or deferring PRC
tax. As a result, gains derived from such indirect transfer may be
subject to PRC enterprise income tax, and the transferee or other
person who is obligated to pay for the transfer is obligated to
withhold the applicable taxes, currently at a rate of 10% for the
transfer of equity interests in a PRC resident enterprise.
On October 17, 2017, the SAT issued a Notice Concerning
Withholding Income Tax of Non-Resident Enterprise, or SAT Notice
No. 37, which abolishes Circular 698 and certain
provisions of Circular 7. SAT Notice No. 37 reduces the burden
of the withholding obligator, such as revocation of contract filing
requirements and tax liquidation procedures, strengthens the
cooperation of tax authorities in different places, and clarifies
the calculation of tax payable and mechanism of foreign
exchange.
Value-added Tax
Pursuant to the Provisional Regulations on Value-added Tax of the
PRC, or the VAT Regulations, which were promulgated by the State
Council on December 13, 1993, took effect on January 1, 1994, and
were amended on November 10, 2008, February 6, 2016, and November
19, 2017, respectively, and the Rules for the Implementation of the
Provisional Regulations on Value-added Tax of the PRC, which were
promulgated by the MOF on December 25, 1993, and were amended on
December 15, 2008, and October 28, 2011, respectively, entities and
individuals that sell goods or labor services of processing, repair
or replacement, sell services, intangible assets, or immovables, or
import goods within the territory of the People’s Republic of China
are taxpayers of value-added tax. The VAT rate is 17% for
taxpayers selling goods, labor services, or tangible movable
property leasing services or importing goods, except otherwise
specified; 11% for taxpayers selling services of transportation,
postal, basic telecommunications, construction and lease of
immovable, selling immovable, transferring land use rights, selling
and importing other specified goods including fertilizers; 6% for
taxpayers selling services or intangible assets.
According to the Notice on the Adjustment to the Value-added Tax
Rates issued by the SAT and the MOF on April 4, 2018, where
taxpayers make VAT taxable sales or import goods, the applicable
tax rates shall be adjusted from 17% to 16% and from 11% to 10%,
respectively. Subsequently, the Notice on Policies for Deepening
Reform of Value-added Tax was issued by the SAT, the MOF and the
General Administration of Customs on March 30, 2019 and took
effective on April 1, 2019, which further adjusted the applicable
tax rate for taxpayers making VAT taxable sales or importing goods.
The applicable tax rates shall be adjusted from 16% to 13% and from
10% to 9%, respectively.
Dividend Withholding Tax
The Enterprise Income Tax Law provides that since January 1,
2008, an income tax rate of 10% will normally be applicable to
dividends declared to non-PRC resident investors that do not have
an establishment or place of business in the PRC, or that have such
establishment or place of business but the relevant income is not
effectively connected with the establishment or place of business,
to the extent such dividends are derived from sources within the
PRC.
PRC Laws and Regulations on Employment and Social
Welfare
Labor Law of the PRC
Pursuant to the Labor Law of the PRC, which was promulgated by the
Standing Committee of the NPC on July 5, 1994 with an
effective date of January 1, 1995 and was last amended on
August 27, 2009 and the Labor Contract Law of the PRC, which
was promulgated on June 29, 2007, became effective on
January 1, 2008 and was last amended on December 28,
2012, with the amendments coming into effect on July 1, 2013,
enterprises and institutions shall ensure the safety and hygiene of
a workplace, strictly comply with applicable rules and standards on
workplace safety and hygiene in China, and educate employees on
such rules and standards. Furthermore, employers and employees
shall enter into written employment contracts to establish their
employment relationships. Employers are required to inform their
employees about their job responsibilities, working conditions,
occupational hazards, remuneration and other matters with which the
employees may be concerned. Employers shall pay remuneration to
employees on time and in full accordance with the commitments set
forth in their employment contracts and with the relevant PRC laws
and regulations. Our Hong Kong subsidiary currently does not comply
with PRC laws and regulations, but complies with Hong Kong laws and
regulations.
Social Insurance and Housing Fund
Pursuant to the Social Insurance Law of the PRC, which was
promulgated by the Standing Committee of the NPC on
October 28, 2010 and became effective on July 1, 2011,
employers in the PRC shall provide their employees with welfare
schemes covering basic pension insurance, basic medical insurance,
unemployment insurance, maternity insurance, and occupational
injury insurance. Our Hong Kong subsidiary has not deposited the
social insurance fees in full for all the employees in compliance
with the relevant regulations. We may be ordered by the social
security premium collection agency to make or supplement
contributions within a stipulated period, and shall be subject to a
late payment fine computed from the due date at the rate of 0.05%
per day; where payment is not made within the stipulated period,
the relevant administrative authorities shall impose a fine ranging
from one to three times the amount of the amount in arrears. Our
Hong Kong subsidiary has not deposited the social insurance fees as
required by relevant regulations.
In accordance with the Regulations on Management of Housing
Provident Fund, which were promulgated by the State Council on
April 3, 1999 and last amended on March 24, 2002,
employers must register at the designated administrative centers
and open bank accounts for depositing employees’ housing funds.
Employers and employees are also required to pay and deposit
housing funds, with an amount no less than 5% of the monthly
average salary of the employee in the preceding year in full and on
time. Our subsidiaries have not registered at the designated
administrative centers nor opened bank accounts for depositing
employees’ housing funds. They also have not deposited employees’
housing funds. Our subsidiaries may be ordered by the housing
provident fund management center to complete the registration
formalities, open bank accounts, make the payment and deposit
within a prescribed time limit if they become subject to PRC laws.
Failing to register or open bank accounts at the expiration of the
time limit could result in fines of not less than RMB10,000 nor
more than RMB50,000. And an application may be made to a people’s
court for compulsory enforcement if payment and deposit has not
been made after the expiration of the time limit.
PRC Regulations Relating to Foreign Exchange
General Administration of Foreign Exchange
The principal regulation governing foreign currency exchange in the
PRC is the Administrative Regulations of the PRC on Foreign
Exchange (the “Foreign Exchange Regulations”), which were
promulgated on January 29, 1996, became effective on
April 1, 1996 and were last amended on August 5, 2008.
Under these rules, Renminbi is generally freely convertible for
payments of current account items, such as trade- and
service-related foreign exchange transactions and dividend
payments, but not freely convertible for capital account items,
such as capital transfer, direct investment, investment in
securities, derivative products or loans unless prior approval by
competent authorities for the administration of foreign exchange is
obtained. Under the Foreign Exchange Regulations, foreign-invested
enterprises in the PRC may purchase foreign exchange without the
approval of SAFE to pay dividends by providing certain evidentiary
documents, including board resolutions, tax certificates, or for
trade- and services-related foreign exchange transactions, by
providing commercial documents evidencing such transactions.
Circular No. 37 and Circular No. 13
Circular 37 was released by SAFE on July 4, 2014 and abolished
Circular 75 which had been in effect since November 1, 2005.
Pursuant to Circular 37, a PRC resident should apply to SAFE for
foreign exchange registration of overseas investments before it
makes any capital contribution to a special purpose vehicle, or
SPV, using his or her legitimate domestic or offshore assets or
interests. SPVs are offshore enterprises directly established or
indirectly controlled by domestic residents for the purpose of
investment and financing by utilizing domestic or offshore assets
or interests they legally hold. Following any significant change in
a registered offshore SPV, such as capital increase, reduction,
equity transfer or swap, consolidation or division involving
domestic resident individuals, the domestic individuals shall amend
the registration with SAFE. Where an SPV intends to repatriate
funds raised after completion of offshore financing to the PRC, it
shall comply with relevant PRC regulations on foreign
investment and foreign debt management. A foreign-invested
enterprise established through return investment shall complete
relevant foreign exchange registration formalities in accordance
with the prevailing foreign exchange administration regulations on
foreign direct investment and truthfully disclose information on
the actual controller of its shareholders.
If any shareholder who is a PRC resident (as determined by the
Circular No. 37) holds any interest in an offshore SPV and fails to
fulfil the required foreign exchange registration with the local
SAFE branches, the PRC subsidiaries of that offshore SPV may be
prohibited from distributing their profits and dividends to their
offshore parent company or from carrying out other subsequent
cross-border foreign exchange activities. The offshore SPV may also
be restricted in its ability to contribute additional capital to
its PRC subsidiaries. Where a domestic resident fails to complete
relevant foreign exchange registration as required, fails to
truthfully disclose information on the actual controller of the
enterprise involved in the return investment or otherwise makes
false statements, the foreign exchange control authority may order
them to take remedial actions, issue a warning, and impose a fine
of less than RMB 300,000 on an institution or less than RMB 50,000
on an individual.
Circular 13 was issued by SAFE on February 13, 2015, and
became effective on June 1, 2015. Pursuant to Circular 13, a
domestic resident who makes a capital contribution to an SPV using
his or her legitimate domestic or offshore assets or interests is
no longer required to apply to SAFE for foreign exchange
registration of his or her overseas investments. Instead, he or she
shall register with a bank in the place where the assets or
interests of the domestic enterprise in which he or she has
interests are located if the domestic resident individually seeks
to make a capital contribution to the SPV using his or her
legitimate domestic assets or interests; or he or she shall
register with a local bank at his or her permanent residence if the
domestic resident individually seeks to make a capital contribution
to the SPV using his or her legitimate offshore assets or
interests.
We cannot assure that our PRC beneficial shareholders have
completed registrations in accordance with Circular 37.
Circular 19 and Circular 16
Circular 19 was promulgated by SAFE on March 30, 2015, and
became effective on June 1, 2015. According to Circular 19,
the foreign exchange capital in the capital account of
foreign-invested enterprises, meaning the monetary contribution
confirmed by the foreign exchange authorities or the monetary
contribution registered for account entry through banks, shall be
granted the benefits of Discretional Foreign Exchange Settlement
(“Discretional Foreign Exchange Settlement”). With Discretional
Foreign Exchange Settlement, foreign capital in the capital account
of a foreign-invested enterprise for which the rights and interests
of monetary contribution have been confirmed by the local foreign
exchange bureau, or for which book-entry registration of monetary
contribution has been completed by the bank, can be settled at the
bank based on the actual operational needs of the foreign-invested
enterprise. The allowed Discretional Foreign Exchange
Settlement percentage of the foreign capital of a
foreign-invested enterprise has been temporarily set to be 100%.
The Renminbi converted from the foreign capital will be kept in a
designated account and if a foreign-invested enterprise needs to
make any further payment from such account, it will still need to
provide supporting documents and to complete the review process
with its bank.
Furthermore, Circular 19 stipulates that foreign-invested
enterprises shall make bona fide use of their capital for their own
needs within their business scopes.
The capital of a foreign-invested enterprise and the Renminbi it
obtained from foreign exchange settlement shall not be used for the
following purposes:
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directly
or indirectly used for expenses beyond its business scope or
prohibited by relevant laws or regulations; |
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● |
directly
or indirectly used for investment in securities unless otherwise
provided by relevant laws or regulations; |
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● |
directly
or indirectly used for entrusted loan in Renminbi (unless within
its permitted scope of business), repayment of inter-company loans
(including advances by a third party) or repayment of bank loans in
Renminbi that have been sub-lent to a third party; or |
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● |
directly
or indirectly used for expenses related to the purchase of real
estate that is not for self-use (except for foreign-invested real
estate enterprises). |
Circular
16 was issued by SAFE on June 9, 2016. Pursuant to Circular
16, enterprises registered in the PRC may also convert their
foreign debts from foreign currency to Renminbi on a
self-discretionary basis. Circular 16 provides an integrated
standard for conversion of foreign exchange capital items
(including but not limited to foreign currency capital and foreign
debts) on a self-discretionary basis applicable to all enterprises
registered in the PRC. Circular 16 reiterates the principle that an
enterprise’s Renminbi capital converted from foreign
currency-denominated capital may not be directly or indirectly used
for purposes beyond its business scope or purposes prohibited by
PRC laws or regulations, and such converted Renminbi capital shall
not be provided as loans to non-affiliated entities.
Our PRC subsidiary’s distributions to their offshore parents are
required to comply with the requirements as described above.
PRC Share Option Rules
Under the Administration Measures on Individual Foreign Exchange
Control issued by the PBOC on December 25, 2006, all foreign
exchange matters involved in employee share ownership plans and
share option plans in which PRC citizens participate require
approval from SAFE or its authorized branch. Pursuant to SAFE
Circular 37, PRC residents who participate in share incentive plans
in overseas non-publicly-listed companies may submit applications
to SAFE or its local branches for the foreign exchange registration
with respect to offshore special purpose companies. In addition,
under the Notices on Issues concerning the Foreign Exchange
Administration for Domestic Individuals Participating in Share
Incentive Plans of Overseas Publicly-Listed Companies, or the Share
Option Rules, issued by SAFE on February 15, 2012, PRC residents
who are granted shares or share options by companies listed on
overseas stock exchanges under share incentive plans are required
to (i) register with SAFE or its local branches, (ii) retain a
qualified PRC agent, which may be a PRC subsidiary of the overseas
listed company or another qualified institution selected by the PRC
subsidiary, to conduct the SAFE registration and other procedures
with respect to the share incentive plans on behalf of the
participants, and (iii) retain an overseas institution to handle
matters in connection with their exercise of share options,
purchase and sale of shares or interests and funds transfers.
PRC Regulation of Dividend Distributions
The principal laws, rules and regulations governing dividend
distributions by foreign-invested enterprises in the PRC are the
Company Law of the PRC, as amended, the Wholly Foreign-owned
Enterprise Law and its implementation regulations, the
Chinese-foreign Cooperative Joint Venture Law and its
implementation regulations, and the Chinese-foreign Equity Joint
Venture Law and its implementation regulations. Under these laws,
rules and regulations, foreign-invested enterprises may pay
dividends only out of their accumulated profit, if any, as
determined in accordance with PRC accounting standards and
regulations. Both PRC domestic companies and wholly-foreign owned
PRC enterprises are required to set aside a general reserve of at
least 10% of their after-tax profit, until the cumulative amount of
such reserve reaches 50% of their registered capital. A PRC company
is not permitted to distribute any profits until any losses from
prior fiscal years have been offset. Profits retained from prior
fiscal years may be distributed together with distributable profits
from the current fiscal year.
REPORTS TO SECURITY HOLDERS
Upon the effective date of this Registration Statement, we will
become subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and accordingly, will file
current and periodic reports, proxy statements and other
information with the Securities and Exchange Commission, or the
Commission. Information that the Company previously publicly
disclosed was made through the OTC Disclosure and News Service and
are available on the OTC Markets Group’s website at
www.otcmarkets.com. With respect to disclosures filed or furnished
to the Commission, you may obtain copies of our prior and future
reports from the Commission’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549, or on the SEC’s website, at
www.sec.gov. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. We
currently do not have an internet website, but will also make
available free of charge electronic copies of our filings upon
request.
Near-Term Requirements
For Additional Capital
We believe that we will require approximately $2 million over the
next 18-24 months to implement our business plan. For the immediate
future, we intend to finance our business expansion efforts through
loans from existing shareholders or financial institutions.
Available
Information
Access to all of our Securities and Exchange Commission (“SEC”)
filings, including our Annual Report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments
to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), is provided, free of charge, on our website
(www.luduson.com) as soon as reasonably practicable after such
reports are electronically filed with, or furnished to, the
SEC.
Empire Stock Transfer Inc. located at 1859 Whitney Mesa Dr.,
Henderson, Nevada 89014, telephone number (702) 818-5898, serves as
our stock transfer agent.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of
risk. You should carefully consider the risks described below,
together with all of the other information included in this report,
before making an investment decision, and you should only consider
an investment in our common stock if you can afford to sustain the
loss of your entire investment. You should carefully consider the
risks described below together with all of the other information
included in this report before making an investment decision with
regard to our securities. If any of the following risks occurs, our
business, financial condition or results of operations could be
harmed. In that case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
Risks Related to Our Business
For the year ended December 31, 2021, we incurred losses from
continuing operations of $2.8 million, we cannot assure you that
our losses will not continue and we believe that these matters
raise substantial doubt about our ability to continue as a going
concern for twelve months from the issuance date of this
report.
Our 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 our accompanying consolidated financial
statements, we had a net loss of $2.8 million for the year ended
December 31, 2021. Management believes that these matters, among
others, raise substantial doubt about our ability to continue as a
going concern for twelve months from the issuance date of this
report. Management cannot provide assurance that we will ultimately
achieve profitable operations or generate positive cash flow, or
raise additional debt and/or equity capital. Management believes
that our capital resources are not currently adequate to continue
operating and maintaining our business strategy for twelve months
from the date of this report.
We may seek to raise capital through additional debt and/or equity
financings to fund our operations in the future. Although we have
historically raised capital from sales of equity and from bank
loans, there is no assurance that we will be able to continue to do
so. If we are unable to raise additional capital or secure
additional lending in the near future, management expects that we
will need to curtail or cease operations. Our consolidated
financial statements do not include any adjustments related to the
recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should we be
unable to continue as a going concern.
Our auditors have issued a “going concern” audit
opinion.
Our independent auditors have indicated in their report on our
December 31, 2021 consolidated financial statements that there is
substantial doubt about our ability to continue as a going concern.
We incurred loss from continuing operations and revenues decreased
significantly. These conditions raise substantial doubt about our
ability to continue as a going concern for the next twelve months
from the issuance date of this report. We cannot provide assurance
that we will ultimately achieve profitable operations or continue
to be cash flow positive, or raise additional debt and/or equity
capital. Management believes that our capital resources are not
currently adequate to continue operating and maintaining our
business strategy for twelve months from the date of this
report.
We will require additional funds to expand our
operations.
In view of both our decline in revenues, our loss from continuing
operations for 2021 and 2020, and in connection with any expansion
projects for our business, we will incur significant capital and
operational expenses. We do not presently have any funding
commitments other than our present credit arrangements which we do
not believe are sufficient to enable us to expand our business. If
we are unable to generate cash flow from operations and obtain
necessary bank or other financing to pay for significant capital or
operational expenses, we may be unable to finance our business,
which may impair our ability to operate profitably. Because of our
stock price and the worldwide economic situation, we may not be
able to raise any additional funds that we require on favorable
terms, if any. The failure to obtain necessary financing may impair
our ability to expanse or business and remain profitable.
We rely on short term financing to fund our
operations.
We have historically financed our operations through short-term
bank loans, which have been refinanced upon maturity. At December
31, 2021, we had outstanding short-term bank loans of $5.6 million.
We cannot assure you that we would be able to obtain alternative
financing in the event that our lenders did not renew our
short-term loans. Our failure to have the bank loans refinanced
could materially impair our ability to operate our business.
You may suffer significant dilution if we raise additional
capital.
If we need to raise additional capital to expand or continue
operations, it may be necessary for us to issue additional equity
or convertible debt securities. If we issue equity or convertible
debt securities, our net tangible book value per share may
decrease, and the percentage ownership of our current stockholders
would be diluted, and any equity securities we may issue may have
rights, preferences or privileges senior or more advantageous to
our common stockholders.
Risk related to our Sharing Economy Businesses
Our Sharing Economy Businesses are in early-stage development
with a limited operating history and a relatively new business
model, which makes it difficult to evaluate our current business
and future prospects and may increase the risk of your
investment.
We started our business transition and operations since June 2017.
Our limited operating history and relatively new business model may
make it difficult to evaluate our current business and our future
prospects. We have encountered and will continue to encounter risks
and difficulties frequently experienced by companies in a rapidly
changing market, including challenges in accurate financial
planning and forecasting. We may not be able to successfully
address these risks and difficulties, which could materially harm
our business and operating results and financial condition. You
should consider our business and prospects in light of the risks
and difficulties we may encounter as an early-stage
company.
Our operating results may fluctuate.
Our operating results may fluctuate as a result of a number of
factors, many of which are beyond our control. The following
factors may affect our operating results:
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Our ability to compete
effectively. |
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Our ability to continue to
attract users to our platforms. |
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The level of use of the Internet
to look for rental and services information. |
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Our ability to attract companies
and individuals to pay in order to generate income from our
platforms. |
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Our focus on long term goals and
short term results. |
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Our ability to keep the platforms
operational at a reasonable cost and without service
interruptions. |
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The success of our geographical
and product expansion. |
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Our ability to attract, motivate
and retain top-quality employees. |
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Federal, state or local government regulation
that could impede the availability of products and services for
which our platforms rendered. |
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Our ability to upgrade and
develop new products and services. |
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The costs and results of
litigation that we may face. |
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Our ability to manage rental
advertisement quality and other activities that violate our terms
of services. |
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Our ability to successfully
expand, integrate and manage our acquisitions. |
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Geographical events such as war,
threat of war, terrorist actions or natural disasters. |
Because our business is changing and evolving, our current
operating results may not be useful to you in predicting our future
operating results. In addition, online sharing economy markets have
recently emerged, which may not provide you with relevant industry
data for evaluating our business.
For these reasons, comparing our operating results on a
period-to-period basis may not be meaningful, and you should not
rely on past results as an indication of future performance.
Quarterly and annual expenses as a percentage of net revenues may
be significantly different from historical or projected rates. Our
operating results in future quarters may fall below expectations,
which could cause our stock price to fall.
If we do not continue to innovate and provide products and
services that are useful to users, we may not remain competitive,
and our operating results could suffer.
Our success depends on our ability to provide products and services
to users looking for a high quality rental and services experience.
Our competitors are constantly developing innovations in rental
classified or transaction services to people. As a result, we must
continue to invest significant resources in research and
development in order to enhance our products and services, and
introduce new high-quality products and services that people will
use. If we are unable to predict user preferences or industry
changes, or if we are unable to modify our products and services on
a timely basis, we may lose users. Our operating results would also
suffer if our innovations are not responsive to the needs of our
users and advertisers, are not appropriately timed with market
opportunity or are not effectively brought to market. As web and
mobile application technology continues to develop, our competitors
may be able to offer matching and communication features that are,
or that are perceived to be, substantially similar or better than
those generated by our platform and application services. This may
force us to compete on bases other than quality of products and
services and to expend significant resources in order to remain
competitive.
Our business depends on a successful change in consumer
behavior, and if such trend does not grow, our business and
operating results would be harmed.
The growth and adaptation of sharing economy is a major factor for
our platform to attract more users and advertisers. If the trend of
sharing economy does not grow as predicted by the market, this will
affect our business and operating results. As a result, we may need
to change our business model accordingly.
If we are unable to retain or motivate key personnel or hire
qualified personnel, we may not be able to grow
effectively.
Our performance will largely be dependent on the talents and
efforts of highly skilled individuals. Our future success depends
on our continuing ability to identify, hire, develop, motivate and
retain highly skilled personnel for all areas of our organization.
Competition in our industry for qualified employees is intense. If
we do not succeed in attracting excellent personnel or retaining or
motivating existing personnel, we may be unable to grow
effectively.
System failures could harm our business.
Our systems are vulnerable to damage or interruption from
earthquakes, hurricanes, terrorist attacks, floods, fires, power
loss, telecommunications failures, computer viruses, computer
denial of service attacks or other attempts to harm our system, and
similar events. Some of our data centers are located in areas with
high risk of major earthquakes. Our data centers are also subject
to break-ins, sabotage and international acts of vandalism, and to
potential disruptions if the operators of these facilities have
financial difficulties. Some of our systems are not fully
redundant. The occurrence of a natural disaster, a decision to
close a facility we are using without adequate notice or other
unanticipated problems at our data centers could result in lengthy
interruptions in our service. Any damage to or failure of our
systems could result in interruptions in our service. Interruptions
in our service could reduce our revenues and profits, and our brand
could be damaged if people believe our system is unreliable.
Acquisitions could result in operating difficulties, dilution
and other harmful consequences.
We have evaluated, and expect to continue to evaluate, a wide array
of potential strategic transactions. From time to time, we may
engage in discussions regarding potential acquisitions. Any of
these transactions could be material to our financial condition and
results of operations. In addition, the process of integrating an
acquired company, business or technology may create unforeseen
operating difficulties and expenditures and is risky. The areas
where we may face risks include:
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The
need to implement or remediate controls, procedures and policies
appropriate for a larger public company at companies that prior to
the acquisition lacked these controls, procedures and
policies. |
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Diversion of management time and focus from
operating our business to acquisition integration
challenges. |
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Cultural challenges associated with integrating
employees from the acquired company into our
organization. |
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Retaining employees from the businesses we
acquire. |
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The
need to integrate each company’s accounting, management
information, human resource and other administrative systems to
permit effective management. |
Also, the anticipated benefit of many of our acquisitions may not
materialize. Future acquisitions or dispositions could result in
potentially dilutive issuances of our equity securities, the
incurrence of debt, contingent liabilities or amortization
expenses, or write-offs of goodwill, any of which could harm our
financial condition. Future acquisitions may require us to obtain
additional equity or debt financing, which may not be available on
favorable terms or at all.
As a distributor and host of Internet content, we will face
potential liability and expense for legal claims based on the
nature and content of the materials that we distribute or create,
or that are accessible via our website.
As a distributor and host of original content and user-generated
content, we will face potential liability based on a variety of
theories, including defamation, libel, negligence, copyright or
trademark infringement or other legal theories based on the nature,
creation or distribution of this information, and under various
laws, including the Lanham Act, the Copyright Act, the Federal
Trade Commission Act, the Digital Millennium Copyright Act,
Section 230 of the Communications Decency Act, and the
European Union E-Commerce Directive. We may also be exposed to
similar liability in connection with content that users post to our
website through forums, blogs, comments, and other social media
features. In addition, it is possible that visitors to our websites
could make claims against us for losses incurred in reliance upon
information provided via our websites. These claims, whether
brought in the United States or abroad, could divert management
time and attention away from our business and result in significant
costs to investigate and defend, regardless of the merit of these
claims. If we become subject to these or similar claims and are not
successful in our defense, we may be forced to pay substantial
damages. There is no guarantee that we will avoid future liability
and potential expenses for legal claims based on the content
available on our website. Should the content distributed through
our website violate the rights of others or otherwise give rise to
claims against us, we could be subject to substantial liability,
which could have a negative impact on our business and financial
performance.
Loss of trust in our brand would harm our reputation and adversely
affect our business, financial condition and results of operations.
Our success depends on attracting a large number of users to our
website and retaining such users. In order to attract and retain
users, we must remain a valuable source of listings. Because of our
reliance on user-generated content, we must continually manage and
monitor our content and detect incorrect or fraudulent information.
If a significant amount of inaccurate or fraudulent information
were not detected and removed by us in a timely manner, or if a
significant amount of information was deemed by users or the media
to be inaccurate or fraudulent, our brand, business and reputation
could be harmed. Any damage to our reputation could harm our
ability to attract and retain users, employees and advertisers,
which would adversely affect our business and financial
performance. In addition, significant adverse news reports or
media, industry or consumer coverage of us would reflect poorly on
our brands and could have an adverse effect on our business and
financial performance.
We are subject to risks associated with information
disseminated through our services.
Online services companies may be subject to claims relating to
information disseminated through their services, including claims
alleging defamation, libel, breach of contract, invasion of
privacy, negligence, copyright or trademark infringement, among
other things. The laws relating to the liability of online services
companies for information disseminated through their services are
subject to frequent challenges both in the United States and
foreign jurisdictions. Any liabilities incurred as a result of
these matters could require us to incur additional costs and harm
our reputation and our business.
Our potential liability to third parties for the user-provided
content on our sites, particularly in jurisdictions outside the
United States where laws governing Internet transactions are
unsettled, may increase. If we become liable for information
provided by our users and carried on our service in any
jurisdiction in which we operate, we could be directly harmed and
we may be forced to implement new measures to reduce our exposure
to this liability, including expending substantial resources or
discontinuing certain service offerings, which could harm our
business.
Failure to deal effectively with fraudulent activities on our
platforms would increase our loss rate and harm our business, and
could severely diminish merchant and consumer confidence in and use
of our services.
We face risks with respect to fraudulent activities on our
platforms and periodically receive complaints from users who may
not have received the rental items or services or payment for the
items or services. While we can, in some cases, suspend the
accounts of users who fail to fulfill their payment or delivery
obligations to other users, we do not have the ability to require
users to make payment or deliver rental items or services, or
otherwise make users whole. Although we plan to implement measures
to detect and reduce the occurrence of fraudulent activities,
combat bad user experiences and increase user satisfaction,
including evaluating users on the basis of their transaction
history and restricting or suspending their activity, there can be
no assurance that these measures will be effective in combating
fraudulent transactions or improving overall satisfaction among
users. Our failure to effectively deal with fraudulent activities
on our platform could result in a reduction in the ability to
attract new users or retain current users, damage to our
reputation, or a diminution in the value of our brand names.
Risks Relating to Doing Business in Hong Kong and China
We face the risk that changes in the policies of the PRC
government could have a significant impact upon the business we may
be able to conduct in Hong Kong and the profitability of such
business.
We conduct our operations and generate our revenue in Hong Kong.
Accordingly, economic, political and legal developments in the PRC
will significantly affect our business, financial condition,
results of operations and prospects. The PRC economy is in
transition from a planned economy to a market-oriented economy
subject to plans adopted by the government that set national
economic development goals. Policies of the PRC government can have
significant effects on economic conditions in the PRC. While we
believe that the PRC will continue to strengthen its economic and
trading relationships with foreign countries and that business
development in the PRC will continue to follow market forces, we
cannot assure you that this will be the case. Our
interests may be adversely affected by changes in policies by the
PRC government, including:
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restrictions on currency conversion, imports or
sources of supplies, or ability to continue as a for-profit
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Substantial uncertainties and restrictions with respect to
the political and economic policies of the PRC government and PRC
laws and regulations could have a significant impact upon the
business that we may be able to conduct in the PRC and accordingly
on the results of our operations and financial
condition.
Our business operations may be adversely affected by the current
and future political environment in the PRC. The PRC government has
exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation
and state ownership. We expect the Hong Kong legal system to
rapidly evolve in the near future and may become closer aligned
with legal system in China with the PRC government exerting more
oversight and control over companies operating in Hong Kong,
offerings conducted overseas and or foreign investment in Hong Kong
based issuers. The interpretations of many laws, regulations and
rules may not always be uniform and the enforcement of these laws,
regulations and rules may involve uncertainties for you and us. Our
ability to operate in Hong Kong, conduct overseas offerings and
continue to investment in Hong Kong based issuers may be harmed by
these changes in its laws and regulations, including those relating
to taxation, import and export tariffs, healthcare regulations,
environmental regulations, land use and property ownership rights,
and other matters. Accordingly, government actions in the future,
including any decision not to continue to support recent economic
reforms and to return to a more centrally planned economy or
regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in
Hong Kong or particular regions thereof, and could limit or
completely hinder our ability to offer or continue to offer
securities to investors or require us to divest ourselves of any
interest we then hold in Hong Kong properties or joint ventures.
Any such actions (including divesture or similar actions) could
result in a material adverse effect on us and on your investment in
us and could render our securities and your investment in our
securities worthless.
There are substantial uncertainties regarding the interpretation
and application of PRC laws and regulations, including, but not
limited to, the laws and regulations governing our business, or the
enforcement and performance of our contractual arrangements with
borrowers in the event of the imposition of statutory liens, death,
bankruptcy or criminal proceedings. Only after 1979 did the Chinese
government begin to promulgate a comprehensive system of laws that
regulate economic affairs in general, deal with economic matters
such as foreign investment, corporate organization and governance,
commerce, taxation and trade, as well as encourage foreign
investment in China. Although the influence of the law has been
increasing, China has not developed a fully integrated legal system
and recently enacted laws and regulations may not sufficiently
cover all aspects of economic activities in China. Also, because
these laws and regulations are relatively new, and because of the
limited volume of published cases and their lack of force as
precedents, interpretation and enforcement of these laws and
regulations involve significant uncertainties. New laws and
regulations that affect existing and proposed future businesses may
also be applied retroactively. In addition, there have been
constant changes and amendments of laws and regulations over the
past 30 years in order to keep up with the rapidly changing society
and economy in China. Because government agencies and courts that
provide interpretations of laws and regulations and decide
contractual disputes and issues may change their interpretation or
enforcement very rapidly with little advance notice at any time, we
cannot predict the future direction of Chinese legislative
activities with respect to either businesses with foreign
investment or the effectiveness on enforcement of laws and
regulations in China. The uncertainties, including new laws and
regulations and changes of existing laws, as well as, may cause
possible problems to foreign investors.
Although the PRC government has been pursuing economic reform
policies for more than two decades, the PRC government continues to
exercise significant control over economic growth in the PRC
through the allocation of resources, controlling payments of
foreign currency, setting monetary policy and imposing policies
that impact particular industries in different ways. We cannot
assure you that the PRC government will continue to pursue policies
favoring a market oriented economy or that existing policies will
not be significantly altered, especially in the event of a change
in leadership, social or political disruption, or other
circumstances affecting political, economic and social life in the
PRC.
The Chinese government exerts substantial influence over the
manner in which we must conduct our business
activities. We are currently not required to obtain
approval from Chinese authorities to list on U.S. exchanges.
However, to the extent that the Chinese government exerts more
control over offerings conducted overseas and/or foreign investment
in China-based issuers over time and if our PRC subsidiaries or the
holding company were required to obtain approval in the future and
were denied permission from Chinese authorities to list on U.S.
exchanges, we will not be able to continue listing on U.S. exchange
and the value of our common stock may significantly decline or
become worthless, which would materially affect the interest of the
investors.
The Chinese government has exercised and continues to exercise
substantial control over virtually every sector of the Chinese
economy through regulation and state ownership. Our ability to
operate in Hong Kong may be harmed by changes in its laws and
regulations, including those relating to taxation, environmental
regulations, land use rights, property and other matters. The
central or local governments of these jurisdictions may impose new,
stricter regulations or interpretations of existing regulations
that would require additional expenditures and efforts on our part
to ensure our compliance with such regulations or interpretations.
Accordingly, government actions in the future, including any
decision not to continue to support recent economic reforms and to
return to a more centrally planned economy or regional or local
variations in the implementation of economic policies, could have a
significant effect on economic conditions in China or particular
regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties.
For example, the Chinese cybersecurity regulator announced on July
2 that it had begun an investigation of Didi Global Inc. (NYSE:
DIDI) and two days later ordered that the company’s app be removed
from smartphone app stores.
As such, the Company’s business segments may be subject to various
government and regulatory interference in the provinces in which
they operate. The Company could be subject to regulation by various
political and regulatory entities, including various local and
municipal agencies and government sub-divisions. The Company may
incur increased costs necessary to comply with existing and newly
adopted laws and regulations or penalties for any failure to
comply. The Company’s operations could be adversely affected,
directly or indirectly, by existing or future laws and regulations
relating to its business or industry. Given that the Chinese
government may intervene or influence our operations at any time,
it could result in a material change in our operation and the value
of our common stock. Given recent statements by the Chinese
government indicating an intent to exert more oversight and control
over offerings that are conducted overseas, any such action could
significantly limit or completely hinder our ability to offer or
continue to offer securities to investors and cause the value of
such securities to significantly decline or be worthless.
Furthermore, it is uncertain when and whether the Company will be
required to obtain permission from the PRC government to list on
U.S. exchanges in the future, and even when such permission is
obtained, whether it will be denied or rescinded. Although the
Company is currently not required to obtain permission from any of
the PRC federal or local government to obtain such permission and
has not received any denial to list on the U.S. exchange, our
operations could be adversely affected, directly or indirectly, by
existing or future laws and regulations relating to its business or
industry. As a result, our common stock may decline in value
dramatically or even become worthless should we become subject to
new requirement to obtain permission from the PRC government to
list on U.S. exchange in the future.
Recently, the General Office of the Central Committee of the
Communist Party of China and the General Office of the State
Council jointly issued the Opinions on Severe and Lawful Crackdown
on Illegal Securities Activities, which were available to the
public on July 6, 2021. These opinions emphasized the need to
strengthen the administration over illegal securities activities
and the supervision on overseas listings by China-based companies.
These opinions proposed to take effective measures, such as
promoting the construction of relevant regulatory systems, to deal
with the risks and incidents facing China-based overseas-listed
companies and the demand for cybersecurity and data privacy
protection. Moreover, the State Internet Information Office issued
the Measures of Cybersecurity Review (Revised Draft for Comments,
not yet effective) on July 10, 2021, which require operators
with personal information of more than 1 million users who want to
list abroad to file a cybersecurity review with the Office of
Cybersecurity Review. The aforementioned policies and any related
implementation rules to be enacted may subject us to additional
compliance requirement in the future. While we believe that our
operations are not affected by this, as these opinions were
recently issued, official guidance and interpretation of the
opinions remain unclear in several respects at this time.
Therefore, we cannot assure you that we will remain fully compliant
with all new regulatory requirements of these opinions or any
future implementation rules on a timely basis, or at all.
The Holding Foreign Companies Accountable Act requires the
Public Company Accounting Oversight Board (PCAOB) to be permitted
to inspect the issuer’s public accounting firm within three years.
This three year period will be shortened to two years if the
Accelerating Holding Foreign Companies Accountable Act is
enacted. There are uncertainties under the PRC
Securities Law relating to the procedures and requisite timing for
the U.S. securities regulatory agencies to conduct investigations
and collect evidence within the territory of the PRC. If the U.S.
securities regulatory agencies are unable to conduct such
investigations, they may suspend or de-register our registration
with the SEC and delist our securities from applicable trading
market within the US.
The Holding Foreign Companies Accountable Act was signed into law
on December 18, 2020, and requires Auditors of publicly traded
companies to submit to regular inspections every three years to
assess such auditors’ compliance with applicable professional
standards. On June 22, 2021, the U.S. Senate passed the
Accelerating Holding Foreign Companies Accountable Act which, if
passed by the U.S. House of Representatives and signed into law,
would reduce the number of consecutive non-inspection years
required for triggering the prohibitions under the HFCA Act from
three years to two. On September 22, 2021, the PCAOB adopted rules
to create a framework for the PCAOB to use when determining, as
contemplated under the HFCA Act, whether it is unable to inspect or
investigate completely registered public accounting firms located
in a foreign jurisdiction because of a position taken by one or
more authorities in that jurisdiction. On December 2, 2021, the SEC
adopted amendments to finalize rules implementing the submission
and disclosure requirements in the HFCA Act. The rules apply to
registrants that the SEC identifies as having filed an annual
report with an audit report issued by a registered public
accounting firm that is located in a foreign jurisdiction and that
the PCAOB is unable to inspect or investigate completely because of
a position taken by an authority in a foreign jurisdiction. On
December 16, 2021, the PCAOB issued a report on its determinations
that it is unable to inspect or investigate completely
PCAOB-registered public accounting firms headquartered in China and
in Hong Kong because of positions taken by PRC and Hong Kong
authorities in those jurisdictions. The PCAOB has made such
designations as mandated under the HFCA Act. Pursuant to each
annual determination by the PCAOB, the SEC will, on an annual
basis, identify issuers that have used non-inspected audit firms
and thus are at risk of such suspensions in the future.
Our auditor is based in United States of America and is subject to
PCAOB inspection. It is not subject to the determinations announced
by the PCAOB on December 16, 2021. Furthermore, due to the recent
developments in connection with the implementation of the Holding
Foreign Companies Accountable Act, we cannot assure you whether the
SEC or other regulatory authorities would apply additional and more
stringent criteria to us after considering the effectiveness of our
auditor’s audit procedures and quality control procedures, adequacy
of personnel and training, or sufficiency of resources, geographic
reach or experience as it relates to the audit of our financial
statements. The requirement in the HFCA Act that the PCAOB be
permitted to inspect the issuer’s public accounting firm within two
or three years, may result in the delisting of our securities from
applicable trading markets in the U.S, in the future if the PCAOB
is unable to inspect our accounting firm at such future time.
According to Article 177 of the Securities Law of the PRC (“Article
177”), overseas securities regulatory authorities are prohibited
from engaging in activities pertaining to investigations or
evidence collection directly conducted within the territories of
the PRC, and Chinese entities or individuals are further prohibited
from providing documents and information in connection with
securities business activities to any organizations and/or persons
abroad without the prior consent of the securities regulatory
authority of the State Council and the competent departments of the
State Council. As of the date of this prospectus, we are not aware
of any implementing rules or regulations which have been published
regarding application of Article 177.
We believe Article 177 is only applicable where the activities of
overseas authorities constitute a direct investigation or evidence
collection by such authorities within the territory of the PRC. In
the event that the U.S. securities regulatory agencies carry out an
investigation on us such as an enforcement action by the Department
of Justice, the SEC or other authorities, such agencies’ activities
will constitute conducting an investigation or collecting evidence
directly within the territory of the PRC and accordingly fall
within the scope of Article 177. In that case, the U.S. securities
regulatory agencies may have to consider establishing cross-border
cooperation with the securities regulatory authority of the PRC by
way of judicial assistance, diplomatic channels or establishing a
regulatory cooperation mechanism with the securities regulatory
authority of the PRC. However, there is no assurance that the U.S.
securities regulatory agencies will succeed in establishing such
cross-border cooperation in this particular case and/or establish
such cooperation in a timely manner.
Furthermore, as Article 177 is a recently promulgated provision, it
remains unclear as to how it will be interpreted, implemented or
applied by the Chinese Securities Regulatory Commission or other
relevant government authorities. As such, there are uncertainties
as to the procedures and requisite timing for the U.S. securities
regulatory agencies to conduct investigations and collect evidence
within the territory of the PRC. The Holding Foreign Companies
Accountable Act requires the Public Company Accounting Oversight
Board (PCAOB) be permitted to inspect the issuer’s public
accounting firm within three years. This three year period will be
shortened to two years if the Accelerating Holding Foreign
Companies Accountable Act is enacted. If the U.S. securities
regulatory agencies are unable to conduct such investigations,
there exists a risk that they may determine to suspend or
de-register our registration with the SEC and may also delist our
securities from applicable trading market within the US.
Adverse regulatory developments in China may subject us to
additional regulatory review, and additional disclosure
requirements and regulatory scrutiny to be adopted by the SEC in
response to risks related to recent regulatory developments in
China may impose additional compliance requirements for companies
like us with significant China-based operations, all of which could
increase our compliance costs, subject us to additional disclosure
requirements.
The recent regulatory developments in China, in particular with
respect to restrictions on China-based companies raising capital
offshore, may lead to additional regulatory review in China over
our financing and capital raising activities in the United States.
In addition, we may be subject to industry-wide regulations that
may be adopted by the relevant PRC authorities, which may have the
effect of limiting our service offerings, restricting the scope of
our operations in China, or causing the suspension or termination
of our business operations in China entirely, all of which will
materially and adversely affect our business, financial condition
and results of operations. We may have to adjust, modify, or
completely change our business operations in response to adverse
regulatory changes or policy developments, and we cannot assure you
that any remedial action adopted by us can be completed in a
timely, cost-efficient, or liability-free manner or at all.
On July 30, 2021, in response to the recent regulatory
developments in China and actions adopted by the PRC government,
the Chairman of the SEC issued a statement asking the SEC staff to
seek additional disclosures from offshore issuers associated with
China-based operating companies before their registration
statements will be declared effective, including detailed
disclosure related to whether the issuer received or were denied
permission from Chinese authorities to list on U.S. exchanges and
the risks that such approval could be denied or rescinded. On
August 1, 2021, the China Securities Regulatory Commission stated
in a statement that it had taken note of the new disclosure
requirements announced by the SEC regarding the listings of Chinese
companies and the recent regulatory development in China, and that
both countries should strengthen communications on regulating
China-related issuers. We cannot guarantee that we will not be
subject to tightened regulatory review and we could be exposed to
government interference in China.
We may be exposed to liabilities under the Foreign Corrupt
Practices Act, and any determination that we violated the Foreign
Corrupt Practices Act could have a material adverse effect on our
business.
We are subject to the Foreign Corrupt Practice Act, or FCPA, and
other laws that prohibit improper payments or offers of payments to
foreign governments and their officials and political parties by
U.S. persons and issuers as defined by the statute for the purpose
of obtaining or retaining business. We will have operations,
agreements with third parties and make sales in Hong Kong, which
may experience corruption. Our proposed activities may create the
risk of unauthorized payments or offers of payments by one of the
employees, consultants, or sales agents of our Company, because
these parties are not always subject to our control. It will be our
policy to implement safeguards to discourage these practices by our
employees. Also, our existing practices and any future improvements
may prove to be less than effective, and the employees,
consultants, or sales agents of our Company may engage in conduct
for which we might be held responsible. Violations of the FCPA may
result in severe criminal or civil sanctions, and we may be subject
to other liabilities, which could negatively affect our business,
operating results and financial condition. In addition, the
government may seek to hold our Company liable for successor
liability FCPA violations committed by companies in which we invest
or that we acquire.
PRC regulation of loans to and direct investment in PRC
entities by offshore holding companies and governmental control of
currency conversion may delay or prevent us from using the proceeds
we receive from offshore financing activities to make loans to or
make additional capital contributions to our Hong Kong
subsidiaries, which could materially and adversely affect our
liquidity and our ability to fund and expand business.
Any transfer of funds by us to our Hong Kong or PRC subsidiaries,
either as a shareholder loan or as an increase in registered
capital, may become subject to approval by or registration or
filing with relevant governmental authorities in China. According
to the relevant PRC regulations on foreign-invested enterprises in
China, capital contributions to PRC subsidiaries are subject to the
approval of or filing with the Ministry of Commerce in its local
branches and registration with a local bank authorized by SAFE. It
is unclear if Hong Kong subsidiaries will be deemed a PRC
subsidiary. If Hong Kong subsidiaries are deemed to be PRC
subsidiaries, (i) any foreign loan procured by our Hong Kong
subsidiaries will be required to be registered with SAFE or its
local branches or filed with SAFE in its information system; and
(ii) our Hong Kong subsidiaries will not be able to procure
loans which exceed the difference between their total investment
amount and registered capital or, as an alternative, only procure
loans subject to the calculation approach and limitation as
provided in the People’s Bank of China Notice No. 9 (“PBOC Notice
No. 9”). We may not be able to obtain these government
approvals or complete such registrations on a timely basis, if at
all, with respect to future capital contributions or foreign loans
by us to our Hong Kong subsidiaries, if required. If we fail to
receive such approvals or complete such registration or filing, our
ability to use the proceeds we receive from our offshore financing
activities and to capitalize our Hong Kong operations may be
negatively affected, which could adversely affect our liquidity and
ability to fund and expand our business. There is, in effect, no
statutory limit on the amount of capital contribution that we can
make to our Hong Kong subsidiaries. This is because there is no
statutory limit on the amount of registered capital for our Hong
Kong subsidiaries, and we are allowed to make capital contributions
to our Hong Kong subsidiaries by subscribing for their initial
registered capital and increased registered capital, provided that
the Hong Kong subsidiaries complete the relevant filing and
registration procedures.
The Circular on Reforming the Administration of Foreign Exchange
Settlement of Capital of Foreign-Invested Enterprises, or SAFE
Circular 19, effective as of June 1, 2015, as amended by
Circular of the State Administration of Foreign Exchange on
Reforming and Regulating Policies on the Control over Foreign
Exchange Settlement under the Capital Account, or SAFE Circular 16,
effective on June 9, 2016, allows FIEs to settle their foreign
exchange capital at their discretion, but continues to prohibit
FIEs from using the Renminbi fund converted from their foreign
exchange capitals for expenditure beyond their business scopes, and
also prohibit FIEs from using such Renminbi fund to provide loans
to persons other than affiliates unless otherwise permitted under
its business scope. If Safe Circulars 16 and 19 are interpreted to
apply to the Hong Kong Dollar, our ability to use Hong Kong Dollars
converted from the net proceeds from our offshore financing
activities to fund the establishment of new entities in Hong Kong,
to invest in or acquire any other Hong Kong or PRC companies may be
limited, which may adversely affect our business, financial
condition and results of operations.
Because our holding company structure creates restrictions on
the payment of dividends, our ability to pay dividends is
limited.
We are a holding company whose primary assets are our ownership of
the equity interests in our subsidiaries. We conduct no other
business and, as a result, we depend entirely upon our
subsidiaries’ earnings and cash flow. If we decide in the future to
pay dividends, as a holding company, our ability to pay dividends
and meet other obligations depends upon the receipt of dividends or
other payments from our operating subsidiaries. Our
subsidiaries and projects may be restricted in their ability
to pay dividends, make distributions or otherwise transfer funds to
us prior to the satisfaction of other obligations, including the
payment of operating expenses or debt service, appropriation to
reserves prescribed by laws and regulations, covering losses in
previous years, restrictions on the conversion of local currency
into U.S. dollars or other hard currency, completion of relevant
procedures with governmental authorities or banks and other
regulatory restrictions. Under the applicable PRC laws and
regulations, foreign-invested enterprises in China may pay
dividends only out of their accumulated profits, if any, determined
in accordance with PRC accounting standards and regulations. In
addition, a foreign-invested enterprise in China is required to set
aside a portion of its after-tax profit to fund specific reserve
funds prior to payment of dividends. In particular, at least 10% of
its after-tax profits based on PRC accounting standards each year
is required to be set aside towards its general reserves until the
accumulative amount of such reserves reach 50% of its registered
capital. These reserves are not distributable as cash dividends. If
future dividends are paid in RMB, fluctuations in the exchange rate
for the conversion of any of these currencies into U.S. dollars may
adversely affect the amount received by U.S. stockholders upon
conversion of the dividend payment into U.S. dollars. For a
detailed description of the potential government regulations facing
the Company associated with our operations in Hong Kong, please
refer to “Government and Industry Regulations”. We do not
presently have any intention to declare or pay dividends in the
future. You should not purchase shares of our common stock in
anticipation of receiving dividends in future periods.
If any dividend is declared in the future and paid in a
foreign currency, you may be taxed on a larger amount in U.S.
dollars than the U.S. dollar amount that you will actually
ultimately receive.
If you are a U.S. holder of our shares of common stock, you will be
taxed on the U.S. dollar value of your dividends, if any, at the
time you receive them, even if you actually receive a smaller
amount of U.S. dollars when the payment is in fact converted into
U.S. dollars. Specifically, if a dividend is declared and paid in a
foreign currency such as the RMB, the amount of the dividend
distribution that you must include in your income as a U.S. holder
will be the U.S. dollar value of the payments made in the foreign
currency, determined at the spot rate of the foreign currency to
the U.S. dollar on the date the dividend distribution is includible
in your income, regardless of whether the payment is in fact
converted into U.S. dollars. Thus, if the value of the foreign
currency decreases before you actually convert the currency into
U.S. dollars, you will be taxed on a larger amount in U.S. dollars
than the U.S. dollar amount that you will actually ultimately
receive.
Dividends payable to our foreign investors and gains on the
sale of our shares of common stock by our foreign investors may
become subject to tax by the PRC.
Under the Enterprise Income Tax Law and its implementation
regulations issued by the State Council of the PRC, unless
otherwise provided under relevant tax treaties, a 10% PRC
withholding tax is applicable to dividends payable to investors
that are non-resident enterprises, which do not have an
establishment or place of business in the PRC or which have such
establishment or place of business but the dividends are not
effectively connected with such establishment or place of business,
to the extent such dividends are derived from sources within the
PRC. Similarly, any gain realized on the transfer of shares by such
investors is also subject to PRC tax at a current rate of 10%,
subject to any reduction or exemption set forth in relevant tax
treaties, if such gain is regarded as income derived from sources
within the PRC. If we are deemed a PRC resident enterprise,
dividends paid on our shares, and any gain realized from the
transfer of our shares, would be treated as income derived from
sources within the PRC and would as a result be subject to PRC
taxation. Furthermore, if we are deemed a PRC resident enterprise,
dividends payable to individual investors who are non-PRC residents
and any gain realized on the transfer shares by such investors may
be subject to PRC tax at a current rate of 20%, subject to any
reduction or exemption set forth in applicable tax treaties. It is
unclear whether we or any of our subsidiaries established outside
of China are considered a PRC resident enterprise or whether
holders of shares would be able to claim the benefit of income tax
treaties or agreements entered into between China and other
countries or areas. If dividends payable to our non-PRC investors,
or gains from the transfer of our shares by such investors are
subject to PRC tax, the value of your investment in our shares may
decline significantly. For a detailed description of the potential
government regulations facing the Company associated with our
operations in Hong Kong, please refer to “Government and
Industry Regulations.”
Our global income may be subject to PRC taxes under the PRC
Enterprise Income Tax Law, which could have a material adverse
effect on our results of operations.
Under the PRC Enterprise Income Tax Law, or the New EIT Law, and
its amendment and implementation rules, which became effective in
January 2008, an enterprise established outside of the PRC with a
“de facto management body” located within the PRC is considered a
PRC resident enterprise and will be subject to the enterprise
income tax at the rate of 25% on its global income. The
implementation rules define the term “de facto management bodies”
as “establishments that carry out substantial and overall
management and control over the manufacturing and business
operations, personnel and human resources, finance and treasury,
and business combination and disposition of properties and other
assets of an enterprise.” On April 22, 2009, the State
Administration of Taxation (the “SAT”), issued a circular, or SAT
Circular 82, which provides certain specific criteria for
determining whether the “de facto management body” of a
PRC-controlled enterprise that is incorporated offshore is located
in China. Although the SAT Circular 82 only applies to offshore
enterprises controlled by PRC enterprises or PRC enterprise groups,
not those controlled by PRC individuals or foreigners, the
determining criteria set forth in the SAT Circular 82 may reflect
the SAT’s general position on how the “de facto management body”
text should be applied in determining the resident status of all
offshore enterprises for the purpose of PRC tax, regardless of
whether they are controlled by PRC enterprises or individuals.
Although we do not believe that our legal entities organized
outside of the PRC constitute PRC resident enterprises, it is
possible that the PRC tax authorities could reach a different
conclusion. In such case, we may be considered a PRC resident
enterprise and may therefore be subject to the 25% enterprise
income tax on our global income, which could significantly increase
our tax burden and materially and adversely affect our cash flow
and profitability. In addition to the uncertainty regarding how the
new PRC resident enterprise classification for tax purposes may
apply, it is also possible that the rules may change in the future,
possibly with retroactive effect. For a detailed description of the
potential government regulations facing the Company associated with
our operations in Hong Kong, please refer to “Government and
Industry Regulations.”
We and our shareholders face uncertainties with respect to
indirect transfers of equity interests in PRC resident enterprises
by their non-PRC holding companies.
On February 3, 2015, the State Administration of Taxation issued an
Announcement on Several Issues Concerning Enterprise Income Tax on
Income Arising from Indirect Transfers of Property by Non-PRC
Resident Enterprises, or Announcement 7, with the same effective
date. Under Announcement 7, an “indirect transfer” refers to a
transaction where a non-resident enterprise transfers its equity
interest and other similar interest in an offshore holding company,
which directly or indirectly holds Chinese taxable assets (the
assets of an “establishment or place” situated in China; real
property situated in China and equity interest in Chinese resident
enterprises) and any indirect transfer without reasonable
commercial purposes are subject to the PRC taxation. In addition,
Announcement 7 specifies the conditions under which an indirect
transfer is deemed to lack a reasonable commercial purpose which
include: (1) 75% or more of the value of the offshore holding
company’s equity is derived from Chinese taxable assets, (2)
anytime in the year prior to the occurrence of the indirect
transfer of Chinese taxable assets, 90% or more of the total assets
(excluding cash) of the offshore holding company are direct or
indirect investments in China, or 90% or more of the revenue of the
offshore holding company was sourced from China; (3) the functions
performed and risks assumed by the offshore holding company(ies),
although incorporated in an offshore jurisdiction to conform to the
corporate law requirements there, are insufficient to substantiate
their corporate existence and (4) the foreign income tax payable in
respect of the indirect transfer is lower than the Chinese tax
which would otherwise be payable in respect of the direct transfer
if such transfer were treated as a direct transfer. As a result,
gains derived from such indirect transfer will be subject to PRC
enterprise income tax, currently at a tax rate of 10%.
Announcement 7 grants a safe harbor under certain qualifying
circumstances, including transfers in the public securities market
and certain intragroup restricting transactions, however, there is
uncertainty as to the implementation of Announcement 7. For
example, Announcement 7 requires the buyer to withhold the
applicable taxes without specifying how to obtain the information
necessary to calculate taxes and when the applicable tax shall be
submitted. Announcement 7 may be determined by the tax authorities
to be applicable to our offshore restructuring transactions or sale
of the shares of our offshore subsidiaries where non-resident
enterprises, being the transferors, were involved. Though
Announcement 7 does not impose a mandatory obligation of filing the
report of taxable events, the transferring party shall be subject
to PRC withholding tax if the certain tax filing conditions are
met. Non-filing may result in an administrative penalty varying
from 50% to 300% of unpaid taxes. As a result, we and our
non-resident enterprises in such transactions may become at risk of
being subject to taxation under Announcement 7, and may be required
to expend valuable resources to comply with Announcement 7 or to
establish that we and our non-resident enterprises should not be
taxed under Announcement 7, for any restructuring or disposal of
shares of our offshore subsidiaries, which may have a material
adverse effect on our financial condition and results of
operations.
PRC laws and regulations have established more complex
procedures for certain acquisitions of Chinese companies by foreign
investors, which could make it more difficult for us to pursue
growth through acquisitions in China.
Further to the Regulations on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors, or the New M&A Rules, the
Anti-monopoly Law of the PRC, the Rules of Ministry of Commerce on
Implementation of Security Review System of Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors
promulgated by MOFCOM or the MOFCOM Security Review Rules, was
issued in August 2011, which established additional procedures and
requirements that are expected to make merger and acquisition
activities in China by foreign investors more time-consuming and
complex, including requirements in some instances that MOFCOM be
notified in advance of any change of control transaction in which a
foreign investor takes control of a PRC enterprise, or that the
approval from MOFCOM be obtained in circumstances where overseas
companies established or controlled by PRC enterprises or residents
acquire affiliated domestic companies. PRC laws and regulations
also require certain merger and acquisition transactions to be
subject to merger control review and or security review.
The MOFCOM Security Review Rules, effective from September 1, 2011,
which implement the Notice of the General Office of the State
Council on Establishing the Security Review System for Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors
promulgated on February 3, 2011, further provide that, when
deciding whether a specific merger or acquisition of a domestic
enterprise by foreign investors is subject to the security review
by MOFCOM, the principle of substance over form should be applied
and foreign investors are prohibited from bypassing the security
review requirement by structuring transactions through proxies,
trusts, indirect investments, leases, loans, control through
agreements control or offshore transactions.
Further, if the business of any target company that the combined
company seeks to acquire falls into the scope of security review,
the combined company may not be able to successfully acquire such
company either by equity or asset acquisition, capital contribution
or through any contractual agreements. The combined company may
grow its business in part by acquiring other companies operating in
its industry. Complying with the requirements of the relevant
regulations to complete such transactions could be time consuming,
and any required approval processes, including approval from
MOFCOM, may delay or inhibit its ability to complete such
transactions, which could affect our ability to maintain or expand
our market share.
In addition, SAFE promulgated the Circular on the Settlement of
Foreign Currency Capital of Foreign-invested Enterprises, or
Circular 19, on June 1, 2015. Under Circular 19, registered capital
of a foreign-invested company settled in RMB converted from foreign
currencies may only be used within the business scope approved by
the applicable governmental authority and the equity investments in
the PRC made by the foreign-invested company shall be subject to
the relevant laws and regulations about the foreign-invested
company’s reinvestment in the PRC. In addition, foreign-invested
companies cannot use such capital to make the investments in
securities, and cannot use such capital to issue the entrusted RMB
loans (except approved in its business scope), repay the RMB loans
between the enterprises and the ones which have been transferred to
the third party. Circular 19 may significantly limit our ability to
effectively use the proceeds from future financing activities as
the Chinese subsidiaries may not convert the funds received from us
in foreign currencies into RMB, which may adversely affect their
liquidity and our ability to fund and expand our business in the
PRC.
SAFE issued the Circular on Reforming and Regulating Policies on
the Control over Foreign Exchange Settlement of Capital Accounts
(“Circular 16”), on June 9, 2016, which became effective
simultaneously. Pursuant to Circular 16, enterprises registered in
the PRC may also convert their foreign debts from foreign currency
to RMB on a self-discretionary basis. Circular 16 provides an
integrated standard for conversion of foreign exchange under
capital account items (including but not limited to foreign
currency capital and foreign debts) on a self-discretionary basis
which applies to all enterprises registered in the PRC. Circular 16
reiterates the principle that RMB converted from foreign
currency-denominated capital of a company may not be directly or
indirectly used for purpose beyond its business scope or prohibited
by PRC Laws or regulations, while such converted RMB shall not be
utilized as loans to its non-affiliated entities. As Circular 16 is
newly issued and SAFE has not provided detailed guidelines with
respect to its interpretation or implementation, it is uncertain
how these rules will be interpreted and implemented.
Failure to comply with PRC regulations regarding the
registration requirements for employee stock ownership plans or
share option plans may subject the PRC plan participants or us to
fines and other legal or administrative sanctions.
Pursuant to SAFE Circular 37, PRC residents who participate in
share incentive plans in overseas non-publicly-listed companies may
submit applications to SAFE or its local branches for the foreign
exchange registration with respect to offshore special purpose
companies. In the meantime, our directors, executive officers and
other employees who are PRC citizens or who are non-PRC residents
residing in the PRC for a continuous period of not less than one
year, subject to limited exceptions, and who have been granted
incentive share awards by us, may follow the Notices on Issues
Concerning the Foreign Exchange Administration for Domestic
Individuals Participating in Stock Incentive Plan of Overseas
Publicly-Listed Company, or 2012 SAFE notices, promulgated by the
SAFE in 2012. Pursuant to the 2012 SAFE notices, PRC citizens and
non-PRC citizens who reside in China for a continuous period of not
less than one year who participate in any stock incentive plan of
an overseas publicly listed company, subject to a few exceptions,
are required to register with SAFE through a domestic qualified
agent, which could be the PRC subsidiaries of such overseas listed
company, and complete certain other procedures. In addition, an
overseas entrusted institution must be retained to handle matters
in connection with the exercise or sale of stock options and the
purchase or sale of shares and interests. Our executive officers
and other employees who are PRC citizens or who reside in the PRC
for a continuous period of not less than one year and who have been
granted options will be subject to these regulations. It is unclear
if these regulations will be expanded to include Hong Kong
residents or citizens. Failure to complete the SAFE registrations
may subject them to fines, and legal sanctions and may also limit
our ability to contribute additional capital into our Hong Kong
subsidiaries and limit our Hong Kong subsidiaries’ ability to
distribute dividends to us if Hong Kong residents or citizens are
covered under these PRC regulations. We also face regulatory
uncertainties that could restrict our ability to adopt additional
incentive plans for our directors, executive officers and employees
under PRC law.
The SAT has issued certain circulars concerning employee share
options and restricted shares. Under these circulars, employees
working in China who exercise share options or are granted
restricted shares will be subject to PRC individual income tax. It
is unclear whether these regulations will be expanded in the future
to cover our employees in Hong Kong. Our Hong Kong subsidiaries may
become obligated to file documents related to employee share
options or restricted shares with relevant tax authorities and to
withhold individual income taxes of those employees who exercise
their share options. If our employees fail to pay or we fail to
withhold their income taxes according to relevant laws and
regulations, we may face sanctions imposed by the tax authorities
or other PRC governmental authorities.
If we become directly subject to the recent scrutiny,
criticism and negative publicity involving U.S.-listed Chinese
companies, we may have to expend significant resources to
investigate and resolve the matter which could harm our business
operations and our reputation and could result in a loss of your
investment in our shares, especially if such matter cannot be
addressed and resolved favorably.
U.S. public companies that have substantially all of their
operations in China have been the subject of intense scrutiny,
criticism and negative publicity by investors, financial
commentators and regulatory agencies, such as the SEC. Much of the
scrutiny, criticism and negative publicity has centered around
financial and accounting irregularities, a lack of effective
internal controls over financial accounting and reporting,
inadequate corporate governance policies or a lack of adherence
thereto and, in many cases, allegations of fraud. As a result of
the scrutiny, criticism and negative publicity, the publicly traded
stock of many U.S. listed Chinese companies has sharply decreased
in value and, in some cases, has become virtually worthless. Many
of these companies are now subject to shareholder lawsuits and SEC
enforcement actions and are conducting internal and external
investigations into the allegations. It is not clear what effect
this sector-wide scrutiny, criticism and negative publicity will
have on our company and our business. If we become the subject of
any unfavorable allegations, whether such allegations are proven to
be true or untrue, we may have to expend significant resources to
investigate such allegations and/or defend the Company. This
situation may be a major distraction to our management. If such
allegations are not proven to be groundless, our Company and
business operations will be severely hampered and your investment
in our stock could be rendered worthless.
In addition, major issues with other U.S. listed Chinese companies
in the future, could have a negative effect on the value of your
investment, even though the Company is not involved.
It may be difficult for stockholders to enforce any judgment
obtained in the United States against us, which may limit the
remedies otherwise available to our stockholders.
Substantially all of our assets are located in Hong Kong and PRC.
Moreover, our current directors and officers are Hong Kong/Chinese
nationals. All or a substantial portion of their assets are located
outside the United States. As a result, it may be difficult for our
stockholders to effect service of process within the United States
upon our subsidiaries or any individuals.
In addition, there is uncertainty as to whether
the courts of Hong Kong or the PRC would recognize or enforce
judgments of U.S. courts obtained against us or our officers and/or
directors predicated upon the civil liability provisions of
Hong Kong against us or such persons predicated upon
the securities laws of the United States or any state
thereof. It is unclear if extradition treaties now in effect
between the United States and the PRC would permit effective
enforcement against us or our officers and directors of criminal
penalties under the United States Federal securities laws or
otherwise.
Risks associated with our securities
Our shares of common stock presently has a limited trading
market, with an average daily trading volume of approximately
209,760 shares, and the price may not reflect our value and there
can be no assurance that there will be an active market for our
shares of common stock either now or in the future.
Although our common stock is quoted on the OTC Markets, our shares
of common stock do not trade and the price of our common stock, if
traded, may not reflect our value. There can be no assurance that
there will be an active market for our shares of common stock
either now or in the future. Market liquidity will depend on the
perception of our operating business and any steps that our
management might take to bring us to the awareness of investors.
There can be no assurance given that there will be any awareness
generated. Consequently, investors may not be able to liquidate
their investment or liquidate it at a price that reflects the value
of the business. As a result holders of our securities may not find
purchasers our securities should they to sell securities held by
them. Consequently, our securities should be purchased only by
investors having no need for liquidity in their investment and who
can hold our securities for an indefinite period of time.
If a more active market should develop, the price of our shares of
common stock may be highly volatile. Because there may be a low
price for our shares of common stock, many brokerage firms may not
be willing to effect transactions in our securities. Even if an
investor finds a broker willing to effect a transaction in the
shares of our common stock, the combination of brokerage
commissions, transfer fees, taxes, if any, and any other selling
costs may exceed the selling price. Further, many lending
institutions will not permit the use of such shares of common stock
as collateral for any loans.
Our common stock is subject to the “penny stock” rules of the
SEC and the trading market in our securities is limited, which
makes transactions in our stock cumbersome and may reduce the value
of an investment in our stock.
Under U.S. federal securities legislation, our common stock will
constitute “penny stock”. Penny stock is any equity security that
has a market price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless
exempt, the rules require that a broker or dealer approve a
potential investor’s account for transactions in penny stocks, and
the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased. In order to approve an investor’s
account for transactions in penny stocks, the broker or dealer must
obtain financial information and investment experience objectives
of the person, and make a reasonable determination that the
transactions in penny stocks are suitable for that person and the
person has sufficient knowledge and experience in financial matters
to be capable of evaluating the risks of transactions in penny
stocks. The broker or dealer must also deliver, prior to any
transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight
form sets forth the basis on which the broker or dealer made the
suitability determination. Brokers may be less willing to execute
transactions in securities subject to the “penny stock” rules. This
may make it more difficult for investors to dispose of our common
stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and
about the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities
and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have
to be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny
stocks.
We may, in the future, issue additional common shares, which
would reduce investors’ percent of ownership and may dilute our
share value.
Our Articles of Incorporation authorize the issuance of
7,400,000,000 shares of common stock and 50,000,000 shares of
preferred stock, all of which have been designated as Series A
Preferred Stock. As of the date of this Prospectus, the
Company had 239,278,847 shares of common stock issued and
outstanding and 531,600 shares of Series A Preferred Stock issued
or outstanding. Accordingly, we can issue an additional
approximately 7,160,721,153 shares of common stock and 49,468,400
shares of preferred stock. The future issuance of common stock
and/or preferred stock will result in substantial dilution in the
percentage of our common stock held by our then existing
shareholders. We may value any common stock issued in the future on
an arbitrary basis. The issuance of common stock for future
services or acquisitions or other corporate actions may have the
effect of diluting the value of the shares held by our investors,
and might have an adverse effect on any trading market for our
common stock.
State securities laws may limit secondary trading, which may
restrict the states in which and conditions under which you can
sell the shares offered by this prospectus.
Secondary trading in common stock sold in this offering will not be
possible in any state until the common stock is qualified for sale
under the applicable securities laws of the state or there is
confirmation that an exemption, such as listing in certain
recognized securities manuals, is available for secondary trading
in the state. If we fail to register or qualify, or to obtain or
verify an exemption for the secondary trading of, the common stock
in any particular state, the common stock could not be offered or
sold to, or purchased by, a resident of that state. In the event
that a significant number of states refuse to permit secondary
trading in our common stock, the liquidity for the common stock
could be significantly impacted thus causing you to realize a loss
on your investment.
The Company does not intend to seek registration or qualification
of its shares of common stock the subject of this offering in any
State or territory of the United States. Aside from a “secondary
trading” exemption, other exemptions under state law and the laws
of US territories may be available to purchasers of the shares of
common stock sold in this offering,
Anti-takeover effects of certain provisions of Nevada state
law hinder a potential takeover of us.
Though not now, we may be or in the future we may become subject to
Nevada’s control share law. A corporation is subject to Nevada’s
control share law if it has more than 200 stockholders, at least
100 of whom are stockholders of record and residents of Nevada, and
it does business in Nevada or through an affiliated corporation.
The law focuses on the acquisition of a “controlling interest”
which means the ownership of outstanding voting shares sufficient,
but for the control share law, to enable the acquiring person to
exercise the following proportions of the voting power of the
corporation in the election of directors:
(i) one-fifth or more but less than one-third, (ii) one-third or
more but less than a majority, or (iii) a majority or more. The
ability to exercise such voting power may be direct or indirect, as
well as individual or in association with others.
The effect of the control share law is that the acquiring person,
and those acting in association with it, obtains only such voting
rights in the control shares as are conferred by a resolution of
the stockholders of the corporation, approved at a special or
annual meeting of stockholders. The control share law contemplates
that voting rights will be considered only once by the other
stockholders. Thus, there is no authority to strip voting rights
from the control shares of an acquiring person once those rights
have been approved. If the stockholders do not grant voting rights
to the control shares acquired by an acquiring person, those shares
do not become permanent non-voting shares. The acquiring person is
free to sell its shares to others. If the buyers of those shares
themselves do not acquire a controlling interest, their shares do
not become governed by the control share law.
If control shares are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of the
voting power, any stockholder of record, other than an acquiring
person, who has not voted in favor of approval of voting rights is
entitled to demand fair value for such stockholder’s shares.
Nevada’s control share law may have the effect of discouraging
takeovers of the corporation.
In addition to the control share law, Nevada has a business
combination law which prohibits certain business combinations
between Nevada corporations and “interested stockholders” for three
years after the “interested stockholder” first becomes an
“interested stockholder,” unless the corporation’s board of
directors approves the combination in advance. For purposes of
Nevada law, an “interested stockholder” is any person who is (i)
the beneficial owner, directly or indirectly, of ten percent or
more of the voting power of the outstanding voting shares of the
corporation, or (ii) an affiliate or associate of the corporation
and at any time within the three previous years was the beneficial
owner, directly or indirectly, of ten percent or more of the voting
power of the then outstanding shares of the corporation. The
definition of the term “business combination” is sufficiently broad
to cover virtually any kind of transaction that would allow a
potential acquiror to use the corporation’s assets to finance the
acquisition or otherwise to benefit its own interests rather than
the interests of the corporation and its other stockholders.
The effect of Nevada’s business combination law is to potentially
discourage parties interested in taking control of us from doing so
if it cannot obtain the approval of our board of directors.
Because we do not intend to pay any cash dividends on our
common stock, our stockholders will not be able to receive a return
on their shares unless they sell them.
We intend to retain any future earnings to finance the development
and expansion of our business. We do not anticipate paying any cash
dividends on our common stock in the foreseeable future. Unless we
pay dividends, our stockholders will not be able to receive a
return on their shares unless they sell them. Stockholders may
never be able to sell shares when desired. Before you invest in our
securities, you should be aware that there are various risks. You
should consider carefully these risk factors, together with all of
the other information included in this annual report before you
decide to purchase our securities. If any of the following risks
and uncertainties develop into actual events, our business,
financial condition or results of operations could be materially
adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our executive office is located at No. 85 Castle Peak Road, Castle
Peak Bay, Tuen Mun, N.T., Hong Kong, China.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which the Company is a
party or in which any director, officer or affiliate of the
Company, any owner of record or beneficially of more than 5% of any
class of voting securities of the Company, or security holder is a
party adverse to the Company or has a material interest adverse to
the Company.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information.
Our common stock is quoted and traded on the OTC Pink operated by
the OTC Markets Group, under the symbol “SEII.” Trading in OTC Pink
stocks can be volatile, sporadic and risky, as thinly traded stocks
tend to move more rapidly in price than more liquid securities.
Such trading may also depress the market price of our common stock
and make it difficult for our stockholders to resell their common
stock. Our common stock does not have an established public trading
market. The following table sets forth, for the periods indicated,
the reported high and low closing bid quotations for our common
stock by calendar quarters during 2021 and 2020. These prices
reflect inter-dealer quotations, do not include retail markups,
markdowns or commissions and do not necessarily reflect actual
transactions.
| |
|
2021 |
|
|
2020 |
|
| |
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
| First quarter |
|
$ |
0.0380 |
|
|
$ |
0.033 |
|
|
$ |
18.50 |
|
|
$ |
18.5 |
|
| Second quarter |
|
$ |
0.0560 |
|
|
$ |
0.020 |
|
|
$ |
10.00 |
|
|
$ |
8.50 |
|
| Third quarter |
|
$ |
0.0278 |
|
|
$ |
0.0125 |
|
|
$ |
5.50 |
|
|
$ |
5.50 |
|
| Fourth quarter |
|
$ |
0.0280 |
|
|
$ |
0.0086 |
|
|
$ |
0.05 |
|
|
$ |
0.03 |
|
On March 25, 2022, the last sale price of our common stock as
reported by OTC Markets was $0.033 per share.
Shareholders
As of March 8, 2022, we had approximately 1,244 record holders of
our common stock.
Transfer Agent
The transfer agent for the common stock is Empire Stock Transfer
Inc. The transfer agent’s address is 1859 Whitney Mesa Dr.,
Henderson, Nevada 89014, and its telephone number is (702)
818-5898.
Dividend Policy
We have not paid cash dividends on our common stock since we became
public through reverse acquisition. We intend to keep any future
earnings to finance the expansion of our business, and we do not
anticipate that any cash dividends will be paid in the foreseeable
future.
Equity Compensation Plan Information
The following table summarizes the equity compensation plans under
which our securities have been or may be issued as of December 31,
2021.
| Plan Category |
|
Number of
securities to be issued upon exercise of outstanding options and
warrants |
|
|
Weighted-
average exercise price of outstanding options and warrants |
|
|
Number of
securities remaining available for future issuance under equity
compensation plans |
|
| Equity compensation plans
approved by security holders |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
| Equity compensation plan not approved
by security holders |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
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. As of December 31, 2021, there were no shares of common
stock available for issuance pursuant to the 2016 plan.
We did not have any equity compensation plans that were not
approved by stockholders.
Unregistered Sales of Equity Securities and Use of
Proceeds
All unregistered sales of equity securities during financial year
ended December 31, 2021 have been previously disclosed in filings
made by the Company with the United States Securities and Exchange
Commission.
ITEM 6. [Reserved]
As a smaller reporting company, we are not required to provide the
information called for by Item 6 of Form 10-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This discussion summarizes the significant factors affecting the
operating results, financial condition, liquidity and cash flows of
the Company and its subsidiaries for the fiscal years ended
December 31, 2021 and 2020. The discussion and analysis that
follows should be read together with the section entitled
“Cautionary Note Concerning Forward-Looking Statements” and our
consolidated financial statements and the notes to the consolidated
financial statements included elsewhere in this annual report on
Form 10-K.
Except for historical information, the matters discussed in this
section are forward looking statements that involve risks and
uncertainties and are based upon judgments concerning various
factors that are beyond the Company’s control. Consequently, and
because forward-looking statements are inherently subject to risks
and uncertainties, the actual results and outcomes may differ
materially from the results and outcomes discussed in the
forward-looking statements. You are urged to carefully review and
consider the various disclosures made by us in this report.
Currency and exchange rate
Unless otherwise noted, all currency figures quoted as “U.S.
dollars”, “dollars” or “US$” refer to the legal currency of the
United States. References to “Hong Kong Dollar” are to the Hong
Kong Dollar, the legal currency of the Hong Kong Special
Administrative Region of the People’s Republic of China, and “RMB”
or “Chinese Renminbi” are to be Chinese Renminbi, the legal
currency of the People’s Republic of China. Throughout this report,
assets and liabilities of the Company’s subsidiaries are translated
into U.S. dollars using the exchange rate on the balance sheet
date. Revenue and expenses are translated at average rates
prevailing during the period. The gains and losses resulting from
translation of financial statements of foreign subsidiaries are
recorded as a separate component of accumulated other comprehensive
income within the consolidated statement of stockholders’
equity.
We are not required to obtain permission from the Chinese
authorities to operate or to issue securities to foreign
investors.
We, through our subsidiaries currently operate the sharing economy
businesses. We derive our revenues from the sale of license and
advertising right and in a term of certain periods. Unfortunately
the COVID-19 situation has created adverse market conditions to
sharing economy due to the changes in consumer and business market
behaviors.
We are at a development stage company and reported a net loss of
$3,897,513 and $6,788,645 for the years ended December 31, 2021 and
2020, respectively. We had current assets of $4,139,415 and current
liabilities of $12,264,300 as of December 31, 2021. As of December
31, 2020, our current assets and current liabilities were
$3,966,698 and $11,707,297, respectively.
Our financial statements for the years ended December 31, 2021 and
2020 have been prepared assuming that we will continue as a going
concern. Our continuation as a going concern is dependent upon
improving our profitability and the continuing financial support
from our stockholders. Our sources of capital in the past have
included the sale of equity securities, which include common stock
sold in private transactions and public offerings, capital leases
and short-term and long-term debts.
RESULTS OF OPERATIONS
Years Ended December 31,
2021 and 2020
The following table sets forth the results of our operations for
the years ended December 31, 2021 and 2020:
| |
|
Years Ended
December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
Dollars |
|
|
Dollars |
|
| Revenues |
|
$ |
237,756 |
|
|
$ |
51,925 |
|
| Cost of revenues |
|
|
(54,038 |
) |
|
|
(853 |
) |
| Gross profit |
|
|
183,718 |
|
|
|
51,072 |
|
| Operating
expenses |
|
|
4,258,740 |
|
|
|
3,932,199 |
|
| Loss from operations |
|
|
(4,075,022 |
) |
|
|
(3,881,127 |
) |
| Other (expense)
income, net |
|
|
177,509 |
|
|
|
(2,907,518 |
) |
| Loss from continuing operations before
provision for income taxes |
|
|
(3,897,513 |
) |
|
|
(6,788,645 |
) |
| Provision for
income taxes |
|
|
- |
|
|
|
- |
|
| Net
loss |
|
$ |
(3,897,513 |
) |
|
$ |
(6,788,645 |
) |
Revenues. During the year ended December 31, 2021, we
recognized revenues from our sharing economy business of $237,756
compared to approximately $51,925 for the year ended December 31,
2020. The revenue increased mainly due to the local growth in
advertising activities during the year.
Cost of revenues. Cost of revenues includes the
domain and hosting charges. For the year ended December 31, 2021,
cost of revenues was $54,038 as compared to $853 for the year ended
December 31, 2020, a decrease of approximately $53,185, or 6,235%.
The cost of revenues decreased mainly due to the local growth in
advertising activities during the year.
Gross profit and gross margin. Our gross profit was
approximately $183,718 for the year ended December 31, 2021 as
compared to gross profit of approximately $51,072 for the year
ended December 31, 2020, representing gross margins of 77.2% and
98.3% respectively, an increase year over year. The decrease in our
gross margin for 2021 was primarily attributed to the improve
platform operation system. We expect that our gross margin will
remain at its current levels by increasing more exposure to the
market.
Operating expenses. For the year ended December 31,
2021 operating expenses were $4,258,740 as compared to $3,932,199
for the year ended December 31, 2020, an increase of approximately
$326,541, or 8.3%, and consisted of the following:
Loss from operations. As a result of the factors
described above, for the year ended December 31, 2021, loss from
operations amounted to $4,075,022, as compared to approximately
$3,881,127 for the year ended December 31, 2020. The amount
slightly increased mainly due to the growth of business during the
year.
Other income (expense), net. Other expense, net of
other income, includes interest income, interest expense, loss on
foreign currency translation loss, dividend income, gain on
disposal of marketable securities, amounted to $177,509 for the
year ended December 31, 2021. As compared to the year ended
December 31, 2020, total other expense, net, amounted to
$2,907,518, mainly consisted of interest income, interest expense,
dividend income, impairment loss on intangible assets, impairment
loss on marketable securities, gain on disposal of marketable
securities, unrealized gain on marketable securities, gain on
foreign currency translation, and loss on disposal of a
subsidiary.
Income tax provision. Income tax expense was $0
for the year ended December 31, 2021, as compared to $0 for the
year ended December 31, 2020.
Net loss. As a result of the foregoing, our net loss
was $3,897,513 for the year ended December 31, 2021, as compared
with net loss $6,788,645 for the year ended December 31, 2020, a
change of $2,891,132 or 43%. The amount decreased mainly due to no
impairment loss on other receivable, impairment loss on goodwill
and written-off prepayments incurred during the year.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support
its current and future operations, satisfy its obligations and
otherwise operate on an ongoing basis. At December 31, 2021 and
2020, we had cash balances of $66,723 and $1,805,417, respectively.
These funds are located in financial institutions mainly located in
Hong Kong.
The following table sets forth a summary of changes in our working
capital from December 31, 2020 to December 31, 2021:
| |
|
December 31,
2021 |
|
|
December 31,
2020 |
|
|
Change |
|
|
Percentage
Change |
|
| Working capital: |
|
|
|
|
|
|
|
|
|
|
|
|
| Total current assets |
|
$ |
4,139,415 |
|
|
$ |
3,966,698 |
|
|
$ |
172,717 |
|
|
|
4.35 |
% |
| Total current
liabilities |
|
|
12,265,428 |
|
|
|
11,707,297 |
|
|
|
558,131 |
|
|
|
4.76 |
% |
| Working capital
deficit |
|
$ |
(8,126,013 |
) |
|
$ |
(7,740,599 |
) |
|
$ |
(385,414 |
) |
|
|
(4.98 |
)% |
Our working capital deficit increased by $385,414 to $8,126,013 at
December 31, 2021 from $7,740,599 at December 31, 2020. This
increase in working deficit is primarily attributable less cash
balance at the year end.
Because the exchange rate conversion is different for the
consolidated balance sheets and the consolidated statements of cash
flows, the changes in assets and liabilities reflected on the
consolidated statements of cash flows are not necessarily identical
with the comparable changes reflected on the consolidated balance
sheets.
| |
|
For the
Years Ended
December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
|
|
|
|
|
| Net Cash Used in Operating
Activities |
|
$ |
(1,504,541 |
) |
|
$ |
(1,544,186 |
) |
| Net Cash Provided by (Used in)
Investing Activities |
|
|
(1,144,067 |
) |
|
|
1,332,707 |
|
| Net Cash Provided by Financing
Activities |
|
|
971,592 |
|
|
|
1,962,194 |
|
| Effect of Exchange Rate Changes in
Cash and Cash Equivalents |
|
|
(62,128 |
) |
|
|
(28,965 |
) |
| Cash and Cash
Equivalents at Beginning of Year |
|
|
1,805,417 |
|
|
|
83,667 |
|
| Cash and cash
equivalents at end of Year |
|
$ |
66,273 |
|
|
$ |
1,805,417 |
|
Cash Flow in Operating Activities
Net cash used in operating activities for the year ended December
31, 2021 was primarily the result of the net loss of $3,897,513, by
decreases in accounts receivable of $102,369, prepaid expenses and
other receivables of $174,655, deferred revenue of $107 and gain on
sale of marketable securities of $1,143,491. These amounts were
partially offset by accounts payable and accrued expenses of
$20,666, other payable of $209,820, depreciation of $135,561,
amortization of 98,149, impairment of goodwill of $27,353,
stock-based consultancy fee of $2,061,450, stock-based business
marketing fee $599,220, amortization of debt discount of $2,822,
and unreleased gain on marketable securities of $607,309.
Net cash used in operating activities for the year ended December
31, 2020 was primarily the result of the net loss of $6,788,645 by
decreases in accounts receivable of $38,509, income tax payable of
$6,802, gain on sale of marketable securities of $428,621 and
unrealized gain on marketable securities of $292,126. These amount
were partially offset by prepaid expenses and other receivables of
$14,725, accounts payables and accrued expense of $748,366, other
payable of $697,252, deferred revenue of $107, depreciation of
$134,691, amortization of $202,992, impairment loss of intangible
assets of $750,000, impairment loss of other receivables of
$705,000, impairment loss of marketable securities of $1,951,091,
impairment loss of goodwill $82,692, written-off prepayment of
$122,514, stock-based profession fees of $523,008, loss on disposal
of a subsidiary of $70,900 and amortization of debt discount of
$7,179.
Cash Flow in Investing Activities
Net cash used in investing activities for the year ended December
31, 2021, primarily mainly related to the purchase of marketable
securities of $22,237,565, purchase of property, plant and
equipment of $27,722 and offset by proceeds from disposal of
investment in marketable securities of $21,128,705 and dividend
received of $12,515.
Net cash used in investing activities for the year ended December
31, 2020, primarily mainly related to the purchase of marketable
securities of $11,482,148, purchase of non-controlling interest and
offset by proceeds from disposal of investment in marketable
securities of $12,803,705, proceeds from disposal of a subsidiary
of$8,252 and dividend received of $3,052.
Cash Flow in Financing Activities
Net cash provided by financing activities for the year ended
December 31, 2021, we received $1,180,190 from related party and
received $710,258 from issuance of note payable offsetting by
$917,728 on the repayment of bank loan.
Net cash provided by financing activities for the year ended
December 31, 2020, we had net cash provided by financing activities
of $1,962,194. We received advances from related party of $102,871,
received net proceeds from issuance of note payable of $183,000,
and received net proceeds from bank loans of $1,735,147, then
repaid bank loan of $58,824.
We have historically funded our capital expenditures through cash
flow provided by operations and bank loans. We intend to fund the
cost with cash flow from our operations and by obtaining financing
mainly from local banking institutions with which we have done
business in the past. We believe that the relationships with local
banks are in good standing and we have not encountered difficulties
in obtaining needed borrowings from local banks.
Going Concern
Our continuation as a going concern is dependent upon improving our
profitability and the continuing financial support from our
stockholders. Our sources of capital may include the sale of equity
securities, which include common stock sold in private
transactions, short-term and long-term debts. While we believe that
we will obtain external financing and the existing shareholders
will continue to provide the additional cash to meet our
obligations as they become due, there can be no assurance that we
will be able to raise such additional capital resources on
satisfactory terms. We believe that our capital resources are not
currently adequate to continue operating and maintaining its
business strategy for the next twelve months from the date of this
report. We may seek to raise capital through additional debt and/or
equity financings to fund its operations in the future. Although we
have 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 we cannot raise additional funds, we will have to cease business
operations. As a result, our common stock investors would lose all
of their investment.
We believe that these matters raise substantial doubt about the
ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments
related to the recoverability and classification of recorded asset
amounts or classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Material Cash Requirements
We have not achieved profitability since our inception and we
expect to continue to incur net losses for the foreseeable future.
We expect net cash expended in 2022 to be slightly higher than
2021. As of December 31, 2021, we had an accumulated deficit of
$76,808,089. Our material cash requirements are highly dependent
upon the additional financial support from our major shareholders
in the next 12 - 18 months.
We have certain fixed contractual obligations and commitments that
include future estimated payments. Changes in our business needs,
cancellation provisions, changing interest rates, and other factors
may result in actual payments differing from the estimates. We
cannot provide certainty regarding the timing and amounts of
payments. We have presented below a summary of the most significant
assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within
the context of our consolidated financial position, results of
operations, and cash flows. The following tables summarize our
contractual obligations as of December 31, 2021, and the effect
these obligations are expected to have on our liquidity and cash
flows in future periods.
| |
|
Payments Due
by Period |
|
| Contractual
obligations: |
|
Total |
|
|
Less
than
1 year |
|
|
1-3
years |
|
|
3-5
years |
|
|
5 + years |
|
| Bank loans (1) |
|
$ |
10,407,032 |
|
|
$ |
5,584,738 |
|
|
$ |
91,313 |
|
|
$ |
91,313 |
|
|
$ |
4,639,618 |
|
| Convertible
note payable (2) |
|
|
1,113,830 |
|
|
|
1,113,830 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Total |
|
$ |
11,520,862 |
|
|
$ |
6,698,568 |
|
|
$ |
91,313 |
|
|
$ |
91,313 |
|
|
$ |
4,639,618 |
|
| (1) |
Bank loans consisted of short
term and long-term bank loans. |
| (2) |
$94,167 will be converted into
common shares in 2022. |
Off-balance Sheet Arrangements
Except as discussed below, we have not entered into any other
financial guarantees or other commitments to guarantee the payment
obligations of any third parties. We have not entered into any
derivative contracts that are indexed to our shares and classified
as shareholder’s equity or that are not reflected in our
consolidated financial statements. Furthermore, we do not have any
retained or contingent interest in assets transferred to an
unconsolidated entity that serves as credit, liquidity or market
risk support to such entity. We do not have any variable interest
in any unconsolidated entity that provides financing, liquidity,
market risk or credit support to us or engages in leasing, hedging
or research and development services with us.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States
requires our management to make assumptions, estimates and
judgments that affect the amounts reported, including the notes
thereto, and related disclosures of commitments and contingencies,
if any. We have identified certain accounting policies that are
significant to the preparation of our consolidated financial
statements. These accounting policies are important for an
understanding of our financial condition and results of operations.
Critical accounting policies are those that are most important to
the presentation of our financial condition and results of
operations and require management’s subjective or complex judgment,
often as a result of the need to make estimates about the effect of
matters that are inherently uncertain and may change in subsequent
periods. Certain accounting estimates are particularly sensitive
because of their significance to consolidated financial statements
and because of the possibility that future events affecting the
estimate may differ significantly from management’s current
judgments. We believe the following accounting policies are
critical in the preparation of our consolidated financial
statements.
Principles of
Consolidation
The Company’s consolidated financial statements include the
financial statements of its wholly-owned and majority owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated upon consolidation.
Noncontrolling
interest
The Company accounts for noncontrolling interest in accordance with
ASC Topic 810-10-45, which requires the Company to present
noncontrolling interests as a separate component of total
shareholders’ equity on the consolidated balance sheets and the
consolidated net loss attributable to the its noncontrolling
interest be clearly identified and presented on the face of the
consolidated statements of operations and comprehensive loss.
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, 2021 and 2020 include the allowance
for doubtful accounts on accounts and other receivables, the useful
life of property and equipment and intangible assets, assumptions
used in assessing impairment of long-term assets and valuation of
deferred tax assets, accruals for taxes due, and the value of
stock-based compensation.
Available-for-sale
marketable securities
Available-for-sale marketable securities are reported at fair value
using the market approach based on the quoted prices in active
markets at the reporting date. The Company classifies the valuation
techniques that use these inputs as Level 1 of fair value
measurements. Any unrealized losses that are deemed
other-than-temporary are included in current period earnings and
removed from accumulated other comprehensive income (loss).
Realized gains and losses on marketable securities are included in
current period earnings. For purposes of computing realized gains
and losses, the cost basis of each investment sold is generally
based on the weighted average cost method.
The Company regularly evaluates whether the decline in fair value
of available-for-sale securities is other-than-temporary and
objective evidence of impairment could include:
|
● |
The
severity and duration of the fair value decline; |
|
● |
Deterioration in the financial condition of the
issuer; and |
|
● |
Evaluation of the factors that could cause
individual securities to have an other-than-temporary
impairment. |
Property and
equipment
Property and equipment are carried at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major
replacements and improvements are capitalized. When assets are
retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are
included in the statements of operations in the year of
disposition. The Company examines the possibility of decreases in
the value of fixed assets when events or changes in circumstances
reflect the fact that their recorded value may not be
recoverable.
|
|
|
Useful life |
| Office equipment and furniture |
|
5 years |
| Vehicles |
|
5 years |
| Yachts |
|
5 years |
Impairment of long-lived
assets and intangible asset
In accordance with ASC Topic 360, the Company reviews long-lived
assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully
recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash
flows is less than the carrying amount of the asset. The amount of
impairment is measured as the difference between the asset’s
estimated fair value and its book value. At December 31, 2021
and 2020, the Company conducted an impairment assessment on
property, equipment and intangible asset based on the guidelines
established in ASC Topic 360 to determine the estimated fair market
value of property, equipment and intangible asset as of December
31, 2021 and 2020. Such analysis considered future use of such
equipment, consultation with equipment resellers, subsequent sales
of price of equipment held for sale, and other industry factors.
Upon completion of the 2021 impairment analysis, the Company
recorded impairment charges on long-lived assets of $0 and $750,000
for the year ended December 31, 2021 and 2020.
Revenue
recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”). Under ASU 2014-09, the Company applies the following
five steps in order to determine the appropriate amount of revenue
to be recognized as it fulfills its obligations under each of its
agreements:
|
● |
identify the contract with a
customer; |
|
● |
identify the performance obligations in the
contract; |
|
● |
determine the transaction price; |
|
● |
allocate the transaction price to performance
obligations in the contract; and |
|
● |
recognize revenue as the performance obligation
is satisfied. |
The transaction price for each contract is determined based on the
amount the Company expects to be entitled to receive in exchange
for transferring the promised products or services to the customer.
Collectability of revenue is reasonably assured based on historical
evidence of collectability of fees the Company charges its
customers. The transaction price in the contract is allocated to
each distinct performance obligation in an amount that represents
the relative amount of consideration expected to be received in
exchange for satisfying each performance obligation. Revenue is
recognized when performance obligations are satisfied. At contract
inception, the Company determines whether it satisfies the
performance obligation over time or at a point in time.
The Company derives its revenues from the sale of advertising
service in a monthly payment term. The Company’s performance
obligation includes providing the connectivity among merchants and
consumers, generally through its online media advertising platform.
Online marketing consists of search engine marketing, display
advertisements, referral programs and affiliate marketing. The
Company will provide resources to support the marketing needs of
the sharing economy businesses via partnerships and acquisitions of
advertising companies.
The majority of the Company’s contracts with customers only contain
a single performance obligation. When the agreements involve with
multiple performance obligations, the Company will account for
individual performance obligations separately, if they are
distinct.
Income taxes
The Company is governed by the Income Tax Law of the PRC, Inland
Revenue Ordinance of Hong Kong and the U.S. Internal Revenue Code
of 1986, as amended. The Company accounts for income taxes using
the asset/liability method prescribed by ASC 740, “Accounting for
Income Taxes.” Under this method, deferred tax assets and
liabilities are determined based on the difference between the
financial reporting and tax bases of assets and liabilities using
enacted tax rates that will be in effect in the period in which the
differences are expected to reverse. The Company records a
valuation allowance to offset deferred tax assets if, based on the
weight of available evidence, it is more-likely-than-not that some
portion, or all, of the deferred tax assets will not be realized.
The effect on deferred taxes of a change in tax rates is recognized
as income or loss in the period that includes the enactment
date.
On December 22, 2017, the United States signed into law the Tax
Cuts and Jobs Act (the “Act”), a tax reform bill which, among other
items, reduces the current federal income tax rate in the United
States to 21% from 35%. 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, 2021, 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, 2021
and 2020, the Company had no uncertain tax positions, and will
continue to evaluate for uncertain positions in the future.
Foreign currency
translation
The reporting currency of the Company is the U.S. dollar. The
functional currency of the parent company is the U.S. dollar and
the functional currency of the Company’s operating subsidiaries is
the Chinese Renminbi (“RMB”) or Hong Kong dollars (“HKD”). For the
subsidiaries and affiliates, whose functional currencies are the
RMB or HKD, results of operations and cash flows are translated at
average exchange rates during the period, assets and liabilities
are translated at the unified exchange rate at the end of the
period, and equity is translated at historical exchange rates. As a
result, amounts relating to assets and liabilities reported on the
statements of cash flows may not necessarily agree with the changes
in the corresponding balances on the balance sheets. Translation
adjustments resulting from the process of translating the local
currency financial statements into U.S. dollars are included in
determining comprehensive loss.
The Company did not enter into any material transaction in foreign
currencies. Transaction gains or losses have not had, and are not
expected to have, a material effect on the results of operations of
the Company.
Loss per share of common
stock
ASC Topic 260 “Earnings per Share,” requires presentation of both
basic and diluted earnings per share (“EPS”) with a reconciliation
of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic
EPS excludes dilution. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of
the entity.
Basic net loss per share is computed by dividing net loss available
to common stockholders by the weighted average number of shares of
common stock outstanding during the period. Diluted net loss per
share is computed by dividing net loss by the weighted average
number of shares of common stock, common stock equivalents and
potentially dilutive securities outstanding during each period.
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, 2021 and 2020 included net loss and unrealized
(loss) gain from foreign currency translation
adjustments.
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.
Fair value of financial
instruments
The Company adopted the guidance of ASC Topic 820 for fair value
measurements which clarifies the definition of fair value,
prescribes methods for measuring fair value, and establishes a fair
value hierarchy to classify the inputs used in measuring fair value
as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities available at the measurement
date.
Level 2 - Inputs are unadjusted quoted prices for similar assets
and liabilities in active markets, quoted prices for identical or
similar assets and liabilities in markets that are not active,
inputs other than quoted prices that are observable, and inputs
derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the
reporting entity’s own assumptions on what assumptions the market
participants would use in pricing the asset or liability based on
the best available information. The Company did not measure these
assets at fair value at December 31, 2021 and 2020.
The carrying amounts reported in the consolidated balance sheets
for cash and cash equivalents, accounts receivable, prepaid
expenses and other receivables, short-term bank loans, convertible
notes payable, note payable, accounts payable, accrued liabilities,
amount due to a related party and income taxes payable approximate
their fair market value based on the short-term maturity of these
instruments.
ASC Topic 825-10 “Financial Instruments” allows entities to
voluntarily choose to measure certain financial assets and
liabilities at fair value (fair value option). The fair value
option may be elected on an instrument-by-instrument basis and is
irrevocable, unless a new election date occurs. If the fair value
option is elected for an instrument, unrealized gains and losses
for that instrument should be reported in earnings at each
subsequent reporting date. The Company did not elect to apply the
fair value option to any outstanding instruments.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable for smaller reporting companies
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
CONTENTS
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Sharing Economy
International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Sharing Economy International, Inc. (the "Company") as of December
31, 2021, the related consolidated statements of operations and
comprehensive income (loss), shareholders' equity, and cash flows
for the year then ended, and the related notes (collectively
referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2021, and the
results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted
in the United States.
Substantial Doubt about the Company’s Ability to Continue as a
Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 2 to the financial statements, the Company’s significant
operating losses raise substantial doubt about its ability to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis
for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period
audit of the financial statements that were communicated or are
required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the
financial statements and (2) involved especially challenging,
subjective, or complex judgments.
We determined that there are no critical audit matters.
/S/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company’s auditor since 2021
Lakewood, CO
March 31, 2022
Firm ID: 5041
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Sharing Economy International Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Sharing Economy International Inc. and subsidiaries (the “Company”)
as of December 31, 2020, and the related consolidated statements of
operations and comprehensive loss, consolidated statements of
changes in stockholders’ equity, and consolidated statements of
cash flows for the year ended December 31, 2020, and the related
notes (collectively referred to as the notes to consolidated
financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2020, and the
consolidated results of its operations and its cash flows for the
year ended December 31, 2020, in conformity with accounting
principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note
2 to the accompanying financial statements, the Company has
suffered recurring losses from operations, generated negative cash
flows from operating activities, has an accumulated deficit that
raise substantial doubt exists about Company’s ability to continue
as a going concern. Management’s evaluation of the events and
conditions and management’s plans in regarding these matters are
also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on
our audit. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis
for our opinion.
We have served as the Company’s auditor since 2020.
April 16, 2021
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| |
|
December 31 |
|
|
December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| CURRENT ASSETS: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
66,273 |
|
|
$ |
1,805,417 |
|
|
Accounts receivable, net of allowance for doubtful accounts |
|
|
141,183 |
|
|
|
38,814 |
|
|
Prepaid expenses and other receivables |
|
|
307,299 |
|
|
|
132,644 |
|
|
Marketable securities |
|
|
3,624,660 |
|
|
|
1,989,823 |
|
| |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
4,139,415 |
|
|
|
3,966,698 |
|
| |
|
|
|
|
|
|
|
|
| OTHER
ASSETS: |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
395,825 |
|
|
|
487,336 |
|
|
Intangible assets, net |
|
|
31,504 |
|
|
|
156,767 |
|
| |
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
427,329 |
|
|
|
644,103 |
|
| |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,566,744 |
|
|
$ |
4,610,801 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’
DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
Short-term bank loans |
|
$ |
5,584,788 |
|
|
$ |
6,446,139 |
|
|
Convertible note payable, net of unamortized debt discount |
|
|
1,113,830 |
|
|
|
595,750 |
|
|
Accounts payable and accrued expenses |
|
|
785,373 |
|
|
|
1,264,706 |
|
| Other
payable |
|
|
1,132,872 |
|
|
|
932,220 |
|
| Due
to related parties |
|
|
3,648,565 |
|
|
|
2,468,375 |
|
|
Deferred revenue |
|
|
-
|
|
|
|
107 |
|
| |
|
|
|
|
|
|
|
|
| Total
current liabilities |
|
|
12,265,428 |
|
|
|
11,707,297 |
|
| |
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
Long-term loan |
|
|
4,822,244 |
|
|
|
4,940,420 |
|
| |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
17,087,672 |
|
|
|
16,647,717 |
|
| |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT: |
|
|
|
|
|
|
|
|
|
Preferred stock, Series A $0.001 par value; 50,000,000 shares
authorized; 3,189,600 and 531,600 issued and outstanding at
December 31, 2021 and December 31, 2020, respectively |
|
|
3,190 |
|
|
|
532 |
|
|
Common stock $0.001 par value; 7,400,000,000 shares authorized;
239,278,847 and 172,883,475 shares issued and outstanding at
December 31, 2021 and December 31, 2020, respectively |
|
|
239,278 |
|
|
|
172,883 |
|
|
Additional paid-in capital |
|
|
65,047,662 |
|
|
|
61,700,634 |
|
|
Accumulated deficits |
|
|
(76,908,089 |
) |
|
|
(73,020,134 |
) |
|
Accumulated other comprehensive income |
|
|
(15,826 |
) |
|
|
(13,246 |
) |
| Total
stockholders’ deficit attributable to SEII |
|
|
(11,633,785 |
) |
|
|
(11,159,331 |
) |
| |
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
|
(887,143 |
) |
|
|
(877,585 |
) |
| |
|
|
|
|
|
|
|
|
|
Total deficit |
|
|
(12,520,928 |
) |
|
|
(12,036,916 |
) |
| |
|
|
|
|
|
|
|
|
|
Total liabilities and deficit |
|
$ |
4,566,744 |
|
|
$ |
4,610,801 |
|
See notes to consolidated financial statements.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| |
|
For the Years Ended |
|
| |
|
December
31, |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
|
|
|
|
|
| REVENUES |
|
$ |
237,756 |
|
|
$ |
51,925 |
|
| |
|
|
|
|
|
|
|
|
| COST OF REVENUES |
|
|
(54,038 |
) |
|
|
(853 |
) |
| |
|
|
|
|
|
|
|
|
| Gross
profit |
|
|
183,718 |
|
|
|
51,072 |
|
| |
|
|
|
|
|
|
|
|
| OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
| Depreciation and
amortization |
|
|
233,710 |
|
|
|
337,683 |
|
| Selling, general
and administrative |
|
|
3,997,677 |
|
|
|
2,684,310 |
|
| Written-off
prepayments |
|
|
-
|
|
|
|
122,514 |
|
| Impairment loss on
goodwill |
|
|
27,353 |
|
|
|
82,692 |
|
|
Impairment loss on other receivables |
|
|
-
|
|
|
|
705,000 |
|
| |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
4,258,740 |
|
|
|
3,932,199 |
|
| |
|
|
|
|
|
|
|
|
| LOSS FROM
OPERATIONS |
|
|
(4,075,022 |
) |
|
|
(3,881,127 |
) |
| |
|
|
|
|
|
|
|
|
| OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
| Interest
income |
|
|
17 |
|
|
|
20 |
|
| Interest
expense |
|
|
(377,915 |
) |
|
|
(965,163 |
) |
| Dividend
income |
|
|
12,515 |
|
|
|
3,052 |
|
| Impairment loss on
intangible asset |
|
|
-
|
|
|
|
(750,000 |
) |
| Impairment loss on
marketable securities |
|
|
-
|
|
|
|
(1,951,091 |
) |
| Gain on disposal of
marketable securities |
|
|
536,182 |
|
|
|
428,621 |
|
| Unrealized gain on
marketable securities |
|
|
-
|
|
|
|
292,126 |
|
| Loss on disposal of
a subsidiary |
|
|
-
|
|
|
|
(70,900 |
) |
| Foreign exchange
(loss) gain |
|
|
(380 |
) |
|
|
3,678 |
|
| Other
income |
|
|
7,090 |
|
|
|
102,139 |
|
| |
|
|
|
|
|
|
|
|
|
Total other income (expense), net |
|
|
177,509 |
|
|
|
(2,907,518 |
) |
| |
|
|
|
|
|
|
|
|
| LOSS BEFORE PROVISION FOR INCOME
TAXES |
|
|
(3,897,513 |
) |
|
|
(6,788,645 |
) |
| |
|
|
|
|
|
|
|
|
|
Income taxes provision |
|
|
-
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
| NET LOSS |
|
|
(3,897,513 |
) |
|
|
(6,788,645 |
) |
| |
|
|
|
|
|
|
|
|
| NET LOSS
ATTRIBUTABLE TO NON-CONTROLLING INTEREST |
|
|
(9,558 |
) |
|
|
(69,198 |
) |
| |
|
|
|
|
|
|
|
|
| NET LOSS
ATTRIBUTABLE TO COMMON STOCKHOLDERS |
|
$ |
(3,887,955 |
) |
|
$ |
(6,719,447 |
) |
| |
|
|
|
|
|
|
|
|
| COMPREHENSIVE LOSS: |
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(3,897,513 |
) |
|
$ |
(6,788,645 |
) |
|
Foreign currency translation loss |
|
|
(2,580 |
) |
|
|
(55,843 |
) |
| |
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(3,890,535 |
) |
|
$ |
(6,844,488 |
) |
| |
|
|
|
|
|
|
|
|
| Net loss
attributable to non-controlling interest |
|
$ |
(9,558 |
) |
|
$ |
(69,198 |
) |
|
Foreign currency translation gain from non-controlling
interest |
|
|
-
|
|
|
|
1,541 |
|
| |
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to common stockholders |
|
$ |
(3,890,535 |
) |
|
$ |
(6,776,831 |
) |
| |
|
|
|
|
|
|
|
|
| NET LOSS PER COMMON SHARE: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Net loss per
common share - basic and diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.06 |
) |
| |
|
|
|
|
|
|
|
|
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
| Basic
and diluted |
|
|
220,962,339 |
|
|
|
107,723,188 |
|
See notes to consolidated financial statements.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Years Ended December 31, 2021 and 2020
| |
|
Year Ended
December 31, 2021 |
|
| |
|
Equity
attributable to SEII shareholders |
|
|
|
|
|
|
|
| |
|
Preferred
stock |
|
|
Common
stock |
|
|
Additional |
|
|
Accumulated
other
comprehensive |
|
|
|
|
|
Non |
|
|
Total
shareholders’ |
|
| |
|
Number of
shares |
|
|
Amount |
|
|
Number of
shares |
|
|
Amount |
|
|
paid-in
capital |
|
|
(loss)
income |
|
|
Accumulated
deficits |
|
|
controlling
interests |
|
|
equity
(deficit) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance
as of January 1, 2021 |
|
|
531,600 |
|
|
$ |
532 |
|
|
|
172,883,475 |
|
|
|
172,883 |
|
|
$ |
61,700,634 |
|
|
$ |
(13,246 |
) |
|
$ |
(73,020,134 |
) |
|
$ |
(877,585 |
) |
|
$ |
(12,036,916 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for director’s remuneration |
|
|
-
|
|
|
|
-
|
|
|
|
9,187,406 |
|
|
|
9,187 |
|
|
|
542,057 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
551,244 |
|
| Common
stock issued upon conversion of debt |
|
|
-
|
|
|
|
-
|
|
|
|
16,400,691 |
|
|
|
16,401 |
|
|
|
187,766 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
204,167 |
|
|
Fractional shares from reverse split |
|
|
-
|
|
|
|
-
|
|
|
|
800 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
| Common
stock issued for services from consultants and service
providers |
|
|
-
|
|
|
|
-
|
|
|
|
26,872,638 |
|
|
|
26,873 |
|
|
|
1,024,537 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,051,410 |
|
| Common
stock issued for business marketing services |
|
|
-
|
|
|
|
-
|
|
|
|
13,935,337 |
|
|
|
13,935 |
|
|
|
585,285 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
599,220 |
|
| Cancellation
share |
|
|
-
|
|
|
|
-
|
|
|
|
(1,500 |
) |
|
|
(1 |
) |
|
|
1 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
| Preferred
stock issued for business transaction fee |
|
|
2,658,000
|
|
|
|
2,658
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,007,382
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,010,040
|
|
|
Foreign currency translation adjustment |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,580 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
(2,580 |
) |
|
Net loss for the year |
|
|
- |
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,887,955 |
) |
|
|
(9,558 |
) |
|
|
(3,897,513 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2021 |
|
|
531,600 |
|
|
$ |
532 |
|
|
|
239,278,847 |
|
|
|
239,278 |
|
|
$ |
64,040,280 |
|
|
$ |
(15,826 |
) |
|
$ |
(76,908,089 |
) |
|
$ |
(887,143 |
) |
|
$ |
(12,520,928 |
) |
| For the year
ended December 31, 2020 |
| |
|
Preferred
Stock |
|
|
Common
Stock |
|
|
Common stock
to be issued |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
Number
of
Shares |
|
|
Amount |
|
|
Number
of
Shares |
|
|
Amount |
|
|
Number
of
Shares |
|
|
Amount |
|
|
Additional
Paid-in
Capital |
|
|
Retained
Earnings |
|
|
Other
Comprehensive
Income |
|
|
Non-
controlling
Interest |
|
|
Total
Stockholders’
Deficit |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2020 |
|
|
-
|
|
|
|
-
|
|
|
|
3,988,372 |
|
|
$ |
3,989 |
|
|
|
140,378,844 |
|
|
$ |
140,379 |
|
|
$ |
60,773,853 |
|
|
$ |
(66,300,687 |
) |
|
$ |
42,597 |
|
|
$ |
(960,202 |
) |
|
$ |
(6,300,071 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for acquisition of Peak Equity Group |
|
|
-
|
|
|
|
-
|
|
|
|
140,378,844 |
|
|
|
140,379 |
|
|
|
(140,378,844 |
) |
|
|
(140,379 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services from consultants and service
providers |
|
|
531,600 |
|
|
|
532 |
|
|
|
16,000 |
|
|
|
16 |
|
|
|
-
|
|
|
|
-
|
|
|
|
477,460 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
478,008 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of debt |
|
|
-
|
|
|
|
-
|
|
|
|
28,170,787 |
|
|
|
28,170 |
|
|
|
-
|
|
|
|
-
|
|
|
|
449,650 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
477,820 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NCI from disposal of subsidiary |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67,712 |
|
|
|
67,712 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Acquisition of
NCI |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,562 |
|
|
|
82,562 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fractional shares from reverse split |
|
|
-
|
|
|
|
-
|
|
|
|
329,472 |
|
|
|
329 |
|
|
|
-
|
|
|
|
-
|
|
|
|
(329 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year |
|
|
- |
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,719,447 |
) |
|
|
-
|
|
|
|
(69,198 |
) |
|
|
(6,788,645 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(55,843 |
) |
|
|
1,541 |
|
|
|
(54,302 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
|
531,600 |
|
|
|
532 |
|
|
|
172,883,475 |
|
|
$ |
172,883 |
|
|
|
-
|
|
|
$ |
-
|
|
|
$ |
61,700,634 |
|
|
$ |
(73,020,134 |
) |
|
$ |
(13,246 |
) |
|
$ |
(877,585 |
) |
|
$ |
(12,036,916 |
) |
# Post a fifty for one (50:1) reverse split effective on October
13, 2020.
See notes to consolidated financial statements.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
For the Years Ended |
|
| |
|
December
31, |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
|
|
|
|
|
| CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
| Net
loss |
|
$ |
(3,897,513 |
) |
|
$ |
(6,788,645 |
) |
| Adjustments to
reconcile net loss from operations to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
| Depreciation of
property and equipment |
|
|
135,561 |
|
|
|
134,691 |
|
| Amortization of
intangible assets |
|
|
98,149 |
|
|
|
202,992 |
|
| Impairment loss
of intangible assets |
|
|
-
|
|
|
|
750,000 |
|
| Impairment loss
of other receivables |
|
|
-
|
|
|
|
705,000 |
|
| Impairment loss
of marketable securities |
|
|
-
|
|
|
|
1,951,091 |
|
| Impairment loss
of goodwill |
|
|
27,353 |
|
|
|
82,692 |
|
| Written-off
prepayment |
|
|
-
|
|
|
|
122,514 |
|
| Stock-based
professional fees |
|
|
-
|
|
|
|
523,008 |
|
| Stock-based
consultancy fees |
|
|
2,061,450 |
|
|
|
-
|
|
| Stock-based
business marketing fee |
|
|
599,220 |
|
|
|
-
|
|
| Loss on disposal
of a subsidiary |
|
|
-
|
|
|
|
70,900 |
|
| Amortization of
debt discount |
|
|
2,822 |
|
|
|
7,179 |
|
| Gain on sale of
marketable securities |
|
|
(1,143,491 |
) |
|
|
(428,621 |
) |
| Unrealized gain
on marketable securities |
|
|
607,309 |
|
|
|
(292,126 |
) |
| Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
(102,369 |
) |
|
|
(38,509 |
) |
| Prepaid expenses
and other receivables |
|
|
(174,655 |
) |
|
|
14,725 |
|
| Accounts payable
and accrued expenses |
|
|
20,666 |
|
|
|
748,366 |
|
| Other
payable |
|
|
209,820 |
|
|
|
697,252 |
|
| Income tax
payable |
|
|
-
|
|
|
|
(6,802 |
) |
|
Deferred revenue |
|
|
(107 |
) |
|
|
107 |
|
| |
|
|
|
|
|
|
|
|
| CASH FLOWS USED
IN OPERATING ACTIVITIES |
|
|
(1,504,541 |
) |
|
|
(1,544,186 |
) |
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
|
|
|
|
|
| Purchase of
marketable securities |
|
|
(22,237,565 |
) |
|
|
(11,482,148 |
) |
| Purchase of
non-controlling interest |
|
|
-
|
|
|
|
(154 |
) |
| Purchase of
property and equipment |
|
|
(47,722 |
) |
|
|
-
|
|
| Proceeds from
disposal of marketable securities |
|
|
21,128,705 |
|
|
|
12,803,705 |
|
| Proceeds from
disposal of a subsidiary |
|
|
-
|
|
|
|
8,252 |
|
|
Dividend received |
|
|
12,515 |
|
|
|
3,052 |
|
| |
|
|
|
|
|
|
|
|
| CASH FLOWS
PROVIDED BY (USED IN) INVESTING ACTIVITIES |
|
|
(1,144,067 |
) |
|
|
1,332,707 |
|
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
|
|
|
|
|
| Repayments of bank
loan |
|
|
(917,728 |
) |
|
|
(58,824 |
) |
| Proceeds from bank
loan |
|
|
-
|
|
|
|
1,735,147 |
|
| Proceeds from
issuance of note payable |
|
|
710,258 |
|
|
|
183,000 |
|
|
Advances from related party |
|
|
1,180,190 |
|
|
|
102,871 |
|
| |
|
|
|
|
|
|
|
|
| CASH FLOWS
PROVIDED BY FINANCING ACTIVITIES |
|
|
972,720 |
|
|
|
1,962,194 |
|
| |
|
|
|
|
|
|
|
|
| Effect of
exchange rate changes |
|
|
(63,256 |
) |
|
|
(28,965 |
) |
| |
|
|
|
|
|
|
|
|
| Net increase (decrease) in cash and
cash equivalents |
|
|
(1,739,144 |
) |
|
|
1,721,750 |
|
| |
|
|
|
|
|
|
|
|
| Cash and cash
equivalents - beginning of year |
|
|
1,805,417 |
|
|
|
83,667 |
|
| |
|
|
|
|
|
|
|
|
| Cash and cash
equivalents - end of year |
|
$ |
66,273 |
|
|
$ |
1,805,417 |
|
| |
|
|
|
|
|
|
|
|
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION: |
|
|
|
|
|
|
|
|
| Cash paid for: |
|
|
|
|
|
|
|
|
| Interest |
|
$ |
206,778 |
|
|
$ |
263,369 |
|
|
Income taxes |
|
$ |
-
|
|
|
$ |
-
|
|
| |
|
|
|
|
|
|
|
|
| NON-CASH INVESTING AND FINANCING
ACTIVITIES: |
|
|
|
|
|
|
|
|
| Accrued
interest on convertible promissory note |
|
$ |
171,137 |
|
|
$ |
-
|
|
| Stock
issued for redemption of convertible note and accrued interest |
|
$ |
204,267 |
|
|
$ |
477,820 |
|
| Stock
issued for services from consultants and vendors |
|
$ |
-
|
|
|
$ |
478,008 |
|
See notes to consolidated financial statements.
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
NOTE 1 – DESCRIPTION
OF BUSINESS AND ORGANIZATION
Sharing Economy International Inc. (the “Company”) was incorporated
in Delaware on June 24, 1987 under the name of Malex, Inc. On
December 18, 2007, the Company’s corporate name was changed to
China Wind Systems, Inc. and on June 13, 2011, the Company changed
its corporate name to Cleantech Solutions International, Inc. On
August 7, 2012, the Company was converted into a Nevada
corporation. On January 8, 2018, the Company changed its corporate
name to Sharing Economy International Inc.
The Company’s latest business initiatives are focused on targeting
the technology and global sharing economy markets, by developing
online platforms and rental business partnerships that will drive
the global development of sharing through economical rental
business models. In connection with the new business initiatives,
the Company formed or acquired the following subsidiaries:
| |
● |
Vantage Ultimate Limited (“Vantage”), a company
incorporated under the laws of British Virgin Islands on February
1, 2017 and is wholly-owned by the Company. |
| |
|
|
| |
● |
Sharing Economy Investment Limited (“Sharing
Economy”), a company incorporated under the laws of British Virgin
Islands on May 18, 2017 and is wholly-owned by Vantage. |
| |
|
|
| |
● |
EC
Advertising Limited (“EC Advertising”), a company incorporated
under the laws of Hong Kong on March 17, 2017 and is a wholly-owned
by Sharing Economy. |
| |
|
|
| |
● |
EC
Rental Limited (“EC Rental”), a company incorporated under the laws
of British Virgin Islands on May 22, 2017 and is wholly-owned by
Vantage. |
| |
|
|
| |
● |
EC
Assets Management Limited (“EC Assets”), a company incorporated
under the laws of British Virgin Islands on May 22, 2017 and is
wholly-owned by Vantage. |
| |
|
|
| |
● |
Cleantech Solutions Limited (formerly known as EC
(Fly Car) Limited), a company incorporated under the laws of
British Virgin Islands on May 22, 2017 and is a wholly-owned by
Sharing Economy. |
| |
|
|
| |
● |
Global Bike Share (Mobile App) Limited, a company
incorporated under the laws of British Virgin Islands on May 23,
2017 and is a wholly-owned by Sharing Economy. |
| |
|
|
| |
● |
EC
Power (Global) Technology Limited (“EC Power”), a company
incorporated under the laws of British Virgin Islands on May 26,
2017 and is wholly-owned by EC Rental. |
| |
|
|
| |
● |
ECPower (HK) Company Limited, a company
incorporated under the laws of Hong Kong on June 23, 2017 and is
wholly-owned by EC Power. |
| |
|
|
| |
● |
EC
Manpower Limited, a company incorporated under the laws of Hong
Kong on July 3, 2017 and is wholly-owned by Vantage. |
| |
|
|
| |
● |
EC
Technology & Innovations Limited (“EC Technology”), a
company incorporated under the laws of British Virgin Islands on
September 1, 2017 and is wholly-owned by Vantage. |
| |
|
|
| |
● |
Inspirit Studio Limited (“Inspirit Studios”), a
company incorporated under the laws of Hong Kong on August 24,
2015, and 51% of its shareholding was acquired by EC Technology on
December 8, 2017. |
| |
● |
EC
Creative Limited (“EC Creative”), a company incorporated under the
laws of British Virgin Islands on January 9, 2018 and is
wholly-owned by Vantage. |
| |
|
|
| |
● |
3D
Discovery Co. Limited (“3D Discovery”), a company incorporated
under the laws of Hong Kong on February 24, 2015, 60% of its
shareholdings was acquired by EC Technology on January 19, 2018 and
remaining 40% of its shareholdings was acquired by EC Technology on
August 14, 2020. |
| |
|
|
| |
● |
Sharing Film International Limited, a company
incorporated under the laws of Hong Kong on January 22, 2018 and is
a wholly-owned by EC Creative. |
| |
|
|
| |
● |
AnyWorkspace Limited (“AnyWorkspace”), a company
incorporated under the laws of Hong Kong on November 12, 2015, and
80% of its shareholding was acquired by Sharing Economy on January
30, 2018. On March 24, 2020, the Company disposed 80% equity
interest of AnyWorkspace. |
| |
|
|
| |
● |
Xiamen Great Media Company Limited (“Xiamen Great
Media”), a company incorporated under the laws of the PRC on
September 5, 2018 and is a wholly-owned by EC
Advertising. |
NOTE 2 – GOING CONCERN UNCERTAINTIES
These consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal
course of business. As reflected in the accompanying consolidated
financial statements, the Company had a net loss of approximately
$3,897,513 for the year ended December 31, 2021. The net cash used
in operations were approximately $1,504,541 for the year ended
December 31, 2021. Management believes that its capital resources
are not currently adequate to continue operating and maintaining
its business strategy for the next twelve months from the date of
this report. The Company may seek to raise capital through
additional debt and/or equity financings to fund its operations in
the future. Although the Company has historically raised capital
from sales of equity and from bank loans, there is no assurance
that it will be able to continue to do so. If the Company is unable
to raise additional capital or secure additional lending in the
near future, management expects that the Company will need to
curtail or cease operations.
Management believes that these matters raise substantial doubt
about the Company’s ability to continue as a going concern. The
accompanying consolidated financial statements do not include any
adjustments related to the recoverability and classification of
recorded asset amounts or classification of liabilities that might
be necessary should the Company be unable to continue as a going
concern.
NOTE 3 – SIGIFICANT ACCOUNTING POLICIES
Basis of
presentation
These accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles in the United States of America (“US GAAP”).
The Company is on a fiscal year ending December 31; as such the
year ended December 31, 2021 is referred to as “fiscal 2021”, and
the year ended December 31, 2020 is referred to as “fiscal
2020”.
Principles of
Consolidation
The Company’s consolidated financial statements include the
financial statements of its wholly-owned and majority owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated upon consolidation.
Noncontrolling
interest
The Company accounts for noncontrolling interest in accordance with
ASC Topic 810-10-45, which requires the Company to present
noncontrolling interests as a separate component of total
shareholders’ equity on the consolidated balance sheets and the
consolidated net loss attributable to the its noncontrolling
interest be clearly identified and presented on the face of the
consolidated statements of operations and comprehensive loss.
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, 2021 and 2020 include the allowance
for doubtful accounts on accounts and other receivables, the useful
life of property and equipment and intangible assets, assumptions
used in assessing impairment of long-term assets and valuation of
deferred tax assets, 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, 2021 and 2020, cash balances held in banks in the PRC and Hong
Kong of $66,273 and $1,805,417, respectively, are uninsured.
Available-for-sale
marketable securities
Available-for-sale marketable securities are reported at fair value
using the market approach based on the quoted prices in active
markets at the reporting date. The Company classifies the valuation
techniques that use these inputs as Level 1 of fair value
measurements. Any unrealized losses that are deemed
other-than-temporary are included in current period earnings and
removed from accumulated other comprehensive income (loss).
Realized gains and losses on marketable securities are included in
current period earnings. For purposes of computing realized gains
and losses, the cost basis of each investment sold is generally
based on the weighted average cost method.
The Company regularly evaluates whether the decline in fair value
of available-for-sale securities is other-than-temporary and
objective evidence of impairment could include:
| |
● |
The severity and duration of the
fair value decline; |
| |
● |
Deterioration in the financial
condition of the issuer; and |
| |
● |
Evaluation of the factors that
could cause individual securities to have an other-than-temporary
impairment. |
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, 2021
and 2020, the Company has established, based on a review of its
outstanding balances, no allowance for doubtful accounts in the
accounts.
Property and
equipment
Property and equipment are carried at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major
replacements and improvements are capitalized. When assets are
retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are
included in the statements of operations in the year of
disposition. The Company examines the possibility of decreases in
the value of fixed assets when events or changes in circumstances
reflect the fact that their recorded value may not be
recoverable.
|
|
|
Useful life |
| Office equipment and furniture |
|
5 years |
| Vehicles |
|
5 years |
| Yachts |
|
5 years |
Impairment of long-lived
assets and intangible asset
In accordance with ASC Topic 360, the Company reviews long-lived
assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully
recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash
flows is less than the carrying amount of the asset. The amount of
impairment is measured as the difference between the asset’s
estimated fair value and its book value. At December 31, 2021
and 2020, the Company conducted an impairment assessment on
property, equipment and intangible asset based on the guidelines
established in ASC Topic 360 to determine the estimated fair market
value of property, equipment and intangible asset as of December
31, 2021 and 2020. Such analysis considered future use of such
equipment, consultation with equipment resellers, subsequent sales
of price of equipment held for sale, and other industry factors.
Upon completion of the 2021 impairment analysis, the Company
recorded impairment charges on long-lived assets of $0 and $750,000
for the year ended December 31, 2021 and 2020.
Revenue
recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”). Under ASU 2014-09, the Company applies the following
five steps in order to determine the appropriate amount of revenue
to be recognized as it fulfills its obligations under each of its
agreements:
| |
● |
identify the contract with a
customer; |
| |
● |
identify the performance obligations in the
contract; |
| |
● |
determine the transaction price; |
| |
● |
allocate the transaction price to performance
obligations in the contract; and |
| |
● |
recognize revenue as the performance obligation
is satisfied. |
The transaction price for each contract is determined based on the
amount the Company expects to be entitled to receive in exchange
for transferring the promised products or services to the customer.
Collectability of revenue is reasonably assured based on historical
evidence of collectability of fees the Company charges its
customers. The transaction price in the contract is allocated to
each distinct performance obligation in an amount that represents
the relative amount of consideration expected to be received in
exchange for satisfying each performance obligation. Revenue is
recognized when performance obligations are satisfied. At contract
inception, the Company determines whether it satisfies the
performance obligation over time or at a point in time.
The Company derives its revenues from the sale of advertising
service in a monthly payment term. The Company’s performance
obligation includes providing the connectivity among merchants and
consumers, generally through its online media advertising platform.
Online marketing consists of search engine marketing, display
advertisements, referral programs and affiliate marketing. The
Company will provide resources to support the marketing needs of
the sharing economy businesses via partnerships and acquisitions of
advertising companies.
The majority of the Company’s contracts with customers only contain
a single performance obligation. When the agreements involve with
multiple performance obligations, the Company will account for
individual performance obligations separately, if they are
distinct.
The Company has one source of revenue for the respective fiscal
years:-
| |
|
December 31,
2021 |
|
|
December 31,
2020 |
|
| |
|
|
|
|
|
|
|
|
| Sale
of advertising service |
|
$ |
237,756 |
|
|
$ |
51,925 |
|
Income taxes
The Company is governed by the Income Tax Law of the PRC, Inland
Revenue Ordinance of Hong Kong and the U.S. Internal Revenue Code
of 1986, as amended. The Company accounts for income taxes using
the asset/liability method prescribed by ASC 740, “Accounting for
Income Taxes.” Under this method, deferred tax assets and
liabilities are determined based on the difference between the
financial reporting and tax bases of assets and liabilities using
enacted tax rates that will be in effect in the period in which the
differences are expected to reverse. The Company records a
valuation allowance to offset deferred tax assets if, based on the
weight of available evidence, it is more-likely-than-not that some
portion, or all, of the deferred tax assets will not be realized.
The effect on deferred taxes of a change in tax rates is recognized
as income or loss in the period that includes the enactment
date.
On December 22, 2017, the United States signed into law the Tax
Cuts and Jobs Act (the “Act”), a tax reform bill which, among other
items, reduces the current federal income tax rate in the United
States to 21% from 35%. 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, 2021, 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, 2021
and 2020, the Company had no uncertain tax positions, and will
continue to evaluate for uncertain positions in the future.
Foreign currency
translation
The reporting currency of the Company is the U.S. dollar. The
functional currency of the parent company is the U.S. dollar and
the functional currency of the Company’s operating subsidiaries is
the Chinese Renminbi (“RMB”) or Hong Kong dollars (“HKD”). For the
subsidiaries and affiliates, whose functional currencies are the
RMB or HKD, results of operations and cash flows are translated at
average exchange rates during the period, assets and liabilities
are translated at the unified exchange rate at the end of the
period, and equity is translated at historical exchange rates. As a
result, amounts relating to assets and liabilities reported on the
statements of cash flows may not necessarily agree with the changes
in the corresponding balances on the balance sheets. Translation
adjustments resulting from the process of translating the local
currency financial statements into U.S. dollars are included in
determining comprehensive loss.
The Company did not enter into any material transaction in foreign
currencies. Transaction gains or losses have not had, and are not
expected to have, a material effect on the results of operations of
the Company.
Translation of amounts from RMB and HKD into US$ has been made at
the following exchange rates for the years ended December 31, 2021
and 2020:
| |
|
December
31,
2021 |
|
|
December
31,
2020 |
|
|
Year-end RMB:US$ exchange rate |
|
|
6.3588 |
|
|
|
7.0682 |
|
| Year average
RMB:US$ exchange rate |
|
|
6.4499 |
|
|
|
7.0324 |
|
| Year-end HK$:US$
exchange rate |
|
|
7.7971 |
|
|
|
7.7502 |
|
| Year average
HK$:US$ exchange rate |
|
|
7.8000 |
|
|
|
7.8000 |
|
Loss per share of common
stock
ASC Topic 260 “Earnings per Share,” requires presentation of both
basic and diluted earnings per share (“EPS”) with a reconciliation
of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic
EPS excludes dilution. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of
the entity.
Basic net loss per share is computed by dividing net loss available
to common stockholders by the weighted average number of shares of
common stock outstanding during the period. Diluted net loss per
share is computed by dividing net loss by the weighted average
number of shares of common stock, common stock equivalents and
potentially dilutive securities outstanding during each period. The
Company did not have any common stock equivalents or potentially
dilutive common stock outstanding during the years ended December
31, 2021 and 2020. In a period in which the Company has a net loss,
all potentially dilutive securities are excluded from the
computation of diluted shares outstanding as they would have had an
anti-dilutive impact.
The following table presents a reconciliation of basic and diluted
net loss per share:
| |
|
Years
Ended
December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| Net
loss for basic and diluted attributable to common shareholders |
|
$ |
(3,887,955 |
) |
|
$ |
(6,719,447 |
) |
| |
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding – basic and diluted |
|
|
220,962,339 |
|
|
|
108,071,277 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Net
loss per share of common stock – basic and diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.06 |
) |
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, 2021 and 2020 included net loss and unrealized
(loss) gain from foreign currency translation
adjustments.
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.
Related parties
The Company follows the ASC Topic 850-10, “Related Party
Disclosures” for the identification of related parties and
disclosure of related party transactions.
Pursuant to section 850-10-20 the related parties include a)
affiliates of the Company; b) entities for which investments in
their equity securities would be required, absent the election of
the fair value option under the Fair Value Option Subsection of
section 825-10-15, to be accounted for by the equity method by the
investing entity; c) trusts for the benefit of employees, such as
pension and Income-sharing trusts that are managed by or under the
trusteeship of management; d) principal owners of the Company; e)
management of the Company; f) other parties with which the Company
may deal if one party controls or can significantly influence the
management or operating policies of the other to an extent that one
of the transacting parties might be prevented from fully pursuing
its own separate interests; and g) other parties that can
significantly influence the management or operating policies of the
transacting parties or that have an ownership interest in one of
the transacting parties and can significantly influence the other
to an extent that one or more of the transacting parties might be
prevented from fully pursuing its own separate interests.
The consolidated financial statements shall include disclosures of
material related party transactions, other than compensation
arrangements, expense allowances, and other similar items in the
ordinary course of business. However, disclosure of transactions
that are eliminated in the preparation of consolidated or combined
financial statements is not required in those statements. The
disclosures shall include: a) the nature of the
relationship(s) involved; b) a description of the transactions,
including transactions to which no amounts or nominal amounts were
ascribed, for each of the periods for which income statements are
presented, and such other information deemed necessary to an
understanding of the effects of the transactions on the financial
statements; c) the dollar amounts of transactions for each of
the periods for which income statements are presented and the
effects of any change in the method of establishing the terms from
that used in the preceding period; and d) amount due from or
to related parties as of the date of each balance sheet presented
and, if not otherwise apparent, the terms and manner of
settlement.
Commitments and
contingencies
The Company follows ASC Topic 450-20, “Contingencies” to
report accounting for contingencies. Certain conditions may exist
as of the date the financial statements are issued, which may
result in a loss to the Company but which will only be resolved
when one or more future events occur or fail to occur. The Company
assesses such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss
contingencies related to legal proceedings that are pending against
the Company or un-asserted claims that may result in such
proceedings, the Company evaluates the perceived merits of any
legal proceedings or un-asserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought
therein.
If the assessment of a contingency indicates that it is probable
that a material loss has been incurred and the amount of the
liability can be estimated, then the estimated liability would be
accrued in the Company’s consolidated financial statements. If the
assessment indicates that a potentially material loss contingency
is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability,
and an estimate of the range of possible losses, if determinable
and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed
unless they involve guarantees, in which case the guarantees would
be disclosed. Management does not believe, based upon information
available at this time that these matters will have a material
adverse effect on the Company’s financial position, results of
operations or cash flows. However, there is no assurance that such
matters will not materially and adversely affect the Company’s
business, financial position, and results of operations or cash
flows.
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.
Fair value of financial
instruments
The Company adopted the guidance of ASC Topic 820 for fair value
measurements which clarifies the definition of fair value,
prescribes methods for measuring fair value, and establishes a fair
value hierarchy to classify the inputs used in measuring fair value
as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities available at the measurement
date.
Level 2 - Inputs are unadjusted quoted prices for similar assets
and liabilities in active markets, quoted prices for identical or
similar assets and liabilities in markets that are not active,
inputs other than quoted prices that are observable, and inputs
derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the
reporting entity’s own assumptions on what assumptions the market
participants would use in pricing the asset or liability based on
the best available information. The Company did not measure these
assets at fair value at December 31, 2021 and 2020.
The carrying amounts reported in the consolidated balance sheets
for cash and cash equivalents, accounts receivable, prepaid
expenses and other receivables, short-term bank loans, convertible
notes payable, note payable, accounts payable, accrued liabilities,
amount due to a related party and income taxes payable approximate
their fair market value based on the short-term maturity of these
instruments.
ASC Topic 825-10 “Financial Instruments” allows entities to
voluntarily choose to measure certain financial assets and
liabilities at fair value (fair value option). The fair value
option may be elected on an instrument-by-instrument basis and is
irrevocable, unless a new election date occurs. If the fair value
option is elected for an instrument, unrealized gains and losses
for that instrument should be reported in earnings at each
subsequent reporting date. The Company did not elect to apply the
fair value option to any outstanding instruments.
The following table presents information about the Company’s assets
and liabilities that were measured at fair value as of December 31,
2021 and 2020, and indicates the fair value hierarchy of the
valuation techniques the Company utilized to determine such fair
value.
| |
|
December 31, |
|
|
Quoted Prices In Active
Markets |
|
|
Significant Other
Observable Inputs |
|
|
Significant Other
Unobservable Inputs |
|
| Description |
|
2021 |
|
|
(Level
1) |
|
|
(Level
2) |
|
|
(Level
3) |
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, available-for-sale |
|
$ |
3,624,660 |
|
|
$ |
3,624,660 |
|
|
$ |
–
|
|
|
$ |
–
|
|
| |
|
December 31, |
|
|
Quoted Prices In Active
Markets |
|
|
Significant Other
Observable Inputs |
|
|
Significant Other
Unobservable Inputs |
|
| Description |
|
2020 |
|
|
(Level
1) |
|
|
(Level
2) |
|
|
(Level
3) |
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, available-for-sale |
|
$ |
1,989,823 |
|
|
$ |
1,989,823 |
|
|
$ |
– |
|
|
$ |
– |
|
As of December 31, 2021 and 2020, the Company did not have any
nonfinancial assets and liabilities that are recognized or
disclosed at fair value in the financial statements, at least
annually, on a recurring basis, nor did the Company have any assets
or liabilities measured at fair value on a non-recurring basis.
Concentrations of credit
risk
The Company’s operations are mainly carried out in Hong Kong.
Accordingly, the Company’s business, financial condition and
results of operations may be influenced by the political, economic
and legal environment in Hong Kong, and by the general state of the
economies in Hong Kong. The Company’s operations in Hong Kong are
subject to specific considerations and significant risks not
typically associated with companies in North America. The Company’s
results may be adversely affected by changes in governmental
policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and
methods of taxation, among other things.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
accounts receivable. Substantially all of the Company’s cash is
maintained with state-owned banks within the 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.
Recent accounting
pronouncements
From time to time, new accounting pronouncements are issued by the
Financial Accounting Standard Board (“FASB”) or other standard
setting bodies and adopted by the Company as of the specified
effective date. Unless otherwise discussed, the Company believes
that the impact of recently issued standards that are not yet
effective will not have a material impact on its financial position
or results of operations upon adoption.
In August 2020, the FASB issued Accounting Standards Update (ASU)
2020-06, Debt—Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging— Contracts in
Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces
the number of accounting models for convertible debt instruments
and convertible preferred stock. The accounting model for
beneficial conversion features is removed. The ASU is effective for
fiscal years beginning after December 15, 2021, including interim
periods within those fiscal years. Early adoption is permitted, but
no earlier than fiscal years beginning after December 15, 2020,
including interim periods within those fiscal years. The Company
determined that this update will impact its financial
statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value
Measurement (ASC 820): Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement. ASU 2018-13
removes certain disclosures, modifies certain disclosures and adds
additional disclosures. The ASU is effective for annual periods,
including interim periods within those annual periods, beginning
after December 15, 2019. Early adoption is permitted. The Company
has evaluated that this update will not have a material impact on
its financial statements and related disclosures.
In January 2017, the FASB issued ASU
2017-04, Intangibles-Goodwill and Other (ASC
350), which simplifies the test for goodwill impairment.
The ASU is effective for annual periods, including interim periods
within those annual periods, beginning after December 15, 2019.
Early adoption is permitted. The Company adopted this new standard
on January 1, 2020.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842) (ASC 842). In July
2018, the FASB issued ASU No. 2018-10, Codification Improvements to
Topic 842, Leases (ASU 2018- 10), which provides narrow amendments
to clarify how to apply certain aspects of the new lease standard,
and ASU No. 2018-11, Leases (Topic 842)-Targeted Improvements (ASU
2018-11), which addressed implementation issues related to the new
lease standard. Under ASC 842, leases are classified as either
finance or operating, with classification affecting the pattern of
expense recognition in the income statement. The standard also
requires disclosures to help investors and other financial
statement users better understand the amount, timing and
uncertainty of cash flows arising from leases. ASU 2016-02 was
effective for annual reporting periods beginning after December 15,
2018 and interim periods within that reporting period. The Company
adopted ASC 842 on January 1, 2019 and used the modified
retrospective approach with the effective date as the date of
initial application. Prior period results continue to be presented
under ASC 840 based on the accounting standards originally in
effect for such periods.
NOTE 4 – PROPERTY AND
EQUIPMENT
At December 31, 2021 and 2020, property and
equipment consisted of the following:
| |
|
Useful life |
|
December 31,
2021 |
|
|
December 31,
2020 |
|
| |
|
|
|
|
|
|
|
|
| Office equipment |
|
5 years |
|
$ |
25,717 |
|
|
$ |
25,872 |
|
| Motor vehicle |
|
5 years |
|
|
120,049 |
|
|
|
72,382 |
|
| Yachts |
|
5 years |
|
|
587,845 |
|
|
|
591,404 |
|
| |
|
|
|
|
733,611 |
|
|
|
689,658 |
|
| Less:
accumulated depreciation |
|
|
|
|
(337,786 |
) |
|
|
(202,322 |
) |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
395,825 |
|
|
$ |
487,336 |
|
Depreciation expense for the years ended December 31, 2021 and 2020
amounted to $135,561 and $134,691.
NOTE 5 – INTANGIBLE
ASSETS
At December 31, 2021 and 2020, intangible assets consisted of
the following :
| |
|
Useful life |
|
December 31,
2021 |
|
|
December 31,
2020 |
|
| |
|
|
|
|
|
|
|
|
| Apps and virtual
technology |
|
3 - 5 years |
|
$ |
843,703 |
|
|
$ |
844,246 |
|
| Goodwill |
|
infinite |
|
|
-
|
|
|
|
27,323 |
|
| Less: accumulated amortization |
|
|
|
|
(812,199 |
) |
|
|
(714,832 |
) |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
$ |
31,504 |
|
|
$ |
156,737 |
|
Amortization of intangible assets attributable to the next two
years is as follows:
|
Year ending December 31: |
|
Amount |
|
| 2022 |
|
$ |
24,043 |
|
| 2023 |
|
|
7,461 |
|
| |
|
$ |
31,504 |
|
Amortization expense for the years ended December 31, 2021 and 2020
amounted to $98,149 and $202,992, respectively. Impairment loss for
the years ended December 31, 2021 and 2020 amounted to $27,323 and
$750,000 respectively.
NOTE 6 – BANK
LOANS
Bank loans of $4,913,557 represented amount due to one financial
institution in Hong Kong that are repayable in a term of 30 years,
with 360 monthly installments and interest is charged at the annual
rate of 2.5% below its best lending rate.
Revolving credit line of $5,493,475 is expected to be repaid in the
next twelve months and interest is charged at the rate of 1.63% per
annum over the Hong Kong Dollar Best Lending Rate.
At December 31, 2021, the banking facilities of the Company were
secured by:
| |
● |
Personal guarantee by the directors of the
Company’s subsidiary; |
| |
● |
Legal
charge and rental assignment over the leasehold land and buildings
owned by its related companies which are controlled by the major
shareholder of the Company, Mr. Chan Tin Chi; and |
| |
● |
Hong
Kong Mortgage Corporation Limited. |
At December 31, 2021 and 2020, bank loans consisted of the
following:
| |
|
December 31,
2021 |
|
|
December 31,
2020 |
|
| |
|
|
|
|
|
|
| Mortgage loan |
|
$ |
5,493,475 |
|
|
$ |
5,064,142 |
|
| Line of revolving loan |
|
|
4,913,557 |
|
|
|
6,322,417 |
|
| Short-term
bank loans |
|
|
-
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
| Total bank
loans |
|
|
10,407,032 |
|
|
|
11,386,559 |
|
| |
|
|
|
|
|
|
|
|
| Reclassifying as: |
|
|
|
|
|
|
|
|
| Current portion |
|
$ |
5,584,788 |
|
|
$ |
6,446,139 |
|
| Long-term
portion (more than 12 months) |
|
|
4,822,244 |
|
|
|
4,940,420 |
|
| |
|
|
|
|
|
|
|
|
| Total bank
loans |
|
$ |
10,407,032 |
|
|
$ |
11,386,559 |
|
Interest related to the bank loans was $206,747 and $263,369 for
the years ended December 31, 2021 and 2020, respectively.
All interests are included in interest expense on the accompanying
consolidated statements of operations.
NOTE 7 – CONVERTIBLE
NOTE PAYABLE
Securities purchase
agreement and related convertible note and warrants
Iliad Note
On May 2, 2018, pursuant to a securities purchase agreement, the
Company closed a private placement of securities with Iliad
Research and Trading, L.P. (the “Investor”) pursuant to which the
Investor purchased a Convertible Promissory Note (the “Iliad Note”)
in the original principal amount of $900,000, convertible into
shares of common stock of the Company (the “Common Stock”), upon
the terms and subject to the limitations and conditions set forth
in the Iliad Note, and a two year Warrant to purchase 134,328
shares of Common Stock at an exercise price of $7.18 per share (the
“Warrant”). In connection with the Iliad Note, the Company paid an
original issue discount of $150,000 and paid issuance costs of
$45,018 which will be reflected as a debt discount and amortized
over the Iliad Note term. The Iliad Note bears interest at 10% per
annum, is unsecured, and is due on the date that is fifteen months
from May 2, 2018. The warrants shall expire on the last calendar
day of the month in which the second anniversary of the Issue Date
occurs.
On November 8, 2018, the Company converted an aggregate of $27,811
and $47,189 outstanding principal and interest of the Iliad Note,
respectively, into a total of 36,621 shares of its common
stock.
On January 11, 2019, the Company converted an aggregate of $34,103
and $15,897 outstanding principal and interest of the Iliad Note,
respectively, into 266,667 shares of its common stock.
On April 30, 2020, the Company converted an aggregate of $100,000
and $0 outstanding principal and interest of the Iliad Note,
respectively, into 10,059 shares of its common stock.
During the year ended December 31, 2020, the Company converted an
aggregate of $235,000 and $158,017 outstanding principal and
interest of the Iliad Note, respectively, into 18,944,773 shares of
its common stock.
The Investor has the right at any time after May 2, 2018 until the
outstanding balance has been paid in full to convert all or any
part of the outstanding balance into shares of common stock of the
Company at conversion price of $6.70 per share (the “Lender
Conversion Price”). The Lender Conversion Price is subject to
certain adjustments set forth in the Iliad Note. The conversion
price for each Redemption Conversion (the “Redemption Conversion
Price”) shall be the lesser of (a) the Lender Conversion Price, and
(b) the Market Price; provided, however, in no event shall the
Redemption Conversion Price be less than $2.00 per share
(“Conversion Price Floor”) unless the Company waive the Conversion
Price Floor.
This debt instrument includes embedded components including a put
option. The Company evaluated these embedded components to
determine whether they are embedded derivatives within the scope of
ASC 815 that should be separately carried at fair value. ASC
815-15-25-1 provides guidance on when an embedded component should
be separated from its host instrument and accounted for separately
as a derivative. Based on this analysis, the Company believes that
the put option is clearly and closely related to the debt
instrument and does not meet the definition of a derivative.
Accordingly, in connection with this Iliad Note, the Company
recorded a debt discount for (a) the original issue discount of
$150,000 (b) the relative fair value of the warrants issued of
$152,490 and (c) legal fees and other fees paid in connection with
the Iliad Note aggregating $45,018. There is no beneficial
conversion feature on this Iliad Note. The debt discount shall be
accreted on a straight line basis over the term of this Iliad
Note.
The Company is currently in default under Iliad Note with the
outstanding balance of Iliad Note was $1,259,980 at December 31,
2021. At the date of filing, both parties have not reached into the
mutual agreement.
Power Up
On April 7, 2020, pursuant to a securities purchase agreement, the
Company closed a private placement of securities with Power Up
Lending Group Ltd. (“Power Up”) pursuant to which Power Up
purchased a Convertible Promissory Note (the “Power Up Note”) in
the original principal amount of $83,000, with additional tranches
of up to $1,000,000 in the aggregate over the next twelve (12)
months, subject to the discretion of both parties. The Power Up
Note is convertible into shares of the common stock of the Company
at a price equal to 65% of the average of the two (2) lowest
trading prices for the Company’s common stock during the twenty
(20) trading day period ending on the latest complete trading day
prior to the conversion date. The Power Up Note bears interest at
8% per annum and is due on October 7, 2021.
During the December, 2020, the Company converted an aggregate of
$127,820 and $0 outstanding principal and interest of the Power Up
Note, respectively, into 8,228,775 shares of its common stock.
As of December 31, 2021, the Company has no outstanding balance
under the Power Up Note.
Black Ice
On April 14, 2020, the Company and Black Ice Advisors, LLC (“Black
Ice”) entered into a Securities Purchase Agreement, whereby the
Company issued a note to Black Ice (the “Black Ice Note”) in the
original principal amount of $110,000.The Black Ice Note contains
an original issue discount of $10,000 which will be reflected as a
debt discount and amortized over the Black Ice Note term. The Black
Ice Note is convertible into shares of the common stock of the
Company at a price equal to 60% of the lowest trading price of the
Company’s common stock for the fifteen (15) prior trading days
including the day upon which a Notice of Conversion is received by
the Company. The Black Ice Note bears interest at 10% per annum and
is due on April 14, 2021.
During the year ended December 31, 2020, the Company converted an
aggregate of $15,000 and $0 outstanding principal and interest of
the Black Ice Note, respectively, into 987,180 shares of its common
stock.
In January 2021, the Company converted an aggregate of $95,000 and
$9,167 outstanding principal and interest of the Black Ice Note,
respectively, into 12,452,413 shares of its common stock.
In June 2021, the Company converted an aggregate of $100,000
outstanding principal of the Black Ice Note, respectively, into
3,948,278 shares of its common stock.
As of December 31, 2021, the Company has no outstanding balance
under the Black Ice Note.
Pyram
On April 9, 2021, pursuant to a securities purchase agreement, the
Company closed a private placement of securities with Pyram LC
Architecture Limited. (“Pyram”) pursuant to which Pyram purchased
the Convertible Promissory Note (the “Pyram Note”) in the original
principal amount of $89,744. The Power Up Note is convertible into
shares of the common stock of the Company at a price equal to 70%
of the average closing prices for the Company’s common stock during
the ten (10) trading day period ending on the latest complete
trading day prior to the conversion date. The Pyram Note bears
interest at 12% per annum and is due on October 8, 2021.
On April 28, 2021, pursuant to a securities purchase agreement, the
Company closed a private placement of securities with Pyram
pursuant to which Pyram purchased the Pyram Note in the original
principal amount of $38,462. The Pyram Note is convertible into
shares of the common stock of the Company at a price equal to 70%
of the average closing prices for the Company’s common stock during
the ten (10) trading day period ending on the latest complete
trading day prior to the conversion date. The Pyram Note bears
interest at 12% per annum and is due on October 28, 2021.
On May 13, 2021, pursuant to a securities purchase agreement, the
Company closed a private placement of securities with Pyram
pursuant to which Pyram purchased the Pyram Note in the original
principal amount of $25,641. The Power Up Note is convertible into
shares of the common stock of the Company at a price equal to 70%
of the average closing prices for the Company’s common stock during
the ten (10) trading day period ending on the latest complete
trading day prior to the conversion date. The Pyram Note bears
interest at 12% per annum and is due on November 12, 2021.
On June 29, 2021, pursuant to a securities purchase agreement, the
Company closed a private placement of securities with Pyram
pursuant to which Pyram purchased the Pyram Note in the original
principal amount of $76,923. The Power Up Note is convertible into
shares of the common stock of the Company at a price equal to 70%
of the average closing prices for the Company’s common stock during
the ten (10) trading day period ending on the latest complete
trading day prior to the conversion date. The Pyram Note bears
interest at 12% per annum and is due on December 28, 2021.
On July 29, 2021, the Company and Pyram entered into a Note
Purchase Agreement, whereby the Company issued a note to Pyram (the
“Pyram Note”) in the principal amount of $102,565. The Pyram Note
is a convertible into shares of the common stock of the Company at
a price equal to 70% of the average closing prices for the
Company’s common stock during the ten (10) trading day period
ending on the latest complete trading day prior to the conversion
date. The Pyram Note bears interest at 12% per annum and is due on
January 28, 2022.
On August 26, 2021, the Company and Pyram entered into a Note
Purchase Agreement, whereby the Company issued a note to Pyram (the
“Pyram Note”) in the principal amount of $74,359. The Pyram Note is
a convertible into shares of the common stock of the Company at a
price equal to 70% of the average closing prices for the Company’s
common stock during the ten (10) trading day period ending on the
latest complete trading day prior to the conversion date. The Pyram
Note bears interest at 12% per annum and is due on February 25,
2022.
On September 20, 2021, the Company and Pyram entered into a Note
Purchase Agreement, whereby the Company issued a note to Pyram (the
“Pyram Note”) in the principal amount of $128,206. The Pyram Note
is a convertible into shares of the common stock of the Company at
a price equal to 70% of the average closing prices for the
Company’s common stock during the ten (10) trading day period
ending on the latest complete trading day prior to the conversion
date. . The Pyram Note bears interest at 12% per annum and is due
on March 19, 2022.
At December 31, 2021 and 2020, convertible debt consisted of the
following:
| |
|
December 31,
2021 |
|
|
December 31,
2020 |
|
| Principal |
|
$ |
1,113,830 |
|
|
$ |
598,571 |
|
| Unamortized
discount |
|
|
-
|
|
|
|
(2,821 |
) |
| Convertible debt,
net |
|
$ |
1,113,830 |
|
|
$ |
595,750 |
|
The amortization of discount was $2,821 and $7,179 for the years
ended December 31, 2021 and 2020.
As of December 31, 2021 and 2020, accrued interest amounted to
$905,046 and $701,794, respectively.
NOTE 8 – RELATED PARTY
TRANSACTIONS
Due to related
parties
From time to time, during 2021 and 2020, the Company receive
advances from Chan Tin Chi Family Company Limited (formerly known
as YSK 1860 Co., Limited), who is the major shareholder of the
Company for working capital purposes. These advances are
non-interest bearing and are payable on demand. During the years
ended December 31, 2021, the Company repaid to Chan Tin Chi Family
Company Limited for working capital totaled $618,151. During the
years ended December 31, 2019, the Company repaid to Chan Tin Chi
Family Company Limited for working capital totaled $228,393. As of
December 31, 2021 and 2020, amounts due to Chan Tin Chi Family
Company Limited amounted to $2,435,720 and $1,817,569,
respectively.
As of December 31, 2021 and 2020, amounts due to related companies
amounted to $1,212,845 and $650,806, respectively.
The amounts are unsecured, interest-free and have no fixed terms of
repayment.
NOTE 9 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized 50,000,000 shares of preferred stock
Series A, with a par value of $0.001 per share.
The Company issued 531,600 shares of preferred stock Series A to a
consultant for corporate consultancy services rendered. For the
year ended December 31, 2020, the Company recorded service fee to
the consultant at the price of $0.38 per share, in an aggregate
amount of $202,008.
The Company issued 2,658,000 shares of preferred stock Series A to
a consultant for the business services rendered. For the year ended
December 31, 2021, the Company recorded service fee to the
consultant at the price of $0.38 per share, in an aggregate amount
of $1,010,040.
As of December 31, 2021 and 2020, the Company has 3,189,600 shares
and 531,600 shares of preferred stock issued and outstanding,
respectively.
Common Stock
The Company has authorized 7,400,000,000 shares of common stock
with a par value of $0.001 per share.
Preferred stock issued for
services and acquisition of a non-wholly owned
subsidiary
During the year ended December 31, 2020, the Company issued an
aggregate of 531,600 shares of preferred stock to one consultant
and vendors for the services rendered and to be rendered. These
shares were valued at the fair market value on the grant date using
the reported closing share price on the date of grant. At the end
of each financial reporting period prior to issuance of these
shares, the fair value of these shares is measured using the fair
value of the Company’s preferred stock at reporting date. During
the year ended December 31, 2020, the fair value of the above
mentioned shares issued and the change in value of the shares to be
issued was $202,008. The Company recognizes stock-based
professional fees over the period during which the services are
rendered by such consultant or vendor. For the year ended December
31, 2020, the Company recorded stock-based consulting and service
fees to service provider of $202,008. In connection with the
issuance/future issuance of shares to consultants and vendors, the
Company recorded prepaid expenses of $0 which will be amortized
over the remaining service period.
Common stock issued for
services
During the year ended December 31, 2021, the Company completed the
following transactions -
| |
● |
the
Company issued an aggregate of 9,187,406 shares of common stock to
the Board of Directors and Advisory Committee members for the
services rendered, at the price of $0.06 per share. For the year
ended December 31, 2021, the Company recorded stock-based service
fee of $551,244. |
| |
● |
the
Company issued 18,500,000 shares of common stock to certain
consultants for the business consultancy services rendered under
2020 Stock Incentive Plan. For the year ended December 31, 2021,
the Company recorded stock-based service fee to the consultants at
the price of $0.04 per share, in an aggregate amount of
$740,000. |
| |
● |
the
Company issued 6,747,638 shares of common stock to certain
consultants for the consultancy services rendered. For the year
ended December 31, 2021, the Company recorded service fee to the
consultants at the price of $0.038 per share, in an aggregate
amount of $256,410. |
| |
● |
the
Company issued 625,000 shares of common stock to certain
consultants for the consultancy services rendered. For the year
ended December 31, 2021, the Company recorded service fee to the
consultants at the price of $0.04 per share, in an aggregate amount
of $25,000. |
| |
● |
the
Company issued 1,000,000 shares of common stock to certain
consultants for the consultancy services rendered. For the year
ended December 31, 2021, the Company recorded service fee to the
consultants at the price of $0.03 per share, in an aggregate amount
of $30,000. |
| |
● |
the
Company issued 13,935,337 shares of common stock to the vendor for
the business marketing services rendered. For the year ended
December 31, 2021, the Company recorded service fee to the vendor
at the price of $0.043 per share, in an aggregate amount of
$599,220. |
Common stock issued for
debt conversion
In January 2021, the Company issued 12,452,413 shares of its common
stock upon conversion of debt (note 5).
In June 2021, the Company issued 3,948,278 shares of its common
stock upon conversion of debt (note 5).
As of December 31, 2021 and 2020, the Company has 239,278,847
shares and 172,883,435 shares of common stock issued and
outstanding, respectively.
NOTE 10 – CONCENTRATIONS
Customers
For the years ended December 31, 2021 and 2020, there are no
customers representing more than 10% of the Company’s
revenue.
Suppliers
For the years ended December 31, 2021 and 2020, there are no
vendors representing more than 10% of the Company’s purchase.
NOTE 11 – COMMITMENT AND
CONTINGENCIES
Litigation
On April 25, 2019, ECPower (HK) Company Limited (“EC Power”), a
subsidiary of SEII, filed a claim against The Dairy Farm Limited
(“Dairy Farm”) in respect of the cooperation agreement between the
two parties for the battery rental business at 7-Eleven outlets in
Hong Kong during the period from September 2017 to February
2018. The claim is for a total compensation of HK$1,395,000
(approximately $178,846) which comprises of (i) HK$45,000
(approximately $5,769) as compensation for interest and
administration cost incurred as a result of Dairy Farm’s delay in
payment of EC Power’s share of the rental income, and (ii)
HK$1,350,000 (approximately $173,077) as compensation for Dairy
Farm’s early termination of the cooperation agreement without any
valid proof of fault on the part of EC Power.
Legal
proceedings:
On June 10, 2020, the Company’s subsidiary, Ecrent Worldwide
Company Limited (“Ecrent Worldwide”), a wholly owned subsidiary of
Universal Sharing Limited (formerly known as Ecrent Holdings
Limited), received a writ of summon (the “Summon”) issued by Messrs
Wilkinson & Grist on behalf of Mr. Michael Andrew BERMAN
and Mr. Eric Hans ISRAEL, who were the former Chief Executive
Officer and Chief Financial Officer of Ecrent (America) Company
Limited (“Ecrent America”) and Ecrent (USA) Company Limited
(“Ecrent USA”). Both Ecrent America and Ecrent USA were the former
subsidiaries of Universal Sharing Limited. On the same day, the
Summon also delivered to Mr. Chan Tin Chi, the major shareholder of
SEII and his spouse, Ms. Deborah Yuen Wai Ming. Pursuant to the US
Judgement dated on September 25, 2019 issued by the Supreme Court
of the State of New York County of Nassau, the Summon demands
Ecrent Worldwide, Mr. Chan Tin Chi, and Ms. Deborah Yuen Wai Ming
to fully settle an amount of approximately $241,706 and $103,841 to
Mr. Berman and Mr. Israel, respectively representing the unpaid
salary, benefits, expenses and incentive bonus. SEII intends to
dispute these proceedings that the US Judgement is not enforceable
under the Hong Kong jurisdiction.
In accordance with applicable accounting guidance, the Company
records accruals for certain of its outstanding legal proceedings,
investigations or claims when it is probable that a liability will
be incurred, and the amount of loss can be reasonably estimated.
The Company evaluates, on a quarterly basis, developments in legal
proceedings, investigations or claims that could affect the amount
of any accrual, as well as any developments that would make a loss
contingency both probable and reasonably estimable. The Company
discloses the amount of the accrual if the financial statements
would be otherwise misleading.
When a loss contingency is not both probable and estimable, the
Company does not establish an accrued liability. However, if the
loss (or an additional loss in excess of the accrual) is at least a
reasonable possibility and material, then the Company discloses an
estimate of the possible loss or range of loss, if such estimate
can be made or discloses that an estimate cannot be made.
NOTE 12 – SUBSEQUENT
EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which
establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial
statements are issued, the Company has evaluated all events or
transactions that occurred after December 31, 2021, up through
March 31, 2022, the Company issued the audited consolidated
financial statements.
On January 13, 2022, January 19, 2022, January 20, 2022, January
21, 2022 and January 26, 2022, the Company and Pyram LC
Architecture Limited (“Pyram”) entered into Note Purchase
Agreements, whereby the Company issued a note to Pyram (the “Pyram
Note”) in the principal amount of $10,385, $23,603, $25,000,
$19,232 and $58,333, respectively. The Pyram Note is a convertible
into shares of the common stock of the Company at a price equal to
70% of the average closing prices for the Company’s common stock
during the ten (10) trading day period ending on the latest
complete trading day prior to the conversion date.
On March 15, 2022, the Company issued 23,809,524 shares of its
common stock to Iliad Research and Trading, L.P. under certain
Convertible Promissory Note at the conversion price of $0.00315,
total amounting to $75,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management,
including Chan Che Chung Anthony, our chief executive officer, and
Lam Ka Man, our chief financial officer, evaluated the
effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2021.
Disclosure controls and procedures refer to controls and other
procedures designed to ensure that information required to be
disclosed in the reports we file or submit under the Securities
Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC and
that such information is accumulated and communicated to our
management, including our chief executive officer and chief
financial officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating our
disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired
control objectives, and management is required to apply its
judgment in evaluating and implementing possible controls and
procedures.
Management conducted its evaluation of disclosure controls and
procedures under the supervision of our chief executive officer and
our chief financial officer. Based on that evaluation, Mr. Chan and
Ms. Lam concluded that, because our internal controls over
financial reporting are not effective, as described below, our
disclosure controls and procedures were not effective as of
December 31, 2021.
Management’s Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act.
Our management is also required to assess and report on the
effectiveness of our internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of 2002
(“Section 404”). Management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2021.
In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control – Integrated Framework.
During our assessment of the effectiveness of internal
control over financial reporting as of December 31, 2021,
management identified significant deficiencies related to (i) the
U.S. GAAP expertise of our internal accounting staff and chief
financial officer, (ii) our internal audit functions and (iii) a
lack of segregation of duties within accounting functions. Although
management believes that these deficiencies do not amount to a
material weakness, our internal controls over financial reporting
were not effective at December 31, 2021.
Due to our size and nature, particularly in view of the reduced
scope of our operations, segregation of all conflicting duties may
not always be possible and may not be economically feasible, and we
continue to rely on third parties for a significant portion of the
preparation of our financial statements. As a result, we have not
been able to take steps to improve our internal controls over
financial reporting during the year ended December 31, 2021.
However, to the extent possible, we will implement procedures to
assure that the initiation of transactions, the custody of assets
and the recording of transactions will be performed by separate
individuals.
A material weakness (within the meaning of PCAOB Auditing Standard
No. 5) is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected
on a timely basis. A significant deficiency is a deficiency, or a
combination of deficiencies, in internal control over financial
reporting that is less severe than a material weakness, yet
important enough to merit attention by those responsible for
oversight of the company’s financial reporting.
In light of these material weaknesses, we performed additional
analyses and procedures in order to conclude that our consolidated
financial statements for the year ended December 31, 2021 included
in this Annual Report on Form 10-K were fairly stated in accordance
with the U.S. GAAP. Accordingly, management believes that despite
our material weaknesses, our consolidated financial statements for
the year ended December 31, 2021 are fairly stated, in all material
respects, in accordance with the U.S. GAAP.
Auditor Attestation
This annual report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to
rules of the Securities and Exchange Commission that permit us to
provide only management’s report in this annual report.
Changes in Internal Controls over Financial
Reporting
There were no changes (including corrective actions with regard to
significant deficiencies or material weaknesses) in our internal
controls over financial reporting that occurred during the period
covered by this report that has materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM
9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS.
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCES
Our current directors and executive officers are:
| Name |
|
Age |
|
Position |
| Chan Che Chung
Anthony |
|
50 |
|
Chief
executive officer, chairman and director |
| Lam Ka Man |
|
41 |
|
Chief financial
officer |
| Ping Kee Lau (1) |
|
72 |
|
Director |
| Cheng Wai Yin
2,3 |
|
28 |
|
Director |
| Shao Yuan Guo
1,2,3 |
|
64 |
|
Director |
| Lo Yu Ming 1,2,3
(2) |
|
61 |
|
Director |
| Bautista Michael Bibat
1,2,3 (3) |
|
44 |
|
Director |
|
1 |
Member of the audit committee. |
|
2 |
Member of the compensation committee. |
|
3 |
Member of the corporate governance/ nominating
committee. |
|
(1) |
Being
a director since 2017 and resigned on December 13, 2021 |
|
(2) |
Being
a director since 2020 and resigned on May 14, 2021 |
|
(3) |
Being
a director on May 14, 2021 |
Che Chung Anthony Chan has over 20 year experience in
sales and general management. Previously, he was the managing
director of Nibou Transmission Machinery Co., Ltd (Hong King &
China). He has a Master Business Administration degree from the
University of Wales. We believe Anthony Chan has relevant sales and
management experience which is useful for the development of our
business in Hong Kong.
Lam Ka Man has served as our Chief Financial Officer
and Treasurer since December 3, 2019. She has over 20 years’
experience in accounting and general management. She has previously
acted as an internal auditor of manufacturing factories in Hong
Kong and China. We believe Lam Ka Man has relevant accounting and
management experience which is useful for the development our
business in Hong Kong & China. Lam Ka Man’s background an
internal auditor led to our conclusion that she should be serving
as our Chief Financial Officer, in light of our business and
structure.
Ping Kee Lau has been our Executive Director since
March 2017, has been a director of Golden Creation Enterprise
Limited since late 2014 and a director of Y.R.P. Investment Limited
since 2013, both of which are investment entities. For more than
two years prior thereto, Mr. Lau was a consultant to Y.R.P.
Investment Limited. Mr. Lau received a B.A. in history from Chu Hai
College in Hong Kong and his M.A. in philosophy for Ecole Pratique
des Hautes Edudes in Paris. Mr. Lau’s experience with
investment entities is important to us. We nominated Mr. Lau as a
director because we believe that his experience as a director and
in investment is important for the Company as we continue to grow
and develop our business. Mr. Lau was resigned on December 13,
2021.
Shao Yuan Guo has served as an independent director
since December 3, 2019, and has over 10 years of experience in
banking and financial services with Industrial and Commercial Bank
of China and The People’s Bank of China in China. He has over 20
years of management experience in the weaving and garment
manufacturing industries. We nominated Mr. Guo as a director
because we believe his investment and management experience in
China is important for the future development of the Company in the
market.
Lo Ming Yu has served as an independent director
since July 20, 2020, and has over 28 years of management
experience. Previously, he was a trainer and consultant in
multinational companies, such as Hong Kong Government, Nokia, ING
Insurance, Fedex etc. Dr Lo has an master of business
administration, a bachelor of Law, a master of law in China, and a
doctorate in business administration. We believe Dr Lo has relevant
experience which is useful for providing useful business opinion
and commerce tactic to our company.
Bautista Michael Bibat has served as an independent
director since May 14, 2021, and has over 20 years’ experience in
education and with Philippine background. Previously, he was a
teacher in Hong Kong international school. He has an Diploma of
Teacher Training and certificate in Child Psychology. We believe
Michael Bibat Bautista has relevant education experience which is
useful for promoting and educating the youth about our core
business, Sharing Economy and changing their mindset to accept our
business model in Hong Kong, even Philippine.
Lo Yu Ming has the management experience for more
than 28 years and have been the director of human resources
management in Greater China in major multinational companies over
20 years. Dr. Lo not only graduated a bachelor of arts degree, but
also the master of business administration, a bachelor of Law, a
master of law in China, and a doctorate in business administration.
He is a senior professional trainer and has provided training and
consulting service for major multinational companies, such as Hong
Kong Government, Nokia, ING Insurance, Fedex, Thomason Multimedia,
Duracell, Schrinder, Hong Kong Management Association (HKMA), San
Miguel, etc.
Our directors are elected for a term of one (1) year and until
their successors are elected and qualified.
Committees
Our business, property and affairs are managed by or under the
direction of the board of directors. Members of the board are kept
informed of our business through discussion with the chief
executive and financial officers and other officers, by reviewing
materials provided to them and by participating at meetings of the
board and its committees.
Our board of directors has three committees - the audit committee,
the compensation committee and the corporate governance/nominating
committee. The audit committee is comprised of Mr. Shao and Mr. Lo,
with Ms. Lo serving as Chairman. The compensation committee is
comprised of Mr. Shao, Mr. Lo and Mr. Cheng, with Mr. Shao serving
as Chairman. The corporate governance/nominating committee is
comprised of Mr. Shao, Mr. Lo and Mr. Cheng, with Mr. Cheng serving
as Chairman. Our Plan is administered by the compensation
committee.
Our audit committee is involved in discussions with our independent
auditor with respect to the scope and results of our year-end
audit, our quarterly results of operations, our internal accounting
controls and the professional services furnished by the independent
auditor. Our board of directors has adopted a written charter for
the audit committee which the audit committee reviews and
reassesses for adequacy on an annual basis.
The compensation committee oversees the compensation of our chief
executive officer and our other executive officers and reviews our
overall compensation policies for employees generally. If so
authorized by the board of directors, the committee may also serve
as the granting and administrative committee under any option or
other equity-based compensation plans which we may adopt. The
compensation committee does not delegate its authority to fix
compensation; however, as to officers who report to the chief
executive officer, the compensation committee consults with the
chief executive officer, who may make recommendations to the
compensation committee. Any recommendations by the chief executive
officer are accompanied by an analysis of the basis for the
recommendations. The committee will also discuss compensation
policies for employees who are not officers with the chief
executive officer and other responsible officers. The compensation
committee has the responsibilities and authority relating to the
retention, compensation, oversight and funding of compensation
consultants, legal counsel and other compensation advisers, as well
as the requirement to consider six independence factors before
selecting, or receiving advice from, such advisers.
The corporate governance/nominating committee is involved in
evaluating the desirability of and recommending to the board any
changes in the size and composition of the board, evaluation of and
successor planning for the chief executive officer and other
executive officers. The qualifications of any candidate for
director will be subject to the same extensive general and specific
criteria applicable to director candidates generally.
The board and its committees held the following number of meetings
during 2021:
| Board of directors |
|
|
4 |
|
| Audit committee |
|
|
4 |
|
| Compensation committee |
|
|
1 |
|
| Nomination committee |
|
|
1 |
|
The meetings include meetings that were held by means of a
conference telephone call, but do not include actions taken by
unanimous written consent.
Each director attended at least 75% of the total number of meetings
of the board and those committees on which he served during the
year.
Our non-management directors had no meetings during 2021.
Compensation Committee Interlocks and Insider
Participation
Aside from his service as director, no member of our compensation
committee had any relationship with us as of December 31, 2021.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934, requires our
directors, executive officers and persons who own more than 10% of
our common stock to file with the SEC initial reports of ownership
and reports of changes in ownership of common stock and other of
our equity securities. No officer or director was delinquent in
filing reports pursuant to Section 16(a).
ITEM 11. EXECUTIVE COMPENSATION.
The following summary compensation table indicates the cash and
non-cash compensation earned during the years ended December 31,
2021 and 2020 by each person who served as chief executive officer
and chief financial officer during the years ended December 31,
2021 and 2020. No other executive officer received compensation
equal or exceeding $100,000.
Summary Annual
Compensation Table
|
Name
and Principal Position |
|
Fiscal
Year |
|
Salary
($) |
|
|
Bonus
($) |
|
|
Stock
Awards
($) |
|
|
All
Other
Compensation
($) |
|
|
Total
($) |
|
|
Chan
Che Chung Anthony |
|
2021 |
|
|
27,692 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
27,692 |
|
| chief
executive officer, chairman (1) |
|
2020 |
|
|
181,648 |
|
|
|
0 |
|
|
|
128,205 |
|
|
|
0 |
|
|
|
309,853 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Lam
Ka Man |
|
2021 |
|
|
23,077 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
23,077 |
|
| chief
financial officer |
|
2020 |
|
|
23,077 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
23,077 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Jianhua
Wu |
|
2021 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| chief
executive officer (2) |
|
2020 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| |
(1) |
Mr.
Chan has been our chief executive officer and chairman since July
28, 2020. |
| |
(2) |
Mr.
Wu has been our chief executive officer since June 3, 2017 and
resigned as chief executive officer on July 28, 2020. |
Compensation of Directors
We do not have any agreements or formal plan for compensating our
current directors for their service in their capacity as directors,
although our board may, in the future, award stock options to
purchase shares of common stock to our current directors.
The following table provides information concerning the
compensation of each member of our board of directors whose
compensation is not included in the Summary Compensation Table for
his or her services as a director and committee member for 2021.
The value attributable to any stock grants is computed in
accordance with ASC Topic 718.
| |
|
2021 |
|
|
2020 |
|
| Name |
|
Fees
earned or paid in cash
($) |
|
|
Stock
awards
($) |
|
|
Total
($) |
|
|
Fees
earned or paid in cash
($) |
|
|
Stock
awards
($) |
|
|
Total
($) |
|
| Ping
Kee Lau (1) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
64,115 |
|
|
|
- |
|
|
|
64,115 |
|
| Cho
Fu Li (2) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,662 |
|
| Shao
Yuan Guo |
|
|
27,692 |
|
|
|
- |
|
|
|
27,692 |
|
|
|
51,282 |
|
|
|
- |
|
|
|
51,282 |
|
| Lo Yu
Ming (3) |
|
|
13,846 |
|
|
|
- |
|
|
|
13,846 |
|
|
|
51,282 |
|
|
|
- |
|
|
|
51,282 |
|
| Ying
Ying Wong (4) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
40,569 |
|
| Cheng
Wai Yin (5) |
|
|
27,692 |
|
|
|
- |
|
|
|
27,692 |
|
|
|
51,282 |
|
|
|
- |
|
|
|
51,282 |
|
| Bautista
Michael Bibat (6) |
|
|
- |
|
|
|
51,244 |
|
|
|
51,244 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(1) |
Resigned as a director from December 13,
2021 |
|
(2) |
Resigned as a director from July 20,
2020 |
|
(3) |
Been
a director since July 20, 2020 and resigned on May 14,
2021 |
|
(4) |
Been
a director since December 14, 2017 and resigned on August 24,
2020 |
|
(5) |
Been
a director since August 31, 2020 |
|
(6) |
Been
a director since May 14, 2021 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table provides information as to shares of common
stock beneficially owned as of March 8, 2022, by:
|
|
● |
each current director; |
| |
|
|
| |
● |
each current officer named in the summary
compensation table; |
| |
|
|
| |
● |
each person owning of record or known by us,
based on information provided to us by the persons named below, to
own beneficially at least 5% of our common stock; and |
| |
|
|
| |
● |
all current directors and executive officers as a
group. |
| Name of Beneficial Owner |
|
Amount and
Nature of
Beneficial
Ownership |
|
|
% of Class |
|
| |
|
|
|
|
|
|
| Chan Che Chung
Anthony |
|
|
2,136,752 |
|
|
|
0.89 |
% |
| Lam Ka Man |
|
|
*100 |
|
|
|
0.00 |
% |
| Ping Kee Lau (1) |
|
|
1,068,576 |
|
|
|
0.45 |
% |
| Shao Yuan Guo |
|
|
854,701 |
|
|
|
0.36 |
% |
| Lo Yu Ming (2) |
|
|
854,701 |
|
|
|
0.36 |
% |
| Cheng Wai Yin |
|
|
854,701 |
|
|
|
0.36 |
% |
| Bautista Michael Bibat
(3) |
|
|
854,701 |
|
|
|
0.36 |
% |
| All current officers and
directors as a group |
|
|
6,624,232 |
|
|
|
2.77 |
% |
| ECinteract Company
Limited |
|
|
43,368,894 |
|
|
|
18.12 |
% |
| Chan Tin Chi |
|
|
93,585,201 |
|
|
|
39.11 |
% |
| Total |
|
|
142,509,121 |
|
|
|
59.56 |
% |
|
(1) |
Being
a director since 2017 and resigned on December 13, 2021 |
|
(2) |
Being
a director since 2020 and resigned on May 14, 2021 |
| |
(3) |
Being
a director on May 14, 2021 |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
Director Independence
We believe that three (3) of our directors, Mr. Bautista, Mr. Guo
and Ms. Cheng, are independent directors, pursuant to the Nasdaq
definition of independence. Mr. Chan is not independent
director.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table shows the fees paid or accrued by us for
the audit and other services provided for the fiscal periods
shown.
| |
|
Years
Ended
December 31, |
|
| Category |
|
2021 |
|
|
2020* |
|
| |
|
|
|
|
|
|
| Audit Alliance LLP: |
|
|
|
|
|
|
| Audit Fees |
|
$ |
0 |
|
|
$ |
60,000 |
|
| Audit Related Fees |
|
|
0 |
|
|
|
13,500 |
|
| Tax Fees |
|
|
0 |
|
|
|
0 |
|
| All Other
Fees |
|
|
0 |
|
|
|
0 |
|
| |
|
$ |
0 |
|
|
$ |
73,500 |
|
| |
|
|
|
|
|
|
|
|
| BF Borgers: |
|
|
|
|
|
|
|
|
| Audit Fees |
|
$ |
32,400 |
|
|
$ |
0 |
|
| Audit Related Fees |
|
|
16,200 |
|
|
|
0 |
|
| Tax Fees |
|
|
0 |
|
|
|
0 |
|
| All Other
Fees |
|
|
0 |
|
|
|
0 |
|
| |
|
$ |
48,600 |
|
|
$ |
0 |
|
| * |
The 2020 fees billed by our
predecessor independent accountants, Audit Alliance LLP . |
Audit fees. Consists of fees billed for the audit of our
annual financial statements, review of our Form 10-K, review of our
interim financial statements included in our Form 10-Q and services
that are normally provided by the accountant in connection with
year-end statutory and regulatory filings or engagements.
Audit-related fees. Consists of fees billed
for assurance and related services that are reasonably
related to the performance of the audit or review of our financial
statements and are not reported under “Audit Fees”, review of our
Forms 8-K filings and services that are normally provided by the
accountant in connection with non-year-end statutory and regulatory
filings or engagements.
Tax fees. Consists of professional services rendered by a
company aligned with our principal accountant for tax compliance,
tax advice and tax planning.
Other fees. The services provided by our accountants within
this category consisted of advice and other services relating to
SEC matters, registration statement review, accounting issues and
client conferences.
Policy on Audit
Committee Pre-Approval of Audit and Permissible Non-Audit Services
of Independent Auditors
The audit committee’s policy is to pre-approve all audit and
permissible non-audit services provided by the independent
registered public accounting firm. These services may include audit
services, audit-related services, tax services and other services.
The independent registered public accounting firm and management
are required to periodically report to the audit committee
regarding the extent of services provided by the independent
registered public accounting firm in accordance with this
pre-approval, and the fees for the services performed to date. The
audit committee may also pre-approve particular services on a
case-by-case basis. All services have been pre-approved by the
audit committee.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16. 10-K SUMMARY
As permitted, the registrant has elected not to supply a summary of
information required by Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto
duly authorized.
| Date: March 31, 2022 |
SHARING ECONOMY
INTERNATIONAL INC. |
| |
|
|
| |
By: |
/s/ Chan Che Chung Anthony |
| |
|
Chan
Che Chung Anthony,
Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities on the dates indicated. Each
person whose signature appears below hereby authorizes Chan Che
Chung Anthony as his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution for him
or her and in his or her name, place and stead, in any and all
capacities to sign any and all amendments to this report, and to
file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange
Commission.
|
Signature |
|
Title |
|
Date |
| |
|
|
|
|
| /s/ Chan Che Chung Anthony |
|
Chief Executive Officer and
Director |
|
March
31, 2022 |
| Chan Che Chung
Anthony |
|
(Principal Executive
Officer) |
|
|
| |
|
|
|
|
| /s/ Lam Ka Man |
|
Chief Financial
Officer |
|
March
31, 2022 |
| Lam Ka Man |
|
(Principal Financial and
Accounting Officer) |
|
|
| |
|
|
|
|
| /s/ Ping Kee Lau |
|
Director |
|
March
31, 2022 |
| Ping Kee Lau |
|
|
|
|
| |
|
|
|
|
| /s/ Shao Yuan Guo |
|
Director |
|
March
31, 2022 |
| Shao Yuan Guo |
|
|
|
|
| |
|
|
|
|
| /s/ Lo Yu Ming |
|
Director |
|
March
31, 2022 |
| Lo Yu Ming |
|
|
|
|
| |
|
|
|
|
| /s/ Cheng Wai Yin |
|
Director |
|
March
31, 2022 |
| Cheng Wai Yin |
|
|
|
|
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