NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements have been prepared by management in accordance with both accounting principles generally accepted in the
United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and
note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made
are adequate to make the information not misleading.
In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for
the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2019. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements as of and for the year ended December 31, 2018 and footnotes thereto included in the Company’s Annual
Report on Form 10-K filed with the SEC on April 16, 2019. The consolidated balance sheet as of December 31, 2018 contained herein
has been derived from the audited consolidated financial statements as of December 31, 2018, but does not include all disclosures
required by the generally accepted accounting principles in the U.S. (“U.S. GAAP”).
NOTE
2 – DESCRIPTION OF BUSINESS AND ORGANIZATION
Sharing
Economy International Inc. (the “Company”) was incorporated in Delaware on June 24, 1987 under the name of Malex,
Inc. On December 18, 2007, the Company’s corporate name was changed to China Wind Systems, Inc. and on June 13, 2011, the
Company changed its corporate name to Cleantech Solutions International, Inc. On August 7, 2012, the Company was converted into
a Nevada corporation. On January 8, 2018, the Company changed its corporate name to Sharing Economy International Inc.
Through
its affiliated companies, the Company manufactures and sells textile dyeing and finishing machines. The Company is the sole owner
of Fulland Limited (“Fulland”), a Cayman Island limited liability company, which was organized on May 9, 2007. Fulland
owns 100% of the capital stock of Green Power Environment Technology (Shanghai) Co., Ltd. (“Green Power”) and, until
December 30, 2016, Fulland owned 100% of Wuxi Fulland Wind Energy Equipment Co., Ltd. (“Fulland Wind”). Green Power
is and Fulland Wind was a wholly foreign-owned enterprise (“WFOE”) organized under the laws of the People’s
Republic of China (“PRC” or “China”). Green Power is a party to a series of contractual arrangements,
as fully described below, dated October 12, 2007 with Wuxi Huayang Heavy Industries, Co., Ltd. (“Heavy Industries”),
formerly known as Wuxi Huayang Electrical Power Equipment Co., Ltd., and Wuxi Huayang Dyeing Machinery Co., Ltd. (“Dyeing”),
both of which are limited liability companies organized under the laws of, and based in, the PRC. Heavy Industries and Dyeing
are sometimes collectively referred to as the “Huayang Companies.”
Dyeing,
which was formed on August 17, 1995, produces and sells a variety of high and low temperature dyeing and finishing machinery for
the textile industry. The Company refers to this segment as the dyeing and finishing equipment segment. On December 26, 2016,
Dyeing and an unrelated individual formed Wuxi Shengxin New Energy Engineering Co., Ltd. (“Shengxin”), a limited liability
company organized under the laws of the PRC in which Dyeing has a 30% equity interest and the unrelated third party holds a 70%
interest, pursuant to an agreement dated December 23, 2016. Shengxin intends to develop, construct and maintain photovoltaic power
generation projects, known as solar farms, in China, mainly in the provinces of GuiZhou and YunNan. In April 2018, Shengxin secured
and invested in a large solar PV project in GuiZhou province. Shengxin paid RMB40 million for the project rights and also engaged
a local contractor to proceed with building the project. However, on June 1, 2018, the Chinese government halted installation
of new solar farms for the remainder of the year and reduced subsidies for projects already under construction. In September 2018,
due to significant doubt about the status of this project and recoverability of the Company’s investment, the Company fully
impaired the value of its investment in Shengxin (see Note 5).
Fulland
Wind was formed on August 27, 2008. In 2009, the Company began to produce and sell forged products through Fulland Wind. Through
Fulland Wind, the Company manufactured and sold forged products, including wind products such as shafts, rolled rings, gear rims,
gearboxes, bearings and other components and finished products and assemblies for the wind power and other industries, including
large-scale equipment used in the manufacturing process for the various industries. The Company referred to this segment of its
business as the forged rolled rings and related components segment. On December 30, 2016, Fulland sold the stock of Fulland Wind.
Beginning
in February 2015, Heavy Industries began to produce equipment for the petroleum and chemical industries. The Company referred
to this segment of its business as the petroleum and chemical equipment segment. Because of a significant decline in revenues
from this segment, the Company determined it would not continue to operate in this segment and accordingly, the petroleum and
chemical equipment segment is reflected as discontinued operations for all periods presented (See Note 5). As a result of the
discontinuation of the petroleum and chemical equipment business, the Company’s business primarily consists of the dyeing
and finishing equipment business as its primary continuing operations since December 31, 2016.
The
Company’s latest business initiatives are focused on targeting the technology and global sharing economy markets, by developing
online platforms and rental business partnerships that will drive the global development of sharing through economical rental
business models. In connection with the new business initiatives, 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 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 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 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.
|
|
|
●
|
EC
Power (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,
and 60% of its shareholdings was acquired by EC Technology on January 19, 2018.
|
|
|
●
|
Sharing
Film International Limited, a company incorporated under the laws of Hong Kong on January 22, 2018 and is 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.
|
|
|
●
|
Xiamen
Great Media Company Limited (“Xiamen Great Media”), a company incorporated under the laws of the PRC on September
5, 2018 and is wholly-owned by EC Advertising.
|
NOTE 3 – GOING CONCERN UNCERTAINTIES
These unaudited
condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the
accompanying consolidated financial statements, the Company had a loss from continuing operations of approximately
$28,410,000 for the nine months ended September 30, 2019. The net cash used in operations was approximately $389,000 for the
nine months ended September 30, 2019. Additionally, during the nine months ended September 30, 2019, revenues, substantially
all of which are derived from the manufacture and sales of textile dyeing and finishing equipment, decreased by 31.5% as
compared to the nine months ended September 30, 2018. Management believes that its capital resources are not currently
adequate to continue operating and maintaining its business strategy for twelve months from the date of this report. The
Company may seek to raise capital through additional debt and/or equity financings to fund its operations in the future.
Although the Company has historically raised capital from sales of equity and from bank loans, there is no assurance that it
will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the
near future, management expects that the Company will need to curtail or cease operations.
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 4 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Listing
status
On
November 26, 2018, Sharing Economy International Inc. (the “Company”) 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. The Company’s
common stock was delisted from Nasdaq at the open of trading on December 5, 2018. The Company’s common stock is currently
trading on the OTC Markets under the symbol “SEII”.
Principles
of consolidation
The
Company’s unaudited condensed consolidated financial statements include the financial statements of its wholly-owned and
majority owned subsidiaries, as well as the financial statements of the Huayang Companies, including Dyeing, which conducts the
Company’s continuing operations, and Heavy Industries, which operated discontinued operations. All significant intercompany
accounts and transactions have been eliminated in consolidation.
On
December 30, 2016, the Company sold and transferred its 100% interest in Fulland Wind to an unrelated party. Additionally,
the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant declines
in revenues and the loss of its major customers. As such, petroleum and chemical segment’s assets and liabilities have been
classified on the consolidated balance sheets as assets and liabilities of discontinued operations as of September 30, 2019 and
December 31, 2018. The operating results of the petroleum and chemical segment have been classified as discontinued operations
in our consolidated statements of operations for all periods presented. Unless otherwise indicated, all disclosures and amounts
in the notes to the consolidated financial statements are related to the Company’s continuing operations.
Pursuant
to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities
(“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies
and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s wholly foreign-owned
enterprise in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC
laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities
incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements.
Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance
with the laws of the PRC.
Because
of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires the Company to consolidate
the Huayang Companies in its financial statements as if they are wholly-owned subsidiaries of the Company.
Use
of estimates
The
preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted
in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results
could materially differ from these estimates. Significant estimates in the nine months ended September 30, 2019 and 2018 include
the allowance for doubtful accounts on accounts and other receivables, the allowance for inventory reserve, the useful life of
property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred
tax assets, and the value of stock-based compensation.
Cash
and cash equivalents
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.
As of September 30, 2019 and December 31, 2018, cash balances held in PRC and Hong Kong banks of $92,864 and $774,316,
respectively, are uninsured.
Fair
value of financial instruments
The
carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable,
accounts receivable, inventories, advances to suppliers, receivable from sale of subsidiary, prepaid expenses and other, short-term
bank loans, bank acceptance notes payable, convertible note payable, accounts payable, accrued expenses, advances from customers,
amounts due to related parties, and income taxes payable approximate their fair market value based on the short-term maturity
of these instruments .
Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of
competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply
that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions
unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to
related parties due to their related party nature.
Concentrations
of credit risk
The
Company’s operations are carried out in the PRC and Hong Kong. Accordingly, the Company’s business, financial condition
and results of operations may be influenced by the political, economic and legal environment in the PRC and Hong Kong, and by
the general state of the economies in the PRC and Hong Kong. The Company’s operations in the PRC are subject to specific
considerations and significant risks not typically associated with companies in North America. The Company’s results may
be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and 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 accounts receivables is limited due to generally short payment terms. The Company also performs
ongoing credit evaluations of its customers to help further reduce credit risk.
Accounts
receivable
Accounts
receivable are presented net of allowance for doubtful accounts. The Company maintains allowance for doubtful accounts for estimated
losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is
doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the
Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness
and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2019 and December
31, 2018, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the
amounts of $10,632,575 and $9,527,060, respectively.
For
the nine months ended September 30, 2019 and 2018, bad debt expense amounted to $4,307,234, and $1,285,990, respectively.
Inventories
Inventories,
consisting of raw materials, work-in-process and finished goods related to the Company’s products are stated at the lower
of cost or market utilizing the weighted average method. A reserve is established when management determines that certain inventories
may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand,
the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on
estimates. The Company recorded an inventory reserve of $4,643,524 and $1,212,706 as of September 30, 2019 and December 31,
2018, respectively.
Property
and equipment
Property
and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets
are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses
are included in the statements of operations in the year of disposition. The Company examines the possibility of decreases in
the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Impairment loss has been recorded in current period
For
the three months ended September 30, 2019 and 2018, depreciation expense amounted to $709,120 and $979,203, respectively, of which
$598,502 and $705,648, respectively, was included in cost of revenues, and the remainder was included in operating expenses.
For
the nine months ended September 30, 2019 and 2018, depreciation expense amounted to $2,097,816 and $3,080,857, respectively, of
which $1,614,959 and $2,218,554, respectively, was included in cost of revenues, and the remainder was included in operating expenses.
As
of September 30, 2019, the Company conducted an impairment assessment on property and equipment. Accordingly, the Company recorded
an impairment loss of $13,355,958 on certain equipment and buildings for the nine months ended September 30, 2019. For the nine
months ended September 30, 2018, the impairment loss was $0.
Equity
method investment
Investments
in which the Company has the ability to exercise significant influence, but do not control, are accounted for under the equity
method of accounting and are included in the long-term assets on the consolidated balance sheets. Under this method of accounting,
the Company’s share of the net earnings or losses of the investee is presented under other income (expense) on the consolidated
statements of operations. The Company evaluates its equity method investment whenever events or changes in circumstance indicate
that the carrying amounts of such investment may be impaired. A loss would be recorded if a decline in the value of an equity
method investment is determined to be other than temporary (see Note 7).
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.
Additionally,
effective January 1, 2017, the Company adopted the Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Improvements
to Employee Share-Based Payment Accounting. ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based
payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The
Company has elected to recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on
the Company’s consolidated financial statements and related disclosures.
In
June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several
aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation
guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07
is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early
adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company
early adopted ASU No. 2018-07 in the fourth quarter of 2018 and there was no cumulative effect of adoption.
Employee
benefits
The
Company’s operations and employees are all located in the PRC and Hong Kong. The Company makes mandatory contributions to
the PRC and Hong Kong governments’ health, retirement benefit and unemployment funds in accordance with the relevant Chinese
social security laws and law of Mandatory Provident Fund in Hong Kong. The costs of these payments are charged to the same accounts
as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $180,256 and
$196,299 for the nine months ended September 30, 2019 and 2018, respectively.
Foreign
currency translation
The
reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the
functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”) or Hong Kong dollars
(HKD). For the subsidiaries and affiliates, whose functional currencies are the RMB or HKD, results of operations and cash flows
are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate
at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities
reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance
sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars
are included in determining comprehensive loss. The cumulative translation adjustment and effect of exchange rate changes on cash
for the nine months ended September 30, 2019 and 2018 was $(261,836) and $(274,378), respectively.
The
Company did not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not
expected to have, a material effect on the results of operations of the Company.
For
operating subsidiaries and VIEs located in the People’s Republic of China (“PRC”), asset and liability accounts
as of September 30, 2019 and December 31, 2018 were translated at 7.1363 RMB to $1.00 and at 6.8778 RMB to $1.00, respectively,
which were the exchange rates on the balance sheet dates. For operating subsidiaries in Hong Kong, asset and liability accounts
as of September 30, 2019 and December 31, 2018 were translated at 7.8396 and 7.8305 HKD to $1.00, respectively, which were the
exchange rates on the balance sheet date. For operating subsidiaries and VIEs located in the PRC, the average translation rates
applied to the statements of operations for the nine months ended September 30, 2019 and 2018 were 6.8609 RMB and 6.5187 RMB
to $1.00, respectively. For operating subsidiaries located in Hong Kong, the average translation rates applied to the statements
of operations for the nine months ended September 30, 2019 and December 31, 2018 were 7.8 HKD and 7.8 HKD to $1.00. Cash flows
from the Company’s operations are calculated based upon the local currencies using the average translation rate.
Loss
per share of common stock
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 three and nine
months ended September 30, 2019 and 2018. 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:
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Net loss for basic and diluted attributable to common shareholders
|
|
$
|
(1,068,228
|
)
|
|
$
|
(18,196,461
|
)
|
|
$
|
(28,102,387
|
)
|
|
$
|
(28,779,651
|
)
|
|
From continuing operations
|
|
|
(1,068,228
|
)
|
|
|
(18,196,076
|
)
|
|
|
(28,102,387
|
)
|
|
|
(28,796,137
|
)
|
|
From discontinued operations
|
|
|
-
|
|
|
|
(385
|
)
|
|
|
-
|
|
|
|
16,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding – basic and diluted
|
|
|
9,278,106
|
|
|
|
7,100,416
|
|
|
|
8,866,755
|
|
|
|
3,598,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations – basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(2.56
|
)
|
|
$
|
(3.17
|
)
|
|
$
|
(8.00
|
)
|
|
From discontinued operations – basic and diluted
|
|
|
-
|
|
|
|
(0.00
|
)
|
|
|
-
|
|
|
|
0.01
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(2.56
|
)
|
|
$
|
(3.17
|
)
|
|
$
|
(7.99
|
)
|
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 three
and nine months ended September 30, 2019 and 2018 included net loss and unrealized (loss) gain from foreign currency translation
adjustments.
Reclassification
Certain
reclassifications have been made in prior period’s consolidated financial statements to conform to the current year’s
financial presentation. The reclassifications have no effect on previously reported net loss.
Recent
accounting pronouncements
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Under ASU 2016-02, lessees will be required to recognize
all leases (with the exception of short-term leases) at the commencement date including a lease liability, which is a lessee’s
obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use (ROU) asset, which
is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases
with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In December 2017,
January 2018, July 2018, December 2018 and March 2019, the FASB issued ASU 2017-13, ASU 2018-01, ASU 2018-10 & 11, ASU 2018-20
and ASU 2019-01, respectively, which contain modifications and improvements to ASU 2016-02. The amendments provide entities with
an additional (and optional) transition method to adopt the new leases standard. Under the Optional Transition Method, an entity
initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance
of retained earnings in the period of adoption. On January 1, 2019, the Company adopted ASC Topic 842 using the modified retrospective
approach and elected to utilize the Optional Transition Method. In addition, the Company elected the land easement transition
practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has
not historically been accounted for as a lease. The adoption did not impact the Company’s previously reported consolidated
financial statements nor did it result in a cumulative effect adjustment to retained earnings as of January 1, 2019.
In
June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment. ASU 2018-07 aligns the accounting for share based payments granted to non-employees with that of share based payments
granted to employees. The Company early adopted ASU No. 2018-07 in the fourth quarter of 2018 and there was no cumulative effect
of adoption. The adoption of this ASU did not have a material impact on our financial position, results of operations, cash flows,
or presentation thereof.
NOTE
5 – DISCONTINUED OPERATIONS
Pursuant
to an agreement dated December 23, 2016, the Company, through its wholly-owned subsidiary Fulland, sold the stock of Fulland Wind
to a third party for a sales price of RMB 48 million (approximately $6.9 million). The Company’s forging and related
components business was conducted through Fulland Wind. The purchase price is payable in three installments. The Company received
the first installment of RMB 14,400,000 (approximately $2.1 million) on December 28, 2016, and received the second installment
of RMB 14,400,000 (approximately $2.1 million) on April 10, 2017. The Company delivered Fulland Wind’s business license,
seals, books and records, business contracts and personnel roster to the third party buyer on December 30, 2016, effectively the
sale date. If the equity transfer registration formalities are completed within one year without any third party claims on the
equity transfer, a final payment of RMB 19,200,000 (approximately $2.7 million) was due 25 working days after the expiration of
such period. Pursuant to extension agreement dated December 31, 2018, the Company agreed the above third party buyer could
paid off the final payment of RMB 19,200,000 (approximately $2.7 million) by December 31, 2019. During the nine months ended September
30, 2019, the Company believed that the final payment of RMB 19,200,000 (approximately $2.7 million) is uncollectible and the
write off of such receivable is included in bad debt expense.
Additionally,
in December 2016, the Company’s management decided to discontinue its petroleum and chemical equipment segment under Heavy
Industries due to significant decline in revenues and the loss of its major customers. Accordingly, the petroleum and chemical
equipment segment business is treated as a discontinued operation.
The
results of operations from petroleum and chemical equipment segment of Heavy Industries for the three and nine months ended September
30, 2019 and 2018 have been classified to the loss from discontinued operations line on the accompanying unaudited condensed consolidated
statements of operations and comprehensive loss presented herein.
The
assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of September
30, 2019 and December 31, 2018, and for the three and nine months ended September 30, 2019 and 2018 is set forth below.
|
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
Assets:
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
9,246
|
|
|
$
|
9,593
|
|
|
Prepaid expenses and other
|
|
|
196,411
|
|
|
|
200,333
|
|
|
Total current assets
|
|
|
205,657
|
|
|
|
209,926
|
|
|
Total assets
|
|
$
|
205,657
|
|
|
$
|
209,926
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
233,938
|
|
|
$
|
242,555
|
|
|
Advances from customers
|
|
|
-
|
|
|
|
-
|
|
|
Accrued expenses and other liabilities
|
|
|
25,036
|
|
|
|
25,977
|
|
|
Total current liabilities
|
|
|
258,974
|
|
|
|
268,532
|
|
|
Total liabilities
|
|
$
|
258,974
|
|
|
$
|
268,532
|
|
The
summarized operating result of discontinued operations included in the Company’s unaudited condensed consolidated statements
of operations is as follows:
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Operating (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income – bad debt recovery
|
|
|
-
|
|
|
|
(385
|
)
|
|
|
-
|
|
|
|
16,486
|
|
|
Total operating (loss) income
|
|
|
-
|
|
|
|
(385
|
)
|
|
|
-
|
|
|
|
16,486
|
|
|
(Loss) income from operations
|
|
|
-
|
|
|
|
(385
|
)
|
|
|
-
|
|
|
|
16,486
|
|
|
Other income, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(Loss) income from discontinued operations, net of income taxes
|
|
$
|
-
|
|
|
$
|
(385
|
)
|
|
$
|
-
|
|
|
$
|
16,486
|
|
NOTE
6 – INVENTORIES
As
of September 30, 2019 and December 31, 2018, inventories consisted of the following:
|
|
|
September 30,
2019
|
|
|
December 31, 2018
|
|
|
Raw materials
|
|
$
|
769,294
|
|
|
$
|
1,207,334
|
|
|
Work-in-process
|
|
|
379,747
|
|
|
|
872,376
|
|
|
Finished goods
|
|
|
5,546,795
|
|
|
|
5,547,301
|
|
|
|
|
|
6,695,836
|
|
|
|
7,627,011
|
|
|
Less: inventory reserve
|
|
|
(4,643,524
|
)
|
|
|
(1,212,706
|
)
|
|
|
|
$
|
2,052,312
|
|
|
$
|
6,414,305
|
|
The
Company establishes a reserve to mark down its inventories for estimated unmarketable inventories equal to the difference between
the cost of inventories and the estimated net realizable value based on assumptions about the usability of the inventories, future
demand and market conditions. For the nine months ended September 30, 2019 and 2018, the Company increased its inventory reserve
for $3,430,818 and $0, respectively.
NOTE
7 – EQUITY METHOD INVESTMENT
On
December 26, 2016, Dyeing and Xue Miao, an unrelated individual, formed Shengxin pursuant to an agreement dated December 23, 2016.
The agreement sets forth general terms relating to the proposed business, but does not set forth specific funding obligations
for either party. Dyeing has agreed to invest RMB 60,000,000 (approximately $8.9 million) and had invested RMB 59.8 million (approximately
$8.9 million as of September 30, 2019), for which it received a 30% interest, and Mr. Xue has a commitment to invest RMB 140,000,000
(approximately $20.9 million), of which Mr. Xue has contributed RMB 60,000,000 (approximately $8.9 million), for which Mr. Xue
received a 70% interest in Shengxin. Shengxin’s registered capital is RMB 200 million (approximately $29.8 million). Mr.
Xue had advised Dyeing that he anticipated that he will fund the remaining RMB 80,000,000 (approximately $11.9 million) of his
commitment during 2018. Since Mr. Xue did not make this payment by the end of 2017, Dyeing has the right to amend the contract,
and both parties may adjust each side’s equity interest to reflect the amount of capital each side has actually invested.
In
April 2018, Shengxin secured and invested in a large solar PV project in GuiZhou province. Shengxin paid RMB 40 million for the
project rights and also engaged a local contractor to proceed with building the project. However, on June 1, 2018, the Chinese
government halted installation of new solar farms for the remainder of the year and reduced subsidies for projects already under
construction. Accordingly, there is no guarantee that the Chinese government will invest in new solar farm or provide the subsidies
needed to fund projects. In September 2018, due to significant doubt about the status of this project and recoverability of our
investment, the Company fully impaired the value of the investment in Shengxin.
For
the three months ended September 30, 2019 and 2018, the Company recorded a loss on equity method investment of $0 and $8,892,458,
respectively. For the nine months ended September 30, 2019 and 2018, the Company recorded a loss on equity method investment of
$0 and $9,038,303, respectively.
NOTE
8 – INTANGIBLE ASSETS
As
of September 30, 2019 and December 31, 2018, intangible assets consisted of the following:
|
|
|
Useful life
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Land use rights
|
|
45 - 50 years
|
|
|
$
|
3,783,611
|
|
|
$
|
3,925,789
|
|
|
Other intangible assets
|
|
3 - 5 years
|
|
|
|
843,218
|
|
|
|
845,180
|
|
|
Goodwill
|
|
-
|
|
|
|
27,353
|
|
|
|
27,421
|
|
|
|
|
|
|
|
|
4,654,182
|
|
|
|
4,798,390
|
|
|
Less: accumulated amortization
|
|
|
|
|
|
(1,337,699
|
)
|
|
|
(1,235,877
|
)
|
|
|
|
|
|
|
$
|
3,316,483
|
|
|
$
|
3,562,513
|
|
Amortization
of intangible assets attributable to future periods is as follows:
|
Year ending September 30:
|
|
Amount
|
|
|
2020
|
|
$
|
352,034
|
|
|
2021
|
|
|
307,588
|
|
|
2022
|
|
|
100,648
|
|
|
2023
|
|
|
94,710
|
|
|
2024
|
|
|
82,836
|
|
|
Thereafter
|
|
|
2,351,314
|
|
|
|
|
$
|
3,289,130
|
|
There
is no private ownership of land in the PRC. Land is owned by the government and the government grants land use rights for specified
terms. The Company’s land use rights have terms of 45 and 50 years and expire on January 1, 2053 and October 30, 2053. The
Company amortizes the land use rights over the term of the respective land use right.
In January
2018, in connection with the acquisition of 3D Discovery, the Company acquired their technologies valued at $754,159. The technology
of 3D Discovery covers a 3D virtual tour solution for the property industry. The Company amortizes this technology over a term
of three years.
For
the three months ended September 30, 2019 and 2018, amortization of intangible assets amounted to $30,062 and $99,177, respectively.
For
the nine months ended September 30, 2019 and 2018, amortization of intangible assets amounted to $140,325 and $299,373, respectively.
NOTE
9 – SHORT-TERM BANK LOANS
Short-term
bank loans represent amounts due to various banks that are due within one year. These loans can be renewed with these banks upon
maturities. As of September 30, 2019 and December 31, 2018, short-term bank loans consisted of the following:
|
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
Loan from Bank of China, due on November 20, 2019 with annual interest rate of 4.60%, secured by certain assets of the Company and guaranteed by the Company’s CEO, Jianhua Wu, and Wuxi Angyida Machinery Co., Ltd, a company whose corporate representative is a brother of the Company’s CEO
|
|
$
|
-
|
|
|
$
|
363,488
|
|
|
Loan from Bank of China, due on November 25, 2019 with annual interest rate of 4.60%, secured by certain assets of the Company and guaranteed by the Company’s CEO, Jianhua Wu, and Wuxi Angyida Machinery Co., Ltd, a company whose corporate representative is a brother of the Company’s CEO
|
|
|
350,324
|
|
|
|
363,488
|
|
|
Loan from Bank of Wuxi Nongshuang, due on February 22, 2019 with annual interest rate of 5.87%, secured by certain assets of the Company
|
|
|
-
|
|
|
|
654,279
|
|
|
Loan from Bank of Wuxi Nongshuang, due on November 6, 2019 with annual interest rate of 5.87%, secured by certain assets of the Company
|
|
|
630,583
|
|
|
|
-
|
|
|
Loan from Bank of Communication, due on September 25, 2019 with annual interest rate of 4.35%, secured by certain assets of the Company
|
|
|
-
|
|
|
|
581,582
|
|
|
Loan from Bank of Communication, due on September 20, 2020 with annual interest rate of 3.915%, secured by certain assets of the Company
|
|
|
420,390
|
|
|
|
-
|
|
|
Current portion of loan from Zhongli International Finance Corporation, credit line of RMB 4,500,000 (approximately $630,583), with a security deposit of RMB 900,000 (approximately $126,117) which will be returned in 36 months, monthly installment of RMB 210,000 (approximately $29,427) in the 1st – 12th month; RMB 138,000 (approximately $19,338) in the 13th - 24th month; RMB 98,000 (approximately $13,733) in the 25th – 36th month; secured by certain assets of the Company *
|
|
|
152,950
|
|
|
|
220,123
|
|
|
Total short-term bank loans
|
|
$
|
1,554,247
|
|
|
$
|
2,182,960
|
|
|
|
*
|
Long-term
Loans represent amounts due to Zhongli International Finance Corporation that is due more than one year. Long-term loan amounts
to $119,574 and $244,910 as of September 30, 2019 and December 31, 2018, respectively.
|
Minimum
36-month installments for the loan from Zhongli International Finance Corporation under the loan agreement are as follows:
|
12-month periods ending September 30,
|
|
Amount
|
|
|
2020
|
|
$
|
232,055
|
|
|
2021
|
|
|
164,792
|
|
|
2022
|
|
|
-
|
|
|
Total minimum loan payments
|
|
|
396,847
|
|
|
Less: amount representing interest
|
|
|
(56,103
|
)
|
|
Less: security deposit due
|
|
|
(68,220
|
)
|
|
Present value of net minimum loan payment
|
|
|
272,524
|
|
|
Less: current portion
|
|
|
(152,950
|
)
|
|
Long-term portion
|
|
$
|
119,574
|
|
Interest
related to the bank loans, which was $35,605 and $26,892 for the three months ended September 30, 2019 and 2018, and $116,597
and $88,372 for the nine months ended September 30, 2019 and 2018, respectively, is included in interest expense on the accompanying
unaudited condensed consolidated statements of operations and comprehensive loss.
NOTE
10 – CONVERTIBLE NOTE PAYABLE
Securities
purchase agreement and related convertible note and warrants
On
May 2, 2018, pursuant to a securities purchase agreement, the Company closed a private placement of securities with Iliad Research
and Trading, L.P. (the “Investor”) pursuant to which the Investor purchased a Convertible Promissory Note (the “Iliad
Note”) in the original principal amount of $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.
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
convertible note payable has been extended longer period agreed by both parties.
As
of September 30, 2019 and December 31, 2018, convertible debt consisted of the following:
|
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
Principal
|
|
$
|
838,571
|
|
|
$
|
872,674
|
|
|
Unamortized discount
|
|
|
-
|
|
|
|
(162,170
|
)
|
|
Convertible debt, net
|
|
$
|
838,571
|
|
|
$
|
710,504
|
|
For
the nine months ended September 30, 2019, amortization of debt discount and interest expenses amounted to $162,170 and
$67,500, respectively.
For
the nine months ended September 30, 2018, amortization of debt discount and interest expenses amounted to $115,836 and $37,500,
respectively.
As
of September 30, 2019 and December 31, 2018, accrued interest amounted to $63,603 and $13,187, respectively.
NOTE
11– RELATED PARTY TRANSACTIONS
License
Agreement with ECrent Capital Holdings Limited
On
June 11, 2017, the Company entered into an Exclusivity Agreement (the “Exclusivity Agreement”) with ECrent Capital
Holdings Limited (“ECrent”) the terms of which became effective on the same day. Pursuant to the Exclusivity Agreement,
the Company and ECrent agreed to engage in exclusive discussions regarding a potential acquisition by the Company of ECrent and/or
any of its subsidiaries or otherwise all or part of ECrent’s business and potential business cooperation between the two
companies (collectively, the “Potential Transactions”) for a period of three months commencing from the date of the
Exclusivity Agreement (the “Exclusive Period”). Ms. Deborah Yuen, an former affiliate of Chan Tin Chi Family Company
Limited (formerly known as YSK 1860 Co., Limited), which is a major shareholder of the Company, controlled ECrent. ECrent agreed
that, during the Exclusive Period, neither ECrent nor its agents, representatives or advisors will contact, solicit, discuss or
negotiate with any third party with respect to any transaction relating to a transfer or pledge of securities of ECrent and/or
its subsidiaries, a sale of ECrent’s business, a business cooperation or any other matters that may adversely affect the
Potential Transactions or the parties’ discussion related thereto. The exclusivity period has been further extended to a
period of 18 months commencing from June 20, 2018 pursuant to three amendment agreements dated September 11, 2017, January 23,
2018 and June 20, 2018. On January 25, 2019, Sharing Economy International, Inc. terminated the Exclusivity Agreement entered
into with ECrent Capital Holdings Limited on June 11, 2017, as amended.
On
May 8, 2018, amended on May 24, 2018 and amended on August 30, 2018, Sharing Economy entered into a License Agreement (the “Agreement”)
with ECrent. In accordance with the terms of the Amendment, ECrent shall grant the Company an exclusive license to utilize certain
software and trademarks in order to develop, launch, operate, commercialize, and maintain an online website platform in Taiwan,
Thailand, India, Indonesia, Singapore, Malaysia, Philippines, Vietnam, Cambodia, Japan, and Korea until December 31, 2019. In
consideration for the license, the Company granted ECrent 250,000 shares of common stock (the “Consideration Shares”),
at an issue price of $1,040,000, or $4.16 per share, (based on the quoted market price of the Company’s common stock on
the amended Agreement date of May 24, 2018). Pursuant to the terms of the Agreement, ECrent shall provide a guarantee on revenue
and profit of $13,000,000 and $2,522,000, respectively. The Consideration Shares shall be reduced on a pro rata basis if there
is a shortfall in the guaranteed revenue and/or profit. In connection with this agreement, during the three and nine months ended
September 30, 2019, the Company recorded license fee expense of $165,958 and $497,872, respectively, which is included in cost
of sales, and as of September 30, 2019, recorded a prepaid license fee – related party of $165,957 which will be amortized
over the remaining license period.
Due
to related parties
Mr.
Chan Tin Chi owns 99% of the issued and outstanding ordinary shares of Chan Tin Chi Family Company Limited (formerly known as
YSK 1860 Co., Limited). From time to time, during 2018 and 2019, the Company receive advances from Mr. Chan Tin Chi and Chan Tin
Chi Family Company 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 nine months ended September 30, 2019 and 2018, the Company received advances from
Mr. Chan Tin Chi and Chan Tin Chi Family Company Limited for working capital totaled $519,543 and $580,046, respectively,
and repaid to Mr. Chan Tin Chi and Chan Tin Chi Family Company Limited a total of $31,604 and $0, respectively. At September
30, 2019 and December 31, 2018, amounts due to Mr. Chan Tin Chi and Chan Tin Chi Family Company Limited amounted to $1,745,444
and $1,257,505, respectively.
Bank
loans guaranteed by related parties
The
Company obtains two bank loans from Bank of China, due on November 20, 2019 and November 25, 2019, respectively. These loans are
guaranteed by Jianhua Wu, CEO, and Wuxi Angyida Machinery Co., Ltd, a company whose corporate representative is a brother of the
Company’s CEO (see Note 9).
NOTE
12 – STOCKHOLDERS’ EQUITY
Common
stock issued for cash
In
March 2019, pursuant to a stock purchase agreement, the Company sold 690,000 shares of common stock to an investor at a purchase
price of $0.29 per share for net cash proceed a total of $200,100. The Company did not engage a placement agent with respect to
these sales.
Common
stock issued for services and common stock surrendered
During
the nine months ended September 30, 2019, pursuant to consulting and service agreements, the Company issued an aggregate of 1,349,347
shares of common stock to twenty four consultants 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 common stock at reporting date. During the nine months ended September 30, 2019, the fair value of the
above mentioned shares issued and the change in value of the shares to be issued was $288,969. The Company recognizes stock-based
professional fees over the period during which the services are rendered by such consultant or vendor. For the nine months ended
September 30, 2019, the Company recorded stock-based consulting and service fees to service provider and employees of $2,710,195.
In connection with the issuance/future issuance of shares to consultants and vendors, the Company recorded prepaid expenses of
$1,026,124 which will be amortized over the remaining service period.
During
the nine months ended September 30, 2019, the Company terminated the consulting agreements of eleven consultants. The consultants
surrendered an aggregate of 562,501 shares issued in prior periods. In addition, the Company also mutually agreed or terminated
the consulting and service agreements of three consultants and vendors. Both parties forgo their respective rights as stated in
the agreements; and the Company has no obligation to issue in aggregate of 223,135 shares in effect. As a result of the above
mentioned transactions, the Company reversed the fair value of $947,948 recognized in stockholders’ equity in prior periods.
Common
stock issued for debt conversion
In
January 2019, the Company issued 266,667 shares of its common stock upon conversion of debt (note 10).
Shares
issued for donation
In
February 2019, the Company issued 85,470 shares as donation to Hong Kong Baptist University (“HKBU”). The Foundation
would use the funds raised from the donation to support the delivery of education, operation, facilities enhancement and study
of the Academy of Film of HKBU. These shares were valued at $259,598, or $3.04 per share. In connection with this donation, during
the nine months ended September 30, 2019, the Company recorded donation expense of $259,598, which is included in operating expenses.
NOTE
13 – SEGMENT INFORMATION
During
the three and nine months ended September 30, 2019 and 2018, the Company operated in two reportable business segments - (1) the
manufacture of textile dyeing and finishing equipment segment, and (2) the Sharing Economy Segment which targets 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. The Company’s reportable segments were strategic business
units that offered different products. They were managed separately based on the fundamental differences in their operations and
locations. During the three and nine months ended September 30, 2019 and 2018, the Company’s dyeing and finishing equipment
operations were conducted in the PRC. The Sharing Economy Segment is based in Hong Kong.
Information
with respect to these reportable business segments for the three and nine months ended September 30, 2019 and 2018 was as follows:
|
|
|
For the Three Months ended
September 30,
|
|
|
For the Nine Months ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyeing and finishing equipment
|
|
$
|
1,676,831
|
|
|
$
|
2,444,437
|
|
|
$
|
5,216,740
|
|
|
$
|
7,499,362
|
|
|
Sharing economy
|
|
|
533
|
|
|
|
72,764
|
|
|
|
27,325
|
|
|
|
155,959
|
|
|
|
|
|
1,677,364
|
|
|
|
2,517,201
|
|
|
|
5,244,065
|
|
|
|
7,655,321
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyeing and finishing equipment
|
|
|
696,819
|
|
|
|
974,745
|
|
|
|
2,081,089
|
|
|
|
3,067,647
|
|
|
Sharing economy
|
|
|
12,301
|
|
|
|
4,458
|
|
|
|
16,727
|
|
|
|
13,210
|
|
|
|
|
|
709,120
|
|
|
|
979,203
|
|
|
|
2,097,816
|
|
|
|
3,080,857
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyeing and finishing equipment
|
|
|
35,605
|
|
|
|
26,892
|
|
|
|
116,597
|
|
|
|
88,372
|
|
|
Sharing economy
|
|
|
137,668
|
|
|
|
92,002
|
|
|
|
228,483
|
|
|
|
153,336
|
|
|
Other
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
|
|
173,276
|
|
|
|
118,894
|
|
|
|
345,083
|
|
|
|
241,708
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyeing and finishing equipment
|
|
|
(311,457
|
)
|
|
|
(13,293,023
|
)
|
|
|
(23,833,748
|
)
|
|
|
(17,364,755
|
)
|
|
Sharing economy
|
|
|
(261,178
|
)
|
|
|
(4,319,404
|
)
|
|
|
(1,374,469
|
)
|
|
|
(8,049,373
|
)
|
|
Discontinued segments
|
|
|
-
|
|
|
|
(385
|
)
|
|
|
-
|
|
|
|
16,486
|
|
|
Other
|
|
|
(540,240
|
)
|
|
|
(960,907
|
)
|
|
|
(3,201,564
|
)
|
|
|
(4,065,420
|
)
|
|
|
|
$
|
(1,112,875
|
)
|
|
$
|
(18,573,719
|
)
|
|
$
|
(28,409,781
|
)
|
|
$
|
(29,463,062
|
)
|
NOTE
14 – CONCENTRATIONS
Customers
Five customers accounted for approximately
80% (34%, 16%, 14%, 8% and 8%) of the Company’s revenues for the three months ended September 30, 2019.
Five customers accounted for approximately
43% (11%, 10%, 8%, 7% and 7%) of the Company’s revenues for the nine months ended September 30, 2019.
The
total outstanding accounts receivable balance of Customer A, B, C, D, and E are $260,079, $168,154, $70,064, $472,233 and $29,427 respectively as of September
30, 2019.
Suppliers
Three suppliers accounted for approximately
73% (46%,16%, 11%) of the Company’s inventories purchases for the three months ended September 30, 2019.
Two suppliers accounted for approximately
40% (20% and 20%) of the Company’s inventories purchases for the nine months ended September 30, 2019.
The
total outstanding accounts payable balance of Supplier A, B and C are $278,918, $69,604 and $310,659
respectively as of September 30, 2019.
NOTE
15 – 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.
From
time to time the Company may become a party to litigation in the normal course of business. Management believes that there are
no current legal matters that would have a material effect on the Company’s financial position or results of operations.
NOTE
16 – RESTRICTED NET ASSETS
Regulations
in the PRC permit payments of dividends by the Company’s PRC subsidiary and VIEs only out of their retained earnings, if
any, as determined in accordance with PRC accounting standards and regulations. Subject to certain cumulative limit, a statutory
reserve fund requires annual appropriations of at least 10% of after-tax profit, if any, of the relevant PRC VIEs and subsidiary.
Heavy Industries and Dyeing had reached the cumulative limit as of December 31, 2018. The statutory reserve funds are not distributable
as cash dividends. As a result of these PRC laws and regulations, the Company’s PRC VIEs and its PRC subsidiary are restricted
in their abilities to transfer a portion of their net assets to the Company. Foreign exchange and other regulations in PRC may
further restrict the Company’s PRC VIEs and its subsidiary from transferring funds to the Company in the form of loans and/or
advances.
As
of September 30, 2019 and December 31, 2018, substantially all of the Company’s net assets are attributable to the PRC VIEs
and its subsidiary located in the PRC. Accordingly, the Company’s restricted net assets (liabilities) as of September 30,
2019 and December 31, 2018 were approximately ($5,145,000) and $21,923,000, respectively.
NOTE
17 – SUBSEQUENT EVENTS
In
accordance with ASC Topic 855, “ Subsequent Events ”, which establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated
all events or transactions that occurred after September 30, 2019 up through the filing date the Company issued the unaudited
condensed consolidated financial statements. During the period, the Company had the following material subsequent events:On
November 4, 2019, the Company held its 2019 annual meeting of stockholders. The matters voted upon were the election of directors,
approval of an amendment to the Company’s 2016 Long-Term Inventive Plan, and approval to increase the number of authorized
shares.