SHARING ECONOMY INTERNATIONAL INC. Overview
Historically, our primary operations involved the design, manufacture and distribution of a line of proprietary high and low temperature dyeing and finishing machinery to the textile industry, which has terminated in December, 2019.
With the termination of the manufacturing businesses, we are actively exploring other new ventures and opportunities that could contribute to our business
in the future.
Given the termination of our manufacturing business, we continued to pursue what we believe are high growth opportunities for the Company, particularly our new business divisions focused on the development of sharing economy platforms and related rental businesses within the company. These initiatives are still in an early stage and are dependent in large part on availability of capital to fund their future growth. We did not generate significant revenues from our sharing economy business initiatives in 2019 or during the nine months endedSeptember 30, 2020 . Recent developmentsInspirit Studio During the period, BuddiGo, the sharing economy mobile platform developed byInspirit Studio Limited ("Inspirit Studio"), continuously promoted its service to the local market inHong Kong . BuddiGo offers a wide range of errand services. Currently, about 80 percent of the orders received are for on-demand urgent delivery of items such as documents, flowers and cakes. Food delivery services are also available. During the period fromJune 2018 toJune 30, 2019 , over 1,200 individuals have officially registered as sell-side buddies, who completed over 600 delivery orders fromJune 2018 toJune 30, 2020 , majority orders were happened in the third quarter of year 2018. In addition, BuddiGo has signed up with a number of local business partners to provide ongoing delivery services for these clients. BuddiGo's goal is to connect with the community and deliver localized content featuring BuddiGo's core features and advantages. BuddiGo is actively seeking strategic investors or collaborative parties who are enthusiastic about its business model and can help achieve its business targets and expand into different countries. 3DDiscovery Co. Limited 3D Discovery, an IT service provider that develops virtual tours for the real estate, hospitality and interior design industries. 3D Discovery's space capturing and modeling technology is already used by some ofHong Kong's leading property agencies to provide their clients with a truly immersive, first-hand experience of a physical space while saving them time and money. According to Goldman Sachs, the Real Estate virtual reality ("VR") industry is predicted to reach$2.6 billion in 2025, supported by a potential user base of over 1.4 million registered real estate agents in some of the world's largest markets. Apart from its existing profitable operations, 3D Discovery is developing a mobile app, Autocap, which allows users to create an interactive virtual tour of a physical space by using a mobile phone camera. 3D Discovery successfully completed a number of projects during the year. First, its "3D Virtual Tours inHong Kong " generated about 1,371,000 impressions in 2018. In addition, 3D Discovery partnered withMidland Realty , one of the largest real estate agencies inHong Kong , to establish the "Creation 200 3D Virtual Tours.".EC Advertising Limited
We started meeting with a number of potential clients there and anticipate that this advertising company will confirm with them several marketing campaigns. In order to maximize our exposure to the potential clients in Mainland China, we are developing a strategic media plan which will cover major cities in MainlandChina such asBeijing ,Shanghai ,Guangzhou andShenzhen . Major banks, real estate developers and consumer products manufacturers and retailers are our target clients. More importantly, our presence in Mainland China can facilitate the rollout of franchise programs of our business units, which is one of the revenue drivers for the Company. 20 ECrent Platform Business
In
Going forward, we will continue targeting the technology and global sharing economy markets, by developing online platforms and rental business partnerships that will drive the global development of sharing through economical rental business models.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.
Accounts Receivable
We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery
is
considered remote.
As a basis for estimating the likelihood of collection has been established, we
consider a number of factors when determining reserves for uncollectable
accounts. We believe that we use a reasonably reliable methodology to estimate
the collectability of our accounts receivable. We review our allowances for
doubtful accounts on at least a quarterly basis. We also consider whether the
historical economic conditions are comparable to current economic conditions. If
the financial condition of our customers or other parties that we have business
relations with were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required.
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Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:
Useful Life
Office equipment and furniture 5 Years
Vehicles 5 Years
Vessels 5 Years
The cost of repairs and maintenance is expensed as incurred; major replacements
and improvements are capitalized. When assets are retired or disposed of, the
cost and accumulated depreciation are removed from the accounts, and any
resulting gains or losses are included in the statements of income and
comprehensive income in the year of disposition.
We examine the possibility of decreases in the value of fixed assets when events
or changes in circumstances reflect the fact that their recorded value may not
be recoverable. We recognize an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset.
Stock-based Compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 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 the award is non-forfeitable. The Accounting Standards Codification 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, effectiveJanuary 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. ThroughSeptember 30, 2018 , pursuant to ASC 505-50 - "Equity-Based Payments to Non-Employees", all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. The Company periodically reassessed the fair value of non-employee share based payments until service conditions are met, which generally aligns with the vesting period of the equity instrument, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. InJune 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 afterDecember 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. 22 Currency Exchange Rates
Our functional currency is the
Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiary. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders' equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future. Our financial statements are expressed inU.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB and theHong Kong dollar. To the extent we hold assets denominated inU.S. dollars, any appreciation of the RMB or HKD against theU.S. dollar could result in a charge in our statement of operations and a reduction in the value of ourU.S. dollar denominated assets. On the other hand, a decline in the value of RMB or HKD against theU.S. dollar could reduce theU.S. dollar equivalent amounts of our financial results.
Recent Accounting Pronouncements
InFebruary 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. InDecember 2017 ,January 2018 ,July 2018 ,December 2018 ,December 2019 andMarch 2020 , the FASB issued ASU 2017-13, ASU 2018-01, ASU 2018-10 & 11, ASU 2018-20 and ASU 2019-01, respectively, which contain modifications and improvements to ASU 2016-02. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under the Optional Transition Method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. OnJanuary 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 ofJanuary 1, 2019 . InJune 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. 23 RESULTS OF OPERATIONS
Three months ended
The following table sets forth the results of our operations for the three
months ended
Three Months ended
September 30,
2020 2019
Revenues $ 50,069 $ 533
Cost of revenues (31,794 ) 13,490
Gross profit 18,275 14,023
Operating expenses 749,757 703,025
Loss from operations (731,482 ) (689,002 )
Other (expense) income, net 37,633 (74,231 )
Loss from continuing operations before provision for income taxes (693,849 ) (763,233 )
Provision for income taxes - -
Loss from continuing operations (693,849 ) (763,233 )
Loss from discontinued operations, net of income taxes - (318,783 ) Net loss$ (693,849 ) $ (1,082,016 ) Revenues. During the three months endedSeptember 30, 2020 , we recognized revenues from our sharing economy business of$50,069 compared to$533 for the three months endedSeptember 30, 2019 , an increase of$49,536 , or 929%. Cost of revenues. Cost of revenues includes commission costs. For the three months endedSeptember 30, 2020 , cost of revenues was$31,794 as compared to ($13,490 ) for the three months endedSeptember 30, 2019 , an increase of$45,284 , or 335.6%.
Gross profit and gross margin.
Our gross profit was$18,275 for the three months endedSeptember 30, 2020 as compared to gross profit of$14,023 for the three months endedSeptember 30, 2019 , representing gross margins of 36% and 263%, respectively. The decrease in our gross margin for the three months endedSeptember 30, 2020 was primarily attributed to the new business revenue from acquisition of a non-wholly owned subsidiary. Operating expenses.
For the three months ended
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Loss from operations.
As a result of the factors described above, for the three months ended September
30, 2020 , loss from operations amounted to $731,482 as compared to $689,002 for
the three months ended September 30, 2019 .
Other income (expense).
Other income (expense) includes interest income, interest expense, foreign currency transaction gain (loss), impairment loss on marketable securities, gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the three months endedSeptember 30, 2020 , total other income, net, amounted to$37,633 as compared to other expense, net, of$74,231 for the three months endedSeptember 30, 2019 , a decrease of$111,864 . The decrease in other expense, net, was primarily attributable to losses incurred in the three months endedSeptember 30, 2020 related interest expense of$109,071 and gain on sale of marketable securities of$154,285 .
Income tax provision. Income tax expense was
Loss from continuing operations. As a result of the foregoing, our loss from continuing operations was$693,849 , or$(0.00) per share (basic and diluted), for the three months endedSeptember 30, 2020 , as compared with loss from continuing operations of$763,233 , or$(7.71) per share (basic and diluted), for the three months endedSeptember 30, 2019 , an decrease of$69,384 , or 9.09%.
Loss from discontinued operations, net of income taxes. Our loss from
discontinued operations was
The summarized operating result of discontinued operations included in our condensed consolidated statements of operations is as follows:
Three Months ended
September 30,
2020 2019
Revenues $ - $ 1,676,831
Cost of revenues - (1,709,129 )
Gross loss - (32,298 )
Other operating expenses - (225,423 )
Loss from discontinued operations before income taxes - (257,721 )
Other expense, net (61,062 )
Income taxes - -
Loss from discontinued operations, net of income taxes $ -
Net loss. As a result of the foregoing, our net loss was$693,849 , or$(0.00) per share (basic and diluted), for the three months endedSeptember 30, 2020 , as compared with net loss$1,082,016 , or$(7.71) per share (basic and diluted), for the three months endedSeptember 30, 2019 , a change of approximately$388,167 ,
or
35.87%.
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Nine months ended
The following table sets forth the results of our operations for the nine months
ended
Nine Months ended
September 30,
2020 2019
Revenues $ 118,051 $ 27,325
Cost of revenues (68,939 ) (11,990 )
Gross profit 49,112 15,335
Operating expenses 3,019,301 4,178,778
Loss from operations (2,970,189 ) (4,163,443 )
Other expense, net (2,334,573 ) (164,952 )
Loss from continuing operations before provision for income taxes (5,304,762 ) (4,328,395 )
Provision for income taxes - -
Loss from continuing operations (5,304,762 ) (4,328,395 )
Gain from discontinued operations, net of income taxes - (23,844,924 )
Net loss $ (5,304,762 ) $ (28,173,319 )
Revenues.
During the nine months ended September 30, 2020 , we recognized revenues from our
sharing economy business of $118,051 compared to $27,325 for the nine months
ended September 30, 2019 , an increase of $90,726 , or 332%.
Cost of revenues.
Cost of revenues includes commission costs. For the nine months ended
Gross profit and gross margin.
Our gross profit was$49,112 for the nine months endedSeptember 30, 2020 as compared to gross profit of$15,335 for the nine months endedSeptember 30, 2019 , representing gross margins of 42% and 56%, respectively. The decrease in our gross margin for the nine months endedSeptember 30, 2020 was primarily attributed to the decrease revenue generated from engineering service income of the new acquired non-wholly owned subsidiary. Operating expenses.
For the nine months ended
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Loss from operations.
As a result of the factors described above, for the nine months ended September
30, 2020 , loss from operations amounted to $2,970,189 , as compared to $4,163,443
for the nine months ended September 30, 2019 .
Other expense.
Other expense includes interest income, interest expense, foreign currency transaction gain (loss), impairment loss on marketable securities, gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the nine months endedSeptember 30, 2020 , total other expense, net, amounted to$2,334,573 as compared to$164,952 for the nine months endedSeptember 30, 2019 , an increase of$2,169,621 , or 1,315%. The increase in other expense, net, was primarily attributable to interest expense and impairment loss on marketable securities incurred in the nine months endedSeptember 30, 2020 .
Income tax provision. Income tax expense was
Loss from continuing operations. As a result of the foregoing, our loss from continuing operations was$5,304,762 , or$(0.06) per share (basic and diluted), for the nine months endedSeptember 30, 2020 , as compared with loss from continuing operations of$4,328,395 , or$(22.67) per share (basic and diluted), for the nine months endedSeptember 30, 2019 , an increase of$976,367 , or 22.56%. Loss from discontinued operations, net of income taxes. Our loss from discontinued operations was$0 , or$0.00 per share (basic and diluted), for the nine months endedSeptember 30, 2020 , as compared with loss from discontinued operations of$23,844,924 , or$(134.46) per share (basic and diluted), for the nine months endedSeptember 30, 2019 .
The summarized operating result of discontinued operations included our condensed consolidated statements of operations is as follows:
Nine Months ended
September 30,
2020 2019
Revenues $ - $ 5,216,740
Cost of revenues - (9,583,746 )
Gross loss - (4,367,006 )
Other operating expenses - (19,279,018 )
Loss from discontinued operations before income taxes - (23,646,024 )
Other expense, net (198,900 )
Income taxes - -
Loss from discontinued operations, net of income taxes $ -
Net loss. As a result of the foregoing, our net loss was$5,304,762 , or$(0.06) per share (basic and diluted), for the nine months endedSeptember 30, 2020 , as compared with net loss$28,173,319 , or$(157.14) per share (basic and diluted), for the nine months endedSeptember 30, 2019 , a change of approximately$22,868,557 , or 81.2%.
Liquidity and Capital Resources
Nine Months Ended
As of
The following table sets forth a summary of our cash flows for the periods as
indicated:
For the Nine Months ended
September 30,
2020 2019
Net cash used in operating activities $ (1,318,213 ) $ (396,906 )
Net cash used in investing activities $ 833,726 $ (99,941 )
Net cash provided by financing activities $ 1,723,082 $ 70,655
Effect of exchange rate changes on cash and cash equivalents $ (33,239 ) $ (231,057 )
Net increase (decrease) in cash and cash equivalents $ 1,205,357 $ (657,249 )
Cash and cash equivalents at beginning of period $ 83,667 $ 883,461
Less: cash and cash equivalents from discontinued operations $ - $ (151,798 )
Cash and cash equivalents at end of period $ 1,289,024 $ 74,414
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The following table sets forth a summary of changes in our working capital from
Change in
September 30, December 31, Working Percentage
2020 2019 Capital Change
Working capital:
Total current assets $ 4,568 $ 5,636 $ (1,068 ) (18.9 )%
Total current liabilities 11,036 8,683 2,353 27.1 %
Working capital $ (6,468 ) $ (3,047 ) $ (3,421 ) 112 %
Working Capital. Total working capital as ofSeptember 30, 2020 amounted to approximately negative$6.4 million , as compared to approximately negative$3.0 million as ofDecember 31, 2019 . The deterioration in working capital was due mainly to a decline in net assets. Net cash used in operating activities was$1,318,213 for the nine months endedSeptember 30, 2020 , and consisted primarily of a net loss of$5,304,762 , adjusted for depreciation and amortization of$253,770 , written-off prepayments of$122,514 , impairment loss on marketable securities of$1,885,085 , impairment loss on goodwill of$1,163,590 and the loss on disposal of a subsidiary of$70,901 , an increase in accounts receivable of$11,143 , a decrease in prepaid expenses and other receivables of$2,187 , a decrease in accounts payable and accrual of$39,099 , an increase in other payable of$230,952 , a decrease in taxes payable of$6,802 , and an increase in deferred revenue of$269 . Net cash flow generated from investing activities was$833,726 for the nine months endedSeptember 30, 2020 as compared to$99,941 for the six months endedSeptember 30, 2019 . For the nine months endedSeptember 30, 2020 , net cash flow used in investing activities reflects cash received from acquisition of a non-wholly owned subsidiary, disposal of subsidiary of$8,251 , purchase of marketable securities of$8,078,052 and proceeds from sale of marketable securities of$8,711,484 . Net cash flow provided by financing activities was$1,723,082 for the nine months endedSeptember 30, 2020 as compared to$70,655 for the nine months endedSeptember 30, 2019 . During the nine months endedSeptember 30, 2020 , we received advances from related party of$166,657 , received from bank loan of$1,412,574 , received from issuance of note payable of$183,000 , offset by repayments for bank loans of approximately$39,149 . During the nine months endedSeptember 30, 2019 , we repay to related party of$4,616,651 and received proceeds from sale of common stock of$200,100 , offset by repayments for related party advance of$31,604 . Net cash flow used in financing activities from discontinued operations was$608,999 . We have historically funded our capital expenditures through cash flow provided by operations and bank loans. We intend to fund the cost by obtaining financing mainly from local banking institutions with which we have done business in the past. We believe that the relationships with local banks are in good standing and we have not encountered difficulties in obtaining needed borrowings from local banks.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows. The following tables summarize our contractual obligations as ofSeptember 30, 2020 (dollars in thousands), and the effect these obligations are expected to have on our liquidity and cash flows in future periods. Payments Due by Period Less than Contractual obligations: Total 1 year 1-3 years 3-5 years 5+ years Bank loans$ 11,083 $ 6,124 $ 4,959 $ - $ - Convertible note (1) 926 926 - - - Total$ 12,009 $ 7,050 $ 4,959 $ - $ -
(1) Convertible note is currently in default with the outstanding balance of
the date of filing, both parties have not reached into the mutual agreement.
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Off-balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us. Inflation
The effect of inflation on our revenue and operating results was not significant.
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