NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
NOTE
1 – DESCRIPTION OF BUSINESS AND ORGANIZATION
Sharing
Economy International Inc. (the “Company”) was incorporated in Delaware on June 24, 1987 under the name of Malex,
Inc. On December 18, 2007, the Company’s corporate name was changed to China Wind Systems, Inc. and on June 13, 2011, the
Company changed its corporate name to Cleantech Solutions International, Inc. On August 7, 2012, the Company was converted into
a Nevada corporation. On January 8, 2018, the Company changed its corporate name to Sharing Economy International Inc.
Following
the closure of its operations in the PRC during 2019, 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,
and 60% of its shareholdings was acquired by EC Technology on January 19, 2018.
|
|
|
●
|
Sharing
Film International Limited, a company incorporated under the laws of Hong Kong on January 22, 2018 and is a wholly-owned by
EC Creative.
|
|
|
●
|
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 a wholly-owned by EC Advertising.
|
On March 24, 2020, the Company sold its equity interest of 80%
in AnyWorkspace Limited for a consideration of approximately $8,251 with a loss on disposal of $70,901.
Going
Concern
These condensed consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements,
the Company had a loss from continuing operations of approximately $2,677,655 for the three months ended March 31, 2020 and suffered
from the accumulated deficit of $68,575,758 at that date. The net cash used in operations were approximately $365,392 for the
three months ended March 31, 2020. 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
condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of
recorded asset amounts or classification of liabilities that might be necessary should the Company be unable to continue as a
going concern.
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”. On January 2, 2020, the Company is trading on OTCQB.
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 three months ended March 31, 2020 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2020. 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, 2019 and footnotes
thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on July 24, 2020. The consolidated balance
sheet as of December 31, 2019 contained herein has been derived from the audited consolidated financial statements as of December
31, 2019, but does not include all disclosures required by the generally accepted accounting principles in the U.S. (“U.S.
GAAP”).
Principles
of Consolidation
The
Company’s unaudited condensed consolidated financial statements include the financial statements of its wholly-owned and
majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The preparation of the 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 three months ended March 31, 2020 and 2019 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 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. Cash equivalents include highly liquid investments with maturities of three months or less when purchased.
Cash and cash equivalents held at financial institutions may at times exceed insured amounts. It is believed that the Company
mitigates such risk by investing in or through major financial institutions.
Fair
Value of Financial Instruments
The
Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as
follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level
2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived
from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the reporting
entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on
the best available information.
The carrying amounts reported in the
condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, prepaid expenses and other receivables,
short-term bank loans, convertible notes 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 March
31, 2020 and December 31, 2019, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine
such fair value.
|
|
|
March 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
|
|
$
|
2,531,283
|
|
|
$
|
2,531,283
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Quoted
Prices In
Active Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
|
Description
|
|
2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, available-for-sale
|
|
$
|
4,532,296
|
|
|
$
|
4,532,296
|
|
|
$
|
–
|
|
|
$
|
–
|
|
As of March 31, 2020 and December 31, 2019, the Company did
not have any nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements, at
least annually, on a recurring basis, nor did the Company have any assets or liabilities measured at fair value on a non-recurring
basis.
Concentrations
of Credit Risk
The
Company’s operations are carried out in Hong Kong. Accordingly, the Company’s business, financial condition and results
of operations may be influenced by the political, economic and legal environment in Hong Kong. The Company’s operations
in Hong Kong are subject to specific considerations and significant risks not typically associated with companies in North America.
The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts
receivable. Substantially all of the Company’s cash is maintained with large commercial banks in Hong Kong, Singapore and
China, none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes
it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales
which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however,
concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The
Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
Accounts
Receivable
Accounts
receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for
estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when
there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current
credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At March 31, 2020
and December 31, 2019, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts
in the amounts of $0 and $48,952, 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.
|
|
|
Useful life
|
|
Office equipment and furniture
|
|
5 years
|
|
Vehicles
|
|
5 years
|
|
Vessels
|
|
5 years
|
Depreciation
expense from continuing operations for the three months ended March 31, 2020 and 2019 amounted to $33,842 and $6,245, respectively.
Depreciation expense from discontinued operations for the three months ended March 31, 2020 and 2019 amounted to $0 and $689,286,
respectively.
Impairment
of long-lived assets and intangible assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value. At March 31, 2020
and December 31, 2019, the Company conducted an impairment assessment on property, equipment and intangible asset based on the
guidelines established in ASC Topic 360 to determine the estimated fair market value of property, equipment and intangible asset
as of March 31, 2020 and December 31, 2019. Such analysis considered future use of such equipment, consultation with equipment
resellers, subsequent sales of price of equipment held for sale, and other industry factors. Upon completion of the annual impairment
analysis, the Company recorded impairment charges on long-lived assets of $0 and $13,586,059, for the three months ended March
31, 2020 and 2019, in relation to its discontinued operations.
Revenue
recognition
In
May 2014, FASB issued an update Accounting Standards Update (“ASU”) (“ASU 2014-09”) establishing Accounting
Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASU
2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard,
which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity
to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.
The Company adopted this standard in 2018 using the modified retrospective approach, which requires applying the new standard
to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained
earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the
Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have a material impact on the process for,
timing of, and presentation and disclosure of revenue recognition from customers.
Continuing
operations
The
Company derives its revenues from the sale of licence and advertising right and in a term of certain periods. The Company applies
the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations
under each of its agreements:
|
|
●
|
identify
the contract with a customer;
|
|
|
●
|
identify
the performance obligations in the contract;
|
|
|
●
|
determine
the transaction price;
|
|
|
●
|
allocate
the transaction price to performance obligations in the contract; and
|
|
|
●
|
recognize
revenue as the performance obligation is satisfied.
|
Discontinued
operations
The
Company recognizes revenues from the sale of equipment upon shipment and transfer of title. The other elements may include installation
and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete
installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is
generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person
hours to complete a service and generally is recognized over the contract period.
All
other product sales with customer specific acceptance provisions are recognized upon customer acceptance and the delivery of the
parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.
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.
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 three months ended March 31, 2020 and 2019 was $19,919 and $169,449,
respectively.
The
Company did not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not
expected to have, a material effect on the results of operations of the Company.
Translation of amounts from RMB and HK$ into US$ has been made
at the following exchange rates for the period ended March 31, 2020 and 2019:
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
|
Period-end RMB:US$ exchange rate
|
|
|
7.1363
|
|
|
|
6.7112
|
|
|
Period average RMB:US$ exchange rate
|
|
|
6.8609
|
|
|
|
6.7447
|
|
|
Period-end HK$:US$ exchange rate
|
|
|
7.7872
|
|
|
|
7.8498
|
|
|
Period average HK$:US$ exchange rate
|
|
|
7.8000
|
|
|
|
7.8000
|
|
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 months
ended March 31, 2020 and 2019. In a period in which the Company has a net loss, all potentially dilutive securities are excluded
from the computation of diluted shares outstanding as they would have had an anti-dilutive impact.
The
following table presents a reconciliation of basic and diluted net loss per share:
|
|
|
Three months ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net Loss for basic and diluted attributable to common shareholders
|
|
$
|
(2,275,071
|
)
|
|
$
|
(24,720,429
|
)
|
|
From continuing operations
|
|
|
(2,275,071
|
)
|
|
|
(2,118,784
|
)
|
|
From discontinued operations
|
|
$
|
-
|
|
|
$
|
(22,601,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding – basic and diluted
|
|
|
199,418,592
|
|
|
|
8,118,610
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock
|
|
|
|
|
|
|
|
|
|
From continuing operations – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.26
|
)
|
|
From discontinued operations – basic and diluted
|
|
|
-
|
|
|
|
(2.78
|
)
|
|
Net loss per common share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(3.04
|
)
|
Comprehensive
Loss
Comprehensive loss is comprised of
net loss and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes
in paid-in capital and distributions to stockholders. For the Company, comprehensive loss income for the three months ended March
31, 2020 and 2019 included net loss, and unrealized gain from foreign currency translation adjustments.
Reclassification
Certain
reclassifications have been made in prior period’s consolidated financial statements to conform to the current year’s
financial presentation. The reclassifications have no effect on previously reported net loss.
Recent
Accounting Pronouncements
In
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 2020, the FASB issued ASU 2017-13, ASU 2018-01, ASU 2018-10 & 11, ASU 2018-20
and ASU 2019-01, respectively, which contain modifications and improvements to ASU 2016-02. The amendments provide entities with
an additional (and optional) transition method to adopt the new leases standard. Under the Optional Transition Method, an entity
initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance
of retained earnings in the period of adoption. On January 1, 2019, the Company adopted ASC Topic 842 using the modified retrospective
approach and elected to utilize the Optional Transition Method. In addition, the Company elected the land easement transition
practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has
not historically been accounted for as a lease. The adoption did not impact the Company’s previously reported consolidated
financial statements nor did it result in a cumulative effect adjustment to retained earnings as of January 1, 2019.
In
June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment. ASU 2018-07 aligns the accounting for share based payments granted to non-employees with that of share based payments
granted to employees. The Company early adopted ASU No. 2018-07 in the fourth quarter of 2018 and there was no cumulative effect
of adoption. The adoption of this ASU did not have a material impact on our financial position, results of operations, cash flows,
or presentation thereof.
NOTE
2 – DISCONTINUED OPERATIONS
On
December 30, 2019, the Company’s Board of Directors approved to enter into a VIE Termination Agreement relating to the termination
of the Consulting Services Agreement, Operating Agreement, Equity Pledge Agreement, Option Agreement, Voting Rights Proxy Agreement
dated October 12, 2007 with Huayang Companies. The operations in China was closed down and fully written-off at December 31, 2019.
The assets and liabilities of Huayang Companies have been accounted for as discontinued operations in the Company’s combined
and consolidated balance sheets for all periods presented. The operating results related to these lines of business have been
included in discontinued operations in the Company’s combined and consolidated statements of operations for all periods
presented.
On
March 24, 2020, the Company sold its equity interest of 80% in AnyWorkspace Limited. The assets and liabilities of AnyWorkspace
Companies have been accounted for as discontinued operations in the Company’s combined and consolidated balance sheets for
all periods presented. The operating results related to these lines of business have been included in discontinued operations
in the Company’s combined and consolidated statements of operations for all periods presented.
The
summarized operating result of discontinued operations included in the Company’s unaudited condensed consolidated statements
of operations is as follows:
|
|
|
Three months ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
1,887,265
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
(5,699,420
|
)
|
|
Gross loss
|
|
|
-
|
|
|
|
(3,812,155
|
)
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
Other operating expense
|
|
|
-
|
|
|
|
(18,746,856
|
)
|
|
Total operating expense
|
|
|
-
|
|
|
|
(18,746,856
|
)
|
|
Other expense, net
|
|
|
-
|
|
|
|
(42,634
|
)
|
|
Loss from discontinued operations, net of income taxes
|
|
$
|
-
|
|
|
$
|
(22,601,645
|
)
|
NOTE
3 – INTANGIBLE ASSETS
As
of March 31, 2020 and December 31, 2019, intangible assets consisted of the following:
|
|
|
Useful life
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets
|
|
3 – 5 years
|
|
|
843,817
|
|
|
|
843,817
|
|
|
Redemption code
|
|
5 years
|
|
|
750,000
|
|
|
|
750,000
|
|
|
Goodwill
|
|
infinite
|
|
|
27,353
|
|
|
|
27,353
|
|
|
|
|
|
|
|
1,621,170
|
|
|
|
1,621,170
|
|
|
Less: accumulated amortization
|
|
|
|
|
(563,225
|
)
|
|
|
(512,763
|
)
|
|
|
|
|
|
$
|
1,057,945
|
|
|
$
|
1,108,407
|
|
Amortization
of intangible assets attributable to future periods is as follows:
|
Year ending March 31:
|
|
Amount
|
|
|
2021
|
|
$
|
419,317
|
|
|
2022
|
|
|
140,353
|
|
|
2023
|
|
|
167,932
|
|
|
2024
|
|
|
152,988
|
|
|
2025
|
|
|
150,000
|
|
|
|
|
$
|
1,030,590
|
|
Amortization of intangible assets from continuing operations
was $50,748 and $67,723 for the three months ended March 31, 2020 and 2019, respectively. Amortization of intangible assets from
discontinued operations was $0 and $20,882 for the three months ended March 31, 2020 and 2019, respectively.
NOTE 4 – BANK LOANS
Bank loans of $5,069,557 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 $4,558,749
is expected to be repaid in the next twelve months and interest is charged at the rate of 3.15% per annum over the Hong Kong Dollar
Best Lending Rate.
At March 31, 2020, the banking facilities
of the Company were secured by:
|
|
●
|
Personal
guarantee by the directors of the Company’s subsidiary;
|
|
|
●
|
Legal
charge and rental assignment over the leasehold land and buildings owned by its related companies which are controlled by
the major shareholder of the Company, Mr. Chan Tin Chi; and
|
|
|
●
|
Hong
Kong Mortgage Corporation Limited.
|
At
March 31, 2020 and December 31, 2019, bank loans consisted of the following:
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Mortgage loan
|
|
$
|
5,069,557
|
|
|
$
|
5,098,796
|
|
|
Line of revolving loan
|
|
|
4,558,749
|
|
|
|
4,558,749
|
|
|
Short-term bank loans
|
|
|
-
|
|
|
|
1,195,297
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bank loans
|
|
|
9,628,306
|
|
|
|
10,852,842
|
|
|
Less: Total bank loans – discontinued operations
|
|
|
-
|
|
|
|
(1,195,297
|
)
|
|
Total bank loans – continuing operations
|
|
$
|
9,628,306
|
|
|
$
|
9,657,545
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifying as:
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
4,683,873
|
|
|
$
|
4,676,184
|
|
|
Long-term portion (more than 12 months)
|
|
|
4,944,433
|
|
|
|
4,981,361
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bank loans
|
|
$
|
9,628,306
|
|
|
$
|
9,657,545
|
|
Interest
related to the bank loans from continuing operations was $95,831 and $90,815 for the three months ended March 31, 2020 and 2019,
respectively. Interest related to the bank loans from discontinued operations was $0 and $41,998 for the three months ended March
31, 2020 and 2019, respectively. All interests are included in interest expense on the accompanying condensed consolidated statements
of operations.
NOTE
5 – CONVERTIBLE NOTE PAYABLE
Securities
purchase agreement and related convertible note and warrants
On
May 2, 2018, pursuant to a securities purchase agreement, the Company closed a private placement of securities with Iliad Research
and Trading, L.P. (the “Investor”) pursuant to which the Investor purchased a Convertible Promissory Note (the “Iliad
Note”) in the original principal amount of $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.
As
of March 31, 2020 and December 31, 2019, convertible debt consisted of the following:
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Principal
|
|
$
|
838,571
|
|
|
$
|
838,571
|
|
|
Unamortized discount
|
|
|
-
|
|
|
|
-
|
|
|
Convertible debt, net
|
|
$
|
838,571
|
|
|
$
|
838,571
|
|
There was no amortization of discount for the three months ended
March 31, 2020 and 2019. As of March 31, 2020 and December 31, 2019, accrued interest amounted to $85,803 and $63,303, respectively.
NOTE
6 – RELATED PARTY TRANSACTIONS
Due
to related parties
From
time to time, during 2019 and 2018, 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 three months ended March 31, 2020 and 2019, the Company received advances from Chan
Tin Chi Family Company Limited for working capital totaled $310,493 and $820,061, respectively, and repaid to Chan Tin Chi Family
Company Limited a total of $0 and $31,604, respectively. At March 31, 2020 and December 31, 2019, amounts due to Chan Tin Chi
Family Company Limited amounted to $2,356,455 and $2,045,962, respectively.
At
March 31, 2020 and December 31, 2019, amounts due to related companies amounted to $377,389 and $319,542, respectively.
The
amounts are unsecured, interest-free and have no fixed terms of repayment.
NOTE 7 – STOCKHOLDERS’
DEFICIT
In March 2020, an amendment to The Company’s
Articles of Incorporation to increase the number of shares of common stock which the Company is authorized to issue from 250,000,000
to 7,450,000,000 was approved. The Company issued the remaining 7,018,360,787 shares of common stock to Peak Equity shareholders
subsequently in April 2020.
As of March 31, 2020, the Company’s
authorized share is 7,450,000,000 common shares with a par value of $0.001 per share, consisting of 50,000,000 shares of preferred
stock and 7,400,000,000 shares of common stock.
As of March 31, 2020 and December 31, 2019, the Company has
199,418,592 shares and 199,418,592 shares of common stock issued and outstanding, respectively.
NOTE
8 – CONCENTRATIONS
Customers
For the three months ended March 31, 2020
and 2019, there are no customers representing more than 10% of the Company’s revenue.
Vendors
For the three months ended March 31, 2020
and 2019, there are no vendors representing more than 10% of the Company’s purchase.
NOTE
9 – COMMITMENT AND CONTINGENCIES
Litigation:
On
April 25, 2019, ECPower (HK) Company Limited (“EC Power”), a subsidiary of SEII, filed a claim against The Dairy Farm
Limited (“Dairy Farm”) in respect of the cooperation agreement between the two parties for the battery rental business
at 7-Eleven outlets in Hong Kong during the period from September 2017 to February 2018. 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
10 – SUBSEQUENT EVENTS
The
Company is currently in default under Iliad Note with the outstanding balance of $838,571 in principal and $63,303 accrued interest
at December 31, 2019. In April 2020, an amount of $100,000 was redeemed and converted 502,955 shares of the Company’s common
stock. The remaining outstanding balance of Iliad Note was $1,269,464 at April 30, 2020. At the date of filing, both parties have
not reached into the mutual agreement.
On April 5, 2020, the Company and Oasis Capital, LLC (“Oasis”)
entered into a Equity Purchase Agreement, Oasis shall purchase from the Company up to Four Million Dollars ($4,000,000) of the
Company’s Common Stock, at 85% of Market Price. On April 15, 2020, 400,000 shares of Common Stock has issued by the Company
to Oasis as Commitment Shares.
On
April 7, 2020, the Company and Power Up Lending Group Ltd., (“Power Up”) entered into a Securities Purchase Agreement,
whereby the Company issued a note to Power Up (the “Power Up Note”) in the 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 a 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.
On
April 8, 2020, the Company and shareholder of OOB HK Media HK Limited (“OOB HK”) Entered into a Share Exchange Agreement,
whereby the Company shall issue 239,387,189 shares of series A convertible preferred stock at a price of $0.33 per share, in exchange
of 100% ownership of OOB HK, which owns 100% of Tone Rich (Shanghai) Limited that holds 69.6% of OOB Media (Sichuan) Company Limited,
an advertising media technology and agency company.
On
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 principal amount of $110,000 in exchange
for a total investment of $100,000. The Black Ice Note is a 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.
On April 21, 2020, the Company and StockVest (“StockVest”)
entered into a Consulting, Public Relationship and Marketing Letter Agreement, StockVest shall provide SEII with coverage and launch
a market awareness campaign and perform various public and investor relation services including but not limited to, news dissemination,
creation and distribution of investor information, double opt-in email campaigns, internet profiles and social media feeds. On
April 29, 2020, 400,000 shares of common stock has issued by the Company to StockVest as service fee.
In
May 2020, a 1-for-50 reverse stock split of the issued and outstanding shares of our common stock was approved.