NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 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.
|
|
|
●
|
Jebe
Production Group Limited (“Jebe”), a company incorporated under the laws of the Hong Kong on February 27, 2008
and 68% of its shareholding was acquired by the Company on May 6, 2020.
|
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.
On May 6, 2020, the Company acquired an
equity interest of 68% in Jebe Production Group Limited for a consideration of 2,658,000 shares of series A convertible preferred
stock, approximately $1,010,040.
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 $4,610,913 for the six months ended June 30, 2020 and suffered
from the accumulated deficit of $70,861,698 at that date. The net cash used in operations were approximately $755,715 for the six
months ended June 30, 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 six months ended June 30, 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 and six months ended June 30, 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 long-term assets, and the value of stock-based transactions.
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 June 30, 2020 and December 31, 2019, and
indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
|
|
|
June 30,
|
|
|
Quoted
Prices In
Active Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
|
Description
|
|
2020
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, available-for-sale
|
|
$
|
3,173,039
|
|
|
$
|
3,173,039
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
December 31,
|
|
|
Quoted
Prices In
Active Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
|
Description
|
|
2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, available-for-sale
|
|
$
|
4,532,296
|
|
|
$
|
4,532,296
|
|
|
$
|
–
|
|
|
$
|
–
|
|
As of June 30, 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 June 30, 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 $0, 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 June 30, 2020 and 2019 amounted to $33,842 and $0, respectively.
Depreciation expense from continuing operations
for the six months ended June 30, 2020 and 2019 amounted to $67,684 and $6,245, respectively.
Depreciation expense from discontinued
operations for the three months ended June 30, 2020 and 2019 amounted to $0 and $694,953, respectively.
Depreciation expense from discontinued
operations for the six months ended June 30, 2020 and 2019 amounted to $0 and $1,384,239, 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 June 30, 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 June 30, 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 $13,507,553 for the six months ended June 30, 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 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 June 30, 2020 and 2019:
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
Period-end RMB:US$ exchange rate
|
|
|
7.0682
|
|
|
|
6.8655
|
|
|
Period average RMB:US$ exchange rate
|
|
|
7.0324
|
|
|
|
6.7839
|
|
|
Period-end HK$:US$ exchange rate
|
|
|
7.7502
|
|
|
|
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. 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:
|
|
|
Six months ended
June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net Loss for basic and diluted attributable to common shareholders
|
|
$
|
(4,610,913
|
)
|
|
$
|
(27,090,603
|
)
|
|
From continuing operations
|
|
|
(4,610,913
|
)
|
|
|
(3,564,462
|
)
|
|
From discontinued operations
|
|
$
|
-
|
|
|
$
|
(23,526,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
3,473,150,047
|
|
|
|
8,657,671
|
|
|
- Diluted
|
|
|
3,474,119,263
|
|
|
|
8,657,671
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock
|
|
|
|
|
|
|
|
|
|
From continuing operations – basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.38
|
)
|
|
From discontinued operations – basic
|
|
|
(0.00
|
)
|
|
|
(2.72
|
)
|
|
Net loss per common share – basic
|
|
$
|
(0.00
|
)
|
|
$
|
(3.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations – diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.38
|
)
|
|
From discontinued operations – diluted
|
|
|
(0.00
|
)
|
|
|
(2.72
|
)
|
|
Net loss per common share – diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(3.10
|
)
|
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 six months ended June
30, 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 - BUSINESS COMBINATION
On May 6, 2020, the Company completed the
acquisition of 68% equity interest of Jebe Production Group Limited (the “Acquisition”). The total consideration of
the acquisition is 2,658,000 shares of series A convertible preferred stock, approximately $1,010,040.
The purchase price allocation resulted
in $1,080,898 of goodwill, as below:
|
Acquired assets:
|
|
US$
|
|
|
Cash and cash equivalents
|
|
$
|
192,022
|
|
|
Trade receivables
|
|
|
123,798
|
|
|
Other receivables
|
|
|
45,160
|
|
|
|
|
|
360,980
|
|
|
|
|
|
|
|
|
Less: Assumed liabilities
|
|
|
|
|
|
Accrued liabilities
|
|
|
(2,709
|
)
|
|
Amount due to a director
|
|
|
(462,474
|
)
|
|
|
|
|
(465,183
|
)
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
(104,203
|
)
|
|
Non-controlling interest
|
|
|
33,345
|
|
|
Goodwill recorded
|
|
|
1,080,898
|
|
|
|
|
|
|
|
|
Cash consideration allocated
|
|
$
|
1,010,040
|
|
The Acquisition was accounted for as a
business combination in accordance with ASC 805 “Business Combinations”. The Company has allocated the purchase
price consideration based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date.
Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible
assets identified as of the acquisition date and considered a number of factors including valuations from management estimation.
Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative
expense.
The goodwill is fully impaired during the
period ended June 30, 2020.
NOTE 3 – 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:
|
|
|
Six months ended
June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
3,539,909
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
(7,874,617
|
)
|
|
Gross loss
|
|
|
-
|
|
|
|
(4,334,708
|
)
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Other operating expense
|
|
|
-
|
|
|
|
(19,053,595
|
)
|
|
Total operating expense
|
|
|
-
|
|
|
|
(19,053,595
|
)
|
|
Other expense, net
|
|
|
-
|
|
|
|
(137,838
|
)
|
|
Loss from discontinued operations, net of income taxes
|
|
$
|
-
|
|
|
$
|
(23,526,141
|
)
|
NOTE 4 – INTANGIBLE
ASSETS
As of June 30, 2020 and December 31, 2019,
intangible assets consisted of the following:
|
|
|
Useful life
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets
|
|
3 – 5 years
|
|
|
844,245
|
|
|
|
843,817
|
|
|
Redemption code
|
|
5 years
|
|
|
750,000
|
|
|
|
750,000
|
|
|
Goodwill
|
|
infinite
|
|
|
27,353
|
|
|
|
27,353
|
|
|
|
|
|
|
|
1,621,598
|
|
|
|
1,621,170
|
|
|
Less: accumulated amortization
|
|
|
|
|
(613,865
|
)
|
|
|
(512,763
|
)
|
|
|
|
|
|
$
|
1,007,733
|
|
|
$
|
1,108,407
|
|
Amortization of intangible assets attributable to future periods
is as follows:
|
Year ending June 30:
|
|
Amount
|
|
|
2021
|
|
$
|
345,847
|
|
|
2022
|
|
|
168,017
|
|
|
2023
|
|
|
166,516
|
|
|
2024
|
|
|
150,000
|
|
|
2025
|
|
|
150,000
|
|
|
|
|
$
|
980,380
|
|
Amortization of
intangible assets from continuing operations was $101,496 and $67,723 for the six months ended June 30, 2020 and 2019, respectively.
Amortization of intangible assets from discontinued operations was $0 and $42,540 for the six months ended June 30, 2020 and 2019,
respectively.
Amortization of
intangible assets from continuing operations was $50,748 and $0 for the three months ended June 30, 2020 and 2019, respectively.
Amortization of intangible assets from discontinued operations was $0 and $21,658 for the three months ended June 30, 2020 and
2019, respectively.
NOTE 5 –
BANK LOANS
Bank loans of $5,083,817 represented amount
due to one financial institution in Hong Kong that are repayable in a term of 30 years, with 360 monthly installments and interest
is charged at the annual rate of 2.5% below its best lending rate.
Revolving credit line of $5,999,845 is
expected to be repaid in the next twelve months and interest is charged at the rate of 2.5% per annum over the Hong Kong Dollar
Best Lending Rate.
At June 30, 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 June 30, 2020 and December 31, 2019,
bank loans consisted of the following:
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan
|
|
$
|
5,083,817
|
|
|
$
|
5,098,796
|
|
|
Line of revolving loan
|
|
|
5,999,845
|
|
|
|
4,558,749
|
|
|
Short-term bank loans
|
|
|
-
|
|
|
|
1,195,297
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bank loans
|
|
|
11,083,662
|
|
|
|
10,852,842
|
|
|
Less: Total bank loans – discontinued operations
|
|
|
-
|
|
|
|
(1,195,297
|
)
|
|
Total bank loans – continuing operations
|
|
$
|
11,083,662
|
|
|
$
|
9,657,545
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifying as:
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
6,125,342
|
|
|
$
|
4,676,184
|
|
|
Long-term portion (more than 12 months)
|
|
|
4,958,320
|
|
|
|
4,981,361
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bank loans
|
|
$
|
11,083,662
|
|
|
$
|
9,657,545
|
|
Interest related to the bank loans from
continuing operations was $48,394 and $0 for the three months ended June 30, 2020 and 2019, respectively.
Interest related to the bank loans from
continuing operations was $144,225 and $90,815 for the six months ended June 30, 2020 and 2019, respectively.
Interest related to the bank loans from
discontinued operations was $0 and $69,282 for the three months ended June 30, 2020 and 2019, respectively.
Interest related to the bank loans from
discontinued operations was $0 and $111,280 for the six months ended June 30, 2020 and 2019, respectively.
All interests are included in interest
expense on the accompanying condensed consolidated statements of operations.
NOTE 6 – 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.
On April 30, 2020, the Company converted
an aggregate of $100,000 and $0 outstanding principal and interest of the Iliad Note, respectively, into 502,955 shares of its
common stock.
At June 30, 2020, the Iliad Note is in
default with the outstanding balance of $738,571 in principal and $444,789 of accrued interest. At the date of filing, both parties
have not reached into the mutual agreement.
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.
On April 7, 2020, pursuant to a securities
purchase agreement, the Company closed a private placement of securities with Power Up Lending Group Ltd. (“Power Up”)
pursuant to which Power Up purchased a Convertible Promissory Note (the “Power Up Note”) in the original principal
amount of $83,000, with additional tranches of up to $1,000,000 in the aggregate over the next twelve (12) months, subject to the
discretion of both parties. The Power Up Note is convertible into shares of the common stock of the Company at a price equal to
65% of the average of the two (2) lowest trading prices for the Company’s common stock during the twenty (20) trading day
period ending on the latest complete trading day prior to the conversion date. The Power Up Note bears interest at 8% per annum
and is due on October 7, 2021.
On April 14, 2020, the Company and
Black Ice Advisors, LLC (“Black Ice”) entered into a Securities Purchase Agreement, whereby the Company issued a
note to Black Ice (the “Black Ice Note”) in the original principal amount of $110,000. The Black Ice Note
contains an original issue discount of $10,000 which will be reflected as a debt discount and amortized over the Black Ice
Note term. The Black Ice Note is convertible into shares of the common stock of the Company at a price equal to 60% of the
lowest trading price of the Company’s common stock for the fifteen (15) prior trading days including the day upon which
a Notice of Conversion is received by the Company. The Black Ice Note bears interest at 10% per annum and is due on April 14,
2021.
As of June 30,
2020 and December 31, 2019, convertible debt consisted of the following:
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Convertible debt at principal amount
|
|
$
|
931,571
|
|
|
$
|
838,571
|
|
|
Unamortized discount
|
|
|
(7,863
|
)
|
|
|
-
|
|
|
Convertible debt, net
|
|
$
|
923,708
|
|
|
$
|
838,571
|
|
The amortization
of discount was $2,137 and $69,502 for the six months ended June 30, 2020 and 2019. The amortization of discount was $2,137 and
$69,502 for the three months ended June 30, 2020 and 2019. As of June 30, 2020 and December 31, 2019, accrued interest amounted
to $534,789 and $63,303, respectively.
NOTE 7 – 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 six months ended June 30, 2020 and 2019, the Company received advances from Chan Tin Chi Family Company Limited for working
capital totaled $0 and $299,878, respectively, and repaid to Chan Tin Chi Family Company Limited a total of $110,113 and $31,604,
respectively. At June 30, 2020 and December 31, 2019, amounts due to Chan Tin Chi Family Company Limited amounted to $2,269,458
and $2,045,962, respectively.
At June 30, 2020 and December 31, 2019,
amounts due to related companies amounted to $426,028 and $319,542, respectively.
The amounts are unsecured, interest-free
and have no fixed terms of repayment.
NOTE 8 – 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 7,018,942,195 shares of
common stock to Peak Equity shareholders in April 13, 2020.
As of June 30,
2020 and December 31, 2019, the Company has 7,219,663,742 shares and 199,418,592 shares of common stock issued and outstanding,
respectively.
As of June 30,
2020 and December 31, 2019, the Company has 3,189,600 shares and 0 shares of Series A preferred stock issued and outstanding, respectively.
Preferred stock issued for services
and acquisition of a non-wholly owned subsidiary
During the six
months ended June 30, 2020, pursuant to consulting and service agreements, the Company issued an aggregate of 531,600 shares of
preferred stock to one consultant and vendors for the services rendered and to be rendered. These shares were valued at the fair
market value on the grant date using the reported closing share price on the date of grant. At the end of each financial reporting
period prior to issuance of these shares, the fair value of these shares is measured using the fair value of the Company’s
preferred stock at reporting date. During the six months ended June 30, 2020, the fair value of the above mentioned shares issued
and the change in value of the shares to be issued was $202,008. The Company recognizes stock-based professional fees over the
period during which the services are rendered by such consultant or vendor. For the six months ended June 30, 2020, the Company
recorded stock-based consulting and service fees to service provider of $0. In connection with the issuance/future issuance of
shares to consultants and vendors, the Company recorded prepaid expenses of $202,008 which will be amortized over the remaining
service period.
On May 6, 2020,
the Company acquired an equity interest of 68% in Jebe Production Group Limited for a consideration of 2,658,000 shares of series
A convertible preferred stock.
Common stock issued for services
During the six
months ended June 30, 2020, pursuant to consulting and service agreements, the Company issued an aggregate of 800,000 shares of
common stock to several 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
preferred stock at reporting date. During the six months ended June 30, 2020, the fair value of the above mentioned shares issued
and the change in value of the shares to be issued was $276,000. The Company recognizes stock-based professional fees over the
period during which the services are rendered by such consultant or vendor. For the six months ended June 30, 2020, the Company
recorded stock-based consulting and service fees to service provider of $225,333.
Common stock issued for debt conversion
In April 2020,
the Company issued 502,955 shares of its common stock upon conversion of debt (note 6).
NOTE 9 – CONCENTRATIONS
Customers
For the three
and six months ended June 30, 2020 and 2019, there are no customers representing more than 10% of the Company’s revenue.
Vendors
For the three
and six months ended June 30, 2020 and 2019, there are no vendors representing more than 10% of the Company’s purchase.
NOTE 10 –
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 11 – SUBSEQUENT EVENTS
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.