NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
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.
Through its affiliated companies, the Company
manufactures and sells textile dyeing and finishing machines. The Company is the sole owner of Fulland Limited (“Fulland”),
a Cayman Island limited liability company, which was organized on May 9, 2007. Fulland owns 100% of the capital stock of Green
Power Environment Technology (Shanghai) Co., Ltd. (“Green Power”) and, until December 30, 2016, Fulland owned 100%
of Wuxi Fulland Wind Energy Equipment Co., Ltd. (“Fulland Wind”). Green Power is and Fulland Wind was a wholly foreign-owned
enterprise (“WFOE”) organized under the laws of the People’s Republic of China (“PRC” or “China”).
Green Power is a party to a series of contractual arrangements, as fully described below, dated October 12, 2007 with Wuxi Huayang
Heavy Industries, Co., Ltd. (“Heavy Industries”), formerly known as Wuxi Huayang Electrical Power Equipment Co., Ltd.,
and Wuxi Huayang Dyeing Machinery Co., Ltd. (“Dyeing”), both of which are limited liability companies organized under
the laws of, and based in, the PRC. Heavy Industries and Dyeing are sometimes collectively referred to as the “Huayang Companies.”
Fulland was organized by the owners of
the Huayang Companies as a special purpose vehicle for purposes of raising capital in accordance with requirements of the PRC State
Administration of Foreign Exchange (“SAFE”). On May 31, 2007, SAFE issued an official notice known as Hui Zong Fa [2007]
No. 106 (“Circular 106”), which requires the owners of any Chinese company to obtain SAFE’s approval before establishing
any offshore holding company structure for foreign financing as well as subsequent acquisition matters in China. Accordingly, the
owners of the Huayang Companies, Mr. Jianhua Wu and his wife, Ms. Lihua Tang, submitted their application to SAFE in early September
2007. On October 11, 2007, SAFE approved their application, permitting these Chinese citizens to establish Fulland as a special
purpose vehicle for any foreign ownership and capital raising activities by the Huayang Companies.
Dyeing, which was formed on August 17,
1995, produces and sells a variety of high and low temperature dyeing and finishing machinery for the textile industry. The Company
refers to this segment as the dyeing and finishing equipment segment. On December 26, 2016, Dyeing and an unrelated individual
formed Wuxi Shengxin New Energy Engineering Co., Ltd. (“Shengxin”), a limited liability company organized under the
laws of the PRC in which Dyeing has a 30% equity interest and the unrelated third party holds a 70% interest, pursuant to an agreement
dated December 23, 2016. Shengxin intends to develop, construct and maintain photovoltaic power generation projects, known as solar
farms, in China, mainly in the provinces of GuiZhou and YunNan. In April 2018, Shengxin secured and invested in a large solar PV
project in GuiZhou province. Shengxin paid RMB40.0 million for the project rights and also engaged a local contractor to proceed
with building the project. However, on June 1, 2018, the Chinese government halted installation of new solar farms for the remainder
of the year and reduced subsidies for projects already under construction. In September 2018, due to significance doubt about the
status of this project and recoverability of the Company’s investment, the Company fully impaired the value of its investment
in Shengxin.
Fulland Wind was formed on August 27, 2008.
In 2009, the Company began to produce and sell forged products through Fulland Wind. Through Fulland Wind, the Company manufactured
and sold forged products, including wind products such as shafts, rolled rings, gear rims, gearboxes, bearings and other components
and finished products and assemblies for the wind power and other industries, including large-scale equipment used in the manufacturing
process for the various industries.
On November 20, 2019, EC Advertising Limited
and Au Chi Tong entered into a Consulting Agreement, whereby Sharing Economy International, Inc. (the “Company”) shall
issue 400,000 shares of common stock to the consultant in exchange for consulting services offered to the Company and its subsidiaries.
The foregoing description of the Consulting Agreement does not purport to be complete and is qualified in its entirety by reference
to the complete text of the Agreement, which is incorporated herein by reference and attached hereto as Exhibit 10.1.
On December 14, 2019, ECoin Global Limited
and EC Power (Global) Technology Limited entered into a Transfer Agreement relating to the transfer of redemption codes in exchange
for 2,757,353 shares of common stock of the Company.
On December 18, 2019, Ying Huihao and EC
Advertising Limited entered into a Sale and Purchase Agreement with respect to G-Coin Worldwide Limited (“G-Coin”),
whereby the Company shall issue 3,425,328 shares of common stock in exchange for two vessels owned by G-Coin.
On December 16, 2019, Sharing Economy International,
Inc. (the “Company”) entered into a Stock Purchase Agreement (the “Agreement”) with Sze Man Cheung, a Hong
Kong citizen, for the purchase and sale of 2,500,000 shares of common stock for an aggregate amount of US$705,000, or US$0.282
per share.
On December 27, 2019, the Company completed
the Acquisition of Peak Equity International Limited and Subsidiaries (collectively “Peak Equity”) (the “Acquisition”)
for its 100% equity interest. The consideration of the Acquisition totaled approximately 7,200,000,000 shares of the Company’s
common stock, at the price of $0.25, equal to $1,800,000,000.
On December 30, 2019, Green Power Environment
Technology (Shanghai) Co., Ltd. And Wuxi Huayang Dye Machinery Co. Ltd. entered 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. The operation in China was considered as discontinued operations and fully written-off
at December 31, 2019.
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 $70,900.
On August 14, 2020, the Company acquired
the remaining equity interest of 40% in 3D Discovery Co. Limited for a consideration $154.
On December 30, 2020, the Company’s
Board of Directors approved to enter into a Termination Agreement with Jebe Production Group Limited.
The Company’s latest business initiatives
are focused on targeting the technology and global sharing economy markets, by developing online platforms and rental business
partnerships that will drive the global development of sharing through economical rental business models. In connection with the
new business initiatives, the Company formed or acquired the following subsidiaries:
|
|
●
|
Vantage Ultimate Limited (“Vantage”), a company incorporated under the laws of British Virgin Islands on February 1, 2017 and is wholly-owned by the Company.
|
|
|
|
|
|
|
●
|
Sharing Economy Investment Limited (“Sharing Economy”), a company incorporated under the laws of British Virgin Islands on May 18, 2017 and is wholly-owned by Vantage.
|
|
|
|
|
|
|
●
|
EC Advertising Limited (“EC Advertising”), a company incorporated under the laws of Hong Kong on March 17, 2017 and is a wholly-owned by Sharing Economy.
|
|
|
|
|
|
|
●
|
EC Rental Limited (“EC Rental”), a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage.
|
|
|
|
|
|
|
●
|
EC Assets Management Limited (“EC Assets”), a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage.
|
|
|
●
|
Cleantech Solutions Limited (formerly known as EC (Fly Car) Limited), a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is a wholly-owned by Sharing Economy.
|
|
|
|
|
|
|
●
|
Global Bike Share (Mobile App) Limited, a company incorporated under the laws of British Virgin Islands on May 23, 2017 and is a wholly-owned by Sharing Economy.
|
|
|
|
|
|
|
●
|
EC Power (Global) Technology Limited (“EC Power”), a company incorporated under the laws of British Virgin Islands on May 26, 2017 and is wholly-owned by EC Rental.
|
|
|
|
|
|
|
●
|
ECPower (HK) Company Limited, a company incorporated under the laws of Hong Kong on June 23, 2017 and is wholly-owned by EC Power.
|
|
|
|
|
|
|
●
|
EC Manpower Limited, a company incorporated under the laws of Hong Kong on July 3, 2017 and is wholly-owned by Vantage.
|
|
|
|
|
|
|
●
|
EC Technology & Innovations Limited (“EC Technology”), a company incorporated under the laws of British Virgin Islands on September 1, 2017 and is wholly-owned by Vantage.
|
|
|
|
|
|
|
●
|
Inspirit Studio Limited (“Inspirit Studios”), a company incorporated under the laws of Hong Kong on August 24, 2015, and 51% of its shareholding was acquired by EC Technology on December 8, 2017.
|
|
|
|
|
|
|
●
|
EC Creative Limited (“EC Creative”), a company incorporated under the laws of British Virgin Islands on January 9, 2018 and is wholly-owned by Vantage.
|
|
|
|
|
|
|
●
|
3D Discovery Co. Limited (“3D Discovery”), a company incorporated under the laws of Hong Kong on February 24, 2015, 60% of its shareholdings was acquired by EC Technology on January 19, 2018 and remaining 40% of its shareholdings was acquired by EC Technology on August 14, 2020.
|
|
|
|
|
|
|
●
|
Sharing Film International Limited, a company incorporated under the laws of Hong Kong on January 22, 2018 and is a wholly-owned by EC Creative.
|
|
|
|
|
|
|
●
|
AnyWorkspace Limited (“AnyWorkspace”),
a company incorporated under the laws of Hong Kong on November 12, 2015, and 80% of its shareholding was acquired by Sharing Economy
on January 30, 2018. On March 24, 2020, the Company disposed 80% equity interest of AnyWorkspace.
|
|
|
|
|
|
|
●
|
Xiamen Great Media Company Limited (“Xiamen Great Media”), a company incorporated under the laws of the PRC on September 5, 2018 and is a wholly-owned by EC Advertising.
|
NOTE 2 – GOING CONCERN UNCERTAINTIES
These consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments
in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company had a net loss of approximately
$6,788,645 for the year ended December 31, 2020. The net cash used in operations were approximately $1,544,186 for the year ended December
31, 2020. Management believes that its capital resources are not currently adequate to continue operating and maintaining its business
strategy for the next twelve months from the date of this report. The Company may seek to raise capital through additional debt and/or
equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and
from bank loans, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital
or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations.
Management believes that these matters
raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – SIGIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company is on a fiscal year ending December 31; as such
the year ended December 31, 2020 is referred to as “fiscal 2020”, and the year ended December 31, 2019 is referred
to as “fiscal 2019”.
Principles of Consolidation
The Company’s consolidated financial
statements include the financial statements of its wholly-owned and majority owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated upon consolidation.
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 were 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 consolidated balance sheets for all years presented.
The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated
statements of operations for all years presented.
Use of estimates
The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial
statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates
in the years ended December 31, 2020 and 2019 include the allowance for doubtful accounts on accounts and other receivables, the
allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing
impairment of long-term assets and valuation of deferred tax assets, the fair value of equity method investment, the fair value
of assets held for sale, accruals for taxes due, and the value of stock-based compensation.
Cash and cash equivalents
For purposes of the consolidated statements
of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money
market accounts to be cash equivalents. The Company maintains with various financial institutions mainly in the PRC, Hong Kong
and the U.S. At December 31, 2020 and 2019, cash balances held in banks in the PRC and Hong Kong of $1,805,417 and $83,667, respectively,
are uninsured.
Available-for-sale marketable securities
Available-for-sale marketable securities
are reported at fair value using the market approach based on the quoted prices in active markets at the reporting date. The Company
classifies the valuation techniques that use these inputs as Level 1 of fair value measurements. Any unrealized losses that are
deemed other-than-temporary are included in current period earnings and removed from accumulated other comprehensive income (loss).
Realized gains and losses on marketable
securities are included in current period earnings. For purposes of computing realized gains and losses, the cost basis of each
investment sold is generally based on the weighted average cost method.
The Company regularly evaluates whether
the decline in fair value of available-for-sale securities is other-than-temporary and objective evidence of impairment could include:
|
|
●
|
The severity and duration of the fair value decline;
|
|
|
●
|
Deterioration in the financial condition of the issuer; and
|
|
|
●
|
Evaluation of the factors that could cause individual securities to have an other-than-temporary impairment.
|
During the year ended December 31, 2020
and 2019, $0 and $33,975 was recognized as impairment loss as other-than-temporary decline in fair value, respectively.
Fair value of financial instruments
The Company adopted the guidance of ASC
Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value,
and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted
prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
Level 3 - Inputs are unobservable inputs
which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information. The Company did not measure these assets at fair value at December
31, 2020 and 2019.
The carrying amounts reported in the consolidated
balance sheets for cash and cash equivalents, accounts receivable, prepaid expenses and other receivables, short-term bank loans,
convertible notes payable, note payable, accounts payable, accrued liabilities, amount due to a related party and income taxes
payable approximate their fair market value based on the short-term maturity of these instruments.
ASC Topic 825-10 “Financial Instruments”
allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The
fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If
the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings
at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
The following table presents information
about the Company’s assets and liabilities that were measured at fair value as of December 31, 2020 and 2019, and indicates
the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
|
|
|
December 31,
|
|
|
Quoted Prices In Active Markets
|
|
|
Significant Other Observable Inputs
|
|
|
Significant Other Unobservable Inputs
|
|
|
Description
|
|
2020
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, available-for-sale
|
|
$
|
1,989,823
|
|
|
$
|
1,989,823
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
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 December 31, 2020 and 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 the PRC and Hong Kong. Accordingly, the Company’s business, financial condition and results of operations may be influenced
by the political, economic and legal environment in the PRC and Hong Kong, and by the general state of the economies in the PRC
and Hong Kong. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically
associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods
of taxation, among other things.
Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all
of the Company’s cash is maintained with state-owned banks within the PRC and Hong Kong, and none of these deposits are covered
by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash
in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability
to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect
to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations
of its customers to help further reduce credit risk.
Accounts receivable
Accounts receivable are presented net of
an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews
the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability
of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors,
including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic
trends. Accounts are written off after exhaustive efforts at collection. At December 31, 2020 and 2019, the Company has established,
based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $0 and $11,028,252 for discontinued
operations, respectively. For the continuing operations, the allowance for doubtful accounts was amounted to $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.
|
|
|
Useful life
|
|
Office equipment and furniture
|
|
5 years
|
|
Vehicles
|
|
5 years
|
|
Vessels
|
|
5 years
|
Depreciation expense from continuing operations
for the year ended December 31, 2020 and 2019 amounted to $134,691 and $28,980, respectively.
Depreciation expense from discontinued
operations for the year ended December 31, 2020 and 2019 amounted to $0 and $565,008, respectively.
Impairment of long-lived assets and
intangible asset
In accordance with ASC Topic 360, the Company
reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted
future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between
the asset’s estimated fair value and its book value. At December 31, 2020 and 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 December 31, 2020 and 2011. 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 2020 impairment analysis, the Company recorded impairment charges on long-lived assets of $705,000
and $0 for the year ended December 31, 2020 and 2019, in relation to its continued operations. The Company recorded impairment
charges on long-lived assets of $0 and $565,008 for the year ended December 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 license 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.
Income taxes
The Company is governed by the Income Tax
Law of the PRC, Inland Revenue Ordinance of Hong Kong and the U.S. Internal Revenue Code of 1986, as amended. The Company accounts
for income taxes using the asset/liability method prescribed by ASC 740, “Accounting for Income Taxes.” Under this
method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases
of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to
reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence,
it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes
of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
On December 22, 2017, the United States
signed into law the Tax Cuts and Jobs Act (the “Act”), a tax reform bill which, among other items, reduces the current
federal income tax rate in the United States to 21% from 35%. The rate reduction is effective January 1, 2018, and is permanent.
The Act has caused the Company’s
deferred income taxes to be revalued. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through income tax expense. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as of
December 31, 2020, the Company recognized the provisional effects of the enactment of the Act for which measurement could be reasonably
estimated. Since the Company has provided a full valuation allowance against its deferred tax assets, the revaluation of the deferred
tax assets did not have a material impact on any period presented. The ultimate impact of the Act may differ from these estimates
due to the Company’s continued analysis or further regulatory guidance that may be issued as a result of the Act.
The Company applied the provisions of ASC
740-10-50, “Accounting for Uncertainty in Income Taxes,” which provides clarification related to the process associated
with accounting for uncertain tax positions recognized in the Company’s financial statements. Audit periods remain open for
review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for
a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could
be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results
of operations for the given period. As of December 31, 2020 and 2019, the Company had no uncertain tax positions, and will continue
to evaluate for uncertain positions in the future.
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 HKD into US$ has been made
at the following exchange rates for the years ended December 31, 2020 and 2019:
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Year-end RMB:US$ exchange rate
|
|
|
7.0682
|
|
|
|
7.1363
|
|
|
Year average RMB:US$ exchange rate
|
|
|
7.0324
|
|
|
|
6.8609
|
|
|
Year-end HK$:US$ exchange rate
|
|
|
7.7502
|
|
|
|
7.7872
|
|
|
Year average HK$:US$ exchange rate
|
|
|
7.8000
|
|
|
|
7.8000
|
|
Loss per share of common stock
ASC Topic 260 “Earnings per Share,”
requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution.
Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic net loss per share is computed by
dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during
the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock,
common stock equivalents and potentially dilutive securities outstanding during each period. The Company did not have any common
stock equivalents or potentially dilutive common stock outstanding during the years ended December 31, 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:
|
|
|
Years Ended
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net loss for basic and diluted attributable to common shareholders
|
|
$
|
(6,719,447
|
)
|
|
$
|
(27,087,097
|
)
|
|
From continuing operations
|
|
|
(6,719,447
|
)
|
|
|
(2,136,011
|
)
|
|
From discontinued operations
|
|
$
|
-
|
|
|
$
|
(24,951,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
107,723,188
|
|
|
|
188,332,818
|
|
|
- Diluted
|
|
|
108,071,277
|
|
|
|
188,332,818
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock
|
|
|
|
|
|
|
|
|
|
From continuing operations – basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.01
|
)
|
|
From discontinued operations – basic
|
|
|
0.00
|
|
|
|
(0.13
|
)
|
|
Net loss per common share - basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock
|
|
|
|
|
|
|
|
|
|
From continuing operations – diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.01
|
)
|
|
From discontinued operations – diluted
|
|
|
0.00
|
|
|
|
(0.13
|
)
|
|
Net loss per common share - diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.14
|
)
|
Noncontrolling interest
The Company accounts for noncontrolling
interest in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component
of total shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to the its noncontrolling
interest be clearly identified and presented on the face of the consolidated statements of operations and comprehensive loss.
Comprehensive loss
Comprehensive loss is comprised of net
loss and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes
in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the years ended December 31, 2020
and 2019 included net loss and unrealized (loss) gain from foreign currency translation adjustments.
Reclassification
Certain reclassifications have been made
in prior year’s consolidated financial statements to conform to the current year’s financial presentation. The reclassifications
have no effect on previously reported net income (loss) and related to the reclassification of discontinued operations.
Recent accounting pronouncements
From time to time, new accounting pronouncements
are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the
Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued
standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
Accounting Standards Adopted
In February 2016, the FASB issued ASU 2016-02,
Leases (“ASU 2016-02”) in order to increase transparency and comparability among organizations by recognizing
right-of-use assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous generally
accepted accounting principles. ASU 2016-02 requires a lessee to recognize a lease liability for future lease payments and a right-of-use
asset representing the right to use the underlying asset for the lease term on the balance sheet for most lease arrangements. The
new standard also changes many key definitions, including the definition of a lease. The new standard includes a short-term lease
exception for leases with a term of 12 months or less, as part of which a lessee can make an accounting policy election not to
recognize right-of-use assets and lease liabilities. Lessees will continue to differentiate between finance leases (previously
referred to as capital leases) and operating leases using classification criteria that are substantially similar to the previous
guidance in ASC 840.
ASU 2016-02 is effective for fiscal years
beginning after December 15, 2018 (including interim periods within those periods) and early adoption is permitted. In August 2018,
the FASB issued ASU 2018-11, Leases, Targeted Improvements, which provides a new transition option in which an entity
initially applies ASU 2016-02 at the adoption date and recognizes a cumulative-effect adjustment in the period of adoption. Prior
period comparative balances will not be adjusted. The Company used the new transition option and was also utilizing the package
of practical expedients that allows it to not reassess: (1) whether any expired or existing contracts are or contain leases, (2)
lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. We also used the
short-term lease exception for leases with a term of 12 months or less. Additionally, the Company used the practical expedient
that allowed each separate lease component of a contract and the associated non-lease components to be treated as a single lease
component. The exercise of lease renewal options is at our discretion and the renewal to extend the lease terms are not included
in the Company’s Right-Of-Use assets and lease liabilities as they are not reasonably certain of exercise. The Company will
evaluate the renewal options and when they are reasonably certain of exercise, the Company will include the renewal period in its
lease term. As of the January 1, 2019, effective date the Company identified one finance lease arrangement in which it is a lessee.
In calculating the present value of the
lease payments, the Company applied an individual discount rate for each of its leases, and determined the appropriate discount
rate based on the remaining lease terms at the date of adoption. As the lessee to several lease agreements, the Company did not
have insight into the relevant information that would be required to arrive at the rate implicit in the lease. Therefore, the Company
utilized its outstanding borrowings as a benchmark to determine the incremental borrowing rate for its leases. The benchmark rate
was adjusted to arrive at an appropriate discount rate for each lease.
In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock
Compensation: Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the
scope of Compensation – Stock Compensation (“Topic 718”) to include share-based payment transactions
for acquiring goods and services from nonemployees. This amendment applies to all share-based payment transactions in which a grantor
acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The
Company adopted ASU 2018-07 on January 1, 2019. The impact was immaterial to the financial statements.
In June 2018, the FASB issued ASU No. 2018-08, Not-For-Profit
Entities – Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (“ASU
2018-08”). ASU 2018-08 clarifies how an entity determines whether a resource provider is participating in an exchange
transaction by evaluating whether the resource provider is receiving commensurate value in return for the resources transferred.
The guidance is effective for annual periods beginning after June 15, 2018, including interim periods within those annual periods,
and has been adopted on a modified prospective basis. The modified prospective adoption is applied to agreements that are not completed
as of the effective date, or entered into after the effective date. Under the modified prospective adoption approach, prior period
results have not been restated and no cumulative-effect adjustment has been recorded. The Company does not expect this standard
to have a material impact on its financial statements.
Accounting Standards Issued, Not Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).
This ASU requires measurement and recognition of expected credit losses for financial assets. ASU 2016-13 also requires new disclosures
for financial assets measured at amortized cost, loans and available-for-sale debt securities. ASU 2016-13 is effective for the
Company beginning January 1, 2023. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating
the potential effect of this standard on its financial statements. The Company does not expect this standard to have a material
impact on its financial statements.
In August 2018, the FASB issued ASU No.
2018-13, Fair Value Measurement (“ASU 2018-13”), which eliminates, adds and modifies certain disclosure
requirements for fair value measurements. The amendment is effective for interim and annual reporting periods beginning after December
15, 2019. The Company is currently assessing the impact this will have on the financial statements.
In November 2018, the FASB issued ASU No.
2018-18, Collaborative Arrangements (“ASU 2018-18”), which clarifies the interaction between ASC 808, Collaborative
Arrangements and ASC 606, Revenue from Contracts with Customers. Certain transactions between participants in a collaborative arrangement
should be accounted for under ASC 606 when the counterparty is a customer. In addition, ASU 2018-18 precludes an entity from presenting
consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that transaction.
ASU 2018-18 should be applied retrospectively to the date of initial application of ASC 606. This guidance is effective for interim
and fiscal periods beginning after December 15, 2019. The Company is currently assessing the impact this will have on the financial
statements.
In December 2019, the FASB issued ASU
No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates
certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an
interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies
aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions
that result in a step-up in the tax basis of goodwill. The standard is effective for fiscal years and interim periods within those
fiscal years beginning after December 15, 2020, with early adoption permitted. Adoption of the standard requires certain changes
to be made prospectively, with some changes to be made retrospectively. The Company does not expect the adoption of this standard
to have a material impact on our financial position, results of operations or cash flows.
NOTE 4 – BUSINESS COMBINATION AND DECONSOLIDATION OF SUBSIDIARY
On August 14, 2020, the Company completed
the acquisition of 40% equity interest of 3D Discovery Co. Limited (the “Acquisition”). The total consideration of
the acquisition is $154.
The purchase price allocation resulted
in $82,692 of goodwill, as below:
|
Acquired assets:
|
|
US$
|
|
|
Cash and cash equivalents
|
|
$
|
2,762
|
|
|
Trade receivables
|
|
|
46
|
|
|
Other receivables
|
|
|
149
|
|
|
Non-current assets
|
|
|
103,412
|
|
|
|
|
|
106,369
|
|
|
Less: Assumed liabilities
|
|
|
|
|
|
Accrued liabilities
|
|
|
(1,171
|
)
|
|
Other payable
|
|
|
(2,181
|
)
|
|
Amount due to related parties
|
|
|
(185,555
|
)
|
|
|
|
|
(188,907
|
)
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
(82,538
|
)
|
|
Goodwill recorded
|
|
|
82,692
|
|
|
|
|
|
|
|
|
Cash consideration allocated
|
|
$
|
154
|
|
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 for the
year ended December 31, 2020.
NOTE 5 – 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 were 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 consolidated balance sheets for all years presented.
The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated
statements of operations for all years 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 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 consolidated statements of operations
for all periods presented.
The summarized operating result of discontinued
operations included in the Company’s consolidated statements of operations is as follows:
|
|
|
Years Ended
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
6,661,473
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
(11,683,813
|
)
|
|
Gross profit (loss)
|
|
|
-
|
|
|
|
(5,022,340
|
)
|
|
Operating expenses
|
|
|
-
|
|
|
|
(19,696,644
|
)
|
|
Loss from operations
|
|
|
-
|
|
|
|
(24,718,984
|
)
|
|
Other income (expense), net
|
|
|
-
|
|
|
|
(232,102
|
)
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
$
|
-
|
|
|
$
|
(24,951,086
|
)
|
NOTE 6 – PROPERTY AND EQUIPMENT
At December 31, 2020 and 2019, property
and equipment consisted of the following:
|
|
|
Useful life
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
3 - 5 years
|
|
|
25,872
|
|
|
|
25,815
|
|
|
Motor vehicle
|
|
5 years
|
|
|
72,382
|
|
|
|
72,382
|
|
|
Yacht
|
|
infinite
|
|
|
591,404
|
|
|
|
588,592
|
|
|
|
|
|
|
|
689,658
|
|
|
|
686,789
|
|
|
Less: accumulated depreciation
|
|
|
|
|
(202,322
|
)
|
|
|
(66,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
487,336
|
|
|
$
|
620,075
|
|
Depreciation expense from continuing operations
for the years ended December 31, 2020 and 2019 amounted to $134,691 and $28,980.
NOTE 7 – INTANGIBLE ASSETS
At December 31, 2020 and 2019, intangible
assets consisted of the following:
|
|
|
Useful life
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets
|
|
3 - 5 years
|
|
|
844,246
|
|
|
|
843,817
|
|
|
Redemption code
|
|
5 years
|
|
|
750,000
|
|
|
|
750,000
|
|
|
Goodwill
|
|
infinite
|
|
|
27,353
|
|
|
|
27,353
|
|
|
|
|
|
|
|
1,621,599
|
|
|
|
1,621,170
|
|
|
Less: accumulated amortization
|
|
|
|
|
(714,832
|
)
|
|
|
(512,763
|
)
|
|
Less: impairment loss
|
|
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
156,767
|
|
|
$
|
1,108,407
|
|
Amortization of intangible assets attributable to future
periods is as follows:
|
Year ending December 31:
|
|
Amount
|
|
|
2021
|
|
$
|
103,889
|
|
|
2022
|
|
|
18,018
|
|
|
2023
|
|
|
7,507
|
|
|
Thereafter
|
|
|
-
|
|
|
|
|
$
|
129,414
|
|
Amortization expense from continuing operations for the years
ended December 31, 2020 and 2019 amounted to $202,992 and $270,894 respectively. Amortization expense from discontinued operations
for the years ended December 31, 2020 and 2019 amounted to $0 and $84,219, respectively. Impairment loss from continuing operations
for the years ended December 31, 2020 and 2019 amounted to $750,000 and $0 respectively. No impairment loss from discontinued operations
recognised for the years ended December 31, 2020 and 2019.
NOTE 8 – BANK LOANS
Bank loans of $5,064,142 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 $6,322,417 is
expected to be repaid in the next twelve months and interest is charged at the rate of 1.63% per annum over the Hong Kong Dollar
Best Lending Rate.
At December 31, 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 December 31, 2020 and 2019, bank loans
consisted of the following:
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan
|
|
$
|
5,064,142
|
|
|
$
|
5,098,796
|
|
|
Line of revolving loan
|
|
|
6,322,417
|
|
|
|
4,558,749
|
|
|
Short-term bank loans
|
|
|
-
|
|
|
|
1,195,297
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bank loans
|
|
|
11,386,559
|
|
|
|
10,852,842
|
|
|
Less: Total bank loans – discontinued operations
|
|
|
-
|
|
|
|
(1,195,297
|
)
|
|
Total bank loans – continuing operations
|
|
$
|
11,386,559
|
|
|
$
|
9,657,545
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifying as:
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
6,446,139
|
|
|
$
|
4,676,184
|
|
|
Long-term portion (more than 12 months)
|
|
|
4,940,420
|
|
|
|
4,981,361
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bank loans
|
|
$
|
11,386,559
|
|
|
$
|
9,657,545
|
|
Interest related to the bank loans from
continuing operations was $263,369 and $322,201 for the years ended December 31, 2020 and 2019, respectively.
Interest related to the bank loans from
discontinued operations was $0 and $147,631 for the years ended December 31, 2020 and 2019, respectively.
All interests are included in interest
expense on the accompanying consolidated statements of operations.
NOTE 9 – 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 10,059 shares of its common
stock.
During the December, 2020, the Company converted an aggregate of $235,000
and $158,017 outstanding principal and interest of the Iliad Note, respectively, into 18,944,773 shares of its common stock.
The Investor has the right at any time
after May 2, 2018 until the outstanding balance has been paid in full to convert all or any part of the outstanding balance into
shares of common stock of the Company at conversion price of $6.70 per share (the “Lender Conversion Price”). The Lender
Conversion Price is subject to certain adjustments set forth in the Iliad Note. The conversion price for each Redemption Conversion
(the “Redemption Conversion Price”) shall be the lesser of (a) the Lender Conversion Price, and (b) the Market Price;
provided, however, in no event shall the Redemption Conversion Price be less than $2.00 per share (“Conversion Price Floor”)
unless the Company waive the Conversion Price Floor.
This debt instrument includes embedded
components including a put option. The Company evaluated these embedded components to determine whether they are embedded derivatives
within the scope of ASC 815 that should be separately carried at fair value. ASC 815-15-25-1 provides guidance on when an embedded
component should be separated from its host instrument and accounted for separately as a derivative. Based on this analysis, the
Company believes that the put option is clearly and closely related to the debt instrument and does not meet the definition of
a derivative. Accordingly, in connection with this Iliad Note, the Company recorded a debt discount for (a) the original issue
discount of $150,000 (b) the relative fair value of the warrants issued of $152,490 and (c) legal fees and other fees paid in connection
with the Iliad Note aggregating $45,018. There is no beneficial conversion feature on this Iliad Note. The debt discount shall
be accreted on a straight line basis over the term of this Iliad Note.
On April 7, 2020, pursuant to a securities
purchase agreement, the Company closed a private placement of securities with Power Up Lending Group Ltd. (“Power Up”)
pursuant to which Power Up purchased a Convertible Promissory Note (the “Power Up Note”) in the original principal
amount of $83,000, with additional tranches of up to $1,000,000 in the aggregate over the next twelve (12) months, subject to the
discretion of both parties. The Power Up Note is convertible into shares of the common stock of the Company at a price equal to
65% of the average of the two (2) lowest trading prices for the Company’s common stock during the twenty (20) trading day
period ending on the latest complete trading day prior to the conversion date. The Power Up Note bears interest at 8% per annum
and is due on October 7, 2021.
During the December, 2020, the Company
converted an aggregate of $127,820 and $0 outstanding principal and interest of the Power Up Note, respectively, into 8,228,775
shares of its common stock.
On April 14, 2020, the Company and Black
Ice Advisors, LLC (“Black Ice”) entered into a Securities Purchase Agreement, whereby the Company issued a note to
Black Ice (the “Black Ice Note”) in the original principal amount of $110,000.The Black Ice Note contains an original
issue discount of $10,000 which will be reflected as a debt discount and amortized over the Black Ice Note term. The Black Ice
Note is convertible into shares of the common stock of the Company at a price equal to 60% of the lowest trading price of the Company’s
common stock for the fifteen (15) prior trading days including the day upon which a Notice of Conversion is received by the Company.
The Black Ice Note bears interest at 10% per annum and is due on April 14, 2021.
During the December, 2020, the Company
converted an aggregate of $15,000 and $0 outstanding principal and interest of the Black Ice Note, respectively, into 987,180
shares of its common stock.
At December 31, 2020 and 2019, convertible
debt consisted of the following:
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Principal
|
|
$
|
598,571
|
|
|
$
|
838,571
|
|
|
Unamortized discount
|
|
|
(2,821
|
)
|
|
|
-
|
|
|
Convertible debt, net
|
|
$
|
595,750
|
|
|
$
|
838,571
|
|
The amortization
of discount was $7,179 and $162,170 for the years ended December 31, 2020 and 2019.
As of December
31, 2020 and 2019, accrued interest amounted to $701,794 and $63,303, respectively.
NOTE 10 – RELATED PARTY TRANSACTIONS
Due to related parties
From time to time, during 2020 and 2019,
the Company receive advances from Chan Tin Chi Family Company Limited (formerly known as YSK 1860 Co., Limited), who is the major
shareholder of the Company for working capital purposes. These advances are non-interest bearing and are payable on demand. During
the years ended December 31, 2020, the Company repaid to Chan Tin Chi Family Company Limited for working capital totaled $228,393.
During the years ended December 31, 2019, the Company received advances from Chan Tin Chi Family Company Limited for working capital
totaled $788,457. As of December 31, 2020 and 2019, amounts due to Chan Tin Chi Family Company Limited amounted to $1,817,569 and
$2,045,962, respectively.
As of December 31, 2020 and 2019, amounts due
to related companies amounted to $650,806 and $319,542, respectively.
The amounts are unsecured, interest-free
and have no fixed terms of repayment.
NOTE 11 – 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 140,378,844 shares of common
stock to Peak Equity shareholders in April 13, 2020.
Effective May
20, 2020, the Board of Directors of the Company and one stockholder holding an aggregate of 4,679,260,000 shares of common stock on
such date approved an amendment to the Company’s Articles of Incorporation effecting a fifty-for-one (50:1) reverse split
(the “Reverse Stock Split”) of the Company’s outstanding shares of common stock. The Reverse Stock Split was
effective on the OTC Markets Group, Inc. as of the opening of business on October 13, 2020. As a result of the Reverse Stock Split,
each 50 shares of the Company’s common stock outstanding on such date was exchanged for one share of the Company’s
common stock. The number of authorized shares and par value remain unchanged. All share and per share information in this financial
statements and footnotes have been retroactively adjusted for the period and years presented, unless otherwise indicated, to give
effect to the forward stock split.
As of December
31, 2020 and 2019, the Company has 172,883,435 shares and 3,988,372 shares of common stock issued and outstanding, respectively.
As of December 31, 2020
and 2019, the Company has 531,600 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 year
ended December 31, 2020, the Company issued an aggregate of 531,600 shares of preferred stock to one consultant and vendors for
the services rendered and to be rendered. These shares were valued at the fair market value on the grant date using the reported
closing share price on the date of grant. At the end of each financial reporting period prior to issuance of these shares, the
fair value of these shares is measured using the fair value of the Company’s preferred stock at reporting date. During the
year ended December 31, 2020, the fair value of the above mentioned shares issued and the change in value of the shares to be issued
was $202,008. The Company recognizes stock-based professional fees over the period during which the services are rendered by such
consultant or vendor. For the year ended December 31, 2020, the Company recorded stock-based consulting and service fees to service
provider of $202,008. In connection with the issuance/future issuance of shares to consultants and vendors, the Company recorded
prepaid expenses of $0 which will be amortized over the remaining service period.
Common stock issued for services
During the year
ended December 31, 2020, pursuant to consulting and service agreements, the Company issued an aggregate of 16,000 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 year ended December 31, 2020, the fair value of the above mentioned shares issued and the change
in value of the shares to be issued was $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 year ended December 31, 2020, the Company recorded stock-based
consulting and service fees to service provider of $276,000.
Common stock issued for debt conversion
In April 2020,
the 10,059 shares of its common stock upon conversion of debt (note 9).
In December 2020,
the Company issued 28,160,728 shares of its common stock upon conversion of debt (note 9).
NOTE 12 – CONCENTRATIONS
Customers
For the years ended December 31, 2020 and
2019, there are no customers representing more than 10% of the Company’s revenue.
Suppliers
For the years ended December 31, 2020 and
2019, there are no vendors representing more than 10% of the Company’s purchase.
NOTE 13 – 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 14 – SUBSEQUENT EVENTS
In accordance with ASC
Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred
after December 31, 2020, up through April 16, 2021, the Company issued the audited consolidated financial statements.
The Company is currently in default under Iliad
Note with the outstanding balance of $503,571 in principal and $733,909 accrued interest at December 31, 2020. At the date of filing,
both parties have not reached into the mutual agreement.
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 March 3, 2021,
the Company approved to grant a bonus in aggregate of 8,333,335 shares of common stock, par value $0.001, to the Board of Directors
and Advisory Committee members.
