SHARING ECONOMY INTERNATIONAL INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)
Overview
Historically, our main activities involved the design, manufacture and distribution of a range of proprietary high and low temperature dyeing and finishing machines for the textile industry, which ended in December 2019.
With the termination of the manufacturing businesses, we are actively exploring other new ventures and opportunities that could contribute to our business
in the future.
Given the termination of our manufacturing business, we continued to pursue what we believe are high growth opportunities for the Company, particularly our new business divisions focused on the development of sharing economy platforms and related rental businesses within the company. These initiatives are still in an early stage and are dependent in large part on availability of capital to fund their future growth. We did not generate significant revenues from our sharing economy business initiatives in 2020 or during the nine months endedSeptember 30, 2021 . Recent developmentsInspirit Studio During the period, BuddiGo, the sharing economy mobile platform developed byInspirit Studio Limited ("Inspirit Studio"), continuously promoted its service to the local market inHong Kong . BuddiGo offers a wide range of errand services. Currently, about 80 percent of the orders received are for on-demand urgent delivery of items such as documents, flowers and cakes. Food delivery services are also available. During the period fromJune 2018 toJune 30, 2019 , over 1,200 individuals have officially registered as sell-side buddies, who completed over 600 delivery orders fromJune 2018 toJune 30, 2020 , majority orders were happened in the third quarter of year 2018. In addition, BuddiGo has signed up with a number of local business partners to provide ongoing delivery services for these clients. BuddiGo's goal is to connect with the community and deliver localized content featuring BuddiGo's core features and advantages. BuddiGo is actively seeking strategic investors or collaborative parties who are enthusiastic about its business model and can help achieve its business targets and expand into different countries. 3DDiscovery Co. Limited 3D Discovery, an IT service provider that develops virtual tours for the real estate, hospitality and interior design industries. 3D Discovery's space capturing and modeling technology is already used by some ofHong Kong's leading property agencies to provide their clients with a truly immersive, first-hand experience of a physical space while saving them time and money. According to Goldman Sachs, the Real Estate virtual reality ("VR") industry is predicted to reach$2.6 billion in 2025, supported by a potential user base of over 1.4 million registered real estate agents in some of the world's largest markets. Apart from its existing profitable operations, 3D Discovery is developing a mobile app, Autocap, which allows users to create an interactive virtual tour of a physical space by using a mobile phone camera. 3D Discovery successfully completed a number of projects during the year. First, its "3D Virtual Tours inHong Kong " generated about 1,371,000 impressions in 2018. In addition, 3D Discovery partnered withMidland Realty , one of the largest real estate agencies inHong Kong , to establish the "Creation 200 3D Virtual Tours.".EC Advertising Limited
We started meeting with a number of potential clients there and anticipate that this advertising company will confirm with them several marketing campaigns. In order to maximize our exposure to the potential clients in Mainland China, we are developing a strategic media plan which will cover major cities in MainlandChina such asBeijing ,Shanghai ,Guangzhou andShenzhen . Major banks, real estate developers and consumer products manufacturers and retailers are our target clients. More importantly, our presence in Mainland China can facilitate the rollout of franchise programs of our business units, which is one of the revenue drivers for the Company. 20 ECrent Platform Business
In
Going forward, we will continue to target the technology and global sharing economy markets, developing online platforms and rental business partnerships that will drive the global development of sharing through cost-effective rental business models. .
Critical accounting conventions and estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.
Accounts Receivable
We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery
is
considered remote.
As a basis for estimating the likelihood of collection has been established, we
consider a number of factors when determining reserves for uncollectable
accounts. We believe that we use a reasonably reliable methodology to estimate
the collectability of our accounts receivable. We review our allowances for
doubtful accounts on at least a quarterly basis. We also consider whether the
historical economic conditions are comparable to current economic conditions. If
the financial condition of our customers or other parties that we have business
relations with were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required.
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Property and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the assets. The estimated useful lives of the assets are as follows:
Useful Life
Office equipment and furniture 5 Years
Vehicles 5 Years
Vessels 5 Years
The cost of repairs and maintenance is expensed as incurred; major replacements
and improvements are capitalized. When assets are retired or disposed of, the
cost and accumulated depreciation are removed from the accounts, and any
resulting gains or losses are included in the statements of income and
comprehensive income in the year of disposition.
We examine the possibility of decreases in the value of fixed assets when events
or changes in circumstances reflect the fact that their recorded value may not
be recoverable. We recognize an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset.
Stock-based Compensation
FASB's ASC Topic 718, Stock Compensation (formerly, FASB Statement 123R) ("ASC
Topic 718"), prescribes accounting and reporting standards for all stock-based
payment transactions in which employee and non-employee services are acquired.
The Company measures the cost of employee and non-employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award.
The Company estimates the fair value of each restricted stock award as of the
date of grant using the closing price as reported by the OTC Markets Group Inc.
(the "OTCM") on the date of grant. The fair value determined represents the cost
for the award and is recognized over the vesting period during which an employee
is required to provide service in exchange for the award. The Company accounts
for forfeitures of restricted stock as they occur.
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Currency Exchange Rates
Our functional currency is
Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiary. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders' equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future. Our financial statements are expressed inU.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB and theHong Kong dollar. To the extent we hold assets denominated inU.S. dollars, any appreciation of the RMB or HKD against theU.S. dollar could result in a charge in our statement of operations and a reduction in the value of ourU.S. dollar denominated assets. On the other hand, a decline in the value of RMB or HKD against theU.S. dollar could reduce theU.S. dollar equivalent amounts of our financial results.
Recent accounting positions
InDecember 2019 , theFinancial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2019-12, "Simplifying the Accounting for Income Taxes." The standard is expected to reduce cost and complexity related to accounting for income taxes. The new guidance eliminates certain exceptions and clarifies and amends existing guidance to promote consistent application among reporting entities. Depending on the amended guidance within this standard, adoption is to be applied on a retrospective, modified retrospective or prospective basis. The Company adopted this standard effectiveJanuary 1, 2021 , and the adoption did not have a material effect on the Company's consolidated financial statements.
InJanuary 2020 , the FASB issued ASU 2020-01, "Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." The new guidance clarifies the interactions between accounting standards that apply to equity investments without readily determinable fair values. Specifically, it addresses the accounting for the transition into and out of the equity method. The Company adopted this standard effectiveJanuary 1, 2021 on a prospective basis, and the adoption did not have a material effect on the Company's consolidated financial statements.
The Company has reviewed all of the accounting statements recently issued but not yet effective, and does not believe that the future adoption of such statements could have a material impact on its financial condition or results of operations.
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RESULTS OF OPERATIONS
Three months ended
The following table presents the results of our operations for the three months ended
Three Months ended
September 30,
2021 2020
Revenues $ 50,397 $ 50,069
Cost of revenues - 31,794
Gross profit 50,397 18,275
Operating expenses 589,303 773,237
Loss from operations (538,906 ) (754,962 )
Other (expense) income, net 70,317 61,113
Loss from continuing operations before provision for income taxes (468,589 ) (693,849 )
Provision for income taxes - -
Net loss $ (468,589 ) $ (693,849 )
Revenues.
During the three months ended September30, 2021, we recognized revenues from our
sharing economy business of $50,397 compared to $50,069 for the three months
ended September 30, 2020 , a decrease of $328 , or 0.6%.
Cost of revenues.
Cost of revenues includes commission costs. For the three months ended September
30, 2021 , cost of revenues was $0 as compared to $31,794 for the three months
ended September 30, 2020 , a decrease of $31,794 , or 100%.
Gross margin and gross margin.
Our gross profit was$50,397 for the three months endedSeptember 30, 2021 as compared to gross profit of$18,275 for the three months endedSeptember 30, 2020 , representing gross margins of 100% and 36%, respectively. The increase in our gross margin for the three months endedSeptember 30, 2021 was primarily attributed to the new business revenue from acquisition of a wholly owned subsidiary. Operating expenses. For the three months endedSeptember 30, 2021 , operating expenses were$589,303 as compared to$773,237 for the three months endedSeptember 30, 2020 , a decrease of$183,934 , or 22.8%, due to decrease in selling, general and administrative expense, impairment loss on marketable securities and impairment loss on goodwill. 24 Loss from operations. As a result of the factors described above, for the three months endedSeptember 30, 2021 , loss from operations amounted to$538,906 as compared to$754,962 for the three months endedSeptember 30, 2020 . Other income (expense).
Other income (expense) includes interest income, interest expense, foreign currency transaction gain (loss), gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the three months endedSeptember 30, 2021 , total other income, net, amounted to$70,317 as compared to other income, net, of$61,113 for the three months endedSeptember 30, 2020 , an increase of$9,204 . The increase in other income, net, was primarily increase in gain on sale of marketable securities in the three months endedSeptember 30, 2021 .
Income tax provision. The income tax expense was
Net loss. As a result of the foregoing, our net loss was$468,589 , or$(0.00) per share (basic and diluted), for the three months endedSeptember 30, 2021 , as compared with net loss$693,849 , or$(0.00) per 32.5%. 25
Nine months ended
The following table presents the results of our operations for the nine-month period ended.
Nine Months ended
September 30,
2021 2020
Revenues $ 180,682 $ 118,051
Cost of revenues - 68,939
Gross profit 180,682 49,112
Operating expenses 2,671,807 4,904,386
Loss from operations (2,491,125 ) (4,855,2741 )
Other income (expense), net 476,185 (449,488 )
Loss from continuing operations before provision for income taxes (2,014,940 ) (5,304,762 )
Provision for income taxes
- - Net loss$ (2,014,940 ) $ (5,304,762 ) Revenues. During the nine months endedSeptember 30, 2021 , we recognized revenues from our sharing economy business of$180,682 compared to$118,051 for the nine months endedSeptember 30, 2020 , an increase of$62,631 , or 53%. Cost of revenues. Cost of revenues includes commission costs. For the nine months endedSeptember 30, 2021 , cost of revenues was$0 as compared to$68,939 for the nine months endedSeptember 30, 2020 , a decrease of$68,939 , or 100%.
Gross margin and gross margin.
Our gross profit was$180,682 for the nine months endedSeptember 30, 2021 as compared to gross profit of$49,112 for the nine months endedSeptember 30, 2020 , representing gross margins of 100% and 42%, respectively. The increase in our gross margin for the nine months endedSeptember 30, 2021 was primarily attributed to the increase revenue generated from engineering service income of the new acquired wholly owned subsidiary. Operating expenses. For the nine months endedSeptember 30, 2021 , operating expenses were$2,671,807 as compared to$4,904,386 for the nine months endedSeptember 30, 2020 , a decrease of$2,232,579 , or 45.5%, due to decrease in written-off prepayments, impairment loss on goodwill and impairment loss on marketable securities. 26 Loss from operations. As a result of the factors described above, for the nine months endedSeptember 30, 2021 , loss from operations amounted to$2,014,940 , as compared to$5,304,762 for the nine months endedSeptember 30, 2020 . Other income (expense)
Other expense includes interest income, interest expense, foreign currency transaction gain (loss), gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the nine months endedSeptember 30, 2021 , total other income, net, amounted to$476,185 as compared to total other expense$449,488 for the nine months endedSeptember 30, 2020 , an increase of$925,673 , or 206.4%. The increase in other income, net, was primarily gain on sale of marketable securities incurred in the nine months endedSeptember 30, 2021 .
Income tax provision. The income tax expense was
Net loss. As a result of the foregoing, our net loss was$2,014,940 , or$(0.00) per share (basic and diluted), for the nine months endedSeptember 30, 2021 , as compared with net loss$5,304,762 , or$(0.00) per share (basic and diluted), for the nine months endedSeptember 30, 2020 , a change of approximately$3,289,822 , or 62.0%.
Liquidity and capital resources
Nine months ended
From
The following table sets forth a summary of our cash flows for the periods as
indicated:
For the Nine Months
ended
September 30,
2021 2020
Net cash used in operating activities$ (1,162,623 ) $ (1,318,213 ) Net cash used in investing activities$ (1,099,755 ) $ 833,726 Net cash provided by financing activities$ 734,407 $ 1,723,082 Effect of exchange rate changes on cash and cash equivalents$ (65,560 ) $ (33,23 ) Net increase (decrease) in cash and cash equivalents$ (1,593,531 ) $ 1,205,357 Cash and cash equivalents at beginning of period$ 1,805,417 $ 83,667 Cash and cash equivalents at end of period$ 211,886
$ 1,289,024
The following table presents a summary of the changes in our working capital since
Change in
September 30, Working Percentage
2021 December 31, 2020 Capital Change
Working capital:
Total current assets $ 4,593 $ 3,967 $ 626 15.8 %
Total current liabilities 11,909 11,707 202 1.7 %
Working capital $ (7,316 ) $ (7,740 ) $ (424 ) (5.5 )%
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Working Capital. Total working capital deficit as of September 30, 2021 amounted
to approximately $7.3 million , as compared to approximately $7.7 million as of
December 31, 2020 . The decrease in working capital deficit due to the settlement
of debt upon stock conversion.
Net cash used in operating activities was $1,162,623 for the nine months ended
September 30, 2021 , and consisted primarily of a net loss of $2,014,940 ,
adjusted for depreciation and amortization of $173,643 , stock-based consultancy
fee of $1,051,410 , stock-based business promotion fee of $599,220 , gain on
disposal of marketable securities of $774,371 , an increase in accounts
receivable of $64,035 , an increase in prepaid expenses and other receivables of
$295,230 , a decrease in accounts payable and accrual of $25,003 , an increase in
other payable of $183,969 , and a decrease in deferred revenue of $107 .
Net cash flow used in investing activities was $1,099,755 for the nine months
ended September 30, 2021 as compared to, net cash flow provided by investing
activities was $833,726 for the nine months ended September 30, 2020 . For the
nine months ended September 30, 2021 , net cash flow used in investing activities
was cash received from dividend of $12,515 , purchase of marketable securities of
$18,318,917 and proceeds from sale of marketable securities of $17,254,369 .
Net cash flow provided by financing activities was $734,407 for the nine months
ended September 30, 2021 as compared to $1,723,082 for the nine months ended
September 30, 2020 . During the nine months ended September 30, 2021 , we received
advances from related party of $1,014,609 , received from issuance of note
payable of $535,900 , offset by repayments for bank loans of approximately
$816,102 . During the nine months ended September 30, 2020 , we received advances
from related party of $166,657 , proceeds from bank loan of $1,412,574 and
received from issuance of note payable of $183,000 , repayments for bank loans of
approximately $39,149 .
We have historically funded our capital expenditures through cash flow provided
by operations and bank loans. We intend to fund the cost by obtaining financing
mainly from local banking institutions with which we have done business in the
past. We believe that the relationships with local banks are in good standing
and we have not encountered difficulties in obtaining needed borrowings from
local banks.
Contractual obligations and off-balance sheet arrangements
Contractual Obligations
We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows. The following tables summarize our contractual obligations as ofSeptember 30, 2021 (dollars in thousands), and the effect these obligations are expected to have on our liquidity and cash flows in future periods. Payments Due by Period Less than
Contractual obligations: Total 1 year 1-3 years 3-5 years 5+ years Bank loans
$ 10,517 $ 5,691 $ 4,826 $ - $ - Convertible note (1) 939 939 -
- - Total$ 11,456 $ 6,630 $ 4,826 $ - $ -
(1) The convertible note is currently in default with the outstanding balance of
the date of filing, the two parties did not reach a mutual agreement.
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Off-balance sheet provisions
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us. Inflation
The effect of inflation on our revenues and operating results was not material.
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