UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number: 001-34591
| SHARING ECONOMY INTERNATIONAL INC. |
| (Exact name of registrant as specified in its charter) |
| NEVADA | 90-0648920 | |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
No. 9 Yanyu Middle Road Qianzhou Village, Huishan District, Wuxi City Jiangsu Province, China 214181 (Address of principal executive offices)
(86) 51083397559 (Registrant’s telephone number, including area code)
Copies to: Lawrence Venick Loeb & Loeb LLP 21st Floor, CCB Tower 3 Connaught Road Central Hong Kong Telephone: +852 3923 1111 Fax: +852 3923 1100 Email Address: lvenick@loeb.com |
Securities registered under Section 12(b) of the Act: common stock, par value $0.001 per share
Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act . ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Approximately $1,394,396 on June 30, 2017.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 4,445,709 shares of common stock are outstanding as of April 10, 2018.
Documents Incorporated by Reference: None.
SHARING ECONOMY INTERNATIONAL INC.
FORM 10-K
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, the risk of doing business in the People’s Republic of China (“PRC”) and Hong Kong, our ability to implement our strategic initiatives, our access to sufficient capital, economic, political and market conditions and fluctuations, government and industry regulation, Chinese and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in “Item 1A. - Risk Factors” and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
References in this annual report to “we,” “us,” the “Company” and words of like import refer to Sharing Economy International Inc. (“Sharing Economy International”), its subsidiaries, comprising, but not limited to, Inspirit Studio Limited which operates under the name of BuddiGo (“BuddiGo”), Wuxi Huayang Dyeing Machinery Co., Ltd. (“Dyeing”) and Wuxi Huayang Heavy Industries, Co., Ltd., formerly known as Wuxi Huayang Electrical Power Equipment Co., Ltd. (“Heavy Industries”), both of which are variable interest entities under contractual arrangements with us whose financial statements are consolidated with ours, unless the context specifically states or implies otherwise. Dyeing and Heavy Industries are collectively referred to as the “Huayang Companies.” At December 31, 2017 and 2016, the business formerly conducted by Heavy Industries is treated as a discontinued operation. For list of subsidiaries, please refer to the section headed “Organization”.
Our reporting currency is the United States dollar. Our business is conducted by our subsidiaries and variable interest entities in China, using RMB, the currency of China, and our subsidiaries in Hong Kong use the Hong Kong dollar, and our consolidated financial statements are presented in United States dollars. In this annual report, we refer to assets, obligations, commitments and liabilities in our consolidated financial statements in United States dollars. These dollar references are based on the exchange rate of RMB to United States dollars, and based on the exchange rate of Hong Kong dollar (HKD) to United States dollars determined as of a specific date. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars).
Currently, we are engaged in the manufacture and sales of textile dyeing and finishing machines and sharing economy businesses.
Through December 30, 2016, we operated in the forged rolled rings and related components segment, in which we manufactured and sold precision forged rolled rings, shafts, flanges, and other forged components for the energy industry including wind power and other industries. On December 30, 2016, we sold the stock in the entity that was engaged in the forged rolled rings and related components segment. Accordingly, the forged rolled rings and related components business is reflected as discontinued operations for all periods presented.
During 2016, we manufactured and sold petroleum and chemical equipment. We referred to this business as our petroleum and chemical equipment business. Because of a significant decline in revenues from this business, we determined that we would not continue to operate in this segment and accordingly, we reflect the operations of the petroleum and chemical equipment segment as discontinued operations for all periods presented.
Through our dyeing and finishing equipment segment, we design, manufacture and distribute a line of proprietary high and low temperature dyeing and finishing machinery to the textile industry. Our products feature a high degree of both automation and mechanical-electrical integration. Our products are used in dyeing yarns such as pure cotton, cotton-polyester, terylene, polyester wool, poly-acrylic fiber, nylon, cotton ramie, and wool yarn. We are continuing to seek to utilize our expertise in manufacturing precision products to meet demand in new and existing end markets.
We design and produce airflow dyeing machines, which use air instead of water. Water is used in the traditional dyeing process. We believe that our air-flow technology, which is designed to enable users to meet the stricter environmental standards, results in reduced input costs, fewer wrinkles, less damage to the textile, and reduced emissions. The Chinese government requires textile manufacturers to phase out older machinery that does not meet the new environmental standards, which, we believe will increase the need for equipment that complies there the Chinese government standards. Although our revenue from this segment declined in 2016, in the long-term we expect to increase our revenue from this segment. Our new after-treatment drying and compacting machine is used in the final finishing of knitted material, such as cotton, and is designed to improve the softness, reduce shrinkage and ensure better dimensional stability. We developed a new garment washing machine for denim. Made of stainless steel and customized for use by Chinese jeans manufacturers, the machine is capable of stone wash, enzyme wash and other water washing techniques.
In August 2016, we purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. We believe this patent technology will allow us to develop next generation dyeing and finishing equipment that will appeal to textile manufacturers in China as well as Southeastern Asia, particularly Vietnam and Bangladesh. We have developed a few prototypes based on this patent technology and have begun taking orders in small quantities.
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. At December 31, 2016, Shengxin had not yet commenced operations. During the project construction period, we will have the priority to provide components and equipment such as: solar racking and mounting systems for the projects under the same conditions as the other vendors. During 2017, Shengxin has located a number of projects and also has discussions with various local government entities and incurred minor expenses in 2017 including due diligence expenses, land survey expenses and other miscellaneous expenses related to these potential projects. However, given the decrease in the Chinese government subsidies for utility scale solar projects in 2017 as well as the high cost of solar components, Shengxin has not been able to locate any project which it believes could yield an expected leveraged internal rate of return of higher than 12%. Accordingly, Shengxin has not invested into any solar projects.
Throughout 2017, we made significant changes in the overall direction of the Company. Given the headwinds affecting our manufacturing business, we are targeting high growth opportunities and have established new business divisions to focus on the development of sharing economy platforms and related rental businesses within the company. These initiatives are still in an early stage. We did not generate significant revenues from our sharing economy business initiatives in 2017.
1
Reverse Split; Change in Authorized Common Stock
On February 24, 2017, we filed a certificate of change which effected a one-for-four reverse split, which became effective in the marketplace on March 20, 2017, and a reduction in our authorized common stock from 50,000,000 shares to 12,500,000 shares. All share and per share information in this Form 10-K and our consolidated financial statements have been retroactively restated to reflect this reverse split.
Organization
We are a Nevada corporation. We were incorporated in Delaware on June 24, 1987 under the name Malex, Inc. We changed our corporate name to China Wind Systems, Inc. on December 18, 2007. On June 13, 2011, we changed our corporate name to Cleantech Solutions International, Inc. On August 7, 2012, we were converted into a Nevada corporation. On January 8, 2018, Nasdaq approved our corporate name change to Sharing Economy International Inc.
We are the sole stockholder of Fulland Limited, a Cayman Islands limited liability company 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”).
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, we 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. We referred to this segment of its business as the forged rolled rings and related components segment. On December 30, 2016, Fulland sold the stock of Fulland Wind and accordingly, the forged rolled rings and related components business is reflected as discontinued operations for all periods presented. As of December 31, 2017, Fulland Wind had bank loans payable of RMB 4,500,000 (approximately $647,967) which were guaranteed by Dyeing and the Company’s chief executive officer and his wife. As of December 31, 2017, these loans had been paid in full by Fulland Wind.
Green Power is a party to a series of contractual arrangements dated October 12, 2007 with Wuxi Huayang Heavy Industries, Co., Ltd. (“Heavy Industries”) and Wuxi Huayang Dyeing Machinery Co., Ltd. (“Dyeing”) which are sometimes collectively referred to as the “Huayang Companies.” The Huayang Companies, both of which are limited liability companies organized under the laws of, and based in, the PRC, and their stockholders, who are our chief executive officer, Jianhua Wu, and his wife, Lihua Tang. Our corporate organizational structure, including the contractual arrangements with the Huayang Companies, is designed to comply with certain laws and regulations of the PRC which restrict the manner in which Chinese companies, particularly companies owned by Chinese residents, may raise funds from non-Chinese sources.
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.
The following table sets forth our relationship our subsidiaries and the variable interest entities whose financial statements are consolidated with ours.
2
| Name of Entity | Relationship to Us | Nature of Business | ||
| Sharing Economy International Inc. | N.A. | Holding company | ||
| Fulland Limited, a Cayman Island company | 100% owned by us | Holding company | ||
| Green Power Environment Technology (Shanghai) Co., Ltd. a PRC company | 100% owned by Fulland Limited | Operates business of Dyeing and operated business of Heavy Industries pursuant to contracts. | ||
| Wuxi Huayang Dyeing Machinery Co., Ltd. | Variable interest entity operated by Green Power pursuant to contracts | Operates dyeing and finishing equipment segment | ||
| Wuxi Huayang Heavy Industries Co., Ltd. (formerly Wuxi Huayang Electrical Power Equipment Co., Ltd.) | Variable interest entity operated by Green Power pursuant to contracts | Operated business of petroleum and chemical equipment segment. The business has been discontinued | ||
| Vantage Ultimate Limited (“Vantage”), a British Virgin Island (“BVI”) company | 100% owned by us | Holding company | ||
| EC Assets Management Limited, a BVI company | 100% owned by Vantage | Operates real estate and property management business | ||
| EC Rental Limited (“EC Rental”), a BVI company | 100% owned by Vantage | Holding company | ||
| EC Power (Global) Technology Limited (“EC Power”), a BVI company | 100% owned by EC Rental | Holding company | ||
| ECPower (HK) Company Limited, a HK company | 100% owned by EC Power | Operates rental stations offering power banks for mobile charging on-demand and other items | ||
| Sharing Economy Investment Limited, a BVI company | 100% owned by Vantage | Holding company and provision of management services | ||
| Global Bike Share (Mobile App) Limited, a BVI company | 100% owned by Sharing Economy | Operates global bike sharing mobile app business | ||
| EC Advertising Limited, a HK company | 100% owned by Sharing Economy | Operates online media and advertising business | ||
| EC (Fly Car) Limited, a BVI company | 100% owned by Sharing Economy | Operates business that builds parts for flying car manufacturers, the business has not yet commenced | ||
| AnyWorkspace Limited, a HK company | 80% owned by Sharing Economy | Operates a real time marketplace for temporary offices and meeting places platform | ||
| EC Manpower Limited, a HK company | 100% owned by Vantage | Provision of consulting and office support services to group companies | ||
EC Technology & Innovations Limited (“EC Technology”), a BVI company |
100% owned by Vantage | Holding company and provision of management services | ||
| Inspirit Studio Limited, a HK company | 51% owned by EC Technology | Develops and operates a sharing economy mobile platform for courier services | ||
| 3D Discovery Co., Limited, a HK company | 60% owned by EC Technology | Develops an interactive virtual tour of a physical space using a mobile phone camera | ||
| EC Creative Limited (“EC Creative”), a BVI company | 100% owned by Vantage | Holding company and provision of management services | ||
| Sharing Film International Limited, a HK company | 100% owned by EC Creative | Production of films |
Our executive offices are located No. 9 Yanyu Middle Road, Qianzhou Village, Huishan District, Wuxi City, Jiangsu Province, China 214181, telephone (86)51083397559. We also have a business office in Hong Kong located at Unit 315-316, 3/F, Building 12W, Phase 3, Hong Kong Science Park, Shatin, N.T., Hong Kong.
Our website is www.seii.com. Information on our website or any other website does not constitute a part of this annual report.
Contractual arrangements with the Huayang Companies and their stockholders
We have contractual arrangements with the Huayang Companies and their stockholders, who are our chief executive officer, Jianhua Wu, and his wife, Lihua Tang, pursuant to which we provide these companies with technology consulting and other general business operation services. Through these contractual arrangements, we also have the ability to substantially influence these companies’ daily operations and financial affairs, appoint their senior executives and approve all matters requiring stockholder approval. As a result of these contractual arrangements, which enable us to control the Huayang Companies, we are considered the primary beneficiary of the Huayang Companies. Accordingly, we consolidate the results, assets and liabilities of the Huayang Companies in our financial statements.
3
Our relationships with the Huayang Companies and their stockholders are governed by a series of contractual arrangements between Green Power, our wholly foreign owned enterprise in the PRC, and each of the Huayang Companies, which are our operating companies in the PRC. Under PRC laws, each of Green Power, Dyeing and Heavy Industries is an independent legal person and none of them is exposed to liabilities incurred by the other parties. Other than pursuant to the contractual arrangements between Green Power and the Huayang Companies described below, generally, neither of the Huayang Companies transfers any other funds generated from its operations to the other Huayang Company. On October 12, 2007, we entered into the following contractual arrangements with each of the Huayang Companies.
Consulting Services Agreement. Pursuant to the exclusive consulting services agreements between Green Power and each of the Huayang Companies, Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of dye and finishing machines, electrical equipment and related products. Under this agreement, Green Power owns the intellectual property rights developed or discovered through research and development, in the course of providing its services under the agreement, or derived from the provision of the services. The Huayang Companies shall pay a quarterly consulting service fees to Green Power that is equal to all of the Huayang Companies’ profits for such quarter. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of the agreement, with the extended term to be mutually agreed upon by the parties.
Operating Agreement. Pursuant to the operating agreement among Green Power, the Huayang Companies and all stockholders of the Huayang Companies, Green Power provides guidance and instruction on the Huayang Companies’ daily operations, financial management and employment issues. The Huayang Companies stockholders must designate the candidates recommended by Green Power as their representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in return, agrees to pledge their accounts receivable and all of their assets to Green Power. Moreover, the Huayang Companies agree that without the prior consent of Green Power, the Huayang Companies will not engage in any transactions that could materially affect their respective assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of this agreement, with the extended term to be mutually agreed upon by the parties.
Equity Pledge Agreement. Under the equity pledge agreement between the Huayang Companies stockholders and Green Power, the Huayang Companies’ stockholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee the Huayang Companies’ performance of their obligations under the consulting services agreement. If the Huayang Companies or the Huayang Companies’ stockholders breach their respective contractual obligations, Green Power, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies stockholders also agreed that upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Huayang Companies stockholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Huayang Companies’ stockholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.
Option Agreement. Under the option agreement between the Huayang Companies’ stockholders and Green Power, the Huayang Companies’ stockholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the parties.
Our Dyeing and Finishing Business
Historically, our primary operations involved the design, manufacture and distribution of a line of proprietary high and low temperature dyeing and finishing machinery to the textile industry. Our products feature a high degree of both automation and mechanical-electrical integration. Our products are used in dyeing yarns such as pure cotton, cotton-polyester, terylene, polyester wool, poly-acrylic fiber, nylon, cotton ramie, and wool yarn. We are continuing to seek to utilize our expertise in manufacturing precision products to meet demand in new and existing end markets.
The textile industry in China has been facing significant headwinds recently. Difficult economic conditions, a continuing decline in oil prices and limited availability of credit in China, presented numerous challenges for our dyeing machine business. Additionally, apparel factories and other factories have been shut down throughout the last year by China’s environmental bureau, which has been cutting electricity and gas supply to determine compliance with China’s environmental laws. In the past year, reports estimate that China has dispatched inspectors in as many as 30 provinces around the country and 80,000 factories—roughly 40 percent of the factories in China—have been fined, charged or closed because of their emissions. This has caused softer demand for our low-emission airflow dyeing machines as many of our potential customers have already upgraded to new models and the remaining potential customer base does not have the ability to make significant capital expenditures at this time. As a result, if we are to sell our products to the smaller textile manufacturers, it may be necessary for us to design and market a cheaper machine that meets the Chinese government requirements or reduce prices which would impact both revenues and gross margin.
4
We design, manufacture and distribute a line of proprietary high and low temperature dyeing and finishing machinery. We believe that we are one of the leading domestic Chinese manufacturers of textile dyeing machines, and our Huayang brand is nationally recognized. We currently have the capacity to manufacture and assemble approximately 600 textile-dyeing machines annually. Our state-of-the-art and automated production line enables us to manufacture our products efficiently, with lower labor and energy costs compared to traditional manufacturing methods. As part of our manufacturing process, we make corrosion-resistant stainless steel pumps and pressure vessels, which are not only critical components for our dyeing and finishing products but have other industrial applications as well.
In 1999, we received the “Advanced Enterprise for Progress in Science and Technology Award” from Wuxi City and the “Star of Brilliance Medal” from the Wuxi City Bureau of Industrial and Commercial Administration. In 2002, we were recognized as an “Advanced Enterprise for Technical Reform Input” by Qianzhou, a municipality within Wuxi City for our dyeing products.
We hold 33 Chinese patents, of which eight are described under “Intellectual Property Rights.” These patents cover an innovative production technique enabling more-effective cloth washing in dyeing machines under high temperature and pressure, the dyeing liquid mixing device, dyeing liquid atomizing device, horizontal manipulated devices, mechanical seal and atomizer of its airflow dyeing machine and cover components of the hot air circulation system of low emission air flow dyeing machines.
Our dyeing and finishing products are generally compact in design compared with alternatives on the market and feature a high degree of both automation and mechanical-electrical integration. Our products are used in dyeing a wide variety of yarns such as pure cotton, cotton-polyester, terylene, polyester wool, poly-acrylic fiber, nylon, cotton ramie, and wool yarn. In 2010, we introduced an advanced dyeing technology enabling a quick, economic and environment-friendly operation designed for optimal performance. The liquid pressure and quantity are adjusted to the respective type and quantity of fabric. The special layout of the pressure pump circuit is designed to provide constant and safe operations of the machine reducing resources wastage and enhancing performance.
We developed a high (low) temperature airflow dyeing machine. We believe that this new model of dyeing machine is efficient and cost effective and meets the requisite Chinese environmental standards. In September 2014, we received two Chinese patents which cover components of the hot air circulation system of our low emission air flow dyeing machines. We believe that the hot air circulation system helps to enhance the machines’ ability to produce higher quality textiles with a better look and feel.
We have developed a new air-fluid, dual-use dyeing machine which uses both air flow and fluid flow in the dyeing process. It allows users to customize the dyeing process according to the specific type of textile. It is equipped with a series of specialized and patented components, including nozzles, cloth wheels and cloth spreaders, which are designed to permit greater color evenness and reduce defects. It can be used on a wider range of textiles and uses 60% to 70% less water, about 30% less power and 40% to 50% less steam than traditional models of high-temperature, high-pressure dyeing machines and reduces the use of additives by about 50% while shortening dyeing time by one to two hours.
In August 2016, we purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. We believe this patent technology will allow us to develop next generation dyeing and finishing equipment that will appeal to textile manufacturers in China as well as Southeastern Asia, particularly Vietnam and Bangladesh. We have developed a few prototypes based on this patent technology and have begun taking orders in small quantities.
Our Sharing Economy Business
Beginning in the second quarter of 2017, we established new business divisions to focus on the development of sharing economy platforms and related rental businesses. We believe a true peer-to-peer sharing economy based on rentals will take significant market share in both the business and consumer markets over the next few years.
Sharing economy business models are hosted through digital platforms that enable more precise, real-time measurement of spare capacity and have the ability to dynamically connect that capacity with those who need it. These digital platforms handle transactions that offer access over ownership through renting, lending, subscribing, reselling, swapping or donating. Consumers who use sharing economy business models are often more comfortable with transactions that involve deeper social interactions than traditional methods of exchange.
We have been exploring possible merger and acquisition opportunities that can bring to market more user-friendly platforms and convenient channels that allow people to rent what they need and make their lives easier. We are currently emphasizing the following areas:
On Demand Services
The ways people work and how services are provided has been changing, and there is a growing need for short-term services and workforces in the market. In December 2017, we acquired a 51% interest in Inspirit Studio Limited, which is engaged in developing a mobile app platform which provides instant errand services in a peer to peer model. BuddiGo, is our new sharing platform that allows users to outsource daily chores and mundane tasks to “Buddies” who can spare idle time to run errands. According to iimediaResearch, the number of users participating in the peer-to-peer delivery sharing market in China has grown from 124 million in 2014 to 231 million in 2016, and experts expect it to grow to 353 million by the end of 2018. We expect to launch this service in mid-2018. We are also exploring other on-demand and referral recruitment services.
5
Coworking and Coliving Development
According to Small Business Labs, the number of coworking spaces globally will exceed 30,000 by 2022, with over 5.1 million people utilizing coworking spaces. We are entering this market through partnerships and affiliations with current coworking and coliving space operators, including our recent acquisition of Anyworkspace.com, an online, real-time marketplace that connects workspace providers with clients who need temporary office and meeting spaces. We are seeking additional alliances with other operators in the near future. Furthermore, the development of our item rental services within our EC Power subsidiary, will also support our coworking and coliving rental community development.
Technology Development
In January 2018, we acquired a 60% interest in 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 of Hong 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 US$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 which allows users to create an interactive virtual tour of a physical space by using a mobile phone camera.
We have established both in-house engineering teams and engaged with external technology partners and advisors to develop a common underlying information and transaction platform which can be used by different sharing economy vertical applications. Our technical teams and partners include experts in blockchain, artificial intelligence, big data, digital imaging and video technologies, eCommerce and UI/UX, among others. We are working with our partners to develop SEII’s “Sharing Blocks,” a blockchain-based platform which provides functions for secured user profile information and transaction records through a “Blockchain as a Service” (BaaS) model, allowing third-party sharing economy applications to utilize and build a global consolidated and trustworthy sharing economy ecosystem.
In August 2017, we signed an agreement with ECoin Global Limited ("ECoin") for the future purchase of ECoin redemption codes with an aggregate value of $50 million for total consideration of $20 million. We plan to resell the redemption codes in the form of ECrent gift cards at global locales through reseller channels, such as convenience stores. We are working with InComm, a global pre-payment network and solution provider, to sell the redemption codes with face values of HK$100, HK$300 and HK$500 at major convenience store networks in Hong Kong and Macau with other international locations to follow.
Sharing Communities
Because the sharing economy is predicated on the trust of all participants, we believe the best way to establish sharing behaviors is within communities. We are currently engaged in exclusive discussions with ECrent Capital Holdings Limited ("ECrent"), a private company incorporated in the British Virgin Islands focused on developing and operating a global rental platform to promote sharing economy across 30 countries and regions.
Solar Farm Joint Venture
On December 26, 2016, Dyeing and Xue Miao, an unrelated individual, formed Shengxin, in which Dyeing has a 30% equity interest and Mr. Xue holds a 70% interest, pursuant to an agreement dated December 23, 2016. The agreement sets forth general terms relating to the proposed business, but does not set forth specific funding obligations for either party. Dyeing has agreed to invest RMB 60,000,000 (approximately $9,200,000) and had invested RMB 59.8 million ($9,189,397 at December 31, 2017, for which it received a 30% interest, and Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $21.5 million), of which Mr. Xue has contributed RMB 60,000,000 (approximately $9.2 million), for which Mr. Xue received a 70% interest in Shengxin. Shengxin’s registered capital is RMB 200 million (approximately $30.7 million). Mr. Xue has advised Dyeing that he anticipates that he will fund the remaining RMB 80,000,000 (approximately $12.2 million) of his commitment during 2018. Since Mr. Xue did not make this payment by the end of 2017, Dyeing has the right to amend the contract, and both parties may adjust each side’s equity interest to reflect the amount of capital each side has actually invested. As of December 31, 2017, no changes have been made to such contract.
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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. During 2017, Shengxin has located a number of projects and also has discussions with various local government entities and incurred minor expenses in 2017 including due diligence expenses land survey expenses, and other miscellaneous expenses related to these potential projects. However, given the decrease in the Chinese government subsidies for utility scale solar projects in 2017 as well as the high cost of solar components, Shengxin was has not been able to locate any project which it believes could yield an expected leveraged internal rate of return of higher than 12%. Accordingly, Shengxin has not invested into any solar projects. There are no provisions for additional projects, and we cannot assure you that we would participate in any projects beyond the scope of the present agreement with Mr. Xue.
During the project construction period, we will have the priority to supply components and equipment such as: solar racking and mounting systems for the projects under the same conditions as the other vendors. However, we cannot assure you that we can develop a competitive product at a competitive price.
The solar farm industry is China is subject to significant government regulation. In order to construct and operate solar farms in China, it is necessary to obtain a permit for a specific location, to obtain leasehold rights to a significant amount of contiguous land parcels in provinces where there is sufficient sunlight for most of the year to support a solar farm and to have an agreement to connect with the local grid. The development of solar farms requires significant funding, which, if financing is not available, would have to be provided by Dyeing and Mr. Xue. There are no agreements relating to the funding obligations of either Dyeing or Mr. Xue with respect to any specific project. Shengxin anticipates that to the extent that it obtains permits for solar farms, it will form a new subsidiary for the sole purpose of obtaining the permit for a specific location and constructing the solar farm at that location. The nature of the parties’ respective investments and the respective equity interest in any solar farm project will be determined on a case-by-case basis. To the extent that Mr. Xue develops the project, he may receive an equity interest in the project greater than the percentage of his equity investment, with the specific amount being subject to mutual agreement of the parties.
Our investment in Shengxin is subject to a high degree of risk. We cannot give any assurance that Shengxin will be able to obtain any permits, raise any required funding, develop and operate or sell any solar farms or operate profitably or that Dyeing will have the resources to provide any funds that may be required in order to fund any solar farm projects for which Shengxin may obtain permits. There may be a significant delay between the time funds are advanced for any project and the realization of revenue or cash flow from any project.
Marketing and Distribution
Substantially all of our revenue is derived from the sale of textile dyeing and finishing machines in China. We presently sell our products in Jiangsu and Zhejiang Provinces, both regions with significant textile production, as well as in many of the coastal regions of China such as Shandong and Guangdong provinces.
We market and sell our products through our internal sales force, which is based in our facilities in Wuxi. Our marketing programs include industrial conferences, trade fairs, sales training and advertising. Our sales and marketing groups work closely with our manufacturing groups to coordinate our product development activities, product launches and ongoing demand and supply planning. We sell our products directly to many of China’s largest textile producers. However, as the large textile producers purchase equipment that complies with the Chinese regulations, they have less of a need for new equipment and many of the smaller textile producers do not have the available funding or credit facilities to enable them to purchase capital equipment such as our dyeing and finishing equipment.
Our sharing economy businesses are still in a very early stage of development. We intend to market and sell our services for these businesses primarily through online media advertising. Online marketing consists of search engine marketing, display advertisements, referral programs and affiliate marketing. We have established a business unit, EC Advertising Limited, to support these endeavors. EC Advertising will provide resources to support the marketing needs of the sharing economy businesses via partnerships and acquisitions of advertising companies.
Growth Strategies
According to China’s National Development and Reform Commission, the main focus of the country’s textile industry has shifted from gaining competitive advantages based on labor costs toward the objectives of developing scientific and technological innovation as well as brand creation.
In support of this objective, we are continuing our efforts to develop and implement next-generation low energy consumption and high heating efficiency features to our machines. The current emphasis of our efforts continues to be on increasing automation features in our existing products and implementing power line communication technology throughout our production facilities to enable our customers to reduce their use of electricity and water. However, we experienced softer demand for our low-emission airflow dyeing machines as many of our customers already upgraded to newer models and much of our remaining customer base does not have the ability to make significant capital expenditures at this time. As a result, our sales in this segment declined from $17.4 million in 2016 to $13.5 million in 2017, and we cannot assure you that we will be able to increase our sales to his market.
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Given the headwinds affecting our manufacturing business, we have made the decision to focus on high growth opportunities and have added new sharing economy business units into the group. Our 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.
Today, the sharing economy is in the process of disrupting and transforming numerous industries, changing both business and consumer behavior. The sharing economy redefines how resources are being provided and utilizes them in a more efficient way. According to Juniper Research, total sharing economy revenue is predicted to reach $40.2 billion by 2022. PwC UK forecasts the five most prominent sharing economy sectors – collaborative finance, peer-to-peer accommodation, peer-to-peer transportation, on-demand household services and on-demand professional services, could see a 20-fold increase to €570 billion by 2025 in European markets, up from just €28 billion today. The sharing economy is spreading across different industries and regions, creating new market behavior.
In 2017, we began studying and acquiring sharing economy platforms in different market disciplines. Following these efforts, we are now grouping our sharing economy markets in the following verticals: coworking and coliving communities, community consumer resource sharing, collaborative transportation, on-demand peer-to-peer services, and social referral recruitment.
We believe further mergers and acquisitions have the potential to grow the Company rapidly and aggressively in new market opportunities, technology, products and platforms. We will continue targeting the technology and global sharing economy markets, by developing online platforms and rental business partnerships that will drive the global development of sharing through economical rental business models.
Competition
Because of the importance of the Chinese textile industry in the world market, our dyeing and finishing business faces competition from both domestic and foreign suppliers. However, we believe that, due to the high quality of our products, our principal competition is from suppliers based in foreign countries, including Japan, Germany, Italy and France. Domestically, our chief competitor is Fong’s National Engineering (Shenzhen) Co., Ltd., a subsidiary of Fong’s Industries Company Ltd., a Hong-Kong based conglomerate.
We believe that we can effectively compete with these companies on the basis of the quality and performance of our products, our after-sales service, and cost. We provide one year of maintenance and repair services for all of our products and based on historical experience, maintenance and repair service calls have been minimal. Moreover, we provide customers in the Jiangsu and Zhejiang Provinces, our top markets, with on-site support which is generally provided within 24 hours of receiving a request. However, many of our competitors have longer operating histories and significantly greater financial or technological resources than we do and presently enjoy greater brand recognition.
However, in trying to market our equipment to smaller textile companies, competition may be based more on price than quality, and we may not be able to price competitively without seriously eroding our margins. It may be necessary for us to develop lower price machinery to meet the price needs of the smaller textile manufacturers.
Further, as Chinese textile companies face competition from countries with a lower labor cost, the Chinese market for our equipment may decrease and we may not be able to market successfully to textile manufacturers in other countries.
The global sharing economy continues to evolve, and we face competition from technology companies, both large and small, throughout the world. The Company aims to become a pioneer in the development of sharing economy solutions. The group is developing different sharing economy applications with a common user and transaction processing engine, which will become a sharing economy ecosystem for the convenience of users as well as allowing the group to effectively share technologies and business data. Our different sharing economy solutions will have the ability to collaborate with each other, allowing us to provide one-stop combined solutions to the market. We believe the ability to leverage and collaborate between our different sharing businesses will increase our market competitiveness.
Source of Supply
In our dyeing and finishing business, stainless steel and other metals are the principal raw material for the manufacture of all of our products. We purchase stainless steel tubes from Wuxi City Zhongtian Stainless Steel Co., Ltd. and stainless steel plates from Wuxi City Fanshun Materials Co., Ltd. While we do not have long-term contracts with these suppliers, we have long-term business relationship with them, and these companies have generally met our supply requirements. For the textile machinery business, the price of steel can have more significant impact. Any significant rise in the price of or demand for stainless steel could have an adverse effect on our results of operations. Inflation has recently affected raw materials generally, and inflationary pressures could have a significant effect on our business. Other raw materials, such as stainless steel planks and transducers, are readily available from a number of suppliers on commercially reasonable terms.
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In our sharing economy business, IT development resources are crucial for the near-term development of our sharing platforms. We are in the process of signing fixed man-day service contracts with our external development consultants to ensure the availability of IT development resources under a fixed pricing scheme for the near future. We will continue to expand our IT development support resources cross regionally to avoid the dependency on a single or small number of sources.
Research and Development
In our dyeing and finishing business, we incurred research and development expense in the amount of $420,000 and $304,000 related to the development and improvement of our new dyeing machinery in 2017 and 2016, respectively. We are continuing product development with respect to the new dyeing machinery.
In our sharing economy business, we have established both in-house engineering teams and engaged with external technology partners and advisors to develop a common underlying information and transaction platform which can be used by different sharing economy vertical applications. Our technical teams and partners include experts in blockchain, artificial intelligence, big data, digital imaging and video technologies, eCommerce and UI/UX, among others. Given the early stage of the sharing economy business, we did not incur any R&D expenses in 2017. We expect this to increase in 2018 as we work on building this business and the associated IT and transaction platforms.
Government Regulations
Environmental Regulations
Our manufacturing processes generate noise, waste water, gaseous and other industrial wastes, and we use, generate and discharge toxic, volatile and otherwise hazardous chemicals and wastes in our operations. As a result, we are required to comply with all national and local regulations regarding protection of the environment. Our operations are subject to regulations promulgated by China’s Environmental Protection Administration, Jiangsu Province Environmental Protection Administration and the Wuxi City Environmental Administration. We are also subject to periodic monitoring by local environmental protection authorities in Wuxi. We have installed various types of anti-pollution equipment in our facilities to reduce, treat, and, where feasible, recycle the wastes generated in our manufacturing processes. We believe that our manufacturing facilities and equipment are in substantial compliance with all applicable environmental regulations. Based on the requirement of present law, we do not expect that any additional measures that may be required to maintain compliance will materially affect our capital expenditures, competitive position, financial position or results of operations.
The Chinese government has expressed a concern about pollution and other environmental hazards. Although we believe that we comply with current national and local government regulations, if it is determined that we are in violation of these regulations, we can be subject to financial penalties as well as the loss of our business license, in which event we would be unable to continue in business. Further, if the national or local government adopts more stringent regulations, we may incur significant costs in complying with such regulations. If we fail to comply with present or future environmental regulations, we may be required to pay substantial fines, suspend production or cease operations. Any failure by us to control the use of or to restrict adequately the discharge of, hazardous substances could subject us to potentially significant monetary damages and fines or suspensions in our business operations.
Our products must also comply with applicable environmental regulations, and we believe we are in material compliance with all applicable environmental laws and regulations applicable to our products.
Business Licenses
Dyeing has been issued a business license with the appropriate municipal and provincial government which specifically authorizes it to operate its business. The business license, which is subject to annual review by the issuing agency, is current as of the date of this annual report. No additional approval or license is required for the manufacturing and sale of the textile dyeing and finishing machines.
We believe our sharing economy businesses are properly licensed with the appropriate government entities. However, because BuddiGo’s business model provides inner-city peer-to-peer delivery services, we could be identified as a member of the logistics industry by the governments of some countries where we conduct business. This could trigger additional licensing requirements.
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ISO Certification
Our dyeing and finishing business received the certificate to manufacture D1 and D2 levels of pressure vessels, which includes our current line of dyeing machines, from the Quality and Technical Supervision Bureau of Jiangsu Province. We received the certificate on December 7, 2007 and renewed it on December 21, 2015. This certificate expires on December 20, 2019.
Circular 106 Compliance and Approval
On May 31, 2007, the State Administration of Foreign Exchange, or SAFE, issued an official notice known as “Circular 106,” which requires the owners of any Chinese companies to obtain SAFE’s approval before establishing any offshore holding company structure for foreign financing as well as subsequent acquisition matters in China. Accordingly, in early September 2007, the owners of 100% of the equity in the Huayang Companies, namely Jianhua Wu and his wife, Lihua Tang, submitted their application to SAFE. On October 11, 2007, SAFE approved their application, permitting them to establish an offshore company, Fulland, as a “special purpose vehicle” for any foreign ownership and capital raising activities by the Huayang Companies. After SAFE’s approval, Mr. Wu and Ms. Tang became the majority owners of Fulland on October 11, 2007. Fulland was acquired by us in November 2007.
Draft Foreign Investment Law
On January 19, 2015, the Ministry of Commerce of China (“MOFCOM”) published a draft version of a proposed Foreign Investment Law with an explanatory note. The draft Foreign Investment Law, if and when promulgated, will replace and integrate the three existing laws over foreign investment, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Wholly Foreign-owned Enterprise Law and the Sino-foreign Cooperative Enterprise Law. The draft Foreign Investment Law was formulated with a view to opening wider to the outside, promoting and regulating foreign investment, protecting the legitimate rights and interests of foreign investors, safeguarding national security and public interests, and facilitating the healthy development of the socialist market economy. MOFCOM has requested comments from the public on the draft Law by February 17, 2015.
Some of the more significant concepts in the draft Foreign Investment Law include the following:
Actual Control
The proposed law has adopted the concept of actual control in the foreign investment area. The draft Foreign Investment Law notes that a company established in China but controlled by foreign investors shall be deemed a foreign investor while entities set up in foreign jurisdictions but controlled by Chinese investors can, in some circumstances, be deemed Chinese domestic investors. According to the draft Foreign Investment Law, “control” refers to several circumstances including the contractual control by imposing decisive influences on the operation, finance, personnel or technology of the enterprise by contract, trust or other means.
Special Administrative Measures
Most foreign investments will not need pre-approval as was previously required. It means that the Chinese market could be more open and efficient in some sectors to set up foreign invested companies. However, the draft Foreign Investment Law sets out a catalogue of special administrative measures, which is classified into a catalogue of prohibitions and a catalogue of restrictions. Foreign investors are not allowed to invest in any sector set out in the catalogue of prohibitions. Further, a catalogue of restrictions will note those sectors with restrictions imposed on foreign investors. The use of catalogue of special administrative measures represents a method of management or administration of foreign investments.
How domestic VIEs, potentially deemed to be foreign enterprises under the draft Foreign Investment Law and currently operating in sectors in the catalogue of prohibitions, will be treated is unclear.
National Security Reviews
The draft Foreign Investment Law also establishes a united foreign investment national security review system which will conduct examinations on the foreign investments that endangers or may endanger the national security.
Information Reporting System
The draft Foreign Investment Law establishes a foreign investment information reporting system. The new rules include submission of a foreign investment report (such as when setting up a company), a report of any changes of foreign investment (any adjustments of investment) and an annual report. Generally, reporting obligations arise when a foreign investor purchases not less than 10% of the stock of a domestic listed company, or less than 10% but the purchase results in a change of control of the domestic listed company.
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Supervision and Inspection
The draft Foreign Investment Law establishes a mechanism for the supervision and inspection of foreign investors and foreign invested enterprises from industrial and commercial, taxation, foreign exchange, auditing and other administrative departments. The government’s eye on foreign investments and foreign investment management has shifted from the approval prior to a foreign invested company being established to the supervision and inspection after it is set up.
Intellectual Property Rights
We rely on a combination of trademark, copyright and trade secret protection laws in China and other jurisdictions, as well as confidentiality procedures and contractual provisions to protect our intellectual property and our brand. In addition to 24 other patents held by us, the eight Chinese patents, all of which relate to our dyeing products, are our principal patents. The patents were issued by the State Intellectual Property Office of the People’s Republic of China in November 2012, as to the first patent, and June 2013 as to the other five and September 2014 as to the last two.
The following table sets forth information concerning our eight principal patents.
| Patent No. | Description | Expiration | ||||
| ZL 2012 2 0165878.7 | a process to enable more-effective cloth washing in dyeing machines under high temperature and pressure | November 2022 | ||||
| ZL 2012 2 0752919.2 | atomizer of airflow dyeing machine | June 2023 | ||||
| ZL 2012 2 0752924.3 | mechanical seal for dyeing machine | June 2023 | ||||
| ZL 2012 2 0752922.4 | horizontal manipulated devices for dyeing machine | June 2023 | ||||
| ZL 2012 2 0752921.X | dyeing liquid atomizing device for dyeing machine | June 2023 | ||||
| ZL 2012 2 0752917.3 | dyeing liquid mixing device for dyeing machine | June 2023 | ||||
| ZL 2013 1 0004772.8 | hot air circulation system of air flow dyeing machines | September 2034 | ||||
| ZL 2013 1 0004736.1 | hot air circulation system of air flow dyeing machines | September 2034 |
In August 2016, we purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment.
We intend to apply for more patents to protect our core technologies. We also have confidentiality and non-competition policies in place as part of our company employment guideline which is given to each employee, and we enter into nondisclosure agreements with third parties. However, we cannot assure you that we will be able to protect or enforce our intellectual property rights.
Employees
Dyeing and Finishing Business
As of April 10, 2018, we had 137 full time employees, comprised of ten executives, managers and administrative staff, three accounting staff, two quality control staff, seven marketing and salespeople, one purchasing staff, five designers, five logistic and cafeteria staff, eight factory overhead staff and 96 manufacturing staff.
Our manufacturing employees usually work in two shifts, based upon our manufacturing requirements. We may also send our engineers and technicians to our customers’ work sites to provide after-sale customer service for them.
All of these employees are members of a union, organized by the Union for Huishan District, Wuxi City, as mandated by the PRC Union Law. We have not experienced a work strike. We believe that our relations with our employees are good.
Sharing Economy Business
As of March 15, 2018, we had seven employees and forty-three consultants who are engaged with us either individually or as a business entity.
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An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision, and you should only consider an investment in our common stock if you can afford to sustain the loss of your entire investment. You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. If any of the following risks occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business
For the year ended December 31, 2017, we incurred losses from continuing operations of $12.8 million, we cannot assure you that our losses will not continue and we believe that these matters raise substantial doubt about our ability to continue as a going concern for twelve months from the issuance date of this report.
Our 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 our accompanying consolidated financial statements, we had a loss from continuing operations of $12,828,393 for the year ended December 31, 2017. The net cash used in operations was $409,791 for the year ended December 31, 2017. Additionally, during the year ended December 31, 2017, revenues decreased by 22.1% as compared to the year ended December 31, 2016. Management believes that these matters, among others, raise substantial doubt about our ability to continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that we will ultimately achieve profitable operations or continue to be cash flow positive, or raise additional debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining our business strategy for twelve months from the date of this report.
We may seek to raise capital through additional debt and/or equity financings to fund our operations in the future. Although we have historically raised capital from sales of equity and from bank loans, there is no assurance that we will be able to continue to do so. If we are unable to raise additional capital or secure additional lending in the near future, management expects that we will need to curtail or cease operations. Our consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Our auditors have issued a “going concern” audit opinion.
Our independent auditors have indicated in their report on our December 31, 2017 consolidated financial statements that there is substantial doubt about our ability to continue as a going concern. We incurred loss from continuing operations and revenues decreased significantly. These conditions raise substantial doubt about our ability to continue as a going concern for the next twelve months from the issuance date of this report. We cannot provide assurance that we will ultimately achieve profitable operations or continue to be cash flow positive, or raise additional debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining our business strategy for twelve months from the date of this report.
We will require additional funds to expand our operations.
In view of both our decline in revenues, our loss from continuing operations for 2017 and 2016, and in connection with any expansion projects for our business, we will incur significant capital and operational expenses. We do not presently have any funding commitments other than our present credit arrangements which we do not believe are sufficient to enable us to expand our business. If we are unable to generate cash flow from operations and obtain necessary bank or other financing to pay for significant capital or operational expenses, we may be unable to finance our business, which may impair our ability to operate profitably. Because of our stock price and the worldwide economic situation, we may not be able to raise any additional funds that we require on favorable terms, if any. The failure to obtain necessary financing may impair our ability to expanse or business and remain profitable.
We rely on short term financing to fund our operations.
We have historically financed our operations through short-term bank loans, which have been refinanced upon maturity. At December 31, 2017, we had outstanding short-term bank loans of $2.1 million. We cannot assure you that we would be able to obtain alternative financing in the event that our lenders did not renew our short-term loans. Our failure to have the bank loans refinanced could materially impair our ability to operate our business.
You may suffer significant dilution if we raise additional capital.
If we need to raise additional capital to expand or continue operations, it may be necessary for us to issue additional equity or convertible debt securities. If we issue equity or convertible debt securities, our net tangible book value per share may decrease, and the percentage ownership of our current stockholders would be diluted, and any equity securities we may issue may have rights, preferences or privileges senior or more advantageous to our common stockholders.
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Risks related to our Dyeing and Finishing Business
A decrease in supply or increase in cost of the materials used in our products could impair our ability to generate profitable operations.
Any restrictions on the supply or the increase in the cost of the materials used by us in manufacturing our products, especially steel, could significantly reduce our profit margins. Efforts to mitigate restrictions on the supply or price increases of materials by entering into long-term purchase agreements, by implementing productivity improvements or by passing cost increases on to our customers may not be successful. Increased competition may affect our ability to pass on to our customers’ price increases in raw materials, particularly, stainless steel, which is our principal raw material for all of our products. Our profitability depends largely on the price and continuity of supply of the materials used in the manufacture of our products, which in many instances are supplied by a limited number of sources.
Inflationary and competitive pressures may affect our ability to maintain our margins.
In recent years, raw materials, including steel, which is our principal raw material, have been subject to significant price fluctuation. The Chinese government has expressed concern about inflation in certain segments of the economy. We cannot predict the extent or effect of inflationary pressures with respect to steel and steel products. To the extent that we have to raise our prices to maintain our margins, our sales may suffer. If we are unable to raise prices, either because of competitive factors or customer resistance, our margins and net income may suffer. We cannot assure you that our business will not be impaired by inflation.
The nature of our products creates the possibility of significant product liability and warranty claims, which could harm our business.
Customers use some of our products in potentially hazardous applications that can cause injury or loss of life and damage to property, equipment or the environment. In addition, some of our products are integral to the production process for some end-users and any failure of our products could result in a suspension of operations. We cannot be certain that our products will be completely free from defects. Moreover, we do not have any product liability insurance and may not have adequate resources to satisfy a judgment in the event of a successful claim against us. The successful assertion of product liability claims against us could result in potentially significant monetary damages and require us to make significant payments.
If we fail to introduce enhancements to our existing products or to keep abreast of technological changes in our markets, our business and results of operations could be adversely affected.
We believe our future success depends in part on our ability to enhance our existing products and develop new products in order to continue to meet customer demands. Although we are seeking to address these requirements, our failure to introduce and develop a market for these and any other new or enhanced products on a timely and cost-competitive basis, as well as the development of processes that make our existing technologies or products obsolete, could harm our business and results of operations.
The market for our dyeing and finishing equipment is depending upon the competitiveness of the Chinese textile industry.
With consumers looking for lower prices in textile products, Chinese textile manufactures complete with manufacturers in other countries that have a lower labor cost than China. We only sell our dyeing and finishing equipment in China, and we may not be able to develop any market for our equipment outside of China. To the extent that Chinese textile companies either lose business or potential business to other countries or seek to manufacture in those countries, the market for our equipment may decline significantly.
Because we face intense competition from companies that have greater resources than we do, we may not be able to compete successfully and we may lose or be unable to gain market share.
The markets for products are intensely competitive. Many of our competitors have established more prominent market positions as well as existing relationship with potential customers, and if we fail to attract and retain customers and establish successful distribution networks in our target markets for our products, we will be unable to increase our sales. Many of our existing and potential competitors have substantially greater financial, technical, manufacturing and other resources than we do. Our competitors’ greater size in some cases provides them with a competitive advantage with respect to manufacturing costs because of their economies of scale and their ability to purchase raw materials at lower prices, as well as securing supplies at times of shortages. Many of our competitors also have greater brand name recognition, more established distribution networks and larger customer bases. In addition, many of our competitors have well-established relationships with our current and potential distributors and have extensive knowledge of our target markets. As a result, they may be able to devote greater resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors may materially and adversely affect our financial condition and results of operations. Further, from time to time, we have had to adjust the prices of our products to remain competitive. Because many of the smaller textile manufactures may not have the funds or credit availability to purchase our products, unless we can develop a cheaper model we may not be able to maintain margins if we are to increase sales.
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Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.
As our manufacturing processes generate noise, wastewater, gaseous and other industrial wastes, we are required to comply with all national and local regulations regarding protection of the environment. If we fail to comply with present or future environmental regulations, we may be required to pay substantial fines, suspend production or cease operations. We use, generate and discharge toxic, volatile and otherwise hazardous chemicals and wastes in our activities. Any failure by us to control the use of or to restrict adequately, the discharge of hazardous substances could subject us to potentially significant monetary damages and fines or suspensions in our business operations. We do not have insurance to cover any liability which we may incur as a result of personal injury or property damages resulting from emissions of toxic material into the environment.
Our ISO certifications expire in 2019, and our failure to maintain these certifications could impair our ability to obtain customers for our products.
Since our ISO certifications expire in 2019, we need to complete the renewal process in order to continue to maintain these certifications. The renewal process requires an inspection of our facilities by an independent inspection company. Our failure to maintain, or any delay in obtaining, a continuation of our ISO certification could impair our ability to attract business which could affect both our revenue and our gross margin.
Our products are subject to PRC regulations, which may materially adversely affect our business.
Government regulations influence the design, components or operation of our products. New regulations and changes to current regulations are always possible and, in some jurisdictions, regulations may be introduced with little or no time to bring related products into compliance with these regulations. Our failure to comply with these regulations may restrict our ability to sell our products in the PRC. In addition, these regulations may increase our cost of supplying the products by forcing us to redesign existing products or to use more expensive designs or components. In these cases, we may experience unexpected disruptions in our ability to supply customers with products, or we may incur unexpected costs or operational complexities to bring products into compliance. This could have an adverse effect on our revenues, gross profit margins and results of operations and increase the volatility of our financial results.
The success of our businesses will depend on our ability to effectively develop and implement strategic business initiatives.
In connection with the development and implementation of our growth plans, we will incur additional operating expenses and capital expenditures. The development and implementation of these plans also requires management to divert a portion of its time from day-to-day operations. These expenses and diversions could have a significant impact on our operations and profitability, particularly if our plans for any new initiative prove to be unsuccessful. Moreover, if we are unable to implement any of our plans in a timely manner, or if those plans turn out to be ineffective or are executed improperly, our business and operating results would be adversely affected.
Failure to successfully reduce our production costs may adversely affect our financial results.
A significant portion of our strategy relies upon our ability to successfully rationalize and improve the efficiency of our operations. If we are not able to implement cost reduction measures, especially in times of either an economic downturn or inflationary pressures, or if these efforts do not generate the level of cost savings that we expect going forward or result in higher than expected costs, there could be a material adverse effect on our business, financial condition, results of operations or cash flows.
If we are unable to make necessary capital investments or respond to pricing pressures, our business may be harmed.
In order to remain competitive, we need to invest in product development, manufacturing, customer service and support, and marketing. We do not have any significant research and development activities. We may not have available sufficient financial or other resources to continue to make investments necessary to maintain our competitive position. Currently, our research and development is not significant.
Unforeseen or recurring operational problems at our facilities may cause significant lost production, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our manufacturing processes could be affected by operational problems that could impair our production capability. Our facilities contain complex and sophisticated machines that are used in our manufacturing process. Disruptions at our facilities could be caused by maintenance outages; prolonged power failures or reductions; a breakdown, failure or substandard performance of any of our machines; the effect of noncompliance with material environmental requirements or permits; disruptions in the transportation infrastructure, including railroad tracks, bridges, tunnels or roads; fires, floods, earthquakes or other catastrophic disasters; labor difficulties; or other operational problems. Any prolonged disruption in operations at our facilities could cause significant lost production, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.
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Our business depends substantially on the continuing efforts of our executive officers and our ability to maintain a skilled labor force, and our business may be severely disrupted if we lose their services.
Our future success depends substantially on the continued services of our executive officers, especially Mr. Jianhua Wu, our chief executive officer and the chairman of our board of directors. We do not maintain key man life insurance on any of our executive officers. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers. In addition, if any of our executives joins a competitor or forms a competing company, we may lose some of our customers. Our chief executive officer is a party to contractual agreements as described elsewhere in our annual report.
A substantial part of our business is conducted through Dyeing, which is owned by our chief executive officer and his wife.
In 2017, substantially all of our revenues were generated by Dyeing, which is a variable interest entity that is owned by our chief executive officer and his wife and whose financial results are included with ours because Dyeing is deemed as variable interest entity and we are the sole beneficiary of their operations. The variable interest entity relationship is derived from a series of agreements between us and our chief executive officer and his wife, as the sole stockholders of the Huayang Companies. Pursuant to these agreements, we are responsible for the operations of the Dyeing and receive the benefits of those operations. However, in the event that we have to seek to enforce these agreements, such enforcement would be sought in Chinese courts, and we cannot assure you that we will prevail or that we will be able to obtain the benefits intended by these agreements. Any inability to enforce our rights under these agreements would materially impair our operations, financial position and cash flows.
If we are unable to attract, train and retain technical and financial personnel, our business may be materially and adversely affected.
Our future success depends, to a significant extent, on our ability to attract, train and retain technical and financial personnel. Recruiting and retaining capable personnel, particularly those with expertise in our industries and in the industries to which we market, are vital to our success. There is substantial competition for qualified technical and financial personnel, and there can be no assurance that we will be able to attract or retain our technical and financial personnel. If we are unable to attract and retain qualified employees, our business may be materially and adversely affected.
Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be costly.
We rely primarily on trade secret and contractual restrictions to protect our intellectual property. Nevertheless, these afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate and we may not be able to protect our intellectual property under Chinese laws. As a result, third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial condition or operating results. In addition, policing unauthorized use of proprietary technology can be difficult and expensive. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others and the enforcement of intellectual property rights in China may be difficult. We cannot assure you that the outcome of any litigation will be in our favor. Intellectual property litigation may be costly and may divert management attention as well as expend our other resources away from our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties. The occurrence of any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.
Implementation of China’s intellectual property-related laws has historically been lacking, primarily because of ambiguities in China’s laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Although we have received patents for our new dyeing machines, we cannot assure you that these patents will provide us with protection against infringers or other parties who design around our patents.
We do not have business liability or disruption insurance coverage.
The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products. We do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster may result in our incurring substantial costs and the diversion of our resources.
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We may experience major accidents in the course of our operations, which may cause significant property damage and personal injuries.
We may experience major accidents in the course of our operations, which may cause significant property damage and personal injuries. Significant industry-related accidents and disasters may cause interruptions to various parts of our operations, or could result in property or environmental damage, increase in operating expenses or loss of revenue. We do not carry any insurance policy covering our capital assets. In accordance with customary practice in China, we do not carry any business interruption insurance or third party liability insurance for personal injury or environmental damage arising from accidents on our property or relating to our operations other than our automobiles. Losses or payments incurred may have a material adverse effect on our operating performance if such losses or payments are not fully insured.
Risks Related to our Equity Method Investment in Shengxin
With our investment in Shengxin, we will be dependent upon the efforts of a third party to generate income.
In December 26, 2016, we formed Shengxin with Xue Miao, an independent third party. Shengxin plans to develop, construct and maintain photovoltaic power generations projects, known as solar farms, in China. We have no experience in the development, construction or operation of solar farm and we will be relying entirely on the ability of Mr. Xue to identify, obtain rights to, develop, construct and maintain the solar farms and identify and hire the necessary key personnel and executives to conduct such business profitably, if at all. We cannot assure you that Shengxin will ever operate profitably or that we will generate any return on our investment. In the event that Shengxin does not develop a significant stream of earnings for us, it may be necessary for us to write down our investment in Shengxin.
The solar farm business is capital intensive and we may be required to make additional capital contributions.
The solar farm business is capital intensive and we may be required to make further investments in either Shengxin and in any subsidiary which Shengxin may form for a specific project. In order to construct a solar farm in China, it is necessary to obtain a permit for a specific project. Typically, the solar farm company forms a separate subsidiary to hold the permit and construct the solar farm project. Each project is separately funded, and we cannot estimate whether our initial investment will be sufficient to enable Shengxin to complete any solar farm projects. We presently do not have the funds or borrowing ability to enable us to make further investment in Shengxin. If we are required to make additional capital contributions and do not have the ability to do so, our interest in Shengxin or in any specific project may be significantly reduced.
Shengxin may not be successful in developing its solar farm project business in China.
In order to conduct the solar farm project business in China, Shengxin will need to:
| ● | obtain required governmental approval and permits; | |
| ● | complete any applications that may be necessary to enable Shengxin or the end user to take advantage of available government benefits; | |
| ● | identify and obtain land use rights for significant contiguous parcels of land in areas where there is sufficient sunlight to justify a solar farm; | |
| ● | resolve any problems with residents and businesses in the area where the solar farm is to be constructed; | |
| ● | negotiate an interconnection agreement with the utility or government Electricity Bureau; | |
| ● | obtain substantial financing for each project, and initial investment will not be sufficient to provide Shengxin with such financing; | |
| ● | unless Shengxin intends to operate the solar farm for its own account, identify a buyer of the project and negotiate a purchase and sale contract with a project buyer, which may involve the sale of the project to the buyer and an agreement with the buyer for Shengxin to design and perform the construction work on the project on time and within the budget; |
In the event that Shengxin is not able to satisfy any of these conditions, it may not be able to generate income, and it may be necessary for Shengxin to suspend or terminate these operations. Further, the development of solar projects also may be adversely affected by many other factors outside of our or Shengxin’s control, such as inclement weather, acts of God, and delays in regulatory approvals or in third parties’ delivery of equipment or other materials, shortages of skilled labor. We cannot assure you that Shengxin will be able to engage in the solar farm business successfully. Shengxin’s failure to operate this business successfully will materially impair our financial condition and the results of our operations.
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Delays in construction of solar farms could increase Shengxin’s costs and impair its revenue stream, which would impair our ability to generate income from our investment in Shengxin.
In the development and construction of solar farm projects, Shengxin will incur significant costs prior to completion. Any delay in completing a project would delay Shengxin’s generation of revenues as well as its recognition of revenue from the project. Delays can result from a number of factors, many of which are beyond our or Shengxin’s control, and include, but are not limited to:
| ● | unanticipated changes in the project plans; | |
| ● | defective or late delivery of components or other quality issues with components; | |
| ● | difficulty in obtaining and maintaining required permits; | |
| ● | difficulty in receiving timely payments from the customers; | |
| ● | changes in regulatory requirements; | |
| ● | failure to obtain financing, and additional conditions required by lenders; | |
| ● | unforeseen engineering and construction problems; | |
| ● | labor problems and work stoppages; | |
| ● | equipment problems; | |
| ● | adverse weather, environmental, and geological conditions, including floods, earthquakes, landslides, mudslides, sandstorms, drought, or other inclement weather and climate conditions or natural disasters; and | |
| ● | cost overruns resulting from the foregoing factors as well as our miscalculation of the actual costs. |
Shengxin is dependent upon Mr. Xue to operate its business.
Shengxin’s business is largely dependent upon the continued efforts of Mr. Xue. Shengxin does not have an employment agreement with Mr. Xue and Mr. Xue has interests in other companies in the solar farm business. The loss of Mr. Xue or his failure or inability to devote significant time to Shengxin’s business could affect its ability to operate profitably. The loss of Mr. Xue could have a material adverse effect upon Shengxin’s ability to develop and operate its business. Shengxin’s failure to develop senior management personnel will impair Shengxin’s ability to generate revenue and operating income which could impair our overall operations and financial condition.
Because Mr. Xue has other interests in the solar farm business, he may have a conflict of interest with Shengxin.
Because Mr. Xue has an interest in Shengxin as well as other companies in the solar farm business, he may be in a position to determine whether Shengxin or another company makes a bid for a specific permit and he may have the ability to place competing bids for the same project. Further, our agreement with Mr. Xue contemplates that projects will be completed within two years. There is no agreement with respect any projects that would be developed after the two year period. We cannot assure you that Mr. Xue will continue with us regardless of whether we complete the initial projects or whether the projects are successful and generate revenue.
Changes in the PRC Government policies on solar power and industry conditions could affect Shengxin’s ability to generate business in China.
Shengxin’s ability to develop business in China is dependent upon the continuation of government policies relating to solar power and the relationship between the solar farm owner and the local utility. Any changes in the policies or practices that affect the solar power industry could make the construction and operation of a solar farm less desirable. Delays in payments from the utilities or difficulties in connecting with the grid could also make solar farms less attractive. We cannot assure you that changes in law or practices will not impair Shengxin’s ability to conduct its business.
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Shengxin’s business is dependent on the continuation of government benefits.
In many areas in China, solar farms, particularly on-grid photovoltaic systems, would not be commercially viable without government subsidies or economic incentives. The cost of generating electricity from solar energy in these markets currently exceeds, and very likely will continue to exceed for the foreseeable future, the cost of generating electricity from conventional or other renewable energy sources. These subsidies and incentives have been primarily in the form of set electricity prices and performance incentive programs, to solar farm operators. To the extent that these incentives are not available, it may not be economical for Shengxin to develop and operate solar farms in these regions.
Shengxin competes with other firms for a limited number of available permits.
In China permits for solar farms are granted by the local government agency and a list of available permits is published by the agency. There is a limited number of potential customers as well as a limited number of permits available and Shengxin will compete with other firms in seeking to obtain permits. In seeking permits, Shengxin will compete with other companies, many of which have significantly greater financial resources and are better known than Shengxin. Further, many of Shengxin’s competitors may have or can develop relationships with both the government officials who issue the permits as well as the buyers of the projects. We cannot assure you that Shengxin will be able to obtain the necessary permits or enter into agreements with end users. Shengxin’s failure to obtain the permits and enter into agreements would impair its ability to generate revenue from this business.
Because of the amount of land required for a solar farm, it may be difficult to obtain the necessary land use rights, which may increase the cost of the land.
There is no private ownership of land in China, and the owner or operator of a solar farm must obtain the necessary land use rights from the applicable government agency. Solar farms require a substantial amount of land, which could be in the range of 800 to 3,500 acres, for the construction of the solar farm. It is also crucial to have a land parcel close to the grid connection point in order both to control the cost for the construction of transmission line and to avoid the electricity transmission loss. The shortage of available land may also result in an increase in the cost of the land use rights as well as increased completion for the land use rights. Further, since the land is owned by the government, the government has the ability to determine the best use of the limited available land and it might determine that the land could be used for other purposes that solar farms. If Shengxin cannot obtain sufficient land use rights at a reasonable cost, it may be reluctant to make the investment in solar farms. Further, changes in the size of a project may result in increased costs as well as construction difficulties.
Shengxin may fail to comply with laws and regulations regarding the development, construction and operation of solar power projects and photovoltaic production projects in China.
The development, construction and operation of solar power projects and photovoltaic production projects are highly regulated activities. Shengxin’s operations are governed by different laws and regulations, including national and local regulations relating to urban and rural planning, building codes, safety, environmental protection, fire control, utility transmission, engineering and metering and related matters. Shengxin’s failure to obtain or maintain any required approvals, permits, licenses, filings or to comply with the conditions associated therewith could result in fines, sanctions, suspension, revocation or non-renewal of approvals, permits or licenses, or even criminal penalties, which could have a material adverse effect on its business, financial condition and results of operations. Any new government regulations pertaining to solar power projects may result in significant additional expenses to the development, construction and operation of solar power projects and, as a result, could cause a significant reduction in demand for solar power projects and services. We cannot assure you that Shengxin will be able to promptly and adequately respond to changes of laws and regulations, or that its employees and contractors will act in accordance with our internal policies and procedures. Failure to comply with laws and regulations where Shengxin develops, constructs and operates solar power projects may materially adversely affect its business, financial condition and results of operations.
Risks Related to Conducting Business in the PRC
PRC laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are found to be in violation, we could be subject to sanctions. In addition, changes in such PRC laws and regulations may materially and adversely affect our business.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with our affiliated Chinese entities, the Huayang Companies, and its shareholders. We are considered a foreign person or foreign invested enterprise under PRC law. As a result, we are subject to PRC law limitations on foreign ownership of Chinese companies. These laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.
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The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.
The PRC government restricts foreign investment in businesses in China. Accordingly, we operate our business in China through the Huayang Companies and, recently through a wholly-owned subsidiary which is a wholly foreign owned entity known as a WFOE. The Huayang Companies and the subsidiary hold the licenses and approvals necessary to operate our businesses in China. We have contractual arrangements with the Huayang Companies and its shareholders that allow us to substantially control the Huayang Companies. We cannot assure you, however, that we will be able to enforce these contracts.
Although we believe we comply with current PRC regulations, we cannot assure you that the PRC government would agree that these operating arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. If the PRC government determines that we do not comply with applicable law, it could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, require us to restructure our operations, impose additional conditions or requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our business.
There are significant uncertainties under the Draft Foreign Investment Law relating to the status of businesses in China controlled by foreign invested enterprises primarily through contractual arrangements, such as our business.
On January 19, 2015, MOFCOM published a draft of the PRC Law on Foreign Investment (Draft for Comment), or the Draft Foreign Investment Law, which is open for public comments until February 17, 2015. At the same time, MOFCOM published an accompanying explanatory note of the Draft Foreign Investment Law, or the Explanatory Note, which contains important information about the Draft Foreign Investment Law, including its drafting philosophy and principles, main content, plans to transition to the new legal regime and treatment of business in China controlled by foreign invested enterprises, or FIEs, primarily through contractual arrangements. The draft Foreign Investment Law utilizes the concept of “actual control” for determining whether an entity is considered to be a foreign-invested enterprise, and defines “control” broadly to include, among other things, voting or board control through contractual arrangements.
The draft Foreign Investment Law proposes significant changes to the PRC foreign investment legal regime and may have a material impact on Chinese companies listed or to be listed overseas. The proposed draft Foreign Investment Law is to regulate FIEs the same way as PRC domestic entities, except for those FIEs that operate in industries deemed to be either “restricted” or “prohibited” in a “negative list.” Because the negative list has yet to be published, it is unclear whether it will differ from the current list of industries subject to restrictions or prohibitions on foreign investment. The draft Foreign Investment Law also provides that only FIEs operating in industries on the negative list will require entry clearance and other approvals that are not required of PRC domestic entities. As a result of the entry clearance and approvals, certain FIE’s operating in industries on the negative list may not be able to continue to conduct their operations through contractual arrangements. It states that entities established in China but controlled by foreign investors will be treated as foreign-invested enterprises, while entities set up outside of China which are controlled by PRC persons or entities, would be treated as domestic enterprises after completion of market entry procedures.
There is substantial uncertainty regarding the draft Foreign Investment Law, including, among others, what the actual content of the law will be as well as the adoption and effective date of the final form of the law. While such uncertainty exists, we cannot assure you that the new foreign investment law, when it is adopted and becomes effective, will not have a material and adverse effect on our ability to conduct our business through our contractual arrangements.
If the draft Foreign Investment Law is enacted and goes into effect in its current form, if we are deemed to have a non-PRC entity as a controlling shareholder, the provisions regarding control through contractual arrangements could reach our VIE arrangements, and as a result our VIEs could become subject to restrictions on foreign investment, which may materially impact the viability of our current corporate structure and operations. Specifically, we may be required to modify our corporate structure, change our current scope of operations, obtain approvals or face penalties or other additional requirements, compared to entities which do have PRC controlling shareholders.
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PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities have broad discretion in interpreting these laws and regulations. If the PRC government determines that our contractual arrangements do not comply with applicable laws and regulations, it could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, block our website, require us to restructure our operations, impose additional conditions or requirements with which we may not be able to comply, or take other regulatory or enforcement actions against us that could be harmful to our business. The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business.
Regulations relating to offshore investment activities by PRC residents may limit our ability to acquire PRC companies and could adversely affect our business.
In July 2014, SAFE promulgated the Circular on Issues Concerning Foreign Exchange Administration over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents via Special Purpose Vehicles, or Circular 37, which replaced Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, or Circular 75. Circular 37 requires PRC residents to register with SAFE or its local branches in connection with their direct establishment or indirect control of an offshore entity, referred to in Circular 37 as a “special purpose vehicle” for the purpose of overseas investment or financing. Circular 37 further requires amendment to a PRC resident’s registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or decrease in the capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. Under these regulations, PRC residents’ failure to comply with specified registration procedures may result in restrictions being imposed on the foreign exchange activities of the relevant PRC entity, including the payment of dividends and other distributions to its offshore parent entity, as well as restrictions on capital inflows from the offshore parent entity to the PRC entity, including restrictions on its ability to contribute additional capital to its PRC subsidiaries. Further, failure to comply with the SAFE registration requirements could result in penalties under PRC law for evasion of applicable foreign exchange regulations.
As there is uncertainty concerning the reconciliation of these regulations with other approval requirements, it is unclear how these regulations will be interpreted and implemented by relevant governmental authorities. In addition, different local SAFE branches may have different views and procedures as to the interpretation and implementation of the SAFE regulations, and it may be difficult for our ultimate shareholders or beneficial owners who are PRC residents to provide sufficient supporting documents required by the SAFE or to complete the required registration with the SAFE in a timely manner, or at all. Any failure by any of our shareholders who is a PRC resident, or is controlled by a PRC resident, to comply with relevant requirements under these regulations could subject us to fines or sanctions imposed by the PRC government, including restrictions on WFOE’s ability to pay dividends or make distributions to us and on our ability to increase our investment in the WFOE.
If we become directly subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation.
U.S. public companies that have substantially all of their operations in China, particularly companies like us that have completed so-called reverse acquisition transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from developing our growth. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our stock.
The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.
We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any review of us, our SEC reports, other filings or any of our other public pronouncements.
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Our contractual arrangements with the Dyeing and its shareholders may not be as effective in providing control over these entities as direct ownership.
Since the law of the PRC limits foreign equity ownership in companies in China, we operate our business through the Dyeing. The equity in Dyeing is owned by our chief executive officer and his wife, and we have no equity ownership interest in Dyeing. We rely on contractual arrangements to control and operate such businesses. These contractual arrangements may not be effective in providing control over Dyeing as direct ownership. For example, Dyeing could fail to take actions required for our business despite its contractual obligation to do so. If Dyeing fails to perform under its agreements with us, we may have to incur substantial costs and resources to enforce such arrangements and may have to rely on legal remedies under the law of the PRC, which may not be effective. In addition, we cannot assure you that Dyeing’s shareholders would always act in our best interests.
Adverse changes in political and economic policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially and adversely affect our competitive position.
Our dyeing and finishing business operations are conducted in and substantially all of our revenues are made in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:
| ● | the amount of government involvement; | |
| ● | the level of development; | |
| ● | the growth rate; | |
| ● | the control of foreign exchange; and | |
| ● | the allocation of resources. |
While the Chinese economy has grown significantly in the past 20 years, the growth has been uneven, both geographically and among various sectors of the economy, and the worldwide economic downturn has affected China. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.
The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in China is still owned by the Chinese government. The continued control of these assets and other aspects of the national economy by the Chinese government could materially and adversely affect our business. The Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the Chinese government to slow the pace of growth of the Chinese economy could result in decreased capital expenditure by our customers and potential customers, which in turn could reduce demand for our products. Furthermore, in response to the worldwide economic downturn, the Chinese government may seek to increase its control over businesses which could affect our business.
Any adverse change in the economic conditions or government policies in China could have a material adverse effect on the overall economic growth and the level of renewable energy investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses.
Uncertainties with respect to the Chinese legal system could have a material adverse effect on us.
We conduct substantially all of our business through our Chinese subsidiaries and affiliates, which are generally subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign-owned enterprises. China’s legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, Chinese legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and China’s legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.
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We rely on dividends and working capital advances paid by our subsidiaries and VIEs for our cash needs.
We conduct our operations through Dyeing, a variable interest entity. We rely on dividends and working capital advances from our subsidiaries for our cash needs, including the funds necessary to pay any dividends which we may declare and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends and working capital advances by entities organized in China is subject to limitations. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Each subsidiary and VIE entity is also required to set aside at least 10% of its after-tax profit based on China’s accounting standards each year to its general reserves until the accumulated amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. Our subsidiaries are also required to allocate a portion of their after-tax profits to their staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. In addition, if our subsidiaries incur debt, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.
China’s Unified Corporate Income Tax Law also imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.
Currency fluctuations and restrictions on currency exchange may adversely affect our business, including limiting our ability to convert Renminbi into foreign currencies and, if Renminbi were to decline in value, reducing our revenue in U.S. dollar terms.
Our reporting currency is the U.S. dollar and our operations in the PRC use their local currency as their functional currencies. Substantially all of our revenue and expenses are in Renminbi. Accordingly, we are subject to the effects of exchange rate fluctuations with respect to any of these currencies. For example, the value of the Renminbi depends to a large extent on PRC government policies and the PRC’s domestic and international economic and political developments, as well as supply and demand in the local market. Since 1994, the official exchange rate for the conversion of Renminbi to the U.S. dollar had generally been stable and the Renminbi had appreciated slightly against the U.S. dollar. However, in July 2005, the PRC government changed its policy of pegging the value of Renminbi to the U.S. dollar. Under the new policy, Renminbi may fluctuate within a narrow and managed band against a basket of certain foreign currencies. As a result of this policy change, Renminbi appreciated more than 20% against the U.S. dollar in the following three years. Since July 2008, however, the Renminbi has traded within a narrow range against the U.S. dollar. As a consequence, the Renminbi has fluctuated significantly since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. On June 19, 2010, the People’s Bank of China, or the PBOC, announced that the PRC government would further reform the Renminbi exchange rate regime and increase the flexibility of the exchange rate. It is difficult to predict how this new policy may impact the Renminbi exchange and the Renminbi may not be stable against the U.S. dollar or any other foreign currency.
Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.
Under China’s existing foreign exchange regulations, our Chinese subsidiaries are able to pay dividends in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, we cannot assure you that the Chinese government will not take further measures in the future to restrict access to foreign currencies for current account transactions. Foreign exchange transactions by our Chinese subsidiaries under the capital account continue to be subject to significant foreign exchange controls and require the approval of China’s governmental authorities, including the SAFE. In particular, if a subsidiary borrows foreign currency loans from us or other foreign lenders, these loans must be registered with the SAFE, and if we finance the subsidiary by means of additional capital contributions, these capital contributions must be approved by certain government authorities including the Ministry of Commerce or its local counterparts. These limitations could affect the ability of our subsidiaries to obtain foreign exchange through debt or equity financing.
Due to various restrictions under PRC laws on the distribution of dividends by PRC operating companies or contractual provisions in future debt instruments, we may not be able to pay dividends to our shareholders.
The Wholly-Foreign Owned Enterprise Law (1986), as amended, The Wholly-Foreign Owned Enterprise Law Implementing Rules (1990), as amended, and the Company Law of the PRC (2006) contain the principal regulations governing dividend distributions by Wholly-Foreign Owned Enterprises, or WFOEs. Under these regulations, WFOEs may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, they are required to set aside each year 10% of its net profits, if any, based on PRC accounting standards, to fund a statutory surplus reserve until the accumulated amount of such reserve reaches 50% of their respective registered capital. These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from the profits of our WFOE.
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Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the economic value from the operations of our PRC subsidiary through contractual or dividend arrangements, we may be unable to pay dividends on our ordinary shares.
Because our principal assets are located outside of the United States and our directors and officers reside outside of the United States, it may be difficult for you to enforce your rights based on the United States federal securities laws against us and our officers and directors in the United States or to enforce foreign judgments or bring original actions in the PRC or Hong Kong against us or our management.
All of our officers and directors reside outside of the United States. In addition, our operating subsidiaries and VIEs are located in the PRC or Hong Kong and all of their assets are located outside of the United States. The PRC does not have a treaty with United States providing for the reciprocal recognition and enforcement of judgments of courts. Therefore, it may be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the United States federal securities laws against us in the courts of either the United States or the PRC and, even if civil judgments are obtained in courts of the United States, to enforce such judgments in PRC courts.
Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.
In October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in June 2007 (known as Notice 106), expanded the reach of Circular 75 by (i) purporting to cover the establishment or acquisition of control by PRC residents of offshore entities which merely acquire “control” over domestic companies or assets, even in the absence of legal ownership; (ii) adding requirements relating to the source of the PRC resident’s funds used to establish or acquire the offshore entity; (iii) covering the use of existing offshore entities for offshore financings; (iv) purporting to cover situations in which an offshore special purpose vehicle establishes a new subsidiary in China or acquires an unrelated company or unrelated assets in China; and (v) making the domestic affiliate of the special purpose vehicle responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds. Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations, and Notice 106 makes the offshore special purpose vehicle jointly responsible for these filings. In the case of an special purpose vehicle which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required to have been completed before March 31, 2006; this date was subsequently extended indefinitely by Notice 106, which also required that the registrant establish that all foreign exchange transactions undertaken by the special purpose vehicle and its affiliates were in compliance with applicable laws and regulations. Failure to comply with the requirements of Circular 75, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the special purpose vehicle’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the special purpose vehicle, or from engaging in other transfers of funds into or out of China. We cannot provide any assurances that their existing registrations have fully complied with, and they have made all necessary amendments to their registration to fully comply with, all applicable registrations or approvals required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies.
Risk related to our Sharing Economy Businesses
Our Sharing Economy Businesses are in early-stage development with a limited operating history and a relatively new business model, which makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment.
We started our business transition and operations in June 2017. Our limited operating history and relatively new business model may make it difficult to evaluate our current business and our future prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by companies in a rapidly changing market, including challenges in accurate financial planning and forecasting. We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results and financial condition. You should consider our business and prospects in light of the risks and difficulties we may encounter as an early-stage company.
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Our operating results may fluctuate.
Our operating results may fluctuate as a result of a number of factors, many of which are beyond our control. The following factors may affect our operating results:
| ● | Our ability to compete effectively. |
| ● | Our ability to continue to attract users to our platforms. |
| ● | The level of use of the Internet to look for rental and services information. |
| ● | Our ability to attract companies and individuals to pay in order to generate income from our platforms. |
| ● | Our focus on long term goals and short term results. |
| ● | Our ability to keep the platforms operational at a reasonable cost and without service interruptions. |
| ● | The success of our geographical and product expansion. |
| ● | Our ability to attract, motivate and retain top-quality employees. |
| ● | Federal, state or local government regulation that could impede the availability of products and services for which our platforms rendered. |
| ● | Our ability to upgrade and develop new products and services. |
| ● | The costs and results of litigation that we may face. |
| ● | Our ability to manage rental advertisement quality and other activities that violate our terms of services. |
| ● | Our ability to successfully expand, integrate and manage our acquisitions. |
| ● | Geographical events such as war, threat of war, terrorist actions or natural disasters. |
Because our business is changing and evolving, our current operating results may not be useful to you in predicting our future operating results. In addition, online sharing economy markets have recently emerged, which may not provide you with relevant industry data for evaluating our business.
For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on past results as an indication of future performance. Quarterly and annual expenses as a percentage of net revenues may be significantly different from historical or projected rates. Our operating results in future quarters may fall below expectations, which could cause our stock price to fall.
If we do not continue to innovate and provide products and services that are useful to users, we may not remain competitive, and our operating results could suffer.
Our success depends on our ability to provide products and services to users looking for a high quality rental and services experience. Our competitors are constantly developing innovations in rental classified or transaction services to people. As a result, we must continue to invest significant resources in research and development in order to enhance our products and services, and introduce new high-quality products and services that people will use. If we are unable to predict user preferences or industry changes, or if we are unable to modify our products and services on a timely basis, we may lose users. Our operating results would also suffer if our innovations are not responsive to the needs of our users and advertisers, are not appropriately timed with market opportunity or are not effectively brought to market. As web and mobile application technology continues to develop, our competitors may be able to offer matching and communication features that are, or that are perceived to be, substantially similar or better than those generated by our platform and application services. This may force us to compete on bases other than quality of products and services and to expend significant resources in order to remain competitive.
Our business depends on a successful change in consumer behavior, and if such trend does not grow, our business and operating results would be harmed.
The
growth and adaptation of sharing economy is a major factor for our platform to attract more users and advertisers. If the trend
of sharing economy does not grow as predicted by the market, this will affect our business and operating results. As a result,
we may need to change our business model accordingly.
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If we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.
Our performance will largely be dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense. If we do not succeed in attracting excellent personnel or retaining or motivating existing personnel, we may be unable to grow effectively.
System failures could harm our business.
Our systems are vulnerable to damage or interruption from earthquakes, hurricanes, terrorist attacks, floods, fires, power loss, telecommunications failures, computer viruses, computer denial of service attacks or other attempts to harm our system, and similar events. Some of our data centers are located in areas with high risk of major earthquakes. Our data centers are also subject to break-ins, sabotage and international acts of vandalism, and to potential disruptions if the operators of these facilities have financial difficulties. Some of our systems are not fully redundant. The occurrence of a natural disaster, a decision to close a facility we are using without adequate notice or other unanticipated problems at our data centers could result in lengthy interruptions in our service. Any damage to or failure of our systems could result in interruptions in our service. Interruptions in our service could reduce our revenues and profits, and our brand could be damaged if people believe our system is unreliable.
Acquisitions could result in operating difficulties, dilution and other harmful consequences.
We have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions. From time to time, we may engage in discussions regarding potential acquisitions. Any of these transactions could be material to our financial condition and results of operations. In addition, the process of integrating an acquired company, business or technology may create unforeseen operating difficulties and expenditures and is risky. The areas where we may face risks include:
| ● | The need to implement or remediate controls, procedures and policies appropriate for a larger public company at companies that prior to the acquisition lacked these controls, procedures and policies. |
| ● | Diversion of management time and focus from operating our business to acquisition integration challenges. |
| ● | Cultural challenges associated with integrating employees from the acquired company into our organization. |
| ● | Retaining employees from the businesses we acquire. |
| ● | The need to integrate each company’s accounting, management information, human resource and other administrative systems to permit effective management. |
Also, the anticipated benefit of many of our acquisitions may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill, any of which could harm our financial condition. Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on favorable terms or at all.
As a distributor and host of Internet content, we will face potential liability and expense for legal claims based on the nature and content of the materials that we distribute or create, or that are accessible via our website.
As a distributor and host of original content and user-generated content, we will face potential liability based on a variety of theories, including defamation, libel, negligence, copyright or trademark infringement or other legal theories based on the nature, creation or distribution of this information, and under various laws, including the Lanham Act, the Copyright Act, the Federal Trade Commission Act, the Digital Millennium Copyright Act, Section 230 of the Communications Decency Act, and the European Union E-Commerce Directive. We may also be exposed to similar liability in connection with content that users post to our website through forums, blogs, comments, and other social media features. In addition, it is possible that visitors to our websites could make claims against us for losses incurred in reliance upon information provided via our websites. These claims, whether brought in the United States or abroad, could divert management time and attention away from our business and result in significant costs to investigate and defend, regardless of the merit of these claims. If we become subject to these or similar claims and are not successful in our defense, we may be forced to pay substantial damages. There is no guarantee that we will avoid future liability and potential expenses for legal claims based on the content available on our website. Should the content distributed through our website violate the rights of others or otherwise give rise to claims against us, we could be subject to substantial liability, which could have a negative impact on our business and financial performance.
Loss of trust in our brand would harm our reputation and adversely affect our business, financial condition and results of operations. Our success depends on attracting a large number of users to our website and retaining such users. In order to attract and retain users, we must remain a valuable source of listings. Because of our reliance on user-generated content, we must continually manage and monitor our content and detect incorrect or fraudulent information. If a significant amount of inaccurate or fraudulent information were not detected and removed by us in a timely manner, or if a significant amount of information was deemed by users or the media to be inaccurate or fraudulent, our brand, business and reputation could be harmed. Any damage to our reputation could harm our ability to attract and retain users, employees and advertisers, which would adversely affect our business and financial performance. In addition, significant adverse news reports or media, industry or consumer coverage of us would reflect poorly on our brands and could have an adverse effect on our business and financial performance.
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We are subject to risks associated with information disseminated through our services.
Online services companies may be subject to claims relating to information disseminated through their services, including claims alleging defamation, libel, breach of contract, invasion of privacy, negligence, copyright or trademark infringement, among other things. The laws relating to the liability of online services companies for information disseminated through their services are subject to frequent challenges both in the United States and foreign jurisdictions. Any liabilities incurred as a result of these matters could require us to incur additional costs and harm our reputation and our business.
Our potential liability to third parties for the user-provided content on our sites, particularly in jurisdictions outside the United States where laws governing Internet transactions are unsettled, may increase. If we become liable for information provided by our users and carried on our service in any jurisdiction in which we operate, we could be directly harmed and we may be forced to implement new measures to reduce our exposure to this liability, including expending substantial resources or discontinuing certain service offerings, which could harm our business.
Failure to deal effectively with fraudulent activities on our platforms would increase our loss rate and harm our business, and could severely diminish merchant and consumer confidence in and use of our services.
We face risks with respect to fraudulent activities on our platforms and periodically receive complaints from users who may not have received the rental items or services or payment for the items or services. While we can, in some cases, suspend the accounts of users who fail to fulfill their payment or delivery obligations to other users, we do not have the ability to require users to make payment or deliver rental items or services, or otherwise make users whole. Although we plan to implement measures to detect and reduce the occurrence of fraudulent activities, combat bad user experiences and increase user satisfaction, including evaluating users on the basis of their transaction history and restricting or suspending their activity, there can be no assurance that these measures will be effective in combating fraudulent transactions or improving overall satisfaction among users. Our failure to effectively deal with fraudulent activities on our platform could result in a reduction in the ability to attract new users or retain current users, damage to our reputation, or a diminution in the value of our brand names.
Our BuddiGo Business
BuddiGo leverages a mobile payment solution that may affect BuddiGo’s short-term income
BuddiGo fully embeds a mobile payment solution as its major payment method. However, mobile payments have not yet been fully adopted by consumers in the targeted South East Asia markets, although recent statistics reveal a growing trend of mobile payment usage. Late adoption of mobile payments may possibly influence BuddiGo’s income in the short term.
Changes of government policy and regulations
Supported by a technology platform, BuddiGo provides instant delivery and logistics services by freelance idle human resources within the community. BuddiGo might be identified as a member of the logistics industry by the governments of some countries where we conduct business, which may cause necessary licensing requirements. Despite the majority of similar models that are widely authorized in U.S. and cities in mainland China, local government policies among South East Asia could influence the eligibility of our operations.
Concerns over the legitimacy of goods delivered via a P2P delivery model could potentially damage our reputation
BuddiGo’s business model is for inner-city peer-to-peer delivery services. As with all logistics and courier companies, there is no absolute policy or mechanism to ensure the legitimacy of goods that are being delivered. BuddiGo takes steps to mitigate this risk by requiring all goods’ senders to be registered with an instant messenger/social media account, credit card and mobile number. We also provide a disclaimer in our terms of use. However, should illegitimate or counterfeit goods be delivered using our platform, this could affect our reputation and adversely impact our business.
BuddiGo grocery purchasing service is susceptible to chargebacks associated with customer disputes, which could impact our relationships with banking and financial partners
BuddiGo provides a grocery purchasing service, whereby freelancers must pay in advance on behalf of the customers they are delivering the items to. As such, the BuddiGo model is susceptible to chargebacks associated with customer disputes. Such disputes could occur due to immoral activity, carelessness and/or misdirection from the buying and/or selling parties. These circumstances could potentially cause chargeback activities that result in the suspension of and blacklisting of our online payment account by certain banking or financial partners.
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Shortage of supply forces may cause loss of business
BuddiGo makes use of idle human resources within a community to provide a variety of delivery/purchasing services. The majority of our workforce supply is obtained on a freelance basis and there is potential risk of a shortage of the supply of freelancers in certain circumstances, including an unexpected sudden growth of demand, public holidays and inclement weather. If transactions are not completed, this may raise concerns regarding income stability by our workforce supply.
Our 3D Discovery business
There are technical difficulties yet to be solved for the new space capturing mobile app.
The functionality of the space capturing in 3D Discovery is largely dependent on automatic photo stitching calculation. The nature of photo stitching is such that certain monotonous environment may affect the accuracy of the stitching. We are rectifying these issues by using AI technology and hardware accessories. This may delay the launch date of the mobile app and affect our market expansion plans.
The success of international market expansion of the new 3D Discovery mobile app will depend on our strategic partners in various countries.
Our
strategy for 3D Discovery on international market expansion will be through partnerships and franchises. If we fail to manage/set
standards to potential partners/franchisees, it can lower/delay our market penetration rate.
If we are unable to attract, train and retain technical and financial personnel, the 3D Discovery business may be materially
and adversely affected.
Our future success of 3D Discovery depends, to a significant extent, on our ability to attract, train and retain technical personnel.
Recruiting and retaining capable personnel, particularly those with expertise in our industries and in the industries to which
we market, are vital to our success. There is substantial competition for qualified technical and financial personnel, and there
can be no assurance that we will be able to attract or retain our technical personnel. If we are unable to attract and retain
qualified employees, our business may be materially and adversely affected.
Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect
our intellectual property rights or defend against third-party allegations of infringement may be costly.
We rely primarily on technology secrets and contractual restrictions to protect our intellectual property. Nevertheless, these
afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate and we
may not be able to protect our intellectual property under the laws of various countries. As a result, third parties may infringe
or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse effect
on our business, financial condition or operating results. In addition, policing unauthorized use of proprietary technology can
be difficult and expensive. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets
or determine the validity and scope of the proprietary rights of others and the enforcement of intellectual property rights in
some countries may be difficult. We cannot assure you that the outcome of any litigation will be in our favor. Intellectual property
litigation may be costly and may divert management attention as well as expend our other resources away from our business. An
adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects
and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from
such litigation to the extent we are unable to recover them from other parties. The occurrence of any of the foregoing could have
a material adverse effect on our business, results of operations and financial condition.
3D Discovery faces intense competition from companies that have greater resources than we do, we may not be able to compete
successfully and we may lose or be unable to gain market share.
The markets for 3D Discovery products are intensely competitive. Many of our competitors have established more prominent market
positions as well as existing relationship with potential customers, and if we fail to attract and retain customers and establish
successful distribution networks in our target markets for our products, we will be unable to increase our sales. Many of our
existing and potential competitors have substantially greater financial, technical and other resources than we do. Our competitors'
greater size in some cases provides them with a competitive advantage with respect to development and operational costs because
of their economies of scale. Many of our competitors also have greater brand name recognition, more established distribution networks
and larger customer bases. As a result, they may be able to devote greater resources to the research, development, promotion and
sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Our
failure to adapt to changing market conditions and to compete successfully with existing or new competitors may materially and
adversely affect our financial condition and results of operations. Further, from time to time, we have had to adjust the prices
of our services to remain competitive.
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Our AnyWorkspace Business
Anyworkspace business has low barriers to entry.
AnyWorkspace’s business model is asset light but has low barriers to entry to competitors and new players coming into the market and therefore can face strong market competition.
The current business and platform models of Anyworkspace would allow suppliers and users to bypass the platform in subsequent rentals.
The nature of the business is connecting buyer with supplier. Once they are connected both the supplier and buyer could bypass the platform for future businesses. This results in "leakage" and could impact the long-term sustainability and viability of the business model.
Local legal regulations and leasing contractual agreements may prevent subleasing of spaces
Subleasing of working spaces may not be allowed due to contractual terms and local law restrictions.
Risks Related to our Common Stock
Our stock price has been and may continue to be volatile.
The trading price of our common stock has been and is expected to continue to be highly volatile as well as subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include:
| ● | Quarterly variations in our results of operations. |
| ● | Announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments. | |
| ● | Our ability to develop and market new and enhanced products on a timely basis. | |
| ● | Our ability to generate income from Shengxin. | |
| ● | Changes in governmental regulations or in the status of our regulatory approvals. | |
| ● | Changes in earnings estimates or recommendations by securities analysts. | |
| ● | Market reaction to problems encountered by other Chinese companies that became public companies in the United States through the reverse merger process. | |
| ● | Market reaction to reports written by investors about us and about Chinese companies in general. | |
| ● | General economic conditions and slow or negative growth of related markets. |
These broad market and industry factors may seriously affect the market price of our Common Stock, regardless of our actual operating performance.
Any failure to meet the Nasdaq continued listing requirements may result in our delisting.
During 2016, our stock failed to meet the NASDAQ continued listing requirement resulting from our failure to maintain a $1.00 bid price and our failure to maintain a minimum market value of publicly held common stock. In order to maintain our listing on Nasdaq Capital Market, on March 20, 2017, we effected a one-for-four reverse split. In the event that our stock price falls below $1.00 per share, we may not be able to maintain our NASDAQ listing, which could have a material adverse effect on the market for and the market price of our common stock.
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If we fail to develop and maintain effective internal controls, our ability to provide accurate financial statements and comply with the requirements of the Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price to decrease substantially.
Prior to November 2007, the Huayang Companies operated as private companies without public reporting obligations, and they committed limited personnel and resources to the development of the external reporting and compliance obligations that would be required of a public company. We are continuing to attempt to institute changes to satisfy our obligations in under the Sarbanes-Oxley Act. In Item 9A of this annual report, we report that our disclosure controls and procedures and our internal controls over financial reporting were not effective at December 31, 2017. We are continuing to attempt to institute changes to satisfy our obligations under the Sarbanes-Oxley Act. Any failure of our internal controls or our ability to provide accurate financial statements could cause the trading price of our common stock to decrease substantially.
We do not anticipate paying any cash dividends.
We presently do not anticipate that we will pay any dividends on any of our capital stock in the foreseeable future. We presently intend to retain all earnings, if any, to implement our business plan; and we do not anticipate the declaration of any dividends in the foreseeable future.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Our main office and our manufacturing facilities are located in Wuxi, China, in seven buildings with approximately 215,000 square feet. We have been issued a land use right certificate for the land until June 7, 2025 by the municipal government of Wuxi City, which may be renewed at our option with no expected capital requirement. The seven buildings are an office building, warehouse, raw material processing hall, metal processing hall, assembling hall, laboratory and quality control, and guard house. We believe that our existing facilities are well maintained and in good operating condition.
In 2003, we acquired land use rights to a plot of land approximately 5.1 acres from the local government of the Town of Qianzhou in Wuxi City. This land, along with the land use rights acquired from a related party as discussed in the following paragraph, house our new factory and employee housing facilities. The land lease has a term of 50 years, expiring October 30, 2053.
During 2008, we completed the purchase of land use rights for an approximately 100,000 square foot factory, employee housing facilities and other leasehold improvements from a related party, Wuxi Huayang Boiler Company, Ltd. (“Huayang Boiler”) for approximately $10.9 million. The land use rights expire on January 1, 2053. In March 2009, we received the title to the buildings.
On December 23, 2016, we entered into a lease agreement with a third party, to whom we sold the stock of Fulland Wind, whereby we will leave a factory building owned by us to this individual at an annual rental of RMB 680,566 (approximately $98,000). The lease has a ten-year term, commencing January 1, 2017. During the fourth quarter of 2017, Wang Jiahong orally terminated the above lease agreement and the Company is no longer received rental income.
In Hong Kong, we use office space of a related party free of charge.
On or about November 14, 2017, a complaint was filed in the United States District Court for the Eastern District of New York, captioned Morris Ackerman v. Cleantech Solutions International, Inc. The complaint alleged that the Company's proxy statement, which included a proposal to amend the Company's long-term incentive plan to provide for the grant of incentive and non-qualified options and stock grants to employees and others, did not comply with the disclosure requirements for proxy statements. The parties reached a confidential settlement on or about December 20, 2017, and the plaintiff voluntarily dismissed the action with prejudice on or about January 2, 2018.
On February 2, 2018, the law firm of Ellenoff Grossman & Schole LLP (“EGS”) filed a complaint against us along with a number of companies and individuals in an effort to recover their legal fees in connection with services provided to the other defendants. The lawsuit contends that we are the alter ego or successor in interest of those other defendants. We believe that the lawsuit is without merit and will defend it vigorously.
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Save as reported above, we are not a party to any legal proceedings and we are not aware of any claims or actions pending or threatened against us. In the future, we might from time to time become involved in litigation relating to other claims arising from our ordinary course of business.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information.
Our common stock has traded on The NASDAQ Capital Market under the symbol “CLNT” since December 29, 2011. On January 8, 2018, our trading symbol was changed its symbol to “SEII”. The following table sets forth, for the periods indicated, the reported high and low closing bid quotations for our common stock by calendar quarters during 2017 and 2016. These prices reflect inter-dealer quotations, do not include retail markups, markdowns or commissions and do not necessarily reflect actual transactions.
| 2017 | 2016 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
| First quarter | $ | 3.68 | $ | 2.31 | $ | 6.80 | $ | 4.24 | ||||||||
| Second quarter | $ | 10.70 | $ | 2.77 | $ | 5.72 | $ | 3.60 | ||||||||
| Third quarter | $ | 4.71 | $ | 2.61 | $ | 7.32 | $ | 3.70 | ||||||||
| Fourth quarter | $ | 12.40 | $ | 3.15 | $ | 4.64 | $ | 2.41 | ||||||||
On April 10, 2018, the last sale price of our common stock as reported by NASDAQ was $3.41 per share.
Shareholders
As of April 10, 2018, we had approximately 1,218 record holders of our common stock.
Transfer Agent
The transfer agent for the common stock is Empire Stock Transfer Inc. The transfer agent’s address is 1859 Whitney Mesa Dr., Henderson, Nevada 89014, and its telephone number is (702) 818-5898.
Dividend Policy
We have not paid cash dividends on our common stock since we became public through reverse acquisition. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.
In addition, due to various restrictions under PRC laws on the distribution of dividends by our PRC operating companies, we may not be able to pay dividends to our shareholders. The Wholly Foreign Owned Enterprise Law (1986), as amended and The Wholly Foreign Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law of the PRC (2006) contain the principal regulations governing dividend distributions by wholly foreign owned enterprises. Under these regulations, wholly foreign owned enterprises may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, such companies are required to set aside a certain amount of their accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes.
The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from the Company’s profits. Furthermore, if our subsidiaries and affiliates in China incur debt on their own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. If we or our subsidiaries and affiliates are unable to receive all of the revenues from our operations through the current contractual arrangements, we may be unable to pay dividends on our common stock.
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Equity Compensation Plan Information
The following table summarizes the equity compensation plans under which our securities have been or may be issued as of December 31, 2017.
| Plan Category | Number of securities to be issued upon exercise of outstanding options and warrants | Weighted-average exercise price of outstanding options and warrants | Number of securities remaining available for future issuance under equity compensation plans | |||||||||
| Equity compensation plans approved by security holders | 0 | $ | 0 | 0 | ||||||||
| Equity compensation plan not approved by security holders | 0 | $ | 0 | 0 | ||||||||
In September 2016, the Company’s board of directors adopted, and in November 2016, the stockholders approved the Company’s 2016 long-term incentive plan, which covers 125,000 shares of common stock. As of December 31, 2017, there were no shares of common stock available for issuance pursuant to the 2016 plan.
We did not have any equity compensation plans that were not approved by stockholders.
Unregistered Sales of Equity Securities and Use of Proceeds
All unregistered sales of equity securities during financial year ended December 31, 2017 have been previously disclosed on Form 8-K filings made by the Company.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide the information called for by Item 6 of Form 10-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
Historically, our primary operations involved the design, manufacture and distribution of a line of proprietary high and low temperature dyeing and finishing machinery to the textile industry. Our products feature a high degree of both automation and mechanical-electrical integration. Our products are used in dyeing yarns such as pure cotton, cotton-polyester, terylene, polyester wool, poly-acrylic fiber, nylon, cotton ramie, and wool yarn. We are continuing to seek to utilize our expertise in manufacturing precision products to meet demand in new and existing end markets.
We design and produce airflow dyeing machines, which use air instead of water. Water is used in the traditional dyeing process. We believe that our air-flow technology, which is designed to enable users to meet the stricter environmental standards, results in reduced input costs, fewer wrinkles, less damage to the textile, and reduced emissions. Historically, the Chinese government’s mandate to phase out older machinery in China’s textile industry that does not meet the new environmental standards has benefitted us. However, in recent years, challenging economic conditions, increases in raw materials prices and the Chinese government’s more aggressive stance toward shutting down factories, including textile manufacturers, that are not compliant with emission standards, have adversely impacted our dyeing and finishing businesses.
Currently, we focus on investing in research and development to improve our competitive position. In August 2016, we purchased the technology use right for a patent that covers ozone-ultrasonic textile dyeing equipment. We believe this new patent technology will allow us to develop next generation dyeing and finishing equipment that will appeal to textile manufacturers in China as well as Southeast Asia. Our key finishing products include our after-treatment compacting machine used in the final finishing of knitted material, such as cotton, which is designed to improve the softness, reduce shrinkage and ensure better dimensional stability, and a garment washing machine for denim, which is made of stainless steel and can be customized for use by Chinese jeans manufacturers. We expect our revenue from dyeing and finishing equipment segment will remain at or about its current quarterly level in the near future, although declines are possible.
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On December 26, 2016, Dyeing and Xue Miao, an unrelated individual, formed Shengxin, 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. At December 31, 2017, Shengxin had not yet commenced operations. During the project construction period, we will have the priority to supply components and equipment such as: solar racking and mounting systems for the projects under the same conditions as the other vendors.
At December 31, 2017 our investment in Shengxin amount to approximately $9.0 million. Our investment in Shengxin is subject to a high degree of risk. We cannot give any assurance that Shengxin will be able to obtain any permits, raise any required funding, develop and operate or sell any solar farms or operate profitably or that Dyeing will have the resources to provide any funds that may be required in order to fund any solar farm projects for which Shengxin may obtain permits. There may be a significant delay between the time funds are advanced for any project and the realization of revenue or cash flow from any project.
Through December 30, 2016, we operated in the forged rolled rings and related components segment, in which we manufactured and sold precision forged rolled rings, shafts, flanges, and other forged components for the energy industry including wind power and other industries, On December 30, 2016, we sold the stock in Fulland Wind, the subsidiary that operated our forged rolled rings and related components business, to a non-affiliated third party, as a result of which the forged rolled rings and related components business is reflected as a discontinued operations for all periods presented. As of December 31, 2016, Fulland Wind had bank loans payable of RMB 4,500,000 (approximately $647,967) which were still guaranteed by Dyeing and the Company’s chief executive officer and his wife. As of December 31, 2016, the buyer of Fulland Wind had not obtained the release by Dyeing, the Company’s chief executive officer and his wife of their guarantees. As of December 31, 2017, these loans had been paid in full by Fulland Wind.
Additionally, during 2016, we operated a petroleum and chemical equipment segment, in which we manufactured and sold petroleum and chemical equipment. Because of a significant decline in revenues from this segment, we determined that we would not continue to operate in this segment and accordingly, the petroleum and chemical equipment segment is reflected as discontinued operations for all periods presented.
Recently, difficult economic conditions, a continuing decline in oil prices and limited availability of credit in China, presented numerous challenges for our business. As a result, we experienced softer demand for our low-emission airflow dyeing machines as many of our potential customers already upgraded to newer models and we believe that much of our remaining potential customer base does not have the ability to make significant capital expenditures at this time. As a result, if we are to sell our products to the smaller textile manufacturers, it may be necessary for us to design and market a cheaper machine that meets the Chinese government requirements or reduce prices which would impact both revenues and gross margin.
Our ability to expand our operations and increase our revenue is largely affected by the PRC government’s policy on such matters as the availability of credit, which affects all of our operations, and its policies relating to the textile industry, environment issues and alternative energy as well as the competitiveness of Chinese textile manufacturers at a time when consumers are looking for lower prices and manufacturers are looking to produce in a country that has lower labor costs than China, all of which affects the market for our dyeing and finishing equipment. Our business is also affected by general economic conditions, and we cannot assure you that we will be able to increase our revenues in the near future, if at all. Because of the nature of our products, our customers’ projection of future economic conditions are an integral part of their decisions as to whether to purchase capital equipment at this time or defer such purchases until a future date.
Recent developments
Throughout 2017, we made significant changes in the overall direction of the Company. Given the headwinds affecting our manufacturing business, we are targeting high growth opportunities and have established new business divisions to focus on the development of sharing economy platforms and related rental businesses. These initiatives are still in the early stages. We did not generate significant revenues from our sharing economy business initiatives in 2017.
Beginning in the second quarter of 2017, we established new business divisions to focus on the development of sharing economy platforms and related rental businesses. We believe a true peer-to-peer sharing economy based on rentals will take significant market share in both the business and consumer markets over the next few years. We have been exploring possible merger and acquisition opportunities that can bring to market more user-friendly platforms and convenient channels that allow people to rent what they need and make their lives easier.
In September 2017, our wholly-owned subsidiary ECPower (HK) commenced offering a mobile power charger rental service through major convenience store networks in over 700 store locations in Hong Kong and over 40 locations in Macau. The rental service allows customers to rent and return mobile power chargers at any of the convenience stores carrying the service. We currently have over 20,000 mobile chargers available for rent and are preparing to expand this business into other retail outlets and other new regions around the world.
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In December 2017, our wholly-owned subsidiary, EC Technology & Innovations Limited ("ECTI"), acquired a 51% interest in Inspirit Studio Limited, which develops and runs a sharing economy mobile platform called BuddiGo that allows people to provide courier delivery services during their commuting times.
In January 2018, our wholly-owned subsidiary, EC Technology & Innovations Limited ("ECTI") acquired a 60% interest in 3D Discovery Co. Limited (“3D Discovery”) and our wholly-owned subsidiary, Sharing Economy Investment Limited (“SEI”) acquired an 80% interest in AnyWorkspace Limited (“AnyWorkspace”). 3D Discovery is a digital marketing services provider which provides various solution such as 3D scanning and modeling, website and mobile app development, video production, and graphic design to its clients. Apart from its existing business, 3D Discovery plans to develop a mobile app which allows users to create an interactive virtual tour of a physical space by using a mobile phone camera. AnyWorkspace develops an online, real-time marketplace that connects workspace providers with clients who need temporary office and meeting spaces.
In August 2017, we signed an agreement with ECoin Global Limited ("ECoin") for the future purchase of ECoin redemption codes with an aggregate value of $50 million for total consideration of $20 million. We plan to resell the redemption codes in the form of ECrent gift cards at global locales through reseller channels, such as convenience stores. We are working with InComm, a global pre-payment network and solution provider, to sell the redemption codes with face values of HK$100, HK$300 and HK$500 at major convenience store networks in Hong Kong and Macau with other international locations to follow. Up to December 31, 2017, there was no resale of the redemption codes have been taken place.
We are currently engaged in exclusive discussions with ECrent Capital Holdings Limited ("ECrent"), a private company incorporated in the British Virgin Islands focused on developing and operating a global rental platform to promote sharing economy across 30 countries and regions.
Going forward, we will continue targeting the technology and global sharing economy markets, by developing online platforms and rental business partnerships that will drive the global development of sharing through economical rental business models.
Inventory and Raw Materials
A major element of our cost of revenues is raw materials, principally steel as well as other metals. These metals are subject to price fluctuations, and recently these fluctuations have been significant. In times of increasing prices, we need to try to establish the price at which we purchase raw materials in order to avoid increases in costs which we cannot recoup through increases in sales prices. Similarly, in times of decreasing prices, we may have purchased metals at prices which are high in terms of the price at which we can sell our products, which also can impair our margins. Four major suppliers provided 50% of our purchases of inventories for the year ended December 31, 2017. Three major suppliers provided 41% of our purchases of inventories for the year ended December 31, 2016. Four suppliers accounted for 10% of more of purchase during the year ended December 31, 2017. No other supplier accounted for 10% or more of our purchases during the year ended December 31, 2016.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the 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, the fair value of equity method investment, the fair value of assets held for sale 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.
Variable Interest Entities
Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, we are required to include in our consolidated financial statements the financial statements of variable interest entities (“VIEs”). The accounting standards require a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore we are the primary beneficiary of the entity.
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Dyeing is considered a VIE, and we are the primary beneficiary. On November 13, 2007, we entered into agreements with the Dyeing pursuant to which we shall receive 100% of Dyeing’s net income. In accordance with these agreements, Dyeing shall pay consulting fees equal to 100% of its net income to our wholly-owned subsidiary, Green Power, and Green Power shall supply the technology and administrative services needed to service Dyeing.
The accounts of the Dyeing are consolidated in the accompanying financial statements. As a VIE, Dyeing’s sales are included in our total sales, its income from operations is consolidated with ours, and our net income includes all of the Huayang Companies’ net income, and their assets and liabilities are included in our consolidated balance sheets. The VIEs do not have any non-controlling interest and, accordingly, we did not subtract any net income in calculating the net income attributable to us. Because of the contractual arrangements, we have pecuniary interest in Dyeing that require consolidation of the Dyeing’s financial statements with our 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.
Inventories
Inventories, consisting of raw materials, work-in-process and finished goods, are stated at the lower of cost or net realizable value utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record additional reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. We review inventory quantities on hand and on order and record, on a quarterly basis, a provision for excess and obsolete inventory, if necessary. If the results of the review determine that a write-down is necessary, we recognize a loss in the period in which the loss is identified, whether or not the inventory is retained. Our inventory reserves establish a new cost basis for inventory and are not reversed until we sell or dispose of the related inventory. Such provisions are established based on historical usage, adjusted for known changes in demands for such products, or the estimated forecast of product demand and production requirements.
Advances to Suppliers
Advances to suppliers represent the advance payments for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:
| Useful Life | ||
| Building and building improvements | 5 – 20 Years | |
| Manufacturing equipment | 5 – 10 Years | |
| Office equipment and furniture | 5 Years | |
| Vehicles | 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.
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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. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Land Use Rights
There is no private ownership of land in the PRC. All land in the PRC is owned by the government and cannot be sold to any individual or company. The government grants a land use right that permits the holder of the land use right to use the land for a specified period. Our land use rights were granted with a term of 45 or 50 years. Any transfer of the land use right requires government approval. We have recorded as an intangible asset the costs paid to acquire a land use right. The land use rights are amortized on the straight-line method over the land use right terms.
Patent Use Rights
In August 2016, we purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. We amortize the exclusive patent use right over the term of the patent.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.
We recognize revenues from the sale of dyeing and finishing 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. For 2017 and 2016, amounts allocated to installation and warranty revenues were minimal. Based on historical experience, warranty service calls and any related labor costs have been minimal.
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
We are 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. We account 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.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.
Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is charged to equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and we intend to settle its current tax assets and liabilities on a net basis.
On December 22, 2017, President Trump 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 to 21% from 34%. 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, 2017, 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.
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Stock-based Compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if the award is non-forfeitable. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the period of services or the vesting period, whichever is applicable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.
Currency Exchange Rates
Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries and VIEs is the RMB and Hong Kong Dollar. Substantially all of our sales are denominated in RMB. As a result, changes in the relative values of U.S. dollars and RMB affect our reported levels of revenues and profitability as the results of our operations are translated into U.S. dollars for reporting purposes. In particular, fluctuations in currency exchange rates could have a significant impact on our financial stability due to a mismatch among various foreign currency-denominated sales and costs. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross and net profit margins and could result in foreign exchange and operating losses.
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 in U.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB and the Hong Kong dollar. To the extent we hold assets denominated in U.S. dollars, any appreciation of the RMB or HKD against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB or HKD against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.
Recent Accounting Pronouncements
In May 2014, FASB issued an update (“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. We 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 our sources of revenue, we have concluded that ASU 2014-09 will not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers.
In August 2016, the FASB issued ASU 2016-15 which addresses eight cash flow classification issues, eliminating the diversity in practice. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively applied as of the earliest date practicable. The adoption of ASU will not have a material impact on the Company’s consolidated financial statements.
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In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on our financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, or ASU 2017-09. ASC 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The adoption of ASU will not have a material impact on our consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features , or ASU 2017-11, which updates the guidance related to the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Under ASU 2017-11, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. ASU 2017-11 is effective for public entities for all annual and interim periods beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2017-11 will have on our consolidated financial statements.
On December 22, 2017 the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the TCJA). SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. We have applied this guidance to our financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures.
RESULTS OF OPERATIONS
Years Ended December 31, 2017 and 2016
The following table sets forth the results of our operations for the years ended December 31, 2017 and 2016 indicated as a percentage of revenues (dollars in thousands):
| Years Ended December 31, | ||||||||||||||||
| 2017 | 2016 | |||||||||||||||
| Dollars | Percentage | Dollars | Percentage | |||||||||||||
| Revenues | $ | 13,522 | 100.0 | % | $ | 17,364 | 100.0 | % | ||||||||
| Cost of revenues | 13,678 | 101.2 | % | 14,818 | 85.3 | % | ||||||||||
| Gross (loss) profit | (156 | ) | (1.2 | )% | 2,546 | 14.7 | % | |||||||||
| Operating expenses | 12,076 | 89.3 | % | 3,858 | 22.2 | % | ||||||||||
| Loss from operations | (12,232 | ) | (90.5 | )% | (1,312 | ) | (7.5 | )% | ||||||||
| Other expense, net | (188 | ) | (1.4 | )% | (81 | ) | (0.5 | )% | ||||||||
| Loss from continuing operations before provision for income taxes | (12,420 | ) | (91.9 | )% | (1,393 | ) | (8.0 | )% | ||||||||
| Provision for income taxes | (408 | ) | (3.0 | )% | - | - | % | |||||||||
| Loss from continuing operations | (12,828 | ) | (94.9 | )% | (1,393 | ) | (8.0 | )% | ||||||||
| Loss from discontinued operations, net of income taxes | (98 | ) | (0.7 | )% | (10,286 | ) | (59.2 | )% | ||||||||
| Net loss | (12,926 | ) | (95.6 | )% | (11,679 | ) | (67.3 | )% | ||||||||
| Other comprehensive loss: | ||||||||||||||||
| Foreign currency translation adjustment | 4,047 | 29.9 | % | (4,820 | ) | (27.8 | )% | |||||||||
| Comprehensive loss | $ | (8,879 | ) | (65.7 | )% | $ | (16,499 | ) | (95.0 | )% | ||||||
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Revenues. For the year ended December 31, 2017, revenues from the sale of dyeing and finishing equipment decreased by $3,901,000, or 22.5%, as compared to the year ended December 31, 2016. We experienced an anticipated slowdown in sales of our low-emission airflow dyeing machines as many customers had replaced older dyeing equipment with our low-emission airflow dyeing machine, and we believe that orders for new low-emission airflow dyeing machines have slowed down in 2017 and 2016 because the remaining potential customer base included many companies that did not have the ability to make the significant capital expenditures necessary to upgrade their equipment. Additionally, the textile industry in China has been facing significant headwinds recently. Difficult economic conditions, a continuing decline in oil prices and limited availability of credit in China, presented numerous challenges for our dyeing machine business. Additionally, apparel factories and other factories have been shut down throughout the last year by China’s environmental bureau, which has been cutting electricity and gas supply to determine compliance with China’s environmental laws. Accordingly, our revenues decreased in 2017 as compared to 2016. We expect that our revenues from dyeing and finishing equipment segment will remain at or about its’ current level in the near future, although declines are possible.
During the year ended December 31, 2017, we recognized revenues from our sharing economy business of $58,499 compared to $0 for the year ended December 31, 2016.
Cost of revenues. Cost of revenues includes the cost of raw materials, labor, depreciation and other fixed and variable overhead costs. For the year ended December 31, 2017, cost of revenues was $13,678,000 as compared to $14,818,000 for the year ended December 31, 2016, a decrease of $1,140,000, or 7.7%.
Gross profit (loss) and gross margin. Our gross loss was approximately $(156,000) for the year ended December 31, 2017 as compared to gross profit of $2,546,000 for the year ended December 31, 2016, representing gross margins of (1.2)% and 14.7%, respectively, a decrease year over year. The decrease in our gross margin for 2017 was primarily attributed to the reduced scale of operations resulting from lower revenues, which is reflected in the allocation of fixed costs, mainly consisting of depreciation, to cost of revenues, and an increase in labor and raw material costs. We expect that our gross margin from dyeing and finishing equipment segment will remain at its current levels although a decrease is possible as we try to market our equipment to the smaller textile manufactures.
Operating expenses. For the year ended December 31, 2017, operating expenses were $12,076,000 as compared to $3,858,000 for the year ended December 31, 2016, an increase of $8,218,000, or 212.9%, and consisted of the following:
Depreciation. Depreciation was $3,951,000 and $3,829,000 for the years ended December 31, 2017 and 2016, respectively. Depreciation for the years ended December 31, 2017 and 2016 was included in the following categories (dollars in thousands):
| Years Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Cost of revenues | $ | 2,850 | $ | 3,311 | ||||
| Operating expenses | 1,101 | 518 | ||||||
| Total | $ | 3,951 | $ | 3,829 | ||||
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $3,619,000 for the year ended December 31, 2017, as compared to $1,999,000 for the year ended December 31, 2016, an increase of $1,620,000, or 81.1%. Selling, general and administrative expenses for the years ended December 31, 2017 and 2016 consisted of the following (dollars in thousands):
| Years Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Professional fees | $ | 2,120 | $ | 998 | ||||
| Payroll and related benefits | 643 | 379 | ||||||
| Travel and entertainment | 209 | 146 | ||||||
| Shipping | 112 | 141 | ||||||
| Other | 535 | 335 | ||||||
| Total | $ | 3,619 | $ | 1,999 | ||||
38
| ● | Professional fees for the year ended December 31, 2017 increased by $1,122,000, or 112.4%, as compared to the year ended December 31, 2016. The increase was primarily attributable to an increase in stock-based consulting fees of approximately $902,000 incurred and paid to individuals and companies which performed consulting, legal and investor relations services relating to preparing and implementing a new business plan for us with the objective of improving our long-term growth, and an increase in legal service fees of approximately $197,000 offset by a decrease in other miscellaneous items of approximately $23,000. |
| ● | Payroll and related benefits for the year ended December 31, 2017 increased by $264,000, or 69.7%, as compared to the year ended December 31, 2016. The increase was mainly attributable to an increase in employee salaries and related benefits due to the increase in new executive management in Hong Kong during the year ended December 31, 2017 as compared to the comparable period in 2016, respectively. We expect that payroll and related benefits to increase in future periods. | |
| ● | Travel and entertainment expense for the year ended December 31, 2017 increased by $63,000, or 43.2%, as compared to the year ended December 31, 2016. The increase in the year ended December 31, 2017 was primarily attributable to the increase in travel and entertainment activities related to our new business initiatives. | |
| ● | Shipping expense for the year ended December 31, 2017 decreased by $29,000, or 20.6%, as compared to the year ended December 31, 2016. The decrease for the year ended December 31, 2017 was mainly attributable to the decrease in our revenues resulting in a decrease in shipping, as compared to the year ended December 31, 2016. | |
| ● | Other selling, general and administrative expenses for the year ended December 31, 2017 increased by $200,000, or 59.7%, as compared to the year ended December 31, 2016. The increase in the year ended December 31, 2017 was primarily attributable to an increase in amortization for our patent we purchased in August 2016 of approximately $212,000. |
Bad debt expense. For the years ended December 31, 2017 and 2016, we recorded bad debt expense of $6,474,000 and $1,038,000, respectively. Based on our periodic review of accounts receivable balances, we adjusted the allowance for doubtful accounts after considering management’s evaluation of the collectability of individual receivable balances, including the analysis of subsequent collections, the customers’ collection history, the write off of uncollectible receivables against the existing reserve, and recent economic events.
Impairment expense. For the years ended December 31, 2017 and 2016, we recorded impairment expense of $462,000 and $0, respectively. Based on the purchase price exceeded the fair value of the net assets acquired by approximately $462,000, which was initially recorded as goodwill. Based on the Company’s annual analysis of goodwill, in December 2017, the Company recorded an impairment expense of $462,000 which is included in operating expenses on the accompanying consolidated statement of operation and comprehensive loss.
Research and development expenses. Research and development expenses were $420,000 for the year ended December 31, 2017, as compared to $304,000 for the year ended December 31, 2016, an increase of $116,000, or 38.1%. The increase in 2017 was primarily attributable to the increase in research and development activities related to the development of new dyeing and finishing products.
Loss from operations. As a result of the factors described above, for the year ended December 31, 2017, loss from operations amounted to $12,232,000, as compared to $1,312,000 for the year ended December 31, 2016.
Other income (expense). Other income (expense) includes interest income, interest expense, foreign currency transaction gain (loss), loss on equity method investment, and other income. For the year ended December 31, 2017, total other expense, net, amounted to $188,000 as compared to $81,000 for the year ended December 31, 2016, an increase of $107,000, or 132.1%. The increase in other expense, net, was primarily attributable to losses incurred in the 2017 periods related to our equity method investment of $130,000.
Income tax provision. Income tax expense was $408,000 for the year ended December 31, 2017, as compared to $0 for the year ended December 31, 2016, an increase of $408,000.
Loss from continuing operations. As a result of the foregoing, our loss from continuing operations was $12,828,000, or $(6.99) per share (basic and diluted), for the year ended December 31, 2017, as compared with loss from continuing operations of $1,393,000, or $(1.17) per share (basic and diluted), for the year ended December 31, 2016, a change of $11,435,000, or 792.3%.
Loss from discontinued operations, net of income taxes. Our loss from discontinued operations was $98,000, or $(0.05) per share (basic and diluted), for the year ended December 31, 2017, as compared with loss from discontinued operations of $10,286,000, or $(8.64) per share (basic and diluted), for the year ended December 31, 2016, a change of $10,188,000 or 99.0%.
39
The summarized operating result of discontinued operations included our consolidated statements of operations is as follows:
| Fiscal Years Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Revenues | $ | - | $ | 595,855 | ||||
| Cost of revenues | 31,872 | 1,562,774 | ||||||
| Gross (loss) profit | (31,872 | ) | (966,919 | ) | ||||
| Operating expenses: | ||||||||
| Impairment losses | - | 1,660,305 | ||||||
| Other operating expenses | 66,085 | 1,124,304 | ||||||
| Total operating expenses | 66,085 | 2,784,609 | ||||||
| Loss from operations | (97,957 | ) | (3,751,528 | ) | ||||
| Other expense, net | - | (74,997 | ) | |||||
| Loss from discontinued operations before income taxes | (97,957 | ) | (3,826,525 | ) | ||||
| Income taxes | - | - | ||||||
| Loss from discontinued operations, net of income taxes | (97,957 | ) | (3,826,525 | ) | ||||
| Loss on disposal of discontinued operations | - | (6,459,407 | ) | |||||
| Loss from discontinued operations, net of income taxes | $ | (97,957 | ) | $ | (10,285,932 | ) | ||
Net loss. As a result of the foregoing, our net loss was $12,926,000, or $(7.04) per share (basic and diluted), for the year ended December 31, 2017, as compared with net loss $11,679,000, or $(9.81) per share (basic and diluted), for the year ended December 31, 2016, a change of $1,247,000, or 10.7%.
Foreign currency translation loss. The functional currency of our subsidiaries and variable interest entities operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $4,047,000 for the year ended December 31, 2017, as compared to a foreign currency translation loss of $4,820,000 for the year ended December 31, 2016. This non-cash loss had the effect of increasing our reported comprehensive loss.
Comprehensive loss. As a result of our foreign currency translation loss, we had comprehensive loss for the year ended December 31, 2017 of $8,879,000, compared to comprehensive loss of $16,499,000 for the year ended December 31, 2016.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At December 31, 2017 and 2016, we had cash balances of $1,019,000 and $1,481,000, respectively. These funds are located in financial institutions located as follows (dollars in thousands):
| December 31, 2017 | December 31, 2016 | |||||||||||||||
| Country: | ||||||||||||||||
| United States | $ | 67 | 6.6 | % | $ | 1 | * | |||||||||
| Hong Kong | 143 | 14.0 | % | - | - | |||||||||||
| China (PRC) | 809 | 79.4 | % | 1,480 | 99.96 | % | ||||||||||
| Total cash and cash equivalents | $ | 1,019 | 100.0 | % | $ | 1,481 | 100.0 | % | ||||||||
| * | Less than 0.1% |
40
The following table sets forth a summary of changes in our working capital from December 31, 2016 to December 31, 2017 (dollars in thousands):
| December 31, 2017 | December 31, 2016 | Change | Percentage Change | |||||||||||||
| Working capital: | ||||||||||||||||
| Total current assets | $ | 22,926 | $ | 26,592 | $ | (3,666 | ) | (13.8 | )% | |||||||
| Total current liabilities | 9,387 | 5,053 | (4,334 | ) | 85.8 | % | ||||||||||
| Working capital | $ | 13,539 | $ | 21,539 | $ | (8,000 | ) | (37.1 | )% | |||||||
Our working capital decreased by $8,000,000 to $13,539,000 at December 31, 2017 from $21,539,000 at December 31, 2016. This decrease in working capital is primarily attributable to:
| ● | An increase in advances from customer of $2,027,000 | |
| ● | An increase in accounts payable of $1,934,000 | |
| ● | An increase in due to related party of $348,000 | |
| ● | A decrease in receivable from sale of subsidiary of $1,888,000; | |
| ● | An increase in convertible note payable of $670,000; | |
| ● | A decrease in deferred tax assets of $386,000; | |
| ● | A decrease in assets of discontinued operations related to the sale of our subsidiary of $1,351,000; | |
| ● | A decrease in cash and cash equivalent of $462,000; | |
| ● | A decrease in accounts receivable, net of allowance for doubtful accounts, of $4,830,000; and | |
| ● | A decrease in restricted cash of $278,000; |
Offset by:
| ● | An increase in notes receivable of $327,000; | |
| ● | An increase in inventories, net of reserve for obsolete inventories, of $2,159,000 in order to satisfy expected increase in customers’ orders; | |
| ● | An increase in prepaid expenses of $ 2,136,000; | |
| ● | An increase in advances to suppliers of $907,000; |
| ● | A decrease in accrued expenses of $203,000; | |
| ● | A decrease in liabilities of discontinued operations of $169,000; | |
| ● | A decrease in short-term bank loans of $85,000; | |
| ● | A decrease in bank acceptance notes payable of $125,000; | |
| ● | A decrease in VAT and service taxes payable of $47,000; | |
| ● | A decrease in income taxes payable of $16,000. |
41
Because the exchange rate conversion is different for the consolidated balance sheets and the consolidated statements of cash flows, the changes in assets and liabilities reflected on the consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the consolidated balance sheets.
Net cash flow used in operating activities was $410,000 for the year ended December 31, 2017 as compared to net cash flow used in operating activities of $6,949,000 for the year ended December 31, 2016, a change of $6,539,000.
| ● | Net cash flow used in operating activities for the year ended December 31, 2017 primarily reflected our net loss of $12,926,000, and add-back of non-cash items primarily consisting of depreciation of $3,951,000, amortization of intangible assets of $324,000, increase in allowance for doubtful accounts of $6,540,000, loss from impairment of acquisition of a non-wholly owned subsidiary of $462,000, loss on equity method investment of $130,000, stock-based compensation and fees of $1,587,000 and an increase in inventory reserve of $285,000, and changes in operating assets and liabilities primarily consisting of an increase in note receivable of $307,000, an increase in accounts receivable of $924,000, an increase in inventories of $2,210,000, an increase in prepaid and other current assets of $255,000, a decrease in deferred tax assets of $397,000, an increase in advances to suppliers of $801,000, a decrease in assets of discontinued operations of $42,000, an increase in accounts payable of $1,849,000, a decrease in accrued expenses of $210,000, a decrease in VAT and service taxes payable of $49,000, a decrease in income taxes payable of $21,000, an increase in advances from customer of $1,924,000, and a decrease in liabilities of discontinued operations of $199,000. |
| ● | Net cash flow used in operating activities for the year ended December 31, 2016 primarily reflected our net loss of $11,679,000, and changes in operating assets and liabilities primarily consisting of a significant increase in accounts receivable of $5,907,000 mainly due to China government’s tight-money policy in year 2016 resulting in a slowdown in payments to vendors such as us, an increase in inventories of $874,000 reflecting the decline in sales, an increase in advances to suppliers of $743,000, an increase in deferred tax assets of $188,000, a decrease in accounts payable of $958,000, a decrease in accrued expenses of $173,000, a decrease in VAT and service taxes payable of $133,000, a decrease in income taxes payable of $171,000, a decrease in liabilities of discontinued operations of $6,376,000 due to the sale of our Fulland Wind during the fourth quarter of 2016, offset by a decrease in assets of discontinued operations of $2,660,000, and the add-back of non-cash items primarily consisting of depreciation of $5,553,000, amortization of intangible assets of $189,000, increase in allowance for doubtful accounts of $2,756,000, loss on sale of subsidiary of $6,459,000, loss from impairment of property and equipment – discontinued operations of $1,660,000, and stock-based compensation and fees of $927,000. |
Net cash flow used in investing activities was $1,922,000 for the year ended December 31, 2017 as compared to $10,452,000 for the year ended December 31, 2016. For the year ended December 31, 2017, net cash flow used in purchase of property and equipment of $5,200,000, offset by cash received from sale of Fulland Wind of $2,131,000 and cash received from the sale of assets of discontinued operations of $1,147,000. For the year ended December 31, 2016, net cash flow used in investing activities reflects the purchase of patent use rights of $2,408,000, purchase of property and equipment of $1,209,000, payments made for equity method investment of $9,001,000, offset by cash received from sale of Fulland Wind of $2,168,000.
Net cash flow provided by financing activities was $1,804,000 for the year ended December 31, 2017 as compared to $610,000 for the year ended December 31, 2016. During the year ended December 31, 2017, we received proceeds from bank loans of $1,258,000, received proceeds from note payable of $670,000, received proceeds from the decrease in restricted cash of $303,000, advanced from related party of $348,000 and received proceeds from sale of common stock of $860,000, offset by repayments for bank loans of $1,480,000 and payments for the decrease in bank acceptance notes payable of $155,000. During the year ended December 31, 2016, we received proceeds from bank loans of $3,763,000, received proceeds from the decrease in restricted cash of $60,000, and received proceeds from sale of common stock of $753,000, offset by repayments for bank loans of $3,838,000, payments for the decrease in bank acceptance notes payable of $60,000 and increase in restricted cash – discontinued operations of $68,000.
We have historically funded our capital expenditures through cash flow provided by operations and bank loans. We intend to fund the cost with cash flow from our operations and 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.
42
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 of December 31, 2017 (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 | ||||||||||||||||||||
| Contractual obligations: | Total | Less than 1 year | 1-3 years | 3-5 years | 5+ years | |||||||||||||||
| Bank loans (1) | $ | 2,075 | $ | 2,075 | $ | - | $ | - | $ | - | ||||||||||
| Convertible note payable (2) | 670 | 670 | ||||||||||||||||||
| Bank acceptance notes payable | 423 | 423 | - | - | - | |||||||||||||||
| Total | $ | 3,168 | $ | 3,168 | $ | - | $ | - | $ | - | ||||||||||
| (1) | Bank loans consisted of short term bank loans. Historically, we have refinanced these bank loans for an additional term of six months to one year and we expect to continue to refinance these loans upon expiration. |
| (2) | Amount converted into common shares in January 2018. |
Off-balance Sheet Arrangements
Except as discussed below, 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.
Pursuant to an agreement dated December 23, 2016, we sold the stock of our subsidiary, Fulland Wind to a third party. As of December 31, 2016, Fulland Wind had bank loans payable of RMB 4,500,000 (approximately $647,967) which are still guaranteed by Dyeing and the Company’s chief executive officer and his wife. As of December 31, 2016, the buyer of Fulland Wind had not obtained the release by Dyeing, the Company’s chief executive officer and his wife of their guarantees. As of December 31, 2017, these loans had been paid in full by Fulland Wind.
Foreign Currency Exchange Rate Risk
We produce and sell almost all of our products in China. Thus, most of our revenues and operating results may be impacted by exchange rate fluctuations between RMB and US dollars. For the years ended December 31, 2017 and 2016, we had unrealized foreign currency translation gain of approximately $4,047,000 and unrealized foreign currency translation loss of approximately $4,820,000, respectively, because of changes in the exchange rate.
Inflation
The effect of inflation on our revenue and operating results was not significant.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for smaller reporting companies
| 43 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
| 44 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Sharing Economy International Inc. and subsidiaries (formerly Cleantech Solutions International, Inc.)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sharing Economy International Inc. and subsidiaries (formerly Cleantech Solutions International, Inc.) as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive loss, consolidated statements of changes in stockholders’ equity, and consolidated statements of cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes (collectively referred to as the notes to consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for the years ended December 31, 2017 and 2016, in conformity with accounting principles generally accepted in the United States of America.
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company had a loss from continuing operations for the year ended December 31, 2017 and expects continuing future losses, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| /s/ RBSM LLP | ||
| We have served as the Company’s auditor since 2012. | ||
| New York, NY | ||
| April 11, 2018 | ||
| F-1 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 1,019,437 | $ | 1,481,498 | ||||
| Restricted cash | 272,991 | 551,047 | ||||||
| Notes receivable | 461,292 | 133,913 | ||||||
| Accounts receivable, net of allowance for doubtful accounts | 9,092,709 | 13,922,371 | ||||||
| Inventories, net of reserve for obsolete inventories | 4,553,559 | 2,394,179 | ||||||
| Advances to suppliers | 2,023,779 | 1,116,525 | ||||||
| Deferred tax assets | - | 386,381 | ||||||
| Receivable from sale of subsidiary | 2,950,442 | 4,838,152 | ||||||
| Prepaid expenses and other | 2,144,624 | 9,074 | ||||||
| Assets of discontinued operations | 407,510 | 1,758,986 | ||||||
| Total current assets | 22,926,343 | 26,592,126 | ||||||
| OTHER ASSETS: | ||||||||
| Equity method investment | 9,053,859 | 8,610,759 | ||||||
| Property and equipment, net | 33,181,119 | 29,878,675 | ||||||
| Intangible assets, net | 5,394,296 | 5,283,695 | ||||||
| Total other assets | 47,629,274 | 43,773,129 | ||||||
| Total assets | $ | 70,555,617 | $ | 70,365,255 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term bank loans | $ | 2,074,529 | $ | 2,159,889 | ||||
| Bank acceptance notes payable | 422,589 | 547,172 | ||||||
| Convertible note payable | 670,000 | - | ||||||
| Accounts payable | 2,798,590 | 864,870 | ||||||
| Accrued expenses | 165,749 | 368,395 | ||||||
| Advances from customers | 2,454,375 | 427,446 | ||||||
| Due to related party | 347,589 | - | ||||||
| VAT and service taxes payable | - | 47,319 | ||||||
| Income taxes payable | 63,483 | 79,467 | ||||||
| Liabilities of discontinued operations | 389,633 | 558,661 | ||||||
| Total current liabilities | 9,386,537 | 5,053,219 | ||||||
| Total liabilities | 9,386,537 | 5,053,219 | ||||||
| Commitments and contingencies (see Note 19) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock ($0.001 par value; 10,000,000 shares authorized; No shares issued and outstanding at December 31, 2017 and 2016) | - | - | ||||||
| Common stock ($0.001 par value; 12,500,000 shares authorized; 2,527,720 and 1,415,441 shares issued and outstanding at December 31, 2017 and 2016, respectively) | 2,528 | 1,415 | ||||||
| Additional paid-in capital | 40,241,172 | 35,549,542 | ||||||
| Retained earnings | 13,624,729 | 26,531,498 | ||||||
| Statutory reserve | 2,352,592 | 2,352,592 | ||||||
| Accumulated other comprehensive income - foreign currency translation adjustment | 4,923,829 | 876,989 | ||||||
| Total Sharing Economy International Inc. stockholder’s equity | 61,144,850 | 65,312,036 | ||||||
| Non-controlling interest | 24,230 | - | ||||||
| Total stockholders’ equity | 61,169,080 | 65,312,036 | ||||||
| Total liabilities and stockholders’ equity | $ | 70,555,617 | $ | 70,365,255 | ||||
See notes to consolidated financial statements.
| F-2 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Years Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| REVENUES | $ | 13,522,056 | $ | 17,364,332 | ||||
| COST OF REVENUES | 13,677,889 | 14,817,880 | ||||||
| GROSS (LOSS) PROFIT | (155,833 | ) | 2,546,452 | |||||
| OPERATING EXPENSES: | ||||||||
| Depreciation | 1,100,944 | 517,935 | ||||||
| Selling, general and administrative | 3,619,382 | 1,999,067 | ||||||
| Bad debt expense | 6,473,838 | 1,037,874 | ||||||
| Research and development | 420,023 | 304,054 | ||||||
| Impairment expense | 462,111 | - | ||||||
| Total operating expenses | 12,076,298 | 3,858,930 | ||||||
| LOSS FROM OPERATIONS | (12,232,131 | ) | (1,312,478 | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest income | 12,574 | 24,342 | ||||||
| Interest expense | (137,823 | ) | (124,937 | ) | ||||
| Loss on equity method investment | (130,498 | ) | - | |||||
| Foreign currency translation gain (loss) | (1,812 | ) | 166 | |||||
| Other income | 69,584 | 19,685 | ||||||
| Total other expense, net | (187,975 | ) | (80,744 | ) | ||||
| LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES | (12,420,106 | ) | (1,393,222 | ) | ||||
| PROVISION FOR INCOME TAXES: | ||||||||
| Current | (11,273 | ) | - | |||||
| Deferred | (397,014 | ) | - | |||||
| Total Income taxes provision | (408,287 | ) | - | |||||
| LOSS FROM CONTINUING OPERATIONS | (12,828,393 | ) | (1,393,222 | ) | ||||
| DISCONTINUTED OPERATIONS: | ||||||||
| Loss from discontinued operations, net of income taxes | (97,957 | ) | (3,826,525 | ) | ||||
| Loss on sale / disposal of discontinued operations, net of income taxes | - | (6,459,407 | ) | |||||
| LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES | (97,957 | ) | (10,285,932 | ) | ||||
| NET LOSS | (12,926,350 | ) | (11,679,154 | ) | ||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | (19,581 | ) | - | |||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (12,906,769 | ) | $ | (11,679,154 | ) | ||
| COMPREHENSIVE LOSS: | ||||||||
| Net loss | $ | (12,926,350 | ) | $ | (11,679,154 | ) | ||
| Unrealized foreign currency translation gain (loss) | 4,046,840 | (4,819,622 | ) | |||||
| Comprehensive loss | $ | (8,879,510 | ) | $ | (16,498,776 | ) | ||
| Net loss attributable to non-controlling interest | $ | (19,581 | ) | $ | - | |||
| Unrealized foreign currency translation gain (loss) from non-controlling interest | - | - | ||||||
| Comprehensive loss attributable to common stockholders | $ | (8,859,929 | ) | $ | (16,498,776 | ) | ||
| NET LOSS PER COMMON SHARE: | ||||||||
| Continuing operations - basic and diluted | $ | (6.99 | ) | $ | (1.17 | ) | ||
| Discontinued operations - basic and diluted | (0.05 | ) | (8.64 | ) | ||||
| Net loss per common share - basic and diluted | $ | (7.04 | ) | $ | (9.81 | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and diluted | 1,832,900 | 1,189,940 | ||||||
See notes to consolidated financial statements.
| F-3 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2017 and 2016
| Common Stock | Additional | Accumulated Other | Non- | Total | ||||||||||||||||||||||||||||
| Number of | Paid-in | Retained | Statutory | Comprehensive | controlling | Stockholders’ | ||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Reserve | Income | Interest | Equity | |||||||||||||||||||||||||
| Balance, December 31, 2015 | 985,997 | $ | 986 | $ | 33,806,291 | $ | 37,007,776 | $ | 3,555,468 | $ | 5,696,611 | $ | - | $ | 80,067,132 | |||||||||||||||||
| Common stock issued for services | 248,125 | 248 | 990,032 | - | - | - | - | 990,280 | ||||||||||||||||||||||||
| Common stock sold for cash | 180,000 | 180 | 753,220 | - | - | - | - | 753,400 | ||||||||||||||||||||||||
| Shares issued for adjustments for 1:4 reverse split | 1,319 | 1 | (1 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Reversal of statutory reserve upon sale of subsidiary | - | - | - | 1,202,876 | (1,202,876 | ) | - | - | - | |||||||||||||||||||||||
| Net loss for the year | - | - | - | (11,679,154 | ) | - | - | - | (11,679,154 | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | (4,819,622 | ) | - | (4,819,622 | ) | ||||||||||||||||||||||
| Balance, December 31, 2016 | 1,415,441 | 1,415 | 35,549,542 | 26,531,498 | 2,352,592 | 876,989 | - | 65,312,036 | ||||||||||||||||||||||||
| Common stock issued for services | 736,806 | 737 | 3,324,296 | - | - | - | - | 3,325,033 | ||||||||||||||||||||||||
| Common stock sold for cash | 290,000 | 290 | 859,710 | - | - | - | - | 860,000 | ||||||||||||||||||||||||
| Common stock issued for acquisition of a non-wholly owned subsidiary | 85,473 | 86 | 507,624 | - | - | - | - | 507,710 | ||||||||||||||||||||||||
| Share of reserve arising from acquisition of a non-wholly owned subsidiary | - | - | - | - | - | - | 43,811 | 43,811 | ||||||||||||||||||||||||
| Net loss for the year | - | - | - | (12,906,769 | ) | - | - | (19,581 | ) | (12,926,350 | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | 4,046,840 | - | 4,046,840 | ||||||||||||||||||||||||
| Balance, December 31, 2017 | 2,527,720 | $ | 2,528 | $ | 40,241,172 | $ | 13,624,729 | $ | 2,352,592 | $ | 4,923,829 | $ | 24,230 | $ | 61,169,080 | |||||||||||||||||
See notes to consolidated financial statements.
| F-4 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (12,926,350 | ) | $ | (11,679,154 | ) | ||
| Adjustments to reconcile net loss from operations to net cash used in operating activities: | ||||||||
| Depreciation | 3,950,932 | 3,829,345 | ||||||
| Depreciation - discontinued operations | - | 1,723,611 | ||||||
| Amortization of intangible assets | 324,190 | 189,329 | ||||||
| Allowance for doubtful accounts | 6,473,838 | 2,756,411 | ||||||
| Allowance for doubtful accounts - discontinued operations | 66,085 | - | ||||||
| Loss from impairment of acquisition of a non-wholly owned subsidiary | 462,111 | - | ||||||
| Loss on sale of subsidiary of discontinued operations | - | 6,459,407 | ||||||
| Loss from impairment of property and equipment - discontinued operations | - | 1,660,305 | ||||||
| Loss on equity method investment | 130,498 | - | ||||||
| Stock-based compensation and fees | 1,586,643 | 927,206 | ||||||
| Inventory reserve | 285,334 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Notes receivable | (306,542 | ) | (10,537 | ) | ||||
| Accounts receivable | (924,212 | ) | (5,906,749 | ) | ||||
| Inventories | (2,209,520 | ) | (874,055 | ) | ||||
| Prepaid and other current assets | (255,321 | ) | 6,070 | |||||
| Advances to suppliers | (801,282 | ) | (742,745 | ) | ||||
| Deferred tax assets | 397,014 | (188,090 | ) | |||||
| Assets of discontinued operations | 42,273 | 2,659,512 | ||||||
| Accounts payable | 1,849,047 | (958,163 | ) | |||||
| Accrued expenses | (210,396 | ) | (173,030 | ) | ||||
| VAT and service taxes payable | (48,621 | ) | (132,933 | ) | ||||
| Income taxes payable | (20,532 | ) | (170,936 | ) | ||||
| Advances from customers | 1,923,909 | 52,341 | ||||||
| Liabilities of discontinued operations | (198,889 | ) | (6,375,676 | ) | ||||
| Net cash used in operating activities | (409,791 | ) | (6,948,531 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of patent use rights | - | (2,408,369 | ) | |||||
| Purchase of property and equipment | (5,199,833 | ) | (1,209,477 | ) | ||||
| Payments made for equity method investment | - | (9,001,279 | ) | |||||
| Proceed received from sale of subsidiary in cash | 2,130,556 | 2,167,532 | ||||||
| Proceeds from sales of equipment from discontinued operations | 1,146,959 | - | ||||||
| Net cash used in investing activities | (1,922,318 | ) | (10,451,593 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from bank loans | 1,257,620 | 3,763,077 | ||||||
| Repayments of bank loans | (1,479,553 | ) | (3,838,338 | ) | ||||
| Proceeds from convertible note payable | 670,000 | - | ||||||
| Decrease in restricted cash | 303,308 | 60,209 | ||||||
| Increase in restricted cash - discontinued operations | - | (67,735 | ) | |||||
| Decrease in bank acceptance notes payable | (155,353 | ) | (60,209 | ) | ||||
| Advance from related party | 347,589 | - | ||||||
| Proceeds from sale of common stock, net | 860,000 | 753,400 | ||||||
| Net cash provided by financing activities | 1,803,611 | 610,404 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 66,437 | (519,152 | ) | |||||
| Net decrease in cash and cash equivalents | (462,061 | ) | (17,308,872 | ) | ||||
| Cash and cash equivalents - beginning of year | 1,481,498 | 18,790,370 | ||||||
| Cash and cash equivalents - end of year | $ | 1,019,437 | $ | 1,481,498 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid in continuing operations for: | ||||||||
| Interest | $ | 134,459 | $ | 166,935 | ||||
| Income taxes | $ | - | $ | 360,318 | ||||
| Cash paid in discontinued operations for: | ||||||||
| Interest | $ | - | $ | 48,250 | ||||
| Income taxes | $ | - | $ | 189,570 | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Stock issued for future services | $ | 1,709,989 | $ | 9,074 | ||||
| Stock issued for accrued liabilities | $ | 37,835 | $ | 54,000 | ||||
| Stock issued for acquisition of a non-wholly owned subsidiary | $ | 507,710 | $ | - | ||||
| Property and equipment acquired on credit as payable | $ | - | $ | 15,263 | ||||
| Decrease in assets upon sale of subsidiary | $ | - | $ | 14,673,414 | ||||
| Decrease in liabilities upon sale of subsidiary | $ | - | $ | 1,012,452 | ||||
| Increase in receivable from sale of subsidiary | $ | - | $ | 7,225,107 | ||||
See notes to consolidated financial statements.
| F-5 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
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. However, given the decrease in the Chinese government subsidies for utility scale solar projects in 2017 as well as the high cost of solar components, Shengxin has not been able to locate any project. At December 31, 2017, Shengxin has not yet commenced operations.
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. The Company referred to this segment of its business as the forged rolled rings and related components segment. On December 30, 2016, Fulland sold the stock of Fulland Wind and accordingly, the forged rolled rings and related components business is reflected as a discontinued operation for all periods presented (See Note 3).
Beginning in February 2015, Heavy Industries began to produce equipment for the petroleum and chemical industries. The Company referred to this segment of its business as the petroleum and chemical equipment segment. Because of a significant decline in revenues from this segment, the Company determined it would not continue to operate in this segment and accordingly, the petroleum and chemical equipment segment is reflected as a discontinued operations for all periods presented (See Note 3). As a result of the discontinuation of the forged rolled rings and the petroleum and chemical equipment business, the Company’s business primarily consists of the dyeing and finishing equipment business as its primary continuing operations since December 31, 2016.
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, recently, 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. |
| F-6 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
| ● | EC Advertising Limited, 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, a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage. |
| ● | 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, 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, a company incorporated under the laws of Hong Kong on February 24, 2015, and 60% of its shareholdings was acquired by EC Technology on January 19, 2018 | |
| ● | Sharing Film International Limited, a company incorporated under the laws of Hong Kong on January 22, 2018 and is a wholly-owned by EC Creative. | |
| ● | Any workspace Limited, 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. |
Reverse split; change in authorized common stock
On February 24, 2017, the Company filed a certificate of change which effected a one-for-four reverse split, which became effective in the marketplace on March 20, 2017, and a reduction in the Company’s authorized common stock from 50,000,000 shares to 12,500,000 shares. These consolidated financial statements have been retroactively restated to reflect this reverse split.
Going concern
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 loss from continuing operations of $12,828,393 for the year ended December 31, 2017. The net cash used in operations were $409,791 for the year ended December 31, 2017. Additionally, during the year ended December 31, 2017, revenues, substantially all of which are derived from the manufacture and sales of textile dyeing and finishing equipment, decreased by 22.1% as compared to the year ended December 31, 2016. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that its capital resources are not currently adequate to continue operating and maintaining its business strategy for twelve months from the date of this report.
The Company may seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from bank loans, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and or classification of recorded asset amounts and or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| F-7 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Basis of presentation
The Company is on a fiscal year ending December 31; as such the year ended December 31, 2017 is referred to as “fiscal 2017”, and the year ended December 31, 2016 is referred to as “fiscal 2016”.
Principles of Consolidation
The Company’s consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Fulland, Green Power, Fulland Wind through the date of disposition, and its new subsidiaries discussed above, and the financial statements of the Company’s variable interest entities Huayang Companies Dyeing, which conducts the Company’s continuing operations, and Heavy Industries, which operated discontinued operations. All significant intercompany accounts and transactions have been eliminated in consolidation.
On December 30, 2016, the Company sold and transferred its 100% interest in Fulland Wind to an unrelated party and discontinued the Company’s forged rolled rings and related components business. Additionally, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant declines in revenues and the loss of its major customer. As such, forged rolled rings and related components segment’s and petroleum and chemical segment’s assets and liabilities have been classified on the consolidated balance sheets as assets and liabilities of discontinued operations as of December 31, 2017 and 2016. The operating results of the forged rolled rings and related components and petroleum and chemical segments have been classified as discontinued operations in our consolidated statements of operations for all years presented. Unless otherwise indicated, all disclosures and amounts in the notes to the consolidated financial statements are related to the Company’s continuing operations.
Pursuant to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities (“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s wholly foreign-owned enterprise in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On October 12, 2007, the Company entered into the following contractual arrangements with each of Dyeing and Heavy Industries:
Consulting Services Agreement. Pursuant to the exclusive consulting services agreements between Green Power and the Huayang Companies, Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of dyeing and finishing machines, electrical equipment and related components (the “Services”). Under this agreement, Green Power owns the intellectual property rights developed or discovered through research and development, in the course of providing the Services, or derived from the provision of the Services. The Huayang Companies shall pay a quarterly consulting service fees in Renminbi (“RMB”) to Fulland that is equal to all of the Huayang Companies’ profits for such quarter. To date, no such payments have been made and all profits were reinvested in the Company’s operations.
Operating Agreement. Pursuant to the operating agreement among Green Power, the Huayang Companies and all shareholders of the Huayang Companies, Green Power provides guidance and instructions on the Huayang Companies’ daily operations, financial management and employment issues. The Huayang Companies’ shareholders must designate the candidates recommended by Green Power as their representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in return, agree to pledge their accounts receivable and all of their assets to Green Power. Moreover, each of the Huayang Companies agrees that, without the prior consent of Green Power, it will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of the this agreement, with the extended term to be mutually agreed upon by the parties.
| F-8 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Equity Pledge Agreement. Under the equity pledge agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee the Huayang Companies’ performance of their respective obligations under the consulting services agreement. If the Huayang Companies or the Huayang Companies’ shareholders breach their respective contractual obligations, Green Power, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies’ shareholders also agreed that, upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Huayang Companies’ shareholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Huayang Companies’ shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.
Option Agreement. Under the option agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the parties.
Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, the accounts of the Huayang Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies’ sales are included in the Company’s total sales, its income from operations is consolidated with the Company’s, and the Company’s net income includes all of the Huayang Companies net income. The Company does not record non-controlling interest on these VIE’s and, accordingly, did not subtract any net income in calculating the net income of the VIEs that is attributable to the Company. Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires consolidation of the Company’s and the Huayang Companies’ financial statements.
There are substantial uncertainties regarding the interpretation, application and enforcement of PRC laws and regulations, including but not limited to the laws and regulations governing the Company’s business or the enforcement and performance of its contractual arrangements. These contractual arrangements may not be as effective in providing the Company with control over the VIEs as direct ownership. Due to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs, which exposes it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example, their interests as shareholders of the VIEs and the interests of the Company may conflict and the Company may fail to resolve such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing were to happen, the Company may have to rely on legal or arbitral proceedings to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings may cost substantial financial and other resources, and result in a disruption of its business, and the Company cannot assure that the outcome will be in its favor. In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company is unable to enforce any of these agreements, the Company would not be able to exert effective control over the affected VIEs and consequently, the results of operations, assets and liabilities of the affected VIEs and their subsidiaries would not be included in the Company's consolidated financial statements. If such were the case, the Company's cash flows, financial position and operating performance would be materially adversely affected.
The Company's agreements with respect to its consolidated VIEs are approved and in place. The Company's management believes that such agreements are enforceable, and considers it a remote possibility that PRC regulatory authorities with jurisdiction over the Company's operations and contractual relationships would find the agreements to be unenforceable under existing laws.
| F-9 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The carrying amount of the VIE’s assets and liabilities are included in the accompanying consolidated financial statements of the Company and are summarized as follows:
| December 31, 2017 | December 31, 2016 | |||||||
| Current assets | ||||||||
| Cash | $ | 806,672 | $ | 1,477,593 | ||||
| Accounts receivable, net | 9,059,015 | 13,922,371 | ||||||
| Inventory, net | 4,553,559 | 2,394,179 | ||||||
| Other current assets | 5,901,119 | 8,157,961 | ||||||
| Total current assets | 20,320,365 | 25,952,104 | ||||||
| Equity method investment | 9,053,859 | 8,610,759 | ||||||
| Property and equipment, net | 33,115,975 | 29,878,675 | ||||||
| Intangible assets, net | 5,302,047 | 5,283,695 | ||||||
| Total assets | 67,792,346 | 69,725,233 | ||||||
| Liabilities | ||||||||
| Current liabilities | 7,629,783 | 4,389,641 | ||||||
| Intercompany payables | 13,855,768 | 12,194,352 | ||||||
| Total liabilities | 21,485,551 | 16,583,993 | ||||||
| Net assets | $ | 46,306,795 | $ | 53,141,240 | ||||
* Intercompany payables are eliminated in consolidation.
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, 2017 and 2016 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, 2017 and 2016, cash balances held in PRC and Hong Kong banks of $952,663 and $1,480,941, respectively, are uninsured.
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.
| F-10 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The Company did not measure these assets at fair value at December 31, 2017. The following table presents information about equipment held for sale – discontinued operations measured at fair value on a nonrecurring basis at December 31, 2016.
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance at December 31, 2016 | |||||||||||||
| Equipment held for sale – discontinued operations | $ | - | $ | - | $ | 1,147,035 | $ | 1,147,035 | ||||||||
The Company conducted an impairment assessment on the equipment held for sale of discontinued operations based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of the equipment held for sale of discontinued operations as of December 31, 2016. Upon completion of its 2016 impairment analysis, the Company determined that the carrying value exceeded the fair market value on the equipment held for sale of discontinued operations. Accordingly, the Company recorded an impairment loss of $1,660,305 at December 31, 2016, which has been included in loss from discontinued operations, net of income taxes in the accompanying statements of operations. The Company did not have any equipment held for sale of discontinued operations at December 31, 2017.
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, deferred tax assets, receivable from sale of subsidiary, prepaid expenses and other, short-term bank loans, bank acceptance notes payable, note payable, accounts payable, accrued liabilities, advances from customers, amount due to a related party, VAT and service taxes payable 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.
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.
At December 31, 2017 and 2016, the Company’s cash balances by geographic area were as follows:
| Country: | December 31, 2017 | December 31, 2016 | ||||||||||||||
| United States | $ | 66,774 | 6.55 | % | $ | 557 | * | |||||||||
| Hong Kong | 142,944 | 14.02 | % | - | - | |||||||||||
| China | 809,719 | 79.43 | % | 1,480,941 | 99.96 | % | ||||||||||
| Total cash and cash equivalents | $ | 1,019,437 | 100.00 | % | $ | 1,481,498 | 100.00 | % | ||||||||
* Less than 0.1%
| F-11 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Restricted cash
Restricted cash mainly consists of cash deposits held by various banks to secure bank acceptance notes payable. The Company’s restricted cash totaled $272,991 and $551,047 at December 31, 2017 and 2016, respectively.
Notes receivable
Notes receivable represents trade accounts receivable due from customers where the customers’ bank has guaranteed the payment of the receivable. This amount is non-interest bearing and is normally paid within six months. Historically, the Company has experienced no losses on notes receivable. The Company’s notes receivable totaled $461,292 and $133,913 at December 31, 2017 and 2016, respectively.
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, 2017 and 2016, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $8,115,876 and $1,797,476, respectively.
Inventories
Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded an inventory reserve of $313,930 and $21,177 at December 31, 2017 and 2016, respectively.
Advances to suppliers
Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $2,023,779 and $1,116,525 at December 31, 2017 and 2016, respectively.
Equipment held for sale
Long-lived assets are classified as held for sale when certain criteria are met. These criteria include: management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell. At December 31, 2016, the Company reflected certain manufacturing equipment that was previously used in the petroleum and chemical equipment segment as part of assets of discontinued operations as equipment held for sale, which was included in the assets of discontinued operations on the accompanying consolidated balance sheets. This equipment was sold in March 2017 to a third party.
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.
| F-12 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Equity method investment
Investments in which the Company has the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long term assets on the consolidated balance sheets. Under this method of accounting, the Company’s share of the net earnings or losses of the investee is presented below the income tax line on the consolidated statements of operations. The Company evaluates its equity method investment whenever events or changes in circumstance indicate that the carrying amounts of such investment may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in the current period. (See Note 6).
Impairment of long-lived assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. At December 31, 2017 and 2016, the Company conducted an impairment assessment on property and equipment based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of property and equipment as of December 31, 2017 and 2016. 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 2017 and 2016 impairment analysis, the Company determined that the carrying value exceeded the fair market value on certain equipment formerly used in the Company’s forging and related components, and petroleum and chemical equipment segments. Accordingly, in connection with the impairment of such equipment, the Company recorded impairment charges of $0 and $1,660,305 for the years at December 31, 2017 and 2016, respectively, which was included in loss from discontinued operations on the accompanying consolidated statements of operations and comprehensive loss.
Advances from customers
Advances from customers at December 31, 2017 and 2016 amounted to $2,454,375 and $427,446, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue when customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.
Revenue recognition
Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.
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.
The Company recognizes revenue from the rental of batteries when earned.
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.
| F-13 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On December 22, 2017, President Trump 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 34%. 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, 2017, 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, 2017 and 2016, 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.
Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award or on issuance if fully-vested and non-forfeitable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.
Shipping costs
Shipping costs are included in selling expenses, general and administrative and totaled $111,776 and $141,180 for the years ended December 31, 2017 and 2016, respectively.
Employee benefits
The Company’s operations and employees are all located in the PRC and Hong Kong. The Company makes mandatory contributions to the PRC and Hong Kong governments’ health, retirement benefit and unemployment funds in accordance with the relevant Chinese social security laws and law of Mandatory Provident Fund in Hong Kong. The costs of these payments are charged to the same accounts as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $162,531 and $100,045 for the years ended December 31, 2017 and 2016, respectively.
Research and development
Research and development costs are expensed as incurred. The costs primarily consist of raw materials and salaries incurred for the development and improvement of the Company’s dyeing and finishing machine product line. Research and development costs totaled $420,023 and $304,054 for the years ended December 31, 2017 and 2016, respectively.
| F-14 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Foreign currency translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”) or Hong Kong dollars (HKD). For the subsidiaries and affiliates, whose functional currencies are the RMB or HKD, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive loss. The cumulative translation adjustment and effect of exchange rate changes on cash for the years ended December 31, 2017 and 2016 was $66,437 and $(519,152), respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries and affiliates. 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.
For operating subsidiaries and VIE’s located in the People’s Republic of China (“PRC”), asset and liability accounts at December 31, 2017 and December 31, 2016 were translated at 6.5075 RMB to $1.00 and at 6.9448 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. For operating subsidiaries in Hong Kong, asset and liability accounts at December 31, 2017 were translated at 7.8128 HKD to $1.00, which were the exchange rates on the balance sheet date. For operating subsidiaries and VIE’s located in the PRC, the average translation rates applied to the statements of operations for the years ended December 31, 2017 and 2016 were 6.7588 RMB and 6.6435 RMB to $1.00, respectively. For operating subsidiaries located in Hong Kong, the average translation rates applied to the statements of operations for the year ended December 31, 2017 was 7.8 HKD to $1.00. The Company did not have operations in Hong Kong during the 2016 periods. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.
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) income per share is computed by dividing net (loss) income 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) income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At December 31, 2017, common stock equivalents and potentially dilutive common stock outstanding consisted of 200,100 shares of common stock issuable upon conversion of a note payable. The Company did not have any common stock equivalents and potentially dilutive common stock outstanding during the year ended December 31, 2016. 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.
| F-15 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The following table presents a reconciliation of basic and diluted net loss per share:
| Years Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Net Loss for basic and diluted attributable to common shareholders | $ | (12,906,769 | ) | $ | (11,679,154 | ) | ||
| From continuing operations | (12,808,812 | ) | (1,393,222 | ) | ||||
| From discontinued operations | $ | (97,957 | ) | $ | (10,285,932 | ) | ||
| Weighted average common stock outstanding– basic and diluted | 1,832,900 | 1,189,940 | ||||||
| Net (loss) income per share of common stock | ||||||||
| From continuing operations – basic and diluted | $ | (6.99 | ) | $ | (1.17 | ) | ||
| From discontinued operations – basic and diluted | (0.05 | ) | (8.64 | ) | ||||
| Net (loss) income per common share - basic and diluted | $ | (7.04 | ) | $ | (9.81 | ) | ||
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 income/(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, 2017 and 2016 included net loss and unrealized loss 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.
Reverse stock split
The Company effected a one-for-four reverse stock split of its common stock on March 20, 2017. All share and per share information has been retroactively adjusted to reflect this reverse stock split.
Recent accounting pronouncements
In May 2014, FASB issued an update (“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 will not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers.
| F-16 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
In August 2016, the FASB issued ASU 2016-15 which addresses eight cash flow classification issues, eliminating the diversity in practice. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively applied as of the earliest date practicable. The adoption of ASU will not have a material impact on the Company’s consolidated financial statements.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance did not have any impact on the Company’s financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, or ASU 2017-09. ASC 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The adoption of ASU will not have a material impact on the Company’s consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features , or ASU 2017-11, which updates the guidance related to the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Under ASU 2017-11, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. ASU 2017-11 is effective for public entities for all annual and interim periods beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2017-11 will have on our consolidated financial statements.
On December 22, 2017 the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the TCJA). SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company has applied this guidance to its financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.
NOTE 2 – ACQUISITION
On December 8, 2017 (the “Closing Date”), the Company completed the acquisition of 51% of the issued and outstanding capital stock of Inspirit Studio Limited (“Inspirit”), a company incorporation in Hong Kong, from its shareholders pursuant to the terms and conditions of a Sale and Purchase Agreement entered into among the Company and the Inspirit Stockholders on the Closing Date (the “Acquisition Agreement”). Inspirit is engaged in the development of a mobile app platform which provides instant errand services in a peer to peer network and will generate revenue from commission charged on each errand service transaction.
In connection with the acquisition, the Company issued 85,473 unregistered shares of its common stock valued at $507,710, based on the acquisition-date fair value of our common stock of $5.94 per share based on the quoted market price of the Company’s common stock on the Closing date. The fair value of the assets acquired and liabilities assumed were based on management estimates of the fair values on December 8, 2017.
| F-17 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Based upon the purchase price allocation, the following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:
| Goodwill | $ | 462,111 | ||
| Account receivable and prepayment | 22,898 | |||
| Other intangible assets | 92,249 | |||
| Total assets acquired at fair value | 577,258 | |||
| Bank Overdraft | (20 | ) | ||
| Accounts payable and accrued expenses | (25,717 | ) | ||
| Non-controlling interest assumed | (43,811 | ) | ||
| Total liabilities and non-controlling interest assumed | (69,548 | ) | ||
| Total purchase consideration | $ | 507,710 |
The assets acquired and liabilities assumed are recorded at their estimated fair value on the acquisition date with subsequent changes recognized in earnings or loss. These estimates are inherently uncertain and are subject to refinement. Management develops estimates based on assumptions as a part of the purchase price allocation process to value the assets acquired and liabilities assumed as of the business combination date. As a result, during the purchase price measurement period, which may be up to one year from the business acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the purchase price measurement period, the Company will record adjustments to assets acquired or liabilities assumed in operating expenses in the period in which the adjustments were determined.
The purchase price exceeded the fair value of the net assets acquired by approximately $462,111, which was initially recorded as goodwill. Goodwill assigned represents the amount of consideration transferred in excess of the fair value assigned to identifiable assets acquired and liabilities assumed. ASC 350-30-35-4 requires that goodwill be tested for impairment on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Based on the Company’s annual analysis of goodwill, in December 2017, the Company recorded an impairment expense of $462,111 which is included in operating expenses on the accompanying consolidated statement of operation and comprehensive loss.
NOTE 3 – DISCONTINUED OPERATIONS
Pursuant to an agreement dated December 23, 2016, the Company, through its wholly-owned subsidiary Fulland, sold the stock of Fulland Wind to a third party for a sales price of RMB 48 million (approximately $6.9 million). The Company’s forging and related components business was conducted through Fulland Wind. The purchase price is payable in three installments. The Company received the first installment of RMB 14,400,000 (approximately $2.1 million) on December 28, 2016, and received the second installment of RMB14,400,000 (approximately $2.1 million) on April 10, 2017. The Company delivered Fulland Wind’s business license, seals, books and records, business contracts and personnel roster to the third party buyer on December 30, 2016, effectively the sale date. If the equity transfer registration formalities are completed within one year without any third party claims on the equity transfer, a final payment of RMB 19,200,000 (approximately $2.7 million) was due 25 working days after the expiration of such period. Pursuant to extension agreement dated December 31, 2017, the Company agreed the above third party buyer could paid off the final payment of RMB 19,200,000 (approximately $2.7 million) by December 31, 2018. As a result of the sale, the forged rolled rings and related components business is treated as a discontinued operation.
Additionally, in December 2016, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant decline in revenues and the loss of its major customers. Accordingly, the petroleum and chemical equipment segment business is treated as a discontinued operation.
Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the business of the forging and related components segment and petroleum and chemical equipment segment are considered discontinued operations because: (a) the operations and cash flows of the forging and related components segment and petroleum and chemical equipment segment were eliminated from the Company’s operations; and (b) the Company has no interest in the divested operations.
| F-18 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
As of December 31, 2016, Fulland Wind had bank loans payable of RMB 4,500,000 (approximately $647,967) which was guaranteed by Dyeing and the Company’s chief executive officer and his wife. In May 2017, the loan was repaid.
The sale of Fulland Wind resulted in a loss on disposal of discontinued operations of $6,459,407 in 2016. This loss plus the results of operations from Fulland Wind and petroleum and chemical equipment segment for the years ended December 31, 2017 and 2016 have been classified to the loss from discontinued operations line on the accompanying consolidated statements of operations and comprehensive loss presented herein. In addition, the historical consolidated balance sheet and consolidated statement of cash flow amounts have also been reclassified to reflect the forging and related components segment and petroleum and chemical equipment segment businesses as discontinued operations.
Contemporaneously with the sale of the Fulland Wind stock, pursuant to an agreement dated December 23, 2016, Heavy Industry entered into a lease with Wang Jiahong for a factory building owned by Heavy Industry at an annual rental of RMB 680,566 (approximately $98,000). The lease had a ten-year term, commencing January 1, 2017. During 2017, the Company received RMB 324,078 (approximately $49,800) in lease payments from the tenant. During the fourth quarter of 2017, Wang Jiahong orally terminated the above lease agreement and the Company is no longer received rental income.
The assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2017 and 2016 is set forth below.
| December 31, 2017 | December 31, 2016 | |||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Accounts receivable, net | $ | 33,646 | $ | 78,407 | ||||
| Inventories, net of reserve for obsolete inventories | - | 31,019 | ||||||
| Advances to suppliers | 144,583 | 200,275 | ||||||
| Equipment held for sale | - | 1,147,035 | ||||||
| Prepaid expenses and other | 229,281 | 302,250 | ||||||
| Total current assets | 407,510 | 1,758,986 | ||||||
| Total assets | $ | 407,510 | $ | 1,758,986 | ||||
| Liabilities: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 387,887 | $ | 458,433 | ||||
| Accrued expenses and other liabilities | 1,746 | 45,280 | ||||||
| Accrues from customers | - | 54,948 | ||||||
| Total current liabilities | 389,633 | 558,661 | ||||||
| Total liabilities | $ | 389,633 | $ | 558,661 | ||||
The summarized operating result of discontinued operations included in the Company’s consolidated statements of operations is as follows:
| Years
Ended December 31, |
||||||||
| 2017 | 2016 | |||||||
| Revenues | $ | - | $ | 595,855 | ||||
| Cost of revenues | 31,872 | 1,562,774 | ||||||
| Gross (loss) profit | (31,872 | ) | (966,919 | ) | ||||
| Operating expenses: | ||||||||
| Impairment losses | - | 1,660,305 | ||||||
| Other operating expenses | 66,085 | 1,124,304 | ||||||
| Total operating expenses | 66,085 | 2,784,609 | ||||||
| Loss from operations | (97,957 | ) | (3,751,528 | ) | ||||
| Other expense, net | - | (74,997 | ) | |||||
| Loss from discontinued operations before income taxes | (97,957 | ) | (3,826,525 | ) | ||||
| Income taxes | - | - | ||||||
| Loss from discontinued operations, net of income taxes | (97,957 | ) | (3,826,525 | ) | ||||
| Loss on sale / disposal of discontinued operations, net of income taxes | - | (6,459,407 | ) | |||||
| Loss from discontinued operations, net of income taxes | $ | (97,957 | ) | $ | (10,285,932 | ) | ||
| F-19 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 4 – ACCOUNTS RECEIVABLE
At December 31, 2017 and 2016, accounts receivable consisted of the following:
| December 31, 2017 | December 31, 2016 | |||||||
| Accounts receivable | $ | 17,208,585 | $ | 15,719,847 | ||||
| Less: allowance for doubtful accounts | (8,115,876 | ) | (1,797,476 | ) | ||||
| $ | 9,092,709 | $ | 13,922,371 | |||||
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.
NOTE 5 – INVENTORIES
At December 31, 2017 and 2016, inventories consisted of the following:
| December 31, 2017 | December 31, 2016 | |||||||
| Raw materials | $ | 998,751 | $ | 1,003,359 | ||||
| Work-in-process | 2,629,570 | 639,345 | ||||||
| Finished goods | 1,239,168 | 772,652 | ||||||
| 4,867,489 | 2,415,356 | |||||||
| Less: reserve for obsolete inventories | (313,930 | ) | (21,177 | ) | ||||
| $ | 4,553,559 | $ | 2,394,179 | |||||
The Company establishes a reserve to mark down its inventories for estimated unmarketable inventories equal to the difference between the cost of inventories and the estimated net realizable value based on assumptions about the usability of the inventories, future demand and market conditions. For the year ended December 31, 2017 and 2016, the Company increased its reserve for obsolete inventory by approximately $285,334 and $0, respectively, which has been included in cost of revenues on the accompanying consolidated statements of operations and comprehensive loss.
NOTE 6 – EQUITY METHOD INVESTMENT
On December 26, 2016, Dyeing and Xue Miao, an unrelated individual, formed Shengxin pursuant to an agreement dated December 23, 2016. The agreement sets forth general terms relating to the proposed business, but does not set forth specific funding obligations for either party. Dyeing has agreed to invest RMB 60,000,000 (approximately $9,200,000) and had invested RMB 59.8 million ($9,189,397 at December 31, 2017), for which it received a 30% interest, and Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $21.5 million), of which Mr. Xue has contributed RMB 60,000,000 (approximately $9.2 million), for which Mr. Xue received a 70% interest in Shengxin. Shengxin’s registered capital is RMB 200 million (approximately $30.7 million). Mr. Xue has advised Dyeing that he anticipates that he will fund the remaining RMB 80,000,000 (approximately $12.2 million) of his commitment during 2018. Since Mr. Xue did not make this payment by the end of 2017, Dyeing has the right to amend the contract, and both parties may adjust each side’s equity interest to reflect the amount of capital each side has actually invested. As of December 31, 2017, no changes have been made to such contract.
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. As of December 31, 2017, Shengxin had not yet commenced any material operations.
| F-20 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The solar farm industry is China is subject to significant government regulation. In order to construct and operate solar farms in China, it is necessary to obtain a permit for a specific location, to obtain leasehold rights to a significant amount of contiguous land parcels in provinces where there is significant sunlight for most of the year to support a solar farm and to have an agreement to connect with the local grid. The development of solar farms requires significant funding, which, if financing is not available, would have to be provided by Dyeing and Mr. Xue. There are no agreements relating to the funding obligations of either Dyeing or Mr. Xue with respect to any specific project. Shengxin anticipates that to the extent that it obtains permits for solar farms, it will form a new subsidiary for the sole purpose of obtaining the permit for a specific location and constructing the solar farm at that location. The nature of the parties’ respective investments and the respective equity interest in any solar farm project will be determined on a case-by-case basis.
To the extent that Mr. Xue develops the project, he may receive an equity interest in the project greater than the percentage of his equity investment, with the specific amount being subject to mutual agreement of the parties.
The Company’s investment in Shengxin is subject to a high degree of risk. The Company cannot give any assurance that Shengxin will be able to obtain any permits, raise any required funding, develop and operate or sell any solar farms or operate profitably or that Dyeing will have the resources to provide any funds that may be required in order to fund any solar farm projects for which Shengxin may obtain permits. There may be a significant delay between the time funds are advanced for any project and the realization of revenue or cash flow from any project.
For the years ended December 31, 2017 and 2016, the Company’s share of Shengxin’s net loss were $130,498 and $0, respectively. At December 31, 2017, Shengxin’s assets consisted of cash and advances to supplier of approximately $17.3 million and $614,675, respectively, and had no liabilities. At December 31, 2016, Shengxin’s assets consisted of cash and advances to supplier of approximately $11.3 million and $144,000, respectively, and had no liabilities.
NOTE 7 – PROPERTY AND EQUIPMENT
At December 31, 2017 and 2016, property and equipment consisted of the following:
| Useful life | December 31, 2017 | December 31, 2016 | |||||||||
| Office equipment and furniture | 5 years | $ | 71,120 | $ | 65,209 | ||||||
| Manufacturing equipment | 5 -10 years | 34,419,653 | 32,240,010 | ||||||||
| Vehicles | 5 years | 253,564 | 169,773 | ||||||||
| Building and building improvements | 5 - 20 years | 22,556,026 | 21,135,718 | ||||||||
| Manufacturing equipment in progress | - | 3,657,936 | - | ||||||||
| Construction in progress | - | 1,652,859 | - | ||||||||
| 62,611,158 | 53,610,710 | ||||||||||
| Less: accumulated depreciation | (29,430,039 | ) | (23,732,035 | ) | |||||||
| $ | 33,181,119 | $ | 29,878,675 | ||||||||
For the years ended December 31, 2017 and 2016, depreciation expense amounted to $3,950,932 and $3,829,345, respectively, of which $2,849,988 and $3,311,410, respectively, was included in cost of revenues, and the remainder was included in operating expenses.
At December 31, 2017 and 2016, the Company conducted an impairment assessment on property and equipment based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of property and equipment as of December 31, 2017 and 2016. Such analysis considered future use of such equipment, consultation with equipment resellers, and other industry factors. Upon completion of the 2017 and 2016 impairment analysis, the Company determined that the carrying value exceeded the fair market value on certain equipment formerly used in the Company’s forging and related components, and petroleum and chemical equipment segments, which have been accounted for as discontinued operations as of December 31, 2017 and 2016. Accordingly, in connection with the impairment of such equipment, the Company recorded impairment charges of $0 and $1,660,305 for the years at December 31, 2017 and 2016, respectively, which was included in loss from discontinued operations on the accompanying consolidated statements of operations and comprehensive loss.
| F-21 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 8 – INTANGIBLE ASSETS
At December 31, 2017 and 2016, intangible assets consisted of the following:
| Useful life | December 31, 2017 | December 31, 2016 | ||||||||
| Land use rights | 45 - 50 years | $ | 4,149,181 | $ | 3,887,915 | |||||
| Patent use rights | 10 years | 2,458,701 | 2,303,882 | |||||||
| Other intangible assets | 3 years | 92,249 | - | |||||||
| 6,700,131 | 6,191,797 | |||||||||
| Less: accumulated amortization | (1,305,835 | ) | (908,102 | ) | ||||||
| $ | 5,394,296 | $ | 5,283,695 | |||||||
Amortization of intangible assets attributable to future periods is as follows:
| Year ending December 31: | Amount | |||
| 2018 | $ | 354,940 | ||
| 2019 | 354,940 | |||
| 2020 | 354,940 | |||
| 2021 | 324,190 | |||
| 2022 | 324,190 | |||
| Thereafter | 3,681,096 | |||
| $ | 5,394,296 | |||
There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have terms of 45 and 50 years and expire on January 1, 2053 and October 30, 2053. The Company amortizes the land use rights over the term of the respective land use right.
In August 2016, the Company purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. The Company amortizes the exclusive patent use right over the term of the patent.
For the years ended December 31, 2017 and 2016, amortization of intangible assets amounted to $324,190 and $189,329, respectively.
NOTE 9 – SHORT-TERM BANK LOANS
Short-term bank loans represent amounts due to various banks that are due within one year. These loans can be renewed with these banks upon maturities. At December 31, 2017 and 2016, short-term bank loans consisted of the following:
| December 31, 2017 | December 31, 2016 | |||||||
| Loan from Jiangsu Huishan Mintai Village Town Bank, due on July 5, 2017 with annual interest rate of 10.56% and repaid on May 26, 2017 | $ | - | $ | 719,963 | ||||
| Loan from Bank of Communications, due on September 5, 2017 with annual interest rate of 5.62% and repaid on September 5, 2017 | - | 719,963 | ||||||
| Loan from Bank of China, due on December 4, 2018 with annual interest rate of 6.09%, secured by certain assets of the Company | 384,172 | 359,982 | ||||||
| Loan from Bank of China, due on December 6, 2018 with annual interest rate of 6.09%, secured by certain assets of the Company | 384,172 | 359,981 | ||||||
| Loan from Bank of Wuxi Nongshuang, due on April 25, 2018 with annual interest rate of 5.87%, secured by certain assets of the Company | 691,510 | - | ||||||
| Loan from Bank of Communication, due on September 25, 2018 with annual interest rate of 5.85%, secured by certain assets of the Company | 614,675 | - | ||||||
| Total short-term bank loans | $ | 2,074,529 | $ | 2,159,889 | ||||
Interest related to the short-term bank loans, which was $134,459 and $124,937 for the years ended December 31, 2017 and 2016, respectively, is included in interest expense on the accompanying consolidated statements of operations and comprehensive loss.
| F-22 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 10 – BANK ACCEPTANCE NOTES PAYABLE
Bank acceptance notes payable represent amounts due to banks which are collateralized. All bank acceptance notes payable are secured by the Company’s restricted cash which are deposits with various lenders. At December 31, 2017 and 2016, the Company’s bank acceptance notes payables consisted of the following:
| December 31, 2017 | December 31, 2016 | |||||||
| Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 29, 2017, collateralized by 100% of restricted cash deposited | $ | - | $ | 71,996 | ||||
| Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on May 9, 2017, collateralized by 100% of restricted cash deposited | - | 431,978 | ||||||
| Bank of China, non-interest bearing, due and paid on January 6, 2017, collateralized by 100% of restricted cash deposited | - | 43,198 | ||||||
| Bank of China, non-interest bearing, due on June 25, 2018, collateralized by 100% of restricted cash deposited | 115,252 | - | ||||||
| Bank of Communication, non-interest bearing, due on March 24, 2018, collateralized by 100% of restricted cash deposited | 307,337 | - | ||||||
| Total | $ | 422,589 | $ | 547,172 | ||||
NOTE 11 – CONVERTIBLE NOTE PAYABLE
On October 9, 2017, the Company entered into a Note Purchase Agreement (the “NPA”) with Chong Ou Holdings Group Company Limited, a BVI company (the “Investor”) pursuant to which the Investor purchased a note for $670,000, bearing two percent (2%) interest per annum (the “Note”). The Note automatically converts into shares of common stock of the Company at a conversion price equal to $3.35 per share on January 8, 2018. The Company shall have the option, in its sole and absolute discretion, to repay the Outstanding Amount in full on or before the Conversion Date. On January 8, 2018, the Note was converted into 200,100 shares of common stock.
Interest related to this note payable, which was $3,350 and $0 for the years ended December 31, 2017 and 2016, respectively, is included in interest expense on the accompanying consolidated statements of operations and comprehensive loss.
NOTE 12 – RELATED PARTY TRANSACTIONS
Due to related party
From time to time, during 2017, the Company receive advances from YSK 1860 Co., Limited, which is a principal shareholder of the Company for working capital purposes. These advanced and non-interest bearing and are payable on demand. At December 31, 2017 and 2016, amounts due to this related party amounted to $347,589 and $0, respectively.
Exclusivity agreement
On June 11, 2017, the Company entered into an Exclusivity Agreement (the “Exclusivity Agreement”) with ECrent Capital Holdings Limited (“ECrent”) the terms of which became effective on the same day. Pursuant to the Exclusivity Agreement, the Company and ECrent agreed to engage in exclusive discussions regarding a potential acquisition by the Company of ECrent and/or any of its subsidiaries or otherwise all or part of ECrent’s business and potential business cooperation between the two companies (collectively, the “Potential Transactions”) for a period of three months commencing from the date of the Exclusivity Agreement (the “Exclusive Period”). Ms. Deborah Yuen, an affiliate of YSK 1860 Co., Limited, which is a principal shareholder of the Company, controls ECrent. ECrent agreed that, during the Exclusive Period, neither ECrent nor its agents, representatives or advisors will contact, solicit, discuss or negotiate with any third party with respect to any transaction relating to a transfer or pledge of securities of ECrent and/or its subsidiaries, a sale of ECrent’s business, a business cooperation or any other matters that may adversely affect the Potential Transactions or the parties’ discussion related thereto. The exclusivity period has been further extended to 10 June 2018 pursuant to two amendment agreements dated September 11, 2017 and January 23, 2018.
| F-23 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 13 – ACCRUED EXPENSES
At December 31, 2017 and 2016, accrued expenses consisted of the following:
| December 31, 2017 | December 31, 2016 | |||||||
| Accrued salaries and related benefits | $ | 62,726 | $ | 143,622 | ||||
| Other payables | 103,023 | 224,773 | ||||||
| $ | 165,749 | $ | 368,395 | |||||
NOTE 14 – INCOME TAXES
The Company accounts for income taxes pursuant to ASC 740 “Accounting for Income Taxes” that requires the recognition of deferred tax assets and liabilities for the differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. Additionally, the accounting standards require the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets, including those related to the U.S. net operating loss carry forwards for income tax purposes as compared to financial statement purposes, are dependent upon future taxable income and timing of reversals of future taxable differences along with any other positive and negative evidence during the periods in which those temporary differences become deductible or are utilized.
The Company is governed by the Income Tax Laws of the PRC, Inland Revenue Ordinance of Hong Kong, and the U.S. Internal Revenue Code of 1986, as amended. Under the Income Tax Laws of PRC and Inland Revenue Ordinance of Hong Kong, Chinese companies are generally subject to an income tax at an effective rate of 25% and 16.5%, respectively, on income reported in the statutory financial statements after appropriate tax adjustments. The Company’s subsidiary, Green Power, and VIEs (Dyeing and Heavy Industries) are subject to PRC statutory rates and certain subsidiaries domiciled in Hong Kong are subject to the Hong Kong statutory rate. The Company’s wholly-owned subsidiary, Fulland Limited was incorporated in the Cayman Islands and certain subsidiaries were incorporated in the British Virgin Islands. Under the current laws of the Cayman Islands and British Virgin Islands, these entities are not subject to income taxes.
Sharing Economy International Inc. was incorporated in the United States and has incurred an aggregate net operating loss of approximately $8,402,000 for income taxes purposes through December 31, 2017 and Foreign Tax Credits related to the Income Tax Laws of the PRC of approximately $982,409, subject to the Internal Revenue Code (“IRC”) Section 382, which places a limitation on the amount of taxable income that can be offset by net operating losses after a change in ownership. The Company has not calculated its IRC Section 382 change of ownership to date, but there seems to have been a change of ownership within the meaning of IRC Section 382, which has not limited the use of net operating losses, nor foreign tax credits as of December 31, 2017, based upon Managements review. The net operating loss carries forward and foreign tax credit carry forward for United States income taxes may be available to reduce future years’ taxable income. These net operating loss carry forwards will expire, if not utilized, through 2037 and the remaining foreign tax credits expire, if not utilized, through 2026. As of December 31, 2017, the Company had net operating loss carryforwards of approximately $4,462,000 for PRC income tax purposes, such losses are set to expire in 2022 for PRC income tax purposes. As of December 31, 2017, the Company had net operating loss carryforwards of approximately $827,000 for Hong Kong income tax purposes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a United States corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company believes it is subject to the one-time transition tax on the mandatory deemed repatriation of foreign earnings. Such deemed repatriation tax was estimated to be approximately $5,256,000, which has been reduced to zero by the use of Foreign Tax Credit carryforward utilization at December 31, 2017 related to the Income Tax Laws of the PRC. Management is in the process of reviewing its IRC Section 382 change of ownership, relating to such amount.
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, 2017, 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.
As a result of the reduction of the United States federal corporate income tax rate, the Company reduced the value of its net deferred tax asset by $1,092,239 which was recorded as a corresponding reduction to the valuation allowance during the fourth quarter of 2017.
Management believes that it appears more likely than not that the Company will not realize these tax benefits due to the Company’s continuing losses for United States income taxes purposes, and losses in PRC and Hong Kong. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset benefit related to its U.S. and foreign net operating loss carry forwards to reduce the asset to zero. Management will review this valuation allowance periodically and make adjustments as necessary.
| F-24 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The Company has cumulative undistributed earnings from its China subsidiary and VIEs of approximately $40.2 million and $45.2 million as of December 31, 2017 and 2016, respectively, which is included in the consolidated retained earnings and will continue to be indefinitely reinvested in the Company’s PRC operations. Accordingly, a provision has been made for deferred taxes related to the mandatory deemed repatriation of foreign earnings. Such deemed repatriation tax was estimated to be approximately $5,256,000, which has been reduced to zero by the use of Foreign Tax Credit carryforward utilization at December 31, 2017 related to the Income Tax Laws of the PRC. Management is in the process of reviewing its IRC Section 382 change of ownership, relating to such amount.
The table below summarizes the differences between the U.S. statutory federal rate and the Company’s effective tax rate for the years ended December 31, 2017 and 2016:
| 2017 | 2016 | |||||||
| U.S. statutory rates | 34.0 | % | 34.0 | % | ||||
| U.S. effective rate in excess of China tax rate | (3.3 | )% | (4.2 | )% | ||||
| Bad debt allowance | (17.9 | )% | (8.8 | )% | ||||
| Effect of change in U.S statutory rate from 34% to 21% | (2.1 | )% | - | |||||
| China valuation allowance | (7.2 | )% | (11.6 | )% | ||||
| U.S. valuation allowance | (3.5 | )% | (9.4 | )% | ||||
| Total current provision for income taxes | 0.0 | % | 0.0 | % | ||||
For the years ended December 31, 2017 and 2016, current and deferred income taxes expense was related to our operations in the PRC and amounted to $408,287 and $0, respectively.
The tax effects of temporary differences under ASC 740 “Accounting for Income Taxes” that give rise to significant portions of deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows:
| December 31, 2017 | December 31, 2016 | |||||||
| Deferred tax assets: | ||||||||
| Net U.S. operating loss carry forward | $ | 1,764,385 | $ | 2,694,569 | ||||
| Net PRC and Hong Kong operating loss carry forward | 1,252,015 | 754,143 | ||||||
| Foreign tax credit | 206,306 | - | ||||||
| Allowance for doubtful accounts and reserve for obsolete inventories | - | 454,663 | ||||||
| Total gross deferred tax assets | 3,222,706 | 3,903,375 | ||||||
| Less: valuation allowance | (3,222,706 | ) | (3,516,994 | ) | ||||
| Net deferred tax assets | $ | - | $ | 386,381 | ||||
At December 31, 2017 and 2016, the valuation allowance were $3,222,706 and $3,448,712 related to the U.S. and foreign net operating loss carry forwards, and $0 and $68,282 related to allowance for doubtful accounts and reserve for obsolete inventories, respectively. During the year ended December 31, 2017, the valuation allowance increased by approximately $797,951.
The Company had incurred a significant loss from discontinued operations of $10,285,932 for the year ended December 31, 2016. Such loss is attributable to the Company’s China operations from the forged rolled rings and related component segment and the petroleum and chemical equipment segment. Management believes there will be no tax benefit from such loss and accordingly, no deferred tax asset and corresponding valuation reserve has been provided for at December 31, 2017 and 2016.
NOTE 15 – STOCKHOLDERS’ EQUITY
Common stock issued for services
On March 1, 2016, the Company issued 40,000 shares of common stock pursuant to its amended 2010 long-term incentive plan, including 18,750 shares to its former chief financial officer. The shares were valued at $209,600, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company reduced accrued liabilities of $54,000 and recorded stock-based compensation and fees of $155,600 for the year ended December 31, 2016.
| F-25 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On March 1, 2016, Company issued a total of 75,000 shares of common stock to two companies which performed services relating to preparing and implementing a new business plan for the Company with the objective of improving the Company’s long-term growth. Of these shares, 25,000 shares were issued pursuant to an agreement with one consultant and 50,000 shares were issued pursuant to an agreement with a second consultant. The agreements provide for the issuance of an additional 25,000 shares to one consultant and 50,000 to the second consultant if the agreement is in effect in July 2016. On July 1, 2016, the Company issued an additional 25,000 shares of its common stock to the first consultant pursuant to the agreement. A consulting agreement with the second consultant was terminated, and no additional shares of common stock were issued or are issuable pursuant to the consulting agreement with the second consultant. The shares were valued at fair market value using the reported closing share price on the dates of grant, and the Company recorded stock-based compensation and fees of $490,980 for the year ended December 31, 2016.
On June 30, 2016, the Company issued 3,125 shares of common stock pursuant to its amended 2010 long-term incentive plan to a consultant. The shares were valued at $12,500, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded stock-based compensation and fees of $12,500 for the year ended December 31, 2016.
On December 28, 2016, the Company issued 105,000 shares of common stock pursuant to its 2016 long-term incentive plan, including 50,000 shares to its chief executive officer. The shares were valued at $277,200, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded stock-based compensation and fees of $268,126 for the year ended December 31, 2016 and recorded prepaid expenses of $9,074 which will be amortized over the rest of the corresponding service periods.
On May 12, 2017, the Company issued 15,000 shares of common stock pursuant to its 2016 long-term incentive plan for legal services. The shares were valued at $50,400, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with this issuance, the Company reduced accounts payable by $28,400 and recorded stock-based professional fees of $22,000 in fiscal 2017.
On May 22, 2017, pursuant to a seven-month consulting agreement effective May 11, 2017, the Company issued 25,000 shares of its common stock to a consultant for business development services rendered and to be rendered through December 31, 2017. These shares were valued at $106,500, the fair market value on the grant date using the reported closing share price on the date of grant. Pursuant to this consulting agreement, on September 5, 2017, the Company issued an additional 25,000 share of common stock to this consultant. These shares were valued at $82,000 or $3.28 per share, using the reported closing share price on the date of issuance. For fiscal 2017, in connection with these issuances, the Company recorded stock-based professional fees of $188,500.
On June 30, 2017, pursuant to a one-year consulting agreement effective May 16, 2017, the Company issued 65,200 shares of common stock to a consultant for business development services rendered and to be rendered. These shares were valued at $272,536, or $4.18 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $170,701 and prepaid expenses of $101,835 which is amortized over the remaining service period. Additionally, pursuant to this consulting agreement, the Company issued an additional 20,000 share of common stock to this consultant on October 19, 2017. These shares were valued at $99,400, or $4.97 per share, using the reported closing share price on the date of issuance. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $62,259 and prepaid expenses of $37,141 which is amortized over the remaining service period through May 2018.
On August 8, 2017, pursuant to one-year consulting agreements effective July 19, 2017, the Company issued an aggregate of 120,000 shares of common stock to two consultants (60,000 shares each) for business development services rendered and to be rendered. These shares were valued at $492,000, or $4.10 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $222,194 and prepaid expenses of $269,806 which is amortized over the remaining service period. Additionally, pursuant to these consulting agreements, the Company issued an additional 40,000 share of common stock to these consultants (20,000 shares each) on November 2, 2017. These shares were valued at $169,600, or $4.24 per share, using the reported closing share price on the date of issuance. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $76,594 and prepaid expenses of $93,006 which is amortized over the remaining service period through July 2018.
On August 8, 2017, pursuant to a one-year consulting agreement effective July 1, 2017, the Company issued 8,000 shares of common stock to a consultant for investor relations services rendered and to be rendered. These shares were valued at $32,560, or $4.07 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $15,466 and prepaid expenses of $17,094 which is amortized over the remaining service period.
| F-26 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On August 8, 2017, pursuant to a one-year consulting agreement effective July 1, 2017, the Company issued 23,230 shares of common stock to a consultant for accounting services rendered and to be rendered. These shares were valued at $94,546, or $4.07 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company reduced accrued expense by $9,435, and the Company recorded stock-based professional fees of $42,556 and prepaid expenses of $42,555 which is amortized over the remaining service period.
On September 5, 2017, pursuant to one-year consulting agreements effective August 21, 2017, the Company issued an aggregate of 125,000 shares of common stock to two consultants (65,000 and 60,000 shares, respectively) for business development services rendered and to be rendered. These shares were valued at $408,750, or $3.27 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $148,337 and prepaid expenses of $260,413 which is amortized over the remaining service period. Additionally, pursuant to these consulting agreements, the Company issued an additional 35,000 share of common stock to these consultants (17,000 and 18,000, respectively) in January 2018. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $96,278 related to these issuable shares share-based reserve of $96,278 as of December 31, 2017.
On October 3, 2017, pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for investor relation services to be rendered, the Company agreed to pay this consultant $202,000 per year to be paid by the issuance of an aggregate of 134,688 shares as follows: 33,672 shares were issued in October 2017, 33,672 shares were issued in February 2018, 33,672 shares during the twelfth month from the agreement date, and 33,672 shares during the eighteenth month from the agreement date. The initial 33,672 shares were valued at $112,801, or $3.35 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $16,137 and prepaid expenses of $96,664 which is amortized over the remaining service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 101,016 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $109,538 related to these issuable shares and share-based reserve of $109,538 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first and second anniversary date of the date of this agreement, provided that the maximum number of shares issued for the Shortfall shall not exceed 13,500 Shares per year of services.
On October 9, 2017, pursuant to a consulting agreement, the Company agreed to issue 7,615 shares of its common stock to an entity for development services rendered. Such shares were issued in November 2017 upon completion of the services rendered. These shares were valued at $25,282, or $3.32 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company recorded stock-based professional fees of $25,282 for fiscal 2017.
On October 23, 2017, pursuant to a consulting agreement, the Company agreed to issue 6,000 shares of its common stock to an entity for public relations services rendered. These shares were valued at $28,920, or $4.82 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company recorded stock-based professional fees of $11,039 and prepaid expenses of $17,881 which is amortized over the remaining service period through April 2018.
| F-27 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On October 30, 2017, pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Advertising Limited and an individual, the Company issued 65,089 shares of common stock to a consultant for advertising and marketing services to be rendered. These shares were valued at $216,095, or $3.32 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $24,688 and prepaid expenses of $191,407 which is amortized over the remaining service period. Additionally, pursuant to this consulting agreement, the Company issued an additional 65,089 share of common stock to this consultant in February 2018. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $56,367 related to these issuable shares and share-based reserve of $56,367 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the shares issued to the Consultant pursuant this agreement is removed and such lot of shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of Shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for all the Shortfalls, within the first 3 months of the second year of Services, by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the shares are issued pursuant to this agreement, provided that the maximum number of shares issued for the Shortfall shall not exceed 26,036 Shares. Additionally, the Company shall, within one month from the date of this Agreement, issue such number of ordinary shares of EC Advertising Limited to the Consultant (or his nominee) so that he (or his nominee) will hold 15% of EC Advertising Limited issued share capital as enlarged by the share issue pursuant to this agreement. Additionally, within one month after the Consultant achieves all the performance targets as outlined in the agreement, EC Advertising Limited shall issue, or shall cause its major shareholder to transfer, such number of EC Advertising Limited's ordinary shares to the Consultant (or its nominee) so that he (and his nominee) will, together with the 15% issued share capital discussed above, hold a total of 49% of EC Advertising Limited’s issued share capital as enlarged by the share issue or after the transfer (as the case may be). Performance targets include the achievement by the Company of total revenue of $10,000,000 and profit after tax of $4,000,000 during the term of the agreement.
On November 3, 2017, pursuant to a two-year consulting agreement effective November 6, 2017 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for advertising consultancy services to be rendered, the Company agreed to pay this consultant $141,026 per year to be paid by the issuance of an aggregate of 67,966 shares as follows: 33,983 shares within 30 days from the agreement date, 33,983 during the sixth month from the agreement date. On January 27, 2018, this agreement was terminated. The Company agreed to pay by the issuance of 7,728 share for the service were rendered by such consultant from November 2017 to January 2018. These shares were valued at $32,767, or $4.24 per share, the fair market value on the grant date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. For fiscal 2017, the Company recorded stock-based professional fees of $21,978 related to these issuable shares and share-based reserve of $21,978 as of December 31, 2017.
On November 10, 2017, pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for information and technology, policy making and management services to be rendered, the Company agreed to pay this consultant $192,308 per year to be paid by the issuance of an aggregate of 101,216 shares as follows: 50,608 shares were issued in January 2018, 50,608 shares during the twelfth month from the agreement date. The initial 50,608 shares were valued at $203,444, or $4.02 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $203,444 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 50,608 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $41,583 related to these issuable shares and share-based reserve of $41,583 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall, within the first 3 months of the second half of the second year of services, by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the shares are issued, provided that the maximum number of shares issued for the Shortfall of two lots shall not exceed 20,243 shares.
| F-28 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On November 15, 2017, pursuant to one-year consulting agreements effective November 1, 2017, the Company issued 38,000 shares of common stock to an individual for market research services to be rendered. These shares were valued at $165,300, or $4.35 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $27,550 and prepaid expenses of $137,750 which is amortized over the remaining service period. Additionally, pursuant to these consulting agreements, the Company will issue an additional 11,148 share of common stock to this consultant during the sixth month of this agreement, provided that this agreement is not terminated prior to the issuance of such shares. The initial fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $14,084 related to these issuable shares and share-based reserve of $14,084 as of December 31, 2017.
On November 15, 2017, pursuant to a one-year consulting agreement effective November 1, 2017, the Company issued 20,000 shares of common stock to a consultant for information technology business development services rendered and to be rendered. These shares were valued at $87,000, or $4.35 per share, the fair market value on the issue date using the reported closing share price on the date of issue. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $14,500 and prepaid expenses of $72,500 which is amortized over the remaining service period. Additionally, pursuant to this consulting agreements, the Company will issue an additional 6,800 share of common stock to this consultant in April 2018. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair values of these shares were remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $8,591 related to these issuable shares and share-based reserve of $8,591 as of December 31, 2017.
On November 15, 2017, pursuant to one-year consulting agreement effective November 1, 2017, the Company issued an aggregate of 100,000 shares of common stock to two entities (50,000 shares each) for assets management development services rendered and to be rendered. These shares were valued at $435,000, or $4.35 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $72,500 and prepaid expense of $362,500 which is amortized over the remaining service period. Additionally, pursuant to these consulting agreements, the Company will issue an additional 24,052 share of common stock to these consultants (12,000 and 12,052 shares, respectively) during the sixth month of this agreement, provided that these agreements are not terminated prior to the issuance of such shares. The initial fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $30,386 related to these issuable shares and share-based reserve of $30,386 as of December 31, 2017.
On November 20, 2017, pursuant to a one-year consulting agreement effective January 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for government official relation services to be rendered, the Company agreed to pay this consultant $128,208 to be paid by the issuance of 32,052 shares as follows: 22,436 shares were issued in February 2018, 9,616 shares during the fourth month from the agreement date. The initial 22,436 shares were valued at $98,718, or $4.40 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $98,718 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 9,616 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
| F-29 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On December 6, 2017, pursuant to a two-year consulting agreement effective December 27, 2017 between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for space rental or leasing business development services to be rendered, the Company agreed to pay this consultant $120,000 annually to be paid by the issuance of an aggregate of 45,628 shares as follows: 11,407 shares were issued in February 2018. 11,407 shares during the sixth month from the agreement date, 11,407 shares during the twelfth month from the agreement date, and 11,407 shares during the eighteenth month from the agreement date. The initial 11,407 shares were valued at $60,571, or $5.31 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $60,571 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 34,221 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $2,150 related to these issuable shares and share-based reserve of $2,150 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first and second anniversary date of the date of this agreement, provided that the maximum number of shares issued for the Shortfall shall not exceed 4,563 Shares per year of services.
On December 15, 2017, pursuant to a two-year consulting agreement effective November 21, 2017 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for information technology services rendered and to be rendered, the Company agreed to pay this consultant $153,846 per year to be paid by the issuance of an aggregate of 71,560 shares as follows: 17,890 shares were issued in January 2018, 17,890 shares during the sixth month from the agreement date, 17,890 shares during the twelfth month from the agreement date, and 17,890 shares during the eighteenth month from the agreement date. The initial 17,890 shares were valued at $107,698, or $6.02 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $107,698 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue the remaining 53,670 shares of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $28,584 related to these issuable shares and share-based reserve of $28,584 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first and second anniversary date of the date of this agreement, provided that the maximum number of shares issued for the Shortfall shall not exceed 7,156 Shares per year of services.
On December 15, 2017, pursuant to a one-year consulting agreement effective May 16, 2018 between the Company and a consultant for business development services to be rendered, the Company agreed to pay this consultant $400,000 to be paid by the issuance of an aggregate of 100,000 shares as follows: 50,000 shares were issued in January 2018, 50,000 shares during the sixth month from the agreement date. The initial 50,000 shares were valued at $301,000, or $6.02 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $301,000 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 50,000 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall by causing the Company to issue shares at the average closing price of the 5 trading days immediately before shares are issued, provided that the maximum number of shares issued for the Shortfall of two lots shall not exceed 20,000 shares.
| F-30 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On December 18, 2017, pursuant to a one-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for user experience and user interface design and information technology development services to be rendered, the Company agreed to pay this consultant $157,692 to be paid by the issuance of 28,672 shares. The shares were issued in January 2018 and were valued at $173,466, or $6.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $173,466 over the service period. For fiscal 2017, the Company recorded stock-based professional fees of $6,528 related to these issuable shares and share-based reserve of $6,528 as of December 31, 2017.
On December 22, 2017, pursuant to a one-year consulting agreement effective December 21, 2017 between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for business development services to be rendered, the Company agreed to pay this consultant $961,538 to be paid by the issuance of an aggregate of 160,256 shares as follows: 80,128 shares were issued in January 2018, 80,128 shares during the sixth month from the agreement date. The initial 80,128 shares were valued at $521,633, or $6.51 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $521,633 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 80,128 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $32,426 related to these issuable shares and share-based reserve of $32,426 as of December 31, 2017.
Common stock sold for cash
The Company sold a total of 180,000 shares of common stock to an investor during June and July 2016 pursuant to stock purchase agreements. On June 6, 2016, the Company sold 57,500 shares of common stock at a purchase price of $4.00 per share, from which the Company received net proceeds of $230,000. On June 24, 2016, the Company sold 57,500 shares of common stock at a purchase price of $4.40 per share, from which it received net proceeds of $253,000. On July 18, 2016, the Company sold 65,000 shares of common stock at a purchase price of $4.16 per share, from which it received gross proceeds of $270,400. The Company did not engage a placement agent with respect to these sales.
In June 2017, pursuant to stock purchase agreements, the Company sold an aggregate of 290,000 shares of common stock to three investors at a purchase price of $3.00 per share for net cash proceeds a total of $860,000. The Company did not engage a placement agent with respect to these sales.
Common stock issued in connection with acquisition
On December 8, 2017 (the “Closing Date”), the Company completed the acquisition of 51% of the issued and outstanding capital stock of Inspirit. In connection with the acquisition, the Company issued 85,473 unregistered shares of its common stock valued at $507,710, based on the acquisition-date fair value of our common stock of $5.94 per share based on the quoted market price of the Company’s common stock on the Closing date (See Note 2).
2010 long-term incentive plan
In January 2010, the Company’s board of directors adopted, and in March 2010, the stockholders approved the Company’s 2010 long-term incentive plan, which initially covered 50,000 shares of common stock. In October 2013, the Company’s board of directors adopted, and in December 2013, the stockholders approved, an amendment to the 2010 long-term incentive plan to increase the number of shares of common stock subject to the plan, to 125,000 shares. The plan provides for the grant of incentive and non-qualified options and stock grants to employees, including officers, directors and consultants. The plan is to be administered by a committee of not less than three directors, each of whom is to be an independent director. In the absence of a committee, the plan is administered by the board of directors. Members of the committee are not eligible for stock options or stock grants pursuant to the plan unless such stock options or stock grant are granted by a majority of the Company’s independent directors other than the proposed grantee. As of December 31, 2016, the Company had issued a total of 124,998 shares of common stock under the plan and the Company terminated this 2010 long-term incentive plan in year 2017.
| F-31 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
2016 long-term incentive plan
In September 2016, the Company’s board of directors adopted, and in November 2016, the stockholders approved the Company’s 2016 long-term incentive plan, which covers 125,000 shares of common stock. The plan provides for the grant of incentive and non-qualified options and stock grants to employees, including officers, directors and consultants. The plan is to be administered by a committee of not less than three directors, each of whom is to be an independent director. In the absence of a committee, the plan is administered by the board of directors. Members of the committee are not eligible for stock options or stock grants pursuant to the plan unless such stock options or stock grant are granted by a majority of the Company’s independent directors other than the proposed grantee. As of December 31, 2017, the Company had issued a total of 125,000 shares of common stock under the plan.
NOTE 16 – STATUTORY RESERVE
The Company is required to make appropriations to statutory reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities’ registered capital or members’ equity. The profit arrived at must be set off against any accumulated losses sustained by the Company in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to shareholders. The appropriation is required until the statutory reserve reaches 50% of the registered capital. This statutory reserve is not distributable in the form of cash dividends. As of December 31, 2017 and 2016, the Company appropriated the required 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries. Accordingly, no additional statutory reserve for Dyeing and Heavy Industries are required for the year ended December 31, 2017. Green Power had loss since its establishment. No appropriation to statutory reserves for it was required as it incurred recurring net loss.
NOTE 17 – SEGMENT INFORMATION
During the year ended December 31, 2016, the Company operated in three reportable business segments - (1) the manufacture of textile dyeing and finishing equipment segment, (2) the manufacture of forged rolled rings and related components segment, and (3) the manufacture of petroleum and chemical equipment segment. The Company’s reportable segments were strategic business units that offered different products. They were managed separately based on the fundamental differences in their operations. During 2016 and part of 2017, all of the Company’s operations were conducted in the PRC. Because of significant declines in revenues from the forged rolled rings and related components segment and petroleum and chemical equipment segment, the Company discontinued these segments and sold the forged rolled rings and related components segment in the fourth quarter of 2016. Pursuant to ASC Topic 205-20, Presentation of Financial Statements-Discontinued Operations, the business of forged rolled rings and related components segment, and petroleum and chemical equipment segment are considered as discontinued operations because: (a) the operations and cash flows of these segments were eliminated from the Company’s operations; and (b) the Company would not have ability to influence the operation or financial policies of the forged rolled rings and related components segment subsequent to the sale. The results of operation of the forged rolled rings and related components and the petroleum and chemical equipment segments have been presented as discontinued operations for the years ended December 31, 2017 and 2016. In 2017, the Company entered to new lines of business 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. This reporting segment is referred to as the Sharing Economy Segment and is managed separately based on its fundamental differences in its operations and is based in Hong Kong.
| F-32 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Information with respect to these reportable business segments for the years ended December 31, 2017 and 2016 was as follows:
| For the Years Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Revenues: | ||||||||
| Dyeing and finishing equipment | $ | 13,463,557 | $ | 17,364,332 | ||||
| Sharing economy | 58,499 | - | ||||||
| 13,522,056 | 17,364,332 | |||||||
| Depreciation: | ||||||||
| Dyeing and finishing equipment | 3,943,694 | 3,829,345 | ||||||
| Sharing economy | 7,238 | - | ||||||
| 3,950,932 | 3,829,345 | |||||||
| Interest expense | ||||||||
| Dyeing and finishing equipment | 134,459 | 124,937 | ||||||
| Sharing economy | 3,364 | - | ||||||
| 137,823 | 124,937 | |||||||
| Net loss | ||||||||
| Dyeing and finishing equipment | (9,914,743 | ) | (286,106 | ) | ||||
| Sharing economy | (1,211,499 | ) | - | |||||
| Discontinued segments | (97,957 | ) | (10,285,932 | ) | ||||
| Other (a) | (1,702,151 | ) | (1,107,116 | ) | ||||
| $ | (12,926,350 | ) | $ | (11,679,154 | ) | |||
| December 31, 2017 | December 31, 2016 | |||||||
| Identifiable long-lived tangible assets at December 31, 2017 and 2016 by segment | ||||||||
| Dyeing and finishing equipment | $ | 27,805,180 | $ | 29,878,675 | ||||
| Sharing economy | 65,144 | - | ||||||
| Other (b) | 5,310,795 | - | ||||||
| $ | 33,181,119 | $ | 29,878,675 | |||||
| December 31, 2017 | December 31, 2016 | |||||||
| Identifiable long-lived tangible assets at December 31, 2017 and 2016 by geographical location | ||||||||
| China | $ | 33,115,975 | $ | 29,878,675 | ||||
| Hong Kong | 65,144 | - | ||||||
| United States | - | - | ||||||
| $ | 33,181,119 | $ | 29,878,675 | |||||
| (a) | The Company does not allocate any general and administrative expense of its U.S. activities to its reportable segments, because these activities are managed at a corporate level. |
| (b) | Represents amount of net tangible assets not in use and to be used by for new segment being developed. |
| F-33 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 18 – CONCENTRATIONS
Customers
One customer accounted for 14% of the Company’s revenues for the years ended December 31, 2017 and no customer accounted for 10% or more of the Company’s revenues for the years ended December 31, 2016.
No customer accounted for 10% of the Company’s total outstanding accounts receivable at December 31, 2017 and one customer accounted for 11% of the Company’s total outstanding accounts receivable at December 31, 2016.
Suppliers
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s inventories purchases for the years ended December 31, 2017 and 2016.
| Year Ended December 31, | ||||||||
| Supplier | 2017 | 2016 | ||||||
| A | 17 | % | 17 | % | ||||
| B | 12 | % | 14 | % | ||||
| C | 10 | % | 10 | % | ||||
| D | 10 | % | * | |||||
* Less than 10%.
One supplier accounted for 15% or more of the Company’s total outstanding accounts payable at December 31, 2017. No supplier accounted for 10% or more of the Company’s total outstanding accounts payable at December 31, 2016.
NOTE 19 – COMMITMENT AND CONTINGENCIES
Equity investment commitment
On December 26, 2016, Dyeing made an equity investment with one unrelated company in Shengxin, a newly-formed entity which plans to develop, construct and maintain photovoltaic power generation projects in China. Shengxin’s total registered capital is RMB 200 million (approximately $30.7 million). Dyeing has agreed to invest RMB 60,000,000 (approximately $8,640,000) for a 30% equity interest and had invested RMB 59,800,000 (approximately $9,189,000) as of December 31, 2017. Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $21.5 million) for a 70% interest. Mr. Xue contributed RMB 60,000,000 (approximately $9.2 million), and he advised Dyeing that he anticipates that he will fund the balance of his commitment during 2018. Since Mr. Xue did not make this payment by the end of 2017, Dyeing has the right to amend the contract, and both parties may adjust each sides’ equity interest to reflect the amount of capital each side has actually invested. As of the date of this report, the contract had not been amended. As of December 31, 2017, Shengxin had minimal operations. For the years ended December 31, 2017 and 2016, the Company recorded a loss on equity method investment of $130,498 and $0, respectively.
Litigation:
On or about November 14, 2017, a complaint was filed in the United States District Court for the Eastern District of New York, captioned Morris Ackerman v. Cleantech Solutions International, Inc. The complaint alleged that the Company’s proxy statement, which included a proposal to amend the Company’s long-term incentive plan to provide for the grant of incentive and non-qualified options and stock grants to employees and others, did not comply with the disclosure requirements for proxy statements. The parties reached a confidential settlement on or about December 20, 2017, and the plaintiff voluntarily dismissed the action with prejudice on or about January 2, 2018. In connection with this settlement, the Company paid $50,000.
On February 2, 2018, the law firm of Ellenoff Grossman & Schole LLP (“EGS”) filed a complaint against the Company along with a number of companies and individuals in an effort to recover their legal fees in connection with services provided to the other defendants. The lawsuit contends that the Company is the alter ego or successor in interest of those other defendants. The Company believe that the lawsuit is without merit and will defend it vigorously.
| F-34 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
From time to time the Company may become a party to litigation in the normal course of business. Management believes that there are no current legal matters that would have a material effect on the Company’s financial position or results of operations.
Transfer agreement
On August 4, 2017, the Company’s wholly-owned subsidiary, EC Power (Global) Technology Limited (“EC Power”), entered into a Transfer Agreement (the “Transfer Agreement”) with ECoin Global Limited (“ECoin”), to purchase ECoin Redemption Codes (the “Codes”) produced by ECoin for total future consideration of $20,000,000 (the “Transfer Consideration”). In accordance with the Agreement, EC Power will market the Codes, which contain a value that enables subscribers to upload certain number of items onto ECrent’s website for rental. The Codes have a validity period of four years, and will not expire until August 3, 2021 (the “Expiry Date”). The Transfer Consideration will be paid by EC Power to ECoin in installments, with each installment payable not later than thirty days after the end of December 31st in each calendar year.
Each installment will represent an amount equal to 50% of the net sale proceeds of the Codes sold during each calendar year. The aggregate of installments shall not exceed the Transfer Consideration. Any balance outstanding of the Transfer Consideration at the Expiry Date will be paid and discharged by the issuance and delivery to ECoin of common stock of the Company in accordance with the terms of the Agreement. The number of shares to be issued or delivered shall be an amount equal to (i) the balance due; divided by (ii) the VWAP of the shares for the period of twenty trading days immediately preceding the Expiry Date, provided always that in no circumstances shall shares be issued or delivered hereunder to the ECoin in excess of 19% of the issued and outstanding ordinary Shares of the Company. As of the date of this report, EC Power has not taken possession of any redemption codes and as of December 31, 2017, EC Power has not sold any redemption codes.
NOTE 20 – RESTRICTED NET ASSETS
Regulations in the PRC permit payments of dividends by the Company’s PRC subsidiary and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Subject to certain cumulative limit, a statutory reserve fund requires annual appropriations of at least 10% of after-tax profit, if any, of the relevant PRC VIEs and subsidiary. Heavy Industries and Dyeing had reached the cumulative limit as of December 31, 2017. The statutory reserve funds are not distributable as cash dividends. As a result of these PRC laws and regulations, the Company’s PRC VIEs and its PRC subsidiary are restricted in their abilities to transfer a portion of their net assets to the Company. Foreign exchange and other regulations in PRC may further restrict the Company’s PRC VIEs and its subsidiary from transferring funds to the Company in the form of loans and/or advances.
As of December 31, 2017 and 2016, substantially all of the Company’s net assets are attributable to the PRC VIEs and its subsidiary located in the PRC. Accordingly, the Company’s restricted net assets at December 31, 2017 and 2016 were approximately $50,873,000 and $57,324,000, respectively.
NOTE 21– SUBSEQUENT EVENTS
Shares issued or to be issued for services
On January 2, 2018, pursuant to a one-year consulting agreement between the Company and a consultant for business development services to be rendered, the Company agreed to pay this consultant $300,000 to be paid by the issuance of an aggregate of 75,000 shares as follows: 40,000 shares were issued in January 2018, 35,000 shares during the sixth month from the agreement date. The initial 40,000 shares were valued at $303,200, or $7.58 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $303,200 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 35,000 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
| F-35 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On January 5, 2018 pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for business development services to be rendered, the Company agreed to pay this consultant $276,000 per year to be paid by the issuance of an aggregate of 80,000 shares as follows: 20,000 shares were issued in February 2018, 20,000 shares during the sixth month from the agreement date, and 40,000 shares during the twelfth month from the agreement date. The initial 20,000 shares were valued at $181,800, or $9.09 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $181,800 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 60,000 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On January 17, 2018, pursuant to a one-year consulting agreement effective January 17, 2018 between the Company’s wholly-owned subsidiary, EC Technology & Innovations Limited and a consultant for blockchain technological development services to be rendered, the Company agreed to pay this consultant $360,000 to be paid by the issuance of 45,000 shares within 30 days from the date of agreement (or such longer period as shall be required to fulfil the relevant laws, regulations and rules in the United States of America for the issue of shares). The shares were valued at $312,750, or $6.95 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $312,750 over the service period.
On January 19, 2018, pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and three consultants for business development services to be rendered, the Company agreed to pay these consultant $384,618 per year to be paid by the issuance of an aggregate of 139,872 shares (46,624 shares each) as follows: 34,968 shares (11,656 shares each) were issued in February 2018. 34,968 shares (11,656 shares each) during the sixth month from the agreement date, 34,968 shares (11,656 shares each) during the 12th month from the agreement date, and 34,968 shares (11,656 shares each) during the 18th month from the agreement date. The initial 34,968 shares were valued at $225,544, or $6.45 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $225,544 over the service period. Additionally, pursuant to these consulting agreements, the Company will issue an additional 104,904 share of common stock to these consultants as outlined above, provided that these Agreement are not terminated prior to date of the issuance of these shares. The initial fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultants. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultants pursuant these agreement are removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultants for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first and second anniversary date of the date of this agreement, provided that the maximum number of shares issued for the Shortfall shall not exceed 13,989 Shares per year of services.
On January 24, 2018, pursuant to a one-year consulting agreement between the Company’s subsidiary, Inspirit Studio Limited and four individuals for business development services to be rendered, the Company agreed to pay these consultants $412,106 to be paid by the issuance of 70,206 shares (27,931 , 15,455 , 14,065 and 12,755 shares, respectively) The shares were issued in February 2018 and were valued at $353,838, or $5.04 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $353,838 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant these agreement are removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultants for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed 14,041 Shares (5,586, 3,091, 2,813 and 2,551 shares, respectively)
| F-36 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On January 24, 2018, pursuant to a one-year consulting agreement effective January 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for market education development services rendered and to be rendered, the Company agreed to pay this consultant $1,282 per month payable in arrear; and $128,205 to be paid by the issuance of 18,315 shares. The shares were issued in February 2018 and were valued at $92,308, or $5.04 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $92,308 over the service period.
On January 28, 2018, pursuant to a two-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned subsidiary, EC Rental Limited and an individual for business development services to be rendered, the Company agreed to pay this consultant $230,769 annually to be paid by the issuance of an aggregate of 92,308 shares as follows: 46,154 shares were issued in February 2018, 46,154 shares during the sixth month from the agreement date. The initial 46,154 shares were valued at $238,154, or $5.16 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $238,154 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 46,154 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On January 31, 2018, pursuant to a one-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned subsidiary, EC Advertising Limited and an individual for marketing and advertising services to be rendered, the Company agreed to pay this consultant $192,308 to be paid by the issuance of 38,617. The share were issued in March 2018 and were valued at $184,975, or $4.79 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $184,975 over the service period.
On January 31, 2018, pursuant to a one-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned subsidiary, EC Rental Limited and an individual for business development services to be rendered, the Company agreed to pay this consultant $128,205 to be paid by the issuance of an aggregate of 26,325 shares as follows: 17,550 shares were issued in February 2018, 8,775 shares during the third month from the agreement date. The initial 17,550 shares were valued at $84,065, or $4.79 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $84,065 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 8,775 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 5, 2018, pursuant to a two-year consulting agreement effective February 20, 2018 between the Company’s wholly-owned subsidiary, EC Advertising Limited and an individual for advertising services to be rendered, the Company agreed to pay this consultant $192,308 annually to be paid by the issuance of an aggregate of 88,500 shares as follows: 44,250 shares were issued in February 2018, 44,250 shares during the sixth month from the agreement date. The initial 44,250 shares were valued at $192,930, or $4.36 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $192,930 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 44,250 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 6, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned subsidiary, Sharing Economy Investment Limited and a consultant for legal support services to be rendered, the Company agreed to pay this consultant $230,769 to be paid by the issuance of an aggregate of 51,800 shares as follows: 35,000 shares were issued in March 2018, 16,800 shares during the third month from the agreement date. The initial 35,000 shares were valued at $153,650, or $4.39 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $153,650 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 16,800 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
| F-37 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On February 6, 2018, pursuant to a one-year consulting agreement effective April 16, 2018 between the Company’s subsidiary, Inspirit Studio Limited and an individual for business development services to be rendered, the Company agreed to pay this consultant $107,770 to be paid by the issuance of 24,164 shares. The shares were issued in March 2018 and were valued at $106,080, or $4.39 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $106,080 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first day, provided that the maximum number of shares issued for the Shortfall shall not exceed 4,833 Shares.
On February 9, 2018, pursuant to a one-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned subsidiary, Sharing Economy Investment Limited and an individual for executive program management services rendered and to be rendered, the Company agreed to pay this consultant $192,308 to be paid by the issuance of 45,143 shares. The shares were issued in March 2018 and were valued at $180,572, or $4.00 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $180,572 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed 9,029 Shares.
On February 14, 2018, pursuant to a one-year consulting agreement effective February 20, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for interior renovation consultancy services to be rendered, the Company agreed to pay this consultant $256,410 to be paid by the issuance of 63,156 shares. The shares were issued in February 2018 and were valued at $256,413, or $4.06 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $256,413 over the service period.
On February 15, 2018, pursuant to a two-year consulting agreement effective February 20, 2018 between the Company’s wholly-owned subsidiary, EC Advertising Limited and an individual for advertising consultancy services to be rendered, the Company agreed to pay this consultant $166,667 annually to be paid by the issuance of an aggregate of 83,334 shares as follows: 41,667 shares were issued in February 2018, 41,667 shares during the sixth month from the agreement date. The initial 41,667 shares were valued at $176,668, or $4.24 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $176,668 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 41,667 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 19, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned subsidiary, EC Creative Limited and an individual for consultancy services of HR and Administration to be rendered, the Company agreed to pay this consultant $64,103 to be paid by the issuance of an aggregate of 15,410 shares as follows: 10,787 shares were issued in March 2018, 4,623 shares during the fourth month from the agreement date. The initial 10,787 shares were valued at $45,305, or $4.20 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $45,305 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 4,623 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
| F-38 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On February 22, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for IT consultancy services to be rendered, the Company agreed to pay this consultant $82,051 to be paid by the issuance of an aggregate of 19,724 shares as follows: 13,807 shares were issued in March 2018, 5,917 shares during the fourth month from the agreement date. The initial 13,807 shares were valued at $57,851, or $4.19 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $57,851 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 5,917 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 28, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to be rendered, the Company agreed to pay this consultant $60,000 to be paid by the issuance of 14,635 shares. The shares were issued in March 2018 and were valued at $59,272, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $59,272 over the service period.
On February 28, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to be rendered, the Company agreed to pay this consultant $60,000 to be paid by the issuance of 15,000 shares. The shares were issued in March 2018 and were valued at $60,750, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $60,750 over the service period.
On February 28, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s subsidiary, Inspirit Studio Limited and an individual for marketing and advertising services to be rendered, the Company agreed to pay this consultant $347,436 to be paid by the issuance of 84,741 shares. The shares were issued in March 2018 and valued at $343,201, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $343,201 over the service period.
On February 28, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for consultancy and advisory services to be rendered, the Company agreed to pay this consultant $242,308 to be paid by the issuance of an aggregate of 59,100 shares as follows: 41,370 shares were issued in March 2018. 17,730 shares during the fourth month from the agreement date. The initial 41,370 shares were valued at $167,549, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $167,549 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 17,730 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 28, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for computer and cloud infrastructure support advisory services to be rendered, the Company agreed to pay this consultant $138,462 to be paid by the issuance of an aggregate of 33,772 shares. The shares were valued at $136,777, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $136,777 over the service period.
| F-39 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On March 1, 2018, pursuant to a one-year consulting agreement effective July 1, 2018 between the Company’s wholly owned subsidiary, Sharing Film International Limited and an individual for movie and video development and production management services to be rendered, the Company agreed to pay this consultant $55,846 to be paid by the issuance of 13,722 shares. The shares were issued in March 2018 and were valued at $55,711, or $4.06 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $55,711 over the service period.
On March 5, 2018, pursuant to a four-month consulting agreement effective March 1, 2018 between the Company’s subsidiary, Inspirit Studio Limited and an individual for international business development services rendered and to be rendered, the Company agreed to pay this consultant $17,310 to be paid by the issuance of 4,132 shares. The shares were issued in March 2018 and were valued at $18,759, or $4.54 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $18,759 over the service period.
On March 5, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to be rendered, the Company agreed to pay this consultant $60,000 to be paid by the issuance of 14,320 shares. The shares were issued in March 2018 and were valued at $65,013, or $4.54 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $65,013 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed 2,745 Shares.
On March 6, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to be rendered, the Company agreed to pay this consultant $60,000 to be paid by the issuance of 14,319 shares. The shares were issued in March 2018 and were valued at $68,445, or $4.78 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $68,445 over the service period.
On April 4, 2018, pursuant to a two-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for business strategy and management consultancy services to be rendered, the Company agreed to pay an individual $372,000 to be paid in cash of $75,000 for the service rendered in first six months and paid by the issuance of an aggregate of 90,826 shares for the service from the seventh month as follows: 45,413 shares within 30 days from the agreement date, 45,413 shares during the seventh month from the agreement date. The initial 45,413 shares were valued at $146,230, or $3.22 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $146,230 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 45,413 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first or the second anniversary date of the agreement date, provided that the maximum number of shares issued for the Shortfall shall not exceed 18,166 Shares.
| F-40 |
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
On April 4, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, Sharing Economy Investment Limited and an individual for business development and operation services to be rendered, the Company agreed to pay an individual $128,205 to be paid by the issuance of an aggregate of 37,270 shares as follows: 26,089 shares within 30 days from the agreement date, 11,181 shares during the fourth month from the agreement date. The initial 26,089 shares were valued at $84,007, or $3.22 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $84,007 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 11,181 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
Shares issued for bonus to directors and employees
In January 2018, the Company has issued 249,870 shares as bonus to certain directors and employees for performance targets to be achieved for the year in 2018.
Common stock sold for cash
In January 2018, the Note was converted into 200,100 shares of common stock (see Note 11).
In March 2018, pursuant to a stock purchase agreement, the Company sold 69,676 shares of common stock to an investor at a purchase price of $3.68 per share for net cash proceeds a total of $256,410. The Company did not engage a placement agent with respect to these sales.
Acquisition
On January 19, 2018 (the “Closing Date”), the Company completed the acquisition of 60% of the issued and outstanding capital stock of 3D Discovery Co. Limited (“3D Discovery”), a company incorporation in Hong Kong, from its shareholders pursuant to the terms and conditions of a Sale and Purchase Agreement entered into among the Company and the 3D Discovery Stockholders on the Closing Date (the “Acquisition Agreement”). 3D Discovery is a digital marketing services provider which provides various solution such as 3D scanning and modeling, website and mobile app development, video production, and graphic design to its clients. Apart from its existing business, 3D Discovery plans to develop a mobile app which allows users to create an interactive virtual tour of a physical space by using a mobile phone camera. In connection with the acquisition, the Company issued 68,610 unregistered shares of its common stock valued at $442,535, based on the acquisition-date fair value of our common stock of $6.45 per share based on the quoted market price of the Company’s common stock on the Closing date.
On January 30, 2018 (the “Closing Date”), the Company completed the acquisition of 80% of the issued and outstanding capital stock of AnyWorkspace Limited (“AnyWorkspace”), a company incorporation in Hong Kong, from its shareholders pursuant to the terms and conditions of a Sale and Purchase Agreement entered into among the Company and the AnyWorkspace Stockholders on the Closing Date (the “Acquisition Agreement”). AnyWorkspace develops an online, real-time marketplace that connects workspace providers with clients who need temporary office and meeting spaces. In connection with the acquisition, the Company issued 106,464 unregistered shares of its common stock valued at $534,449, based on the acquisition-date fair value of our common stock of $5.02 per share based on the quoted market price of the Company’s common stock on the Closing date.
| F-41 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management, including Jianhua Wu, our chief executive officer, and Wanfen Xu, our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017.
Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based on that evaluation, Mr. Wu and Ms. Xu concluded that, because our internal controls over financial reporting are not effective, as described below, our disclosure controls and procedures were not effective as of December 31, 2017.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2017, management identified significant deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff and chief financial officer, (ii) our internal audit functions and (iii) a lack of segregation of duties within accounting functions. Although management believes that these deficiencies do not amount to a material weakness, our internal controls over financial reporting were not effective at December 31, 2017.
We currently have no plans to expand our company-wide Enterprise Resource Planning (“ERP”) system during 2018 and have not implemented further ERP modules to manage inventory and to expand existing ERP systems to other areas of our factory. Due to our working capital requirements and the lack of local professionals with the necessary experience in implementing the ERP system, we postponed the hiring of professional staff to implement ERP system. We have found that engaging professionals who are based outside of Wuxi is very costly and we have not been able to find qualified personnel in the Wuxi area.
Due to our size and nature, particularly in view of the reduced scope of our operations, segregation of all conflicting duties may not always be possible and may not be economically feasible, and we continue to rely on third parties for a significant portion of the preparation of our financial statements. As a result, we have not been able to take steps to improve our internal controls over financial reporting during the year ended December 31, 2017. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.
A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.
In light of these material weaknesses, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the year ended December 31, 2017 included in this Annual Report on Form 10-K were fairly stated in accordance with the U.S. GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the year ended December 31, 2017 are fairly stated, in all material respects, in accordance with the U.S. GAAP.
Auditor Attestation
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Controls over Financial Reporting
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 45 |
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCES
Our current directors and executive officers are:
| Name | Age | Position | ||
| Jianhua Wu | 62 | Chief executive officer, chairman and director | ||
| Wanfen Xu | 37 | Chief financial officer | ||
| Ping Kee Lau | 68 | Director | ||
| Cho Fu Li 1,2,3 | 40 | Director | ||
| Xue Leng 1,2,3 | 38 | Director | ||
| Ying Ying Wong 1,2,3 | 37 | Director |
| 1 | Member of the audit committee. |
| 2 | Member of the compensation committee. |
| 3 | Member of the corporate governance/ nominating committee. |
Jianhua Wu has been our chief executive officer, chairman and a director since the completion of the reverse acquisition in November 2007. Mr. Wu founded our predecessor companies, Wuxi Huayang Dyeing Machinery Co., Ltd. and Wuxi Huayang Electrical Power Equipment Co., Ltd., in 1995 and 2004, respectively, and was executive director and general manager of these companies prior to becoming our chief executive officer. Mr. Wu was nominated as a director because of his position as our chief executive officer. Mr. Wu is a certified mechanical engineer.
Wanfen Xu has been our chief financial officer since March 1, 2016. Ms. Xu previously served as our chief financial officer from March 14, 2012 through December 12, 2012. From December 2012 until February 2016, Ms. Xu served as the financial controller of the Huayang Companies. Ms. Xu also served as the financial controller of Huayang Companies from 2009 to 2011.
Ping Kee Lau has been our Executive Director since March 2017, has been a director of Golden Creation Enterprise Limited since late 2014 and a director of Y.R.P. Investment Limited since 2013, both of which are investment entities. For more than two years prior thereto, Mr. Lau was a consultant to Y.R.P. Investment Limited. Mr. Lau received a B.A. in history from Chu Hai College in Hong Kong and his M.A. in philosophy for Ecole Pratique des Hautes Edudes in Paris. Mr. Lau’s experience with investment entities is important to us. We nominated Mr. Lau as a director because we believe that his experience as a director and in investment is important for the Company as we continue to grow and develop our business.
Cho Fu Li has over ten years of experience in auditing, accounting and banking, and is a member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants. We nominated Mr. Li as a director because we believe that his accounting and finance experience is important to improve our financial accounting controls.
Xue Leng has years of experience in sales and marketing as well as general management in China. He was a director or a supervisor of various trading companies in China. Previously, he served as general manager of Hebei Tangshan Chengxin Steel Pipe Co., Ltd. and as sales manager of Hebei Global Steel Pipe Co., Ltd. He graduated from Hebei Polytechnic University and also studied futures and securities investment at China Agricultural University. We nominated Mr. Leng as a director because we believe that his sales and management experiences in China is important for the future development of the Company in the market.
Ying Ying Wong is a director of World Sharing Economy Coalition which promotes global sharing economic development. Ms. Wong has over ten years of experience in banking and financial services with China Construction Bank (Asia) Corporation Limited and Standard Chartered Bank in Hong Kong. We nominated Ms. Wong as a director because we believe that her banking and finance experience is important for the future development of the Company.
Our directors are elected for a term of one (1) year and until their successors are elected and qualified.
Committees
Our business, property and affairs are managed by or under the direction of the board of directors. Members of the board are kept informed of our business through discussion with the chief executive and financial officers and other officers, by reviewing materials provided to them and by participating at meetings of the board and its committees.
| 46 |
Our board of directors has three committees - the audit committee, the compensation committee and the corporate governance/nominating committee. The audit committee is comprised of Mr. Li, Mr. Leng and Ms. Wong, with Mr. Li serving as Chairman. The compensation committee is comprised of Mr. Leng, Mr. Li and Ms. Wong, with Mr. Leng serving as Chairman. The corporate governance/nominating committee is comprised of Ms. Wong, Mr. Leng and Mr. Li, with Ms. Wong serving as Chairman. Our Plan is administered by the compensation committee.
Our audit committee is involved in discussions with our independent auditor with respect to the scope and results of our year-end audit, our quarterly results of operations, our internal accounting controls and the professional services furnished by the independent auditor. Our board of directors has adopted a written charter for the audit committee which the audit committee reviews and reassesses for adequacy on an annual basis.
The compensation committee oversees the compensation of our chief executive officer and our other executive officers and reviews our overall compensation policies for employees generally. If so authorized by the board of directors, the committee may also serve as the granting and administrative committee under any option or other equity-based compensation plans which we may adopt. The compensation committee does not delegate its authority to fix compensation; however, as to officers who report to the chief executive officer, the compensation committee consults with the chief executive officer, who may make recommendations to the compensation committee. Any recommendations by the chief executive officer are accompanied by an analysis of the basis for the recommendations. The committee will also discuss compensation policies for employees who are not officers with the chief executive officer and other responsible officers. The compensation committee has the responsibilities and authority relating to the retention, compensation, oversight and funding of compensation consultants, legal counsel and other compensation advisers, as well as the requirement to consider six independence factors before selecting, or receiving advice from, such advisers.
The corporate governance/nominating committee is involved in evaluating the desirability of and recommending to the board any changes in the size and composition of the board, evaluation of and successor planning for the chief executive officer and other executive officers. The qualifications of any candidate for director will be subject to the same extensive general and specific criteria applicable to director candidates generally.
The board and its committees held the following number of meetings during 2017:
| Board of directors | 4 | |||
| Audit committee | 4 | |||
| Compensation committee | 0 | |||
| Nomination committee | 0 |
The meetings include meetings that were held by means of a conference telephone call, but do not include actions taken by unanimous written consent.
Each director attended at least 75% of the total number of meetings of the board and those committees on which he served during the year.
Our non-management directors had no meetings during 2017.
Compensation Committee Interlocks and Insider Participation
Aside from his service as director, no member of our compensation committee had any relationship with us as of December 31, 2016.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934, requires our directors, executive officers and persons who own more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other of our equity securities. No officer or director was delinquent in filing reports pursuant to Section 16(a).
| 47 |
ITEM 11. EXECUTIVE COMPENSATION.
The following summary compensation table indicates the cash and non-cash compensation earned during the years ended December 31, 2017 and 2016 by each person who served as chief executive officer and chief financial officer during the year ended December 31, 2017 and 2016. No other executive officer received compensation equal or exceeding $100,000.
Summary Annual Compensation Table
| Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
| Jianhua Wu, chief executive officer (1) | 2017 2016 | 36,999 36,126 | 0 0 | 0 132,000 | 0 0 | 36,999 168,126 | ||||||||||||||||||
| Wanfen Xu, chief financial officer (2) | 2017 2016 | 8,584 7,616 | 0 0 | 0 0 | 0 0 | 8,584 7,616 | ||||||||||||||||||
| Parkson Yip, | 2017 | 87,500 | 19,250 | 0 | 2,606 | 109,356 | ||||||||||||||||||
| chief operating officer (3) | ||||||||||||||||||||||||
| (1) | Mr. Wu’s 2016 compensation consisted of cash salary of $36,126 and 50,000 shares of common stock valued at $132,000. |
| (2) | Ms. Xu has been our chief financial officer since March 1, 2016. |
| (3) | Mr. Yip has been our chief operating officer since June 3, 2017 and resigned as chief operating officer on April 1, 2018. |
Employment Agreement
On June 19, 2017, the Company entered into an employment agreement with Parkson Yip to serve as our chief operating officer. Pursuant to the employment agreement, Mr. Yip would receive an annual salary of $150,000 and received a signing bonus of $19,250. On April 1, 2018, Mr. Yip resigned as the chief operating officer and redesignated as vice president of strategic business development of the Group under a consultant agreement.
Compensation of Directors
We do not have any agreements or formal plan for compensating our current directors for their service in their capacity as directors, although our board may, in the future, award stock options to purchase shares of common stock to our current directors.
The following table provides information concerning the compensation of each member of our board of directors whose compensation is not included in the Summary Compensation Table for his or her services as a director and committee member for 2017. The value attributable to any stock grants is computed in accordance with ASC Topic 718.
| Name | Fees earned or paid in cash ($) | Stock awards ($) | Total ($) | |||||||||
| Chengqing Tang (1) | 0 | 0 | 0 | |||||||||
| Xi Liu (5) | 0 | 0 | 0 | |||||||||
| Furen Chen (5) | 0 | 0 | 0 | |||||||||
| Baowen Wang (2) | 0 | 0 | 0 | |||||||||
| Ping Kee Lau (3) | 21,663 | 0 | 21,663 | |||||||||
| Cho Fu Li (4) | 2,672 | 0 | 2,672 | |||||||||
| Xue Leng (4) | 1,097 | 0 | 1,097 | |||||||||
| Ying Ying Wong (4) | 1,266 | 0 | 1,266 | |||||||||
| (1) | Mr. Tang was our director from March 22, 2016 to December 14, 2017. |
| (2) | Mr. Baowen Wang resigned as a director on March 20, 2017. |
| (3) | Been a director since March 20, 2017 |
| (4) | Been a director since December 14, 2017. |
| (5) | Resigned as director on December 14, 2017. |
| 48 |
Long-Term Incentive Plans
In September 2016, the board of directors adopted, and in November 2016, the stockholders approved the 2016 long-term incentive plan, covering 125,000 shares of common stock. The 2016 plan provides for the grant of incentive and non-qualified options and stock grants to employees, including officers, directors and consultants. The 2016 plan is to be administered by a committee of not less than three directors, each of whom is to be an independent director. In the absence of a committee, the plan is administered by the board of directors. The board has granted the compensation committee the authority to administer the 2016 plan. Members of the committee are not eligible for stock options or stock grants pursuant to the 2016 plan unless such stock options or stock grant are granted by a majority of our independent directors other than the proposed grantee. As of December 31, 2017, we had issued a total of 125,000 shares of common stock pursuant to this plan.
The following table sets forth information as options outstanding on December 31, 2017.
| OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END | ||||||||||||||||||||||||||||||||
| OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||||||
| Name
(a) |
Number of Securities Underlying Unexercised options (#) (b) |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (c) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) |
Option Exercise Price ($) (e) |
Option
Expiration Date ($) (f) |
Number
of Shares or Units of Stock that have not Vested (#) (g) |
Market
Value of Shares or Units of Stock that Have not Vested ($) (h) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have not Vested (#) (i) |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or other Rights that have not Vested ($) (j) |
|||||||||||||||||||||||
| Jianhua Wu | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table provides information as to shares of common stock beneficially owned as of the filing date of this report, by:
| ● | each current director; | |
| ● | each current officer named in the summary compensation table; | |
| ● | each person owning of record or known by us, based on information provided to us by the persons named below, to own beneficially at least 5% of our common stock; and | |
| ● | all current directors and executive officers as a group. |
| 49 |
| Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | % of Class | ||||||
| Jianhua Wu (3) | 50,000 | 1.1 | % | |||||
| Parkson Yip | 81,000 | 1.98 | % | |||||
| Wanfen Xu (3) | 0 | 0.0 | % | |||||
| Lihua Tang (3) | 0 | 0.0 | % | |||||
| Ping Kee Lau | 0 | 0.0 | % | |||||
| Cho Fu Li | 6,500 | 0.21 | % | |||||
| Xue Leng | 0 | 0.0 | % | |||||
| Ying Ying Wong | 33,000 | 0.7 | % | |||||
| All current officers and directors as a group | 170,500 | 3.8 | % | |||||
| YSK 1860 Co., Limited (1)(2) | 416,249 | 9.4 | % | |||||
| Total | 586,749 | 13.2 | % | |||||
| * | less than 1%. |
(1) Ms. Deborah Wai Ming Yuen owns 100% of the issued and outstanding ordinary shares of YSK 1860 Co., Limited.
(2) Address is Villa Cornwall, 85 Castle Peak Road, Tuen Mun, N.T. Hong Kong.
(3) Address is No. 9 Yanyu Middle Road, Qianzhou Village, Huishan District, Wuxi City, Jiangsu Province, P.R.C.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
Director Independence
We believe that three (3) of our directors, Mr. Li, Mr. Leng and Ms. Wong, are independent directors, pursuant to the Nasdaq definition of independence. Our Board has determined that Mr. Li is an audit committee financial expert. Mr. Wu and Mr. Lau are not independent directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth the fees billed by our principal independent accountants, RBSM LLP, for each of our last two fiscal years for the categories of services indicated.
| Years
Ended December 31, |
||||||||
| Category | 2017 | 2016 | ||||||
| Audit Fees | $ | 210,760 | $ | 118,500 | ||||
| Audit Related Fees | $ | 0 | $ | 5,000 | ||||
| Tax Fees | $ | 23,500 | $ | 6,500 | ||||
| All Other Fees | $ | 0 | $ | 0 | ||||
Audit fees. Consists of fees billed for the audit of our annual financial statements, review of our Form 10-K, review of our interim financial statements included in our Form 10-Q and services that are normally provided by the accountant in connection with year-end statutory and regulatory filings or engagements.
Audit-related fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees”, review of our Forms 8-K filings and services that are normally provided by the accountant in connection with non-year-end statutory and regulatory filings or engagements.
Tax fees. Consists of professional services rendered by a company aligned with our principal accountant for tax compliance, tax advice and tax planning.
Other fees. The services provided by our accountants within this category consisted of advice and other services relating to SEC matters, registration statement review, accounting issues and client conferences.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
The audit committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. The independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The audit committee may also pre-approve particular services on a case-by-case basis. All services have been pre-approved by the audit committee.
| 50 |
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| (1) | Incorporated by reference to the Form 10-K filed by the Company on April 11, 2013. |
| (2) | Incorporated by reference to the Form 8-K filed by the Company on August 9, 2012. |
| (3) | Incorporated by reference to the Company’s definitive proxy statement for the 2013 annual meeting of shareholders, which was filed by the Company on October 30, 2013. |
| (4) | Incorporated by reference to the Form 10-K filed by the Company on March 31, 2009. |
| (6) | Incorporated by reference to the Company’s definitive proxy statement for the 2016 annual meeting of shareholders, which was filed by the Company on November 16, 2016. |
| (7) | Incorporated by reference to the Form 8-K filed by the Company on March 1, 2017. |
| (8) | Incorporated by reference to the Form 8-K filed by the Company on April 6, 2017. |
| (9) | Incorporated by reference to the Form 8-K filed by the Company on January 6, 2017. |
| * | filed herewith. |
| + | Management contract or compensatory plan or arrangement. |
ITEM 16. 10-K SUMMARY
As permitted, the registrant has elected not to supply a summary of information required by Form 10-K.
| 51 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: April 11, 2018 | SHARING ECONOMY INTERNATIONAL INC. | |
| By: | /s/ Jianhua Wu | |
Jianhua Wu, Chief Executive Officer | ||
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated. Each person whose signature appears below hereby authorizes Jianhua Wu as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to this report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission.
| Signature | Title | Date | ||
| /s/ Jianhua Wu | Chief Executive Officer and Director | April 11, 2018 | ||
| Jianhua Wu | (Principal Executive Officer) | |||
| /s/ Wanfen Xu | Chief Financial Officer | April 11, 2018 | ||
| Wanfen Xu | (Principal Financial and Accounting Officer) | |||
| /s/ Ping Kee Lau | Director | April 11, 2018 | ||
| Ping Kee Lau | ||||
| /s/ Cho Fu Li | Director | April 11, 2018 | ||
| Cho Fu Li | ||||
| /s/ Xue Leng | Director | April 11, 2018 | ||
| Xue Leng | ||||
| /s/ Ying Ying Wong | Director | April 11, 2018 | ||
| Ying Ying Wong |
52
Exhibit 21
LIST OF SUBSIDIARIES
| Name | Ownership % | |||
| Fulland, Limited, a Cayman Islands limited liability company | 100 | % | ||
| Green Power Environment Technology (Shanghai) Co., Ltd., a wholly foreign-owned enterprise organized under the laws of the People’s Republic of China and wholly-owned by Fulland Limited | 100 | % | ||
| Vantage Ultimate Limited (“Vantage”), a company incorporated under the laws of British Virgin Islands | 100 | % | ||
| 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. | 100 | % | ||
| EC Advertising Limited, a company incorporated under the laws of Hong Kong on March 17, 2017 and is a wholly-owned by Sharing Economy. | 100 | % | ||
| 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. | 100 | % | ||
| EC Assets Management Limited, a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage. | 100 | % | ||
| 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. | 100 | % | ||
| 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. | 100 | % | ||
| 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. | 100 | % | ||
| ECPower (HK) Company Limited, a company incorporated under the laws of Hong Kong on June 23, 2017 and is wholly-owned by EC Power. | 100 | % | ||
| EC Manpower Limited, a company incorporated under the laws of Hong Kong on July 3, 2017 and is wholly-owned by Vantage. | 100 | % | ||
| 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. | 100 | % | ||
| Inspirit Studio Limited, 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. | 51 | % | ||
| 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. | 100 | % | ||
| 3D Discovery Co. Limited, a company incorporated under the laws of Hong Kong on February 24, 2015, and 60% of its shareholdings was acquired by EC Technology on January 19, 2018 | 60 | % | ||
| 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. | 100 | % | ||
| Anyworkspace Limited, 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. | 80 | % | ||
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference to the Registration Statement No. 333-215364 on Form S-8 and No. 333-188142 on amendment number 1 to Form S-3 of Sharing Economy International Inc. and subsidiaries (formerly Cleantech Solutions International, Inc.) our report dated April 11, 2018, relating to the consolidated financial statements of Sharing Economy International Inc. and subsidiaries (the “Company”), appearing in the Annual Report on Form 10-K of Sharing Economy International Inc. and subsidiaries for the year ended December 31, 2017, and to the reference to us under the heading “Experts” in the Prospectus, which is part of this Registration Statement. Our report includes an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern.
/s/ RBSM LLP
New York, New York
April 11, 2018
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Jianhua Wu, certify that:
1. I have reviewed this annual report on Form 10-K of Sharing Economy International Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Dated: April 11, 2018 | By: | /s/ Jianhua Wu |
Jianhua Wu Chief
Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Wanfen Xu, certify that:
1. I have reviewed this annual report on Form 10-K of Sharing Economy International Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Dated: April 11, 2018 | By: | /s/ Wanfen Xu |
Wanfen Xu Chief
Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Sharing Economy International Inc. (the “Company”) on Form 10-K for the period ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jianhua Wu, chief executive officer of the Company, and Wanfen Xu, chief financial officer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: April 11, 2018 | By: | /s/ Jianhua Wu |
Jianhua Wu Chief Executive Officer | ||
| (Principal Executive Officer) |
| Date: April 11, 2018 | By: | /s/ Wanfen Xu |
Wanfen Xu Chief Financial Officer (Principal Accounting Officer) |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Document and Entity Information - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2017 |
Apr. 10, 2018 |
Jun. 30, 2017 |
|
| Document and Entity Information [Abstract] | |||
| Entity Registrant Name | SHARING ECONOMY INTERNATIONAL INC. | ||
| Entity Central Index Key | 0000819926 | ||
| Trading Symbol | SEII | ||
| Amendment Flag | false | ||
| Current Fiscal Year End Date | --12-31 | ||
| Document Type | 10-K | ||
| Document Period End Date | Dec. 31, 2017 | ||
| Document Fiscal Year Focus | 2017 | ||
| Document Fiscal Period Focus | FY | ||
| Entity Filer Category | Smaller Reporting Company | ||
| Entity Well-known Seasoned Issuer | No | ||
| Entity Voluntary Filers | No | ||
| Entity Current Reporting Status | Yes | ||
| Entity Public Float | $ 1,394,396 | ||
| Entity Common Stock, Shares Outstanding | 4,445,709 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued | ||
| Preferred stock, shares outstanding | ||
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 12,500,000 | 12,500,000 |
| Common stock, shares issued | 2,527,720 | 1,415,441 |
| Common stock, shares outstanding | 2,527,720 | 1,415,441 |
Description of Business and Organization |
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| Description of Business and Organization [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DESCRIPTION OF BUSINESS AND ORGANIZATION | 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. However, given the decrease in the Chinese government subsidies for utility scale solar projects in 2017 as well as the high cost of solar components, Shengxin has not been able to locate any project. At December 31, 2017, Shengxin has not yet commenced operations.
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. The Company referred to this segment of its business as the forged rolled rings and related components segment. On December 30, 2016, Fulland sold the stock of Fulland Wind and accordingly, the forged rolled rings and related components business is reflected as a discontinued operation for all periods presented (See Note 3).
Beginning in February 2015, Heavy Industries began to produce equipment for the petroleum and chemical industries. The Company referred to this segment of its business as the petroleum and chemical equipment segment. Because of a significant decline in revenues from this segment, the Company determined it would not continue to operate in this segment and accordingly, the petroleum and chemical equipment segment is reflected as a discontinued operations for all periods presented (See Note 3). As a result of the discontinuation of the forged rolled rings and the petroleum and chemical equipment business, the Company’s business primarily consists of the dyeing and finishing equipment business as its primary continuing operations since December 31, 2016.
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, recently, the Company formed or acquired the following subsidiaries:
Reverse split; change in authorized common stock
On February 24, 2017, the Company filed a certificate of change which effected a one-for-four reverse split, which became effective in the marketplace on March 20, 2017, and a reduction in the Company’s authorized common stock from 50,000,000 shares to 12,500,000 shares. These consolidated financial statements have been retroactively restated to reflect this reverse split.
Going concern
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 loss from continuing operations of $12,828,393 for the year ended December 31, 2017. The net cash used in operations were $409,791 for the year ended December 31, 2017. Additionally, during the year ended December 31, 2017, revenues, substantially all of which are derived from the manufacture and sales of textile dyeing and finishing equipment, decreased by 22.1% as compared to the year ended December 31, 2016. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that its capital resources are not currently adequate to continue operating and maintaining its business strategy for twelve months from the date of this report.
The Company may seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from bank loans, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and or classification of recorded asset amounts and or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Basis of presentation
The Company is on a fiscal year ending December 31; as such the year ended December 31, 2017 is referred to as “fiscal 2017”, and the year ended December 31, 2016 is referred to as “fiscal 2016”.
Principles of Consolidation
The Company’s consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Fulland, Green Power, Fulland Wind through the date of disposition, and its new subsidiaries discussed above, and the financial statements of the Company’s variable interest entities Huayang Companies Dyeing, which conducts the Company’s continuing operations, and Heavy Industries, which operated discontinued operations. All significant intercompany accounts and transactions have been eliminated in consolidation.
On December 30, 2016, the Company sold and transferred its 100% interest in Fulland Wind to an unrelated party and discontinued the Company’s forged rolled rings and related components business. Additionally, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant declines in revenues and the loss of its major customer. As such, forged rolled rings and related components segment’s and petroleum and chemical segment’s assets and liabilities have been classified on the consolidated balance sheets as assets and liabilities of discontinued operations as of December 31, 2017 and 2016. The operating results of the forged rolled rings and related components and petroleum and chemical segments have been classified as discontinued operations in our consolidated statements of operations for all years presented. Unless otherwise indicated, all disclosures and amounts in the notes to the consolidated financial statements are related to the Company’s continuing operations.
Pursuant to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities (“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s wholly foreign-owned enterprise in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On October 12, 2007, the Company entered into the following contractual arrangements with each of Dyeing and Heavy Industries:
Consulting Services Agreement. Pursuant to the exclusive consulting services agreements between Green Power and the Huayang Companies, Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of dyeing and finishing machines, electrical equipment and related components (the “Services”). Under this agreement, Green Power owns the intellectual property rights developed or discovered through research and development, in the course of providing the Services, or derived from the provision of the Services. The Huayang Companies shall pay a quarterly consulting service fees in Renminbi (“RMB”) to Fulland that is equal to all of the Huayang Companies’ profits for such quarter. To date, no such payments have been made and all profits were reinvested in the Company’s operations.
Operating Agreement. Pursuant to the operating agreement among Green Power, the Huayang Companies and all shareholders of the Huayang Companies, Green Power provides guidance and instructions on the Huayang Companies’ daily operations, financial management and employment issues. The Huayang Companies’ shareholders must designate the candidates recommended by Green Power as their representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in return, agree to pledge their accounts receivable and all of their assets to Green Power. Moreover, each of the Huayang Companies agrees that, without the prior consent of Green Power, it will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of the this agreement, with the extended term to be mutually agreed upon by the parties.
Equity Pledge Agreement. Under the equity pledge agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee the Huayang Companies’ performance of their respective obligations under the consulting services agreement. If the Huayang Companies or the Huayang Companies’ shareholders breach their respective contractual obligations, Green Power, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies’ shareholders also agreed that, upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Huayang Companies’ shareholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Huayang Companies’ shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.
Option Agreement. Under the option agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the parties.
Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, the accounts of the Huayang Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies’ sales are included in the Company’s total sales, its income from operations is consolidated with the Company’s, and the Company’s net income includes all of the Huayang Companies net income. The Company does not record non-controlling interest on these VIE’s and, accordingly, did not subtract any net income in calculating the net income of the VIEs that is attributable to the Company. Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires consolidation of the Company’s and the Huayang Companies’ financial statements.
There are substantial uncertainties regarding the interpretation, application and enforcement of PRC laws and regulations, including but not limited to the laws and regulations governing the Company’s business or the enforcement and performance of its contractual arrangements. These contractual arrangements may not be as effective in providing the Company with control over the VIEs as direct ownership. Due to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs, which exposes it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example, their interests as shareholders of the VIEs and the interests of the Company may conflict and the Company may fail to resolve such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing were to happen, the Company may have to rely on legal or arbitral proceedings to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings may cost substantial financial and other resources, and result in a disruption of its business, and the Company cannot assure that the outcome will be in its favor. In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company is unable to enforce any of these agreements, the Company would not be able to exert effective control over the affected VIEs and consequently, the results of operations, assets and liabilities of the affected VIEs and their subsidiaries would not be included in the Company's consolidated financial statements. If such were the case, the Company's cash flows, financial position and operating performance would be materially adversely affected.
The Company's agreements with respect to its consolidated VIEs are approved and in place. The Company's management believes that such agreements are enforceable, and considers it a remote possibility that PRC regulatory authorities with jurisdiction over the Company's operations and contractual relationships would find the agreements to be unenforceable under existing laws.
The carrying amount of the VIE’s assets and liabilities are included in the accompanying consolidated financial statements of the Company and are summarized as follows:
* Intercompany payables are eliminated in consolidation.
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, 2017 and 2016 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, 2017 and 2016, cash balances held in PRC and Hong Kong banks of $952,663 and $1,480,941, respectively, are uninsured.
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, 2017. The following table presents information about equipment held for sale – discontinued operations measured at fair value on a nonrecurring basis at December 31, 2016.
The Company conducted an impairment assessment on the equipment held for sale of discontinued operations based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of the equipment held for sale of discontinued operations as of December 31, 2016. Upon completion of its 2016 impairment analysis, the Company determined that the carrying value exceeded the fair market value on the equipment held for sale of discontinued operations. Accordingly, the Company recorded an impairment loss of $1,660,305 at December 31, 2016, which has been included in loss from discontinued operations, net of income taxes in the accompanying statements of operations. The Company did not have any equipment held for sale of discontinued operations at December 31, 2017.
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, deferred tax assets, receivable from sale of subsidiary, prepaid expenses and other, short-term bank loans, bank acceptance notes payable, note payable, accounts payable, accrued liabilities, advances from customers, amount due to a related party, VAT and service taxes payable 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.
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.
At December 31, 2017 and 2016, the Company’s cash balances by geographic area were as follows:
* Less than 0.1%
Restricted cash
Restricted cash mainly consists of cash deposits held by various banks to secure bank acceptance notes payable. The Company’s restricted cash totaled $272,991 and $551,047 at December 31, 2017 and 2016, respectively.
Notes receivable
Notes receivable represents trade accounts receivable due from customers where the customers’ bank has guaranteed the payment of the receivable. This amount is non-interest bearing and is normally paid within six months. Historically, the Company has experienced no losses on notes receivable. The Company’s notes receivable totaled $461,292 and $133,913 at December 31, 2017 and 2016, respectively.
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, 2017 and 2016, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $8,115,876 and $1,797,476, respectively.
Inventories
Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded an inventory reserve of $313,930 and $21,177 at December 31, 2017 and 2016, respectively.
Advances to suppliers
Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $2,023,779 and $1,116,525 at December 31, 2017 and 2016, respectively.
Equipment held for sale
Long-lived assets are classified as held for sale when certain criteria are met. These criteria include: management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell. At December 31, 2016, the Company reflected certain manufacturing equipment that was previously used in the petroleum and chemical equipment segment as part of assets of discontinued operations as equipment held for sale, which was included in the assets of discontinued operations on the accompanying consolidated balance sheets. This equipment was sold in March 2017 to a third party.
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.
Equity method investment
Investments in which the Company has the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long term assets on the consolidated balance sheets. Under this method of accounting, the Company’s share of the net earnings or losses of the investee is presented below the income tax line on the consolidated statements of operations. The Company evaluates its equity method investment whenever events or changes in circumstance indicate that the carrying amounts of such investment may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in the current period. (See Note 6).
Impairment of long-lived assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. At December 31, 2017 and 2016, the Company conducted an impairment assessment on property and equipment based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of property and equipment as of December 31, 2017 and 2016. 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 2017 and 2016 impairment analysis, the Company determined that the carrying value exceeded the fair market value on certain equipment formerly used in the Company’s forging and related components, and petroleum and chemical equipment segments. Accordingly, in connection with the impairment of such equipment, the Company recorded impairment charges of $0 and $1,660,305 for the years at December 31, 2017 and 2016, respectively, which was included in loss from discontinued operations on the accompanying consolidated statements of operations and comprehensive loss.
Advances from customers
Advances from customers at December 31, 2017 and 2016 amounted to $2,454,375 and $427,446, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue when customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.
Revenue recognition
Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.
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.
The Company recognizes revenue from the rental of batteries when earned.
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, President Trump 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 34%. 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, 2017, 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, 2017 and 2016, 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.
Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award or on issuance if fully-vested and non-forfeitable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.
Shipping costs
Shipping costs are included in selling expenses, general and administrative and totaled $111,776 and $141,180 for the years ended December 31, 2017 and 2016, respectively.
Employee benefits
The Company’s operations and employees are all located in the PRC and Hong Kong. The Company makes mandatory contributions to the PRC and Hong Kong governments’ health, retirement benefit and unemployment funds in accordance with the relevant Chinese social security laws and law of Mandatory Provident Fund in Hong Kong. The costs of these payments are charged to the same accounts as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $162,531 and $100,045 for the years ended December 31, 2017 and 2016, respectively.
Research and development
Research and development costs are expensed as incurred. The costs primarily consist of raw materials and salaries incurred for the development and improvement of the Company’s dyeing and finishing machine product line. Research and development costs totaled $420,023 and $304,054 for the years ended December 31, 2017 and 2016, respectively.
Foreign currency translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”) or Hong Kong dollars (HKD). For the subsidiaries and affiliates, whose functional currencies are the RMB or HKD, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive loss. The cumulative translation adjustment and effect of exchange rate changes on cash for the years ended December 31, 2017 and 2016 was $66,437 and $(519,152), respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries and affiliates. 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.
For operating subsidiaries and VIE’s located in the People’s Republic of China (“PRC”), asset and liability accounts at December 31, 2017 and December 31, 2016 were translated at 6.5075 RMB to $1.00 and at 6.9448 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. For operating subsidiaries in Hong Kong, asset and liability accounts at December 31, 2017 were translated at 7.8128 HKD to $1.00, which were the exchange rates on the balance sheet date. For operating subsidiaries and VIE’s located in the PRC, the average translation rates applied to the statements of operations for the years ended December 31, 2017 and 2016 were 6.7588 RMB and 6.6435 RMB to $1.00, respectively. For operating subsidiaries located in Hong Kong, the average translation rates applied to the statements of operations for the year ended December 31, 2017 was 7.8 HKD to $1.00. The Company did not have operations in Hong Kong during the 2016 periods. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.
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) income per share is computed by dividing net (loss) income 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) income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At December 31, 2017, common stock equivalents and potentially dilutive common stock outstanding consisted of 200,100 shares of common stock issuable upon conversion of a note payable. The Company did not have any common stock equivalents and potentially dilutive common stock outstanding during the year ended December 31, 2016. 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:
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 income/(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, 2017 and 2016 included net loss and unrealized loss 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.
Reverse stock split
The Company effected a one-for-four reverse stock split of its common stock on March 20, 2017. All share and per share information has been retroactively adjusted to reflect this reverse stock split.
Recent accounting pronouncements
In May 2014, FASB issued an update (“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 will not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers.
In August 2016, the FASB issued ASU 2016-15 which addresses eight cash flow classification issues, eliminating the diversity in practice. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively applied as of the earliest date practicable. The adoption of ASU will not have a material impact on the Company’s consolidated financial statements.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance did not have any impact on the Company’s financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, or ASU 2017-09. ASC 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The adoption of ASU will not have a material impact on the Company’s consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features , or ASU 2017-11, which updates the guidance related to the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Under ASU 2017-11, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. ASU 2017-11 is effective for public entities for all annual and interim periods beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2017-11 will have on our consolidated financial statements.
On December 22, 2017 the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the TCJA). SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company has applied this guidance to its financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures. |
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Acquisition |
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| Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITION | NOTE 2 – ACQUISITION
On December 8, 2017 (the “Closing Date”), the Company completed the acquisition of 51% of the issued and outstanding capital stock of Inspirit Studio Limited (“Inspirit”), a company incorporation in Hong Kong, from its shareholders pursuant to the terms and conditions of a Sale and Purchase Agreement entered into among the Company and the Inspirit Stockholders on the Closing Date (the “Acquisition Agreement”). Inspirit is engaged in the development of a mobile app platform which provides instant errand services in a peer to peer network and will generate revenue from commission charged on each errand service transaction.
In connection with the acquisition, the Company issued 85,473 unregistered shares of its common stock valued at $507,710, based on the acquisition-date fair value of our common stock of $5.94 per share based on the quoted market price of the Company’s common stock on the Closing date. The fair value of the assets acquired and liabilities assumed were based on management estimates of the fair values on December 8, 2017.
Based upon the purchase price allocation, the following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:
The assets acquired and liabilities assumed are recorded at their estimated fair value on the acquisition date with subsequent changes recognized in earnings or loss. These estimates are inherently uncertain and are subject to refinement. Management develops estimates based on assumptions as a part of the purchase price allocation process to value the assets acquired and liabilities assumed as of the business combination date. As a result, during the purchase price measurement period, which may be up to one year from the business acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the purchase price measurement period, the Company will record adjustments to assets acquired or liabilities assumed in operating expenses in the period in which the adjustments were determined.
The purchase price exceeded the fair value of the net assets acquired by approximately $462,111, which was initially recorded as goodwill. Goodwill assigned represents the amount of consideration transferred in excess of the fair value assigned to identifiable assets acquired and liabilities assumed. ASC 350-30-35-4 requires that goodwill be tested for impairment on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Based on the Company’s annual analysis of goodwill, in December 2017, the Company recorded an impairment expense of $462,111 which is included in operating expenses on the accompanying consolidated statement of operation and comprehensive loss. |
Discontinued Operations |
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| DISCONTINUED OPERATIONS | NOTE 3 – DISCONTINUED OPERATIONS
Pursuant to an agreement dated December 23, 2016, the Company, through its wholly-owned subsidiary Fulland, sold the stock of Fulland Wind to a third party for a sales price of RMB 48 million (approximately $6.9 million). The Company’s forging and related components business was conducted through Fulland Wind. The purchase price is payable in three installments. The Company received the first installment of RMB 14,400,000 (approximately $2.1 million) on December 28, 2016, and received the second installment of RMB14,400,000 (approximately $2.1 million) on April 10, 2017. The Company delivered Fulland Wind’s business license, seals, books and records, business contracts and personnel roster to the third party buyer on December 30, 2016, effectively the sale date. If the equity transfer registration formalities are completed within one year without any third party claims on the equity transfer, a final payment of RMB 19,200,000 (approximately $2.7 million) was due 25 working days after the expiration of such period. Pursuant to extension agreement dated December 31, 2017, the Company agreed the above third party buyer could paid off the final payment of RMB 19,200,000 (approximately $2.7 million) by December 31, 2018. As a result of the sale, the forged rolled rings and related components business is treated as a discontinued operation.
Additionally, in December 2016, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant decline in revenues and the loss of its major customers. Accordingly, the petroleum and chemical equipment segment business is treated as a discontinued operation.
Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the business of the forging and related components segment and petroleum and chemical equipment segment are considered discontinued operations because: (a) the operations and cash flows of the forging and related components segment and petroleum and chemical equipment segment were eliminated from the Company’s operations; and (b) the Company has no interest in the divested operations.
As of December 31, 2016, Fulland Wind had bank loans payable of RMB 4,500,000 (approximately $647,967) which was guaranteed by Dyeing and the Company’s chief executive officer and his wife. In May 2017, the loan was repaid.
The sale of Fulland Wind resulted in a loss on disposal of discontinued operations of $6,459,407 in 2016. This loss plus the results of operations from Fulland Wind and petroleum and chemical equipment segment for the years ended December 31, 2017 and 2016 have been classified to the loss from discontinued operations line on the accompanying consolidated statements of operations and comprehensive loss presented herein. In addition, the historical consolidated balance sheet and consolidated statement of cash flow amounts have also been reclassified to reflect the forging and related components segment and petroleum and chemical equipment segment businesses as discontinued operations.
Contemporaneously with the sale of the Fulland Wind stock, pursuant to an agreement dated December 23, 2016, Heavy Industry entered into a lease with Wang Jiahong for a factory building owned by Heavy Industry at an annual rental of RMB 680,566 (approximately $98,000). The lease had a ten-year term, commencing January 1, 2017. During 2017, the Company received RMB 324,078 (approximately $49,800) in lease payments from the tenant. During the fourth quarter of 2017, Wang Jiahong orally terminated the above lease agreement and the Company is no longer received rental income.
The assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2017 and 2016 is set forth below.
The summarized operating result of discontinued operations included in the Company’s consolidated statements of operations is as follows:
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Accounts Receivable |
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| ACCOUNTS RECEIVABLE | NOTE 4 – ACCOUNTS RECEIVABLE
At December 31, 2017 and 2016, accounts receivable consisted of the following:
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. |
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Inventories |
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| INVENTORIES | NOTE 5 – INVENTORIES
At December 31, 2017 and 2016, inventories consisted of the following:
The Company establishes a reserve to mark down its inventories for estimated unmarketable inventories equal to the difference between the cost of inventories and the estimated net realizable value based on assumptions about the usability of the inventories, future demand and market conditions. For the year ended December 31, 2017 and 2016, the Company increased its reserve for obsolete inventory by approximately $285,334 and $0, respectively, which has been included in cost of revenues on the accompanying consolidated statements of operations and comprehensive loss. |
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Equity Method Investment |
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| Equity Method Investment [Abstract] | |
| EQUITY METHOD INVESTMENT | NOTE 6 – EQUITY METHOD INVESTMENT
On December 26, 2016, Dyeing and Xue Miao, an unrelated individual, formed Shengxin pursuant to an agreement dated December 23, 2016. The agreement sets forth general terms relating to the proposed business, but does not set forth specific funding obligations for either party. Dyeing has agreed to invest RMB 60,000,000 (approximately $9,200,000) and had invested RMB 59.8 million ($9,189,397 at December 31, 2017), for which it received a 30% interest, and Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $21.5 million), of which Mr. Xue has contributed RMB 60,000,000 (approximately $9.2 million), for which Mr. Xue received a 70% interest in Shengxin. Shengxin’s registered capital is RMB 200 million (approximately $30.7 million). Mr. Xue has advised Dyeing that he anticipates that he will fund the remaining RMB 80,000,000 (approximately $12.2 million) of his commitment during 2018. Since Mr. Xue did not make this payment by the end of 2017, Dyeing has the right to amend the contract, and both parties may adjust each side’s equity interest to reflect the amount of capital each side has actually invested. As of December 31, 2017, no changes have been made to such contract.
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. As of December 31, 2017, Shengxin had not yet commenced any material operations.
The solar farm industry is China is subject to significant government regulation. In order to construct and operate solar farms in China, it is necessary to obtain a permit for a specific location, to obtain leasehold rights to a significant amount of contiguous land parcels in provinces where there is significant sunlight for most of the year to support a solar farm and to have an agreement to connect with the local grid. The development of solar farms requires significant funding, which, if financing is not available, would have to be provided by Dyeing and Mr. Xue. There are no agreements relating to the funding obligations of either Dyeing or Mr. Xue with respect to any specific project. Shengxin anticipates that to the extent that it obtains permits for solar farms, it will form a new subsidiary for the sole purpose of obtaining the permit for a specific location and constructing the solar farm at that location. The nature of the parties’ respective investments and the respective equity interest in any solar farm project will be determined on a case-by-case basis.
To the extent that Mr. Xue develops the project, he may receive an equity interest in the project greater than the percentage of his equity investment, with the specific amount being subject to mutual agreement of the parties.
The Company’s investment in Shengxin is subject to a high degree of risk. The Company cannot give any assurance that Shengxin will be able to obtain any permits, raise any required funding, develop and operate or sell any solar farms or operate profitably or that Dyeing will have the resources to provide any funds that may be required in order to fund any solar farm projects for which Shengxin may obtain permits. There may be a significant delay between the time funds are advanced for any project and the realization of revenue or cash flow from any project.
For the years ended December 31, 2017 and 2016, the Company’s share of Shengxin’s net loss were $130,498 and $0, respectively. At December 31, 2017, Shengxin’s assets consisted of cash and advances to supplier of approximately $17.3 million and $614,675, respectively, and had no liabilities. At December 31, 2016, Shengxin’s assets consisted of cash and advances to supplier of approximately $11.3 million and $144,000, respectively, and had no liabilities. |
Property and Equipment |
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| PROPERTY AND EQUIPMENT | NOTE 7 – PROPERTY AND EQUIPMENT
At December 31, 2017 and 2016, property and equipment consisted of the following:
For the years ended December 31, 2017 and 2016, depreciation expense amounted to $3,950,932 and $3,829,345, respectively, of which $2,849,988 and $3,311,410, respectively, was included in cost of revenues, and the remainder was included in operating expenses.
At December 31, 2017 and 2016, the Company conducted an impairment assessment on property and equipment based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of property and equipment as of December 31, 2017 and 2016. Such analysis considered future use of such equipment, consultation with equipment resellers, and other industry factors. Upon completion of the 2017 and 2016 impairment analysis, the Company determined that the carrying value exceeded the fair market value on certain equipment formerly used in the Company’s forging and related components, and petroleum and chemical equipment segments, which have been accounted for as discontinued operations as of December 31, 2017 and 2016. Accordingly, in connection with the impairment of such equipment, the Company recorded impairment charges of $0 and $1,660,305 for the years at December 31, 2017 and 2016, respectively, which was included in loss from discontinued operations on the accompanying consolidated statements of operations and comprehensive loss. |
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Intangible Assets |
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| Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSETS | NOTE 8 – INTANGIBLE ASSETS
At December 31, 2017 and 2016, intangible assets consisted of the following:
Amortization of intangible assets attributable to future periods is as follows:
There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have terms of 45 and 50 years and expire on January 1, 2053 and October 30, 2053. The Company amortizes the land use rights over the term of the respective land use right.
In August 2016, the Company purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. The Company amortizes the exclusive patent use right over the term of the patent.
For the years ended December 31, 2017 and 2016, amortization of intangible assets amounted to $324,190 and $189,329, respectively. |
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Short-Term Bank Loans |
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| SHORT-TERM BANK LOANS | NOTE 9 – SHORT-TERM BANK LOANS
Short-term bank loans represent amounts due to various banks that are due within one year. These loans can be renewed with these banks upon maturities. At December 31, 2017 and 2016, short-term bank loans consisted of the following:
Interest related to the short-term bank loans, which was $134,459 and $124,937 for the years ended December 31, 2017 and 2016, respectively, is included in interest expense on the accompanying consolidated statements of operations and comprehensive loss. |
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Bank Acceptance Notes Payable |
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| BANK ACCEPTANCE NOTES PAYABLE | NOTE 10 – BANK ACCEPTANCE NOTES PAYABLE
Bank acceptance notes payable represent amounts due to banks which are collateralized. All bank acceptance notes payable are secured by the Company’s restricted cash which are deposits with various lenders. At December 31, 2017 and 2016, the Company’s bank acceptance notes payables consisted of the following:
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Convertible Note Payable |
12 Months Ended |
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| Short-Term Bank Loans / Convertible Note Payable | |
| CONVERTIBLE NOTE PAYABLE | NOTE 11 – CONVERTIBLE NOTE PAYABLE
On October 9, 2017, the Company entered into a Note Purchase Agreement (the “NPA”) with Chong Ou Holdings Group Company Limited, a BVI company (the “Investor”) pursuant to which the Investor purchased a note for $670,000, bearing two percent (2%) interest per annum (the “Note”). The Note automatically converts into shares of common stock of the Company at a conversion price equal to $3.35 per share on January 8, 2018. The Company shall have the option, in its sole and absolute discretion, to repay the Outstanding Amount in full on or before the Conversion Date. On January 8, 2018, the Note was converted into 200,100 shares of common stock.
Interest related to this note payable, which was $3,350 and $0 for the years ended December 31, 2017 and 2016, respectively, is included in interest expense on the accompanying consolidated statements of operations and comprehensive loss. |
Related Party Transactions |
12 Months Ended |
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Dec. 31, 2017 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | NOTE 12 – RELATED PARTY TRANSACTIONS
Due to related party
From time to time, during 2017, the Company receive advances from YSK 1860 Co., Limited, which is a principal shareholder of the Company for working capital purposes. These advanced and non-interest bearing and are payable on demand. At December 31, 2017 and 2016, amounts due to this related party amounted to $347,589 and $0, respectively.
Exclusivity agreement
On June 11, 2017, the Company entered into an Exclusivity Agreement (the “Exclusivity Agreement”) with ECrent Capital Holdings Limited (“ECrent”) the terms of which became effective on the same day. Pursuant to the Exclusivity Agreement, the Company and ECrent agreed to engage in exclusive discussions regarding a potential acquisition by the Company of ECrent and/or any of its subsidiaries or otherwise all or part of ECrent’s business and potential business cooperation between the two companies (collectively, the “Potential Transactions”) for a period of three months commencing from the date of the Exclusivity Agreement (the “Exclusive Period”). Ms. Deborah Yuen, an affiliate of YSK 1860 Co., Limited, which is a principal shareholder of the Company, controls ECrent. ECrent agreed that, during the Exclusive Period, neither ECrent nor its agents, representatives or advisors will contact, solicit, discuss or negotiate with any third party with respect to any transaction relating to a transfer or pledge of securities of ECrent and/or its subsidiaries, a sale of ECrent’s business, a business cooperation or any other matters that may adversely affect the Potential Transactions or the parties’ discussion related thereto. The exclusivity period has been further extended to 10 June 2018 pursuant to two amendment agreements dated September 11, 2017 and January 23, 2018. |
Accrued Expenses |
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| ACCRUED EXPENSES | NOTE 13 – ACCRUED EXPENSES
At December 31, 2017 and 2016, accrued expenses consisted of the following:
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Income Taxes |
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| Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME TAXES | NOTE 14 – INCOME TAXES
The Company accounts for income taxes pursuant to ASC 740 “Accounting for Income Taxes” that requires the recognition of deferred tax assets and liabilities for the differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. Additionally, the accounting standards require the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets, including those related to the U.S. net operating loss carry forwards for income tax purposes as compared to financial statement purposes, are dependent upon future taxable income and timing of reversals of future taxable differences along with any other positive and negative evidence during the periods in which those temporary differences become deductible or are utilized.
The Company is governed by the Income Tax Laws of the PRC, Inland Revenue Ordinance of Hong Kong, and the U.S. Internal Revenue Code of 1986, as amended. Under the Income Tax Laws of PRC and Inland Revenue Ordinance of Hong Kong, Chinese companies are generally subject to an income tax at an effective rate of 25% and 16.5%, respectively, on income reported in the statutory financial statements after appropriate tax adjustments. The Company’s subsidiary, Green Power, and VIEs (Dyeing and Heavy Industries) are subject to PRC statutory rates and certain subsidiaries domiciled in Hong Kong are subject to the Hong Kong statutory rate. The Company’s wholly-owned subsidiary, Fulland Limited was incorporated in the Cayman Islands and certain subsidiaries were incorporated in the British Virgin Islands. Under the current laws of the Cayman Islands and British Virgin Islands, these entities are not subject to income taxes.
Sharing Economy International Inc. was incorporated in the United States and has incurred an aggregate net operating loss of approximately $8,402,000 for income taxes purposes through December 31, 2017 and Foreign Tax Credits related to the Income Tax Laws of the PRC of approximately $982,409, subject to the Internal Revenue Code (“IRC”) Section 382, which places a limitation on the amount of taxable income that can be offset by net operating losses after a change in ownership. The Company has not calculated its IRC Section 382 change of ownership to date, but there seems to have been a change of ownership within the meaning of IRC Section 382, which has not limited the use of net operating losses, nor foreign tax credits as of December 31, 2017, based upon Managements review. The net operating loss carries forward and foreign tax credit carry forward for United States income taxes may be available to reduce future years’ taxable income. These net operating loss carry forwards will expire, if not utilized, through 2037 and the remaining foreign tax credits expire, if not utilized, through 2026. As of December 31, 2017, the Company had net operating loss carryforwards of approximately $4,462,000 for PRC income tax purposes, such losses are set to expire in 2022 for PRC income tax purposes. As of December 31, 2017, the Company had net operating loss carryforwards of approximately $827,000 for Hong Kong income tax purposes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a United States corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company believes it is subject to the one-time transition tax on the mandatory deemed repatriation of foreign earnings. Such deemed repatriation tax was estimated to be approximately $5,256,000, which has been reduced to zero by the use of Foreign Tax Credit carryforward utilization at December 31, 2017 related to the Income Tax Laws of the PRC. Management is in the process of reviewing its IRC Section 382 change of ownership, relating to such amount.
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, 2017, 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.
As a result of the reduction of the United States federal corporate income tax rate, the Company reduced the value of its net deferred tax asset by $1,092,239 which was recorded as a corresponding reduction to the valuation allowance during the fourth quarter of 2017.
Management believes that it appears more likely than not that the Company will not realize these tax benefits due to the Company’s continuing losses for United States income taxes purposes, and losses in PRC and Hong Kong. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset benefit related to its U.S. and foreign net operating loss carry forwards to reduce the asset to zero. Management will review this valuation allowance periodically and make adjustments as necessary.
The Company has cumulative undistributed earnings from its China subsidiary and VIEs of approximately $40.2 million and $45.2 million as of December 31, 2017 and 2016, respectively, which is included in the consolidated retained earnings and will continue to be indefinitely reinvested in the Company’s PRC operations. Accordingly, a provision has been made for deferred taxes related to the mandatory deemed repatriation of foreign earnings. Such deemed repatriation tax was estimated to be approximately $5,256,000, which has been reduced to zero by the use of Foreign Tax Credit carryforward utilization at December 31, 2017 related to the Income Tax Laws of the PRC. Management is in the process of reviewing its IRC Section 382 change of ownership, relating to such amount.
The table below summarizes the differences between the U.S. statutory federal rate and the Company’s effective tax rate for the years ended December 31, 2017 and 2016:
For the years ended December 31, 2017 and 2016, current and deferred income taxes expense was related to our operations in the PRC and amounted to $408,287 and $0, respectively.
The tax effects of temporary differences under ASC 740 “Accounting for Income Taxes” that give rise to significant portions of deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows:
At December 31, 2017 and 2016, the valuation allowance were $3,222,706 and $3,448,712 related to the U.S. and foreign net operating loss carry forwards, and $0 and $68,282 related to allowance for doubtful accounts and reserve for obsolete inventories, respectively. During the year ended December 31, 2017, the valuation allowance increased by approximately $797,951.
The Company had incurred a significant loss from discontinued operations of $10,285,932 for the year ended December 31, 2016. Such loss is attributable to the Company’s China operations from the forged rolled rings and related component segment and the petroleum and chemical equipment segment. Management believes there will be no tax benefit from such loss and accordingly, no deferred tax asset and corresponding valuation reserve has been provided for at December 31, 2017 and 2016. |
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Stockholders' Equity |
12 Months Ended |
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Dec. 31, 2017 | |
| Stockholders' Equity [Abstract] | |
| STOCKHOLDERS' EQUITY | NOTE 15 – STOCKHOLDERS’ EQUITY
Common stock issued for services
On March 1, 2016, the Company issued 40,000 shares of common stock pursuant to its amended 2010 long-term incentive plan, including 18,750 shares to its former chief financial officer. The shares were valued at $209,600, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company reduced accrued liabilities of $54,000 and recorded stock-based compensation and fees of $155,600 for the year ended December 31, 2016.
On March 1, 2016, Company issued a total of 75,000 shares of common stock to two companies which performed services relating to preparing and implementing a new business plan for the Company with the objective of improving the Company’s long-term growth. Of these shares, 25,000 shares were issued pursuant to an agreement with one consultant and 50,000 shares were issued pursuant to an agreement with a second consultant. The agreements provide for the issuance of an additional 25,000 shares to one consultant and 50,000 to the second consultant if the agreement is in effect in July 2016. On July 1, 2016, the Company issued an additional 25,000 shares of its common stock to the first consultant pursuant to the agreement. A consulting agreement with the second consultant was terminated, and no additional shares of common stock were issued or are issuable pursuant to the consulting agreement with the second consultant. The shares were valued at fair market value using the reported closing share price on the dates of grant, and the Company recorded stock-based compensation and fees of $490,980 for the year ended December 31, 2016.
On June 30, 2016, the Company issued 3,125 shares of common stock pursuant to its amended 2010 long-term incentive plan to a consultant. The shares were valued at $12,500, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded stock-based compensation and fees of $12,500 for the year ended December 31, 2016.
On December 28, 2016, the Company issued 105,000 shares of common stock pursuant to its 2016 long-term incentive plan, including 50,000 shares to its chief executive officer. The shares were valued at $277,200, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded stock-based compensation and fees of $268,126 for the year ended December 31, 2016 and recorded prepaid expenses of $9,074 which will be amortized over the rest of the corresponding service periods.
On May 12, 2017, the Company issued 15,000 shares of common stock pursuant to its 2016 long-term incentive plan for legal services. The shares were valued at $50,400, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with this issuance, the Company reduced accounts payable by $28,400 and recorded stock-based professional fees of $22,000 in fiscal 2017.
On May 22, 2017, pursuant to a seven-month consulting agreement effective May 11, 2017, the Company issued 25,000 shares of its common stock to a consultant for business development services rendered and to be rendered through December 31, 2017. These shares were valued at $106,500, the fair market value on the grant date using the reported closing share price on the date of grant. Pursuant to this consulting agreement, on September 5, 2017, the Company issued an additional 25,000 share of common stock to this consultant. These shares were valued at $82,000 or $3.28 per share, using the reported closing share price on the date of issuance. For fiscal 2017, in connection with these issuances, the Company recorded stock-based professional fees of $188,500.
On June 30, 2017, pursuant to a one-year consulting agreement effective May 16, 2017, the Company issued 65,200 shares of common stock to a consultant for business development services rendered and to be rendered. These shares were valued at $272,536, or $4.18 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $170,701 and prepaid expenses of $101,835 which is amortized over the remaining service period. Additionally, pursuant to this consulting agreement, the Company issued an additional 20,000 share of common stock to this consultant on October 19, 2017. These shares were valued at $99,400, or $4.97 per share, using the reported closing share price on the date of issuance. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $62,259 and prepaid expenses of $37,141 which is amortized over the remaining service period through May 2018.
On August 8, 2017, pursuant to one-year consulting agreements effective July 19, 2017, the Company issued an aggregate of 120,000 shares of common stock to two consultants (60,000 shares each) for business development services rendered and to be rendered. These shares were valued at $492,000, or $4.10 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $222,194 and prepaid expenses of $269,806 which is amortized over the remaining service period. Additionally, pursuant to these consulting agreements, the Company issued an additional 40,000 share of common stock to these consultants (20,000 shares each) on November 2, 2017. These shares were valued at $169,600, or $4.24 per share, using the reported closing share price on the date of issuance. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $76,594 and prepaid expenses of $93,006 which is amortized over the remaining service period through July 2018.
On August 8, 2017, pursuant to a one-year consulting agreement effective July 1, 2017, the Company issued 8,000 shares of common stock to a consultant for investor relations services rendered and to be rendered. These shares were valued at $32,560, or $4.07 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $15,466 and prepaid expenses of $17,094 which is amortized over the remaining service period.
On August 8, 2017, pursuant to a one-year consulting agreement effective July 1, 2017, the Company issued 23,230 shares of common stock to a consultant for accounting services rendered and to be rendered. These shares were valued at $94,546, or $4.07 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company reduced accrued expense by $9,435, and the Company recorded stock-based professional fees of $42,556 and prepaid expenses of $42,555 which is amortized over the remaining service period.
On September 5, 2017, pursuant to one-year consulting agreements effective August 21, 2017, the Company issued an aggregate of 125,000 shares of common stock to two consultants (65,000 and 60,000 shares, respectively) for business development services rendered and to be rendered. These shares were valued at $408,750, or $3.27 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $148,337 and prepaid expenses of $260,413 which is amortized over the remaining service period. Additionally, pursuant to these consulting agreements, the Company issued an additional 35,000 share of common stock to these consultants (17,000 and 18,000, respectively) in January 2018. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $96,278 related to these issuable shares share-based reserve of $96,278 as of December 31, 2017.
On October 3, 2017, pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for investor relation services to be rendered, the Company agreed to pay this consultant $202,000 per year to be paid by the issuance of an aggregate of 134,688 shares as follows: 33,672 shares were issued in October 2017, 33,672 shares were issued in February 2018, 33,672 shares during the twelfth month from the agreement date, and 33,672 shares during the eighteenth month from the agreement date. The initial 33,672 shares were valued at $112,801, or $3.35 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $16,137 and prepaid expenses of $96,664 which is amortized over the remaining service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 101,016 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $109,538 related to these issuable shares and share-based reserve of $109,538 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first and second anniversary date of the date of this agreement, provided that the maximum number of shares issued for the Shortfall shall not exceed 13,500 Shares per year of services.
On October 9, 2017, pursuant to a consulting agreement, the Company agreed to issue 7,615 shares of its common stock to an entity for development services rendered. Such shares were issued in November 2017 upon completion of the services rendered. These shares were valued at $25,282, or $3.32 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company recorded stock-based professional fees of $25,282 for fiscal 2017.
On October 23, 2017, pursuant to a consulting agreement, the Company agreed to issue 6,000 shares of its common stock to an entity for public relations services rendered. These shares were valued at $28,920, or $4.82 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company recorded stock-based professional fees of $11,039 and prepaid expenses of $17,881 which is amortized over the remaining service period through April 2018.
On October 30, 2017, pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Advertising Limited and an individual, the Company issued 65,089 shares of common stock to a consultant for advertising and marketing services to be rendered. These shares were valued at $216,095, or $3.32 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $24,688 and prepaid expenses of $191,407 which is amortized over the remaining service period. Additionally, pursuant to this consulting agreement, the Company issued an additional 65,089 share of common stock to this consultant in February 2018. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $56,367 related to these issuable shares and share-based reserve of $56,367 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the shares issued to the Consultant pursuant this agreement is removed and such lot of shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of Shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for all the Shortfalls, within the first 3 months of the second year of Services, by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the shares are issued pursuant to this agreement, provided that the maximum number of shares issued for the Shortfall shall not exceed 26,036 Shares. Additionally, the Company shall, within one month from the date of this Agreement, issue such number of ordinary shares of EC Advertising Limited to the Consultant (or his nominee) so that he (or his nominee) will hold 15% of EC Advertising Limited issued share capital as enlarged by the share issue pursuant to this agreement. Additionally, within one month after the Consultant achieves all the performance targets as outlined in the agreement, EC Advertising Limited shall issue, or shall cause its major shareholder to transfer, such number of EC Advertising Limited's ordinary shares to the Consultant (or its nominee) so that he (and his nominee) will, together with the 15% issued share capital discussed above, hold a total of 49% of EC Advertising Limited’s issued share capital as enlarged by the share issue or after the transfer (as the case may be). Performance targets include the achievement by the Company of total revenue of $10,000,000 and profit after tax of $4,000,000 during the term of the agreement.
On November 3, 2017, pursuant to a two-year consulting agreement effective November 6, 2017 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for advertising consultancy services to be rendered, the Company agreed to pay this consultant $141,026 per year to be paid by the issuance of an aggregate of 67,966 shares as follows: 33,983 shares within 30 days from the agreement date, 33,983 during the sixth month from the agreement date. On January 27, 2018, this agreement was terminated. The Company agreed to pay by the issuance of 7,728 share for the service were rendered by such consultant from November 2017 to January 2018. These shares were valued at $32,767, or $4.24 per share, the fair market value on the grant date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. For fiscal 2017, the Company recorded stock-based professional fees of $21,978 related to these issuable shares and share-based reserve of $21,978 as of December 31, 2017.
On November 10, 2017, pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for information and technology, policy making and management services to be rendered, the Company agreed to pay this consultant $192,308 per year to be paid by the issuance of an aggregate of 101,216 shares as follows: 50,608 shares were issued in January 2018, 50,608 shares during the twelfth month from the agreement date. The initial 50,608 shares were valued at $203,444, or $4.02 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $203,444 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 50,608 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $41,583 related to these issuable shares and share-based reserve of $41,583 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall, within the first 3 months of the second half of the second year of services, by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the shares are issued, provided that the maximum number of shares issued for the Shortfall of two lots shall not exceed 20,243 shares.
On November 15, 2017, pursuant to one-year consulting agreements effective November 1, 2017, the Company issued 38,000 shares of common stock to an individual for market research services to be rendered. These shares were valued at $165,300, or $4.35 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $27,550 and prepaid expenses of $137,750 which is amortized over the remaining service period. Additionally, pursuant to these consulting agreements, the Company will issue an additional 11,148 share of common stock to this consultant during the sixth month of this agreement, provided that this agreement is not terminated prior to the issuance of such shares. The initial fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $14,084 related to these issuable shares and share-based reserve of $14,084 as of December 31, 2017.
On November 15, 2017, pursuant to a one-year consulting agreement effective November 1, 2017, the Company issued 20,000 shares of common stock to a consultant for information technology business development services rendered and to be rendered. These shares were valued at $87,000, or $4.35 per share, the fair market value on the issue date using the reported closing share price on the date of issue. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $14,500 and prepaid expenses of $72,500 which is amortized over the remaining service period. Additionally, pursuant to this consulting agreements, the Company will issue an additional 6,800 share of common stock to this consultant in April 2018. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair values of these shares were remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $8,591 related to these issuable shares and share-based reserve of $8,591 as of December 31, 2017.
On November 15, 2017, pursuant to one-year consulting agreement effective November 1, 2017, the Company issued an aggregate of 100,000 shares of common stock to two entities (50,000 shares each) for assets management development services rendered and to be rendered. These shares were valued at $435,000, or $4.35 per share, the fair market value on the grant date using the reported closing share price on the date of grant. For fiscal 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $72,500 and prepaid expense of $362,500 which is amortized over the remaining service period. Additionally, pursuant to these consulting agreements, the Company will issue an additional 24,052 share of common stock to these consultants (12,000 and 12,052 shares, respectively) during the sixth month of this agreement, provided that these agreements are not terminated prior to the issuance of such shares. The initial fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $30,386 related to these issuable shares and share-based reserve of $30,386 as of December 31, 2017.
On November 20, 2017, pursuant to a one-year consulting agreement effective January 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for government official relation services to be rendered, the Company agreed to pay this consultant $128,208 to be paid by the issuance of 32,052 shares as follows: 22,436 shares were issued in February 2018, 9,616 shares during the fourth month from the agreement date. The initial 22,436 shares were valued at $98,718, or $4.40 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $98,718 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 9,616 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On December 6, 2017, pursuant to a two-year consulting agreement effective December 27, 2017 between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for space rental or leasing business development services to be rendered, the Company agreed to pay this consultant $120,000 annually to be paid by the issuance of an aggregate of 45,628 shares as follows: 11,407 shares were issued in February 2018. 11,407 shares during the sixth month from the agreement date, 11,407 shares during the twelfth month from the agreement date, and 11,407 shares during the eighteenth month from the agreement date. The initial 11,407 shares were valued at $60,571, or $5.31 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $60,571 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 34,221 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $2,150 related to these issuable shares and share-based reserve of $2,150 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first and second anniversary date of the date of this agreement, provided that the maximum number of shares issued for the Shortfall shall not exceed 4,563 Shares per year of services.
On December 15, 2017, pursuant to a two-year consulting agreement effective November 21, 2017 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for information technology services rendered and to be rendered, the Company agreed to pay this consultant $153,846 per year to be paid by the issuance of an aggregate of 71,560 shares as follows: 17,890 shares were issued in January 2018, 17,890 shares during the sixth month from the agreement date, 17,890 shares during the twelfth month from the agreement date, and 17,890 shares during the eighteenth month from the agreement date. The initial 17,890 shares were valued at $107,698, or $6.02 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $107,698 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue the remaining 53,670 shares of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $28,584 related to these issuable shares and share-based reserve of $28,584 as of December 31, 2017. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first and second anniversary date of the date of this agreement, provided that the maximum number of shares issued for the Shortfall shall not exceed 7,156 Shares per year of services.
On December 15, 2017, pursuant to a one-year consulting agreement effective May 16, 2018 between the Company and a consultant for business development services to be rendered, the Company agreed to pay this consultant $400,000 to be paid by the issuance of an aggregate of 100,000 shares as follows: 50,000 shares were issued in January 2018, 50,000 shares during the sixth month from the agreement date. The initial 50,000 shares were valued at $301,000, or $6.02 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $301,000 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 50,000 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall by causing the Company to issue shares at the average closing price of the 5 trading days immediately before shares are issued, provided that the maximum number of shares issued for the Shortfall of two lots shall not exceed 20,000 shares.
On December 18, 2017, pursuant to a one-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for user experience and user interface design and information technology development services to be rendered, the Company agreed to pay this consultant $157,692 to be paid by the issuance of 28,672 shares. The shares were issued in January 2018 and were valued at $173,466, or $6.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $173,466 over the service period. For fiscal 2017, the Company recorded stock-based professional fees of $6,528 related to these issuable shares and share-based reserve of $6,528 as of December 31, 2017.
On December 22, 2017, pursuant to a one-year consulting agreement effective December 21, 2017 between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for business development services to be rendered, the Company agreed to pay this consultant $961,538 to be paid by the issuance of an aggregate of 160,256 shares as follows: 80,128 shares were issued in January 2018, 80,128 shares during the sixth month from the agreement date. The initial 80,128 shares were valued at $521,633, or $6.51 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $521,633 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 80,128 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For fiscal 2017, the Company recorded stock-based professional fees of $32,426 related to these issuable shares and share-based reserve of $32,426 as of December 31, 2017.
Common stock sold for cash
The Company sold a total of 180,000 shares of common stock to an investor during June and July 2016 pursuant to stock purchase agreements. On June 6, 2016, the Company sold 57,500 shares of common stock at a purchase price of $4.00 per share, from which the Company received net proceeds of $230,000. On June 24, 2016, the Company sold 57,500 shares of common stock at a purchase price of $4.40 per share, from which it received net proceeds of $253,000. On July 18, 2016, the Company sold 65,000 shares of common stock at a purchase price of $4.16 per share, from which it received gross proceeds of $270,400. The Company did not engage a placement agent with respect to these sales.
In June 2017, pursuant to stock purchase agreements, the Company sold an aggregate of 290,000 shares of common stock to three investors at a purchase price of $3.00 per share for net cash proceeds a total of $860,000. The Company did not engage a placement agent with respect to these sales.
Common stock issued in connection with acquisition
On December 8, 2017 (the “Closing Date”), the Company completed the acquisition of 51% of the issued and outstanding capital stock of Inspirit. In connection with the acquisition, the Company issued 85,473 unregistered shares of its common stock valued at $507,710, based on the acquisition-date fair value of our common stock of $5.94 per share based on the quoted market price of the Company’s common stock on the Closing date (See Note 2).
2010 long-term incentive plan
In January 2010, the Company’s board of directors adopted, and in March 2010, the stockholders approved the Company’s 2010 long-term incentive plan, which initially covered 50,000 shares of common stock. In October 2013, the Company’s board of directors adopted, and in December 2013, the stockholders approved, an amendment to the 2010 long-term incentive plan to increase the number of shares of common stock subject to the plan, to 125,000 shares. The plan provides for the grant of incentive and non-qualified options and stock grants to employees, including officers, directors and consultants. The plan is to be administered by a committee of not less than three directors, each of whom is to be an independent director. In the absence of a committee, the plan is administered by the board of directors. Members of the committee are not eligible for stock options or stock grants pursuant to the plan unless such stock options or stock grant are granted by a majority of the Company’s independent directors other than the proposed grantee. As of December 31, 2016, the Company had issued a total of 124,998 shares of common stock under the plan and the Company terminated this 2010 long-term incentive plan in year 2017.
2016 long-term incentive plan
In September 2016, the Company’s board of directors adopted, and in November 2016, the stockholders approved the Company’s 2016 long-term incentive plan, which covers 125,000 shares of common stock. The plan provides for the grant of incentive and non-qualified options and stock grants to employees, including officers, directors and consultants. The plan is to be administered by a committee of not less than three directors, each of whom is to be an independent director. In the absence of a committee, the plan is administered by the board of directors. Members of the committee are not eligible for stock options or stock grants pursuant to the plan unless such stock options or stock grant are granted by a majority of the Company’s independent directors other than the proposed grantee. As of December 31, 2017, the Company had issued a total of 125,000 shares of common stock under the plan. |
Statutory Reserve |
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Dec. 31, 2017 | |
| Statutory Reserve [Abstract] | |
| STATUTORY RESERVE | NOTE 16 – STATUTORY RESERVE
The Company is required to make appropriations to statutory reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities’ registered capital or members’ equity. The profit arrived at must be set off against any accumulated losses sustained by the Company in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to shareholders. The appropriation is required until the statutory reserve reaches 50% of the registered capital. This statutory reserve is not distributable in the form of cash dividends. As of December 31, 2017 and 2016, the Company appropriated the required 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries. Accordingly, no additional statutory reserve for Dyeing and Heavy Industries are required for the year ended December 31, 2017. Green Power had loss since its establishment. No appropriation to statutory reserves for it was required as it incurred recurring net loss. |
Segment Information |
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| SEGMENT INFORMATION | NOTE 17 – SEGMENT INFORMATION
During the year ended December 31, 2016, the Company operated in three reportable business segments - (1) the manufacture of textile dyeing and finishing equipment segment, (2) the manufacture of forged rolled rings and related components segment, and (3) the manufacture of petroleum and chemical equipment segment. The Company’s reportable segments were strategic business units that offered different products. They were managed separately based on the fundamental differences in their operations. During 2016 and part of 2017, all of the Company’s operations were conducted in the PRC. Because of significant declines in revenues from the forged rolled rings and related components segment and petroleum and chemical equipment segment, the Company discontinued these segments and sold the forged rolled rings and related components segment in the fourth quarter of 2016. Pursuant to ASC Topic 205-20, Presentation of Financial Statements-Discontinued Operations, the business of forged rolled rings and related components segment, and petroleum and chemical equipment segment are considered as discontinued operations because: (a) the operations and cash flows of these segments were eliminated from the Company’s operations; and (b) the Company would not have ability to influence the operation or financial policies of the forged rolled rings and related components segment subsequent to the sale. The results of operation of the forged rolled rings and related components and the petroleum and chemical equipment segments have been presented as discontinued operations for the years ended December 31, 2017 and 2016. In 2017, the Company entered to new lines of business 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. This reporting segment is referred to as the Sharing Economy Segment and is managed separately based on its fundamental differences in its operations and is based in Hong Kong.
Information with respect to these reportable business segments for the years ended December 31, 2017 and 2016 was as follows:
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| CONCENTRATIONS | NOTE 18 – CONCENTRATIONS
Customers
One customer accounted for 14% of the Company’s revenues for the years ended December 31, 2017 and no customer accounted for 10% or more of the Company’s revenues for the years ended December 31, 2016.
No customer accounted for 10% of the Company’s total outstanding accounts receivable at December 31, 2017 and one customer accounted for 11% of the Company’s total outstanding accounts receivable at December 31, 2016.
Suppliers
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s inventories purchases for the years ended December 31, 2017 and 2016.
* Less than 10%.
One supplier accounted for 15% or more of the Company’s total outstanding accounts payable at December 31, 2017. No supplier accounted for 10% or more of the Company’s total outstanding accounts payable at December 31, 2016. |
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Commitment and Contingencies |
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Dec. 31, 2017 | |
| Commitment and Contingencies [Abstract] | |
| COMMITMENT AND CONTINGENCIES | NOTE 19 – COMMITMENT AND CONTINGENCIES
Equity investment commitment
On December 26, 2016, Dyeing made an equity investment with one unrelated company in Shengxin, a newly-formed entity which plans to develop, construct and maintain photovoltaic power generation projects in China. Shengxin’s total registered capital is RMB 200 million (approximately $30.7 million). Dyeing has agreed to invest RMB 60,000,000 (approximately $8,640,000) for a 30% equity interest and had invested RMB 59,800,000 (approximately $9,189,000) as of December 31, 2017. Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $21.5 million) for a 70% interest. Mr. Xue contributed RMB 60,000,000 (approximately $9.2 million), and he advised Dyeing that he anticipates that he will fund the balance of his commitment during 2018. Since Mr. Xue did not make this payment by the end of 2017, Dyeing has the right to amend the contract, and both parties may adjust each sides’ equity interest to reflect the amount of capital each side has actually invested. As of the date of this report, the contract had not been amended. As of December 31, 2017, Shengxin had minimal operations. For the years ended December 31, 2017 and 2016, the Company recorded a loss on equity method investment of $130,498 and $0, respectively.
Litigation:
On or about November 14, 2017, a complaint was filed in the United States District Court for the Eastern District of New York, captioned Morris Ackerman v. Cleantech Solutions International, Inc. The complaint alleged that the Company’s proxy statement, which included a proposal to amend the Company’s long-term incentive plan to provide for the grant of incentive and non-qualified options and stock grants to employees and others, did not comply with the disclosure requirements for proxy statements. The parties reached a confidential settlement on or about December 20, 2017, and the plaintiff voluntarily dismissed the action with prejudice on or about January 2, 2018. In connection with this settlement, the Company paid $50,000.
On February 2, 2018, the law firm of Ellenoff Grossman & Schole LLP (“EGS”) filed a complaint against the Company along with a number of companies and individuals in an effort to recover their legal fees in connection with services provided to the other defendants. The lawsuit contends that the Company is the alter ego or successor in interest of those other defendants. The Company believe that the lawsuit is without merit and will defend it vigorously.
From time to time the Company may become a party to litigation in the normal course of business. Management believes that there are no current legal matters that would have a material effect on the Company’s financial position or results of operations.
Transfer agreement
On August 4, 2017, the Company’s wholly-owned subsidiary, EC Power (Global) Technology Limited (“EC Power”), entered into a Transfer Agreement (the “Transfer Agreement”) with ECoin Global Limited (“ECoin”), to purchase ECoin Redemption Codes (the “Codes”) produced by ECoin for total future consideration of $20,000,000 (the “Transfer Consideration”). In accordance with the Agreement, EC Power will market the Codes, which contain a value that enables subscribers to upload certain number of items onto ECrent’s website for rental. The Codes have a validity period of four years, and will not expire until August 3, 2021 (the “Expiry Date”). The Transfer Consideration will be paid by EC Power to ECoin in installments, with each installment payable not later than thirty days after the end of December 31st in each calendar year.
Each installment will represent an amount equal to 50% of the net sale proceeds of the Codes sold during each calendar year. The aggregate of installments shall not exceed the Transfer Consideration. Any balance outstanding of the Transfer Consideration at the Expiry Date will be paid and discharged by the issuance and delivery to ECoin of common stock of the Company in accordance with the terms of the Agreement. The number of shares to be issued or delivered shall be an amount equal to (i) the balance due; divided by (ii) the VWAP of the shares for the period of twenty trading days immediately preceding the Expiry Date, provided always that in no circumstances shall shares be issued or delivered hereunder to the ECoin in excess of 19% of the issued and outstanding ordinary Shares of the Company. As of the date of this report, EC Power has not taken possession of any redemption codes and as of December 31, 2017, EC Power has not sold any redemption codes. |
Restricted Net Assets |
12 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Accounts Receivable/Restricted Net Assets [Abstract] | |
| RESTRICTED NET ASSETS | NOTE 20 – RESTRICTED NET ASSETS
Regulations in the PRC permit payments of dividends by the Company’s PRC subsidiary and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Subject to certain cumulative limit, a statutory reserve fund requires annual appropriations of at least 10% of after-tax profit, if any, of the relevant PRC VIEs and subsidiary. Heavy Industries and Dyeing had reached the cumulative limit as of December 31, 2017. The statutory reserve funds are not distributable as cash dividends. As a result of these PRC laws and regulations, the Company’s PRC VIEs and its PRC subsidiary are restricted in their abilities to transfer a portion of their net assets to the Company. Foreign exchange and other regulations in PRC may further restrict the Company’s PRC VIEs and its subsidiary from transferring funds to the Company in the form of loans and/or advances.
As of December 31, 2017 and 2016, substantially all of the Company’s net assets are attributable to the PRC VIEs and its subsidiary located in the PRC. Accordingly, the Company’s restricted net assets at December 31, 2017 and 2016 were approximately $50,873,000 and $57,324,000, respectively. |
Subsequent Events |
12 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 21– SUBSEQUENT EVENTS
Shares issued or to be issued for services
On January 2, 2018, pursuant to a one-year consulting agreement between the Company and a consultant for business development services to be rendered, the Company agreed to pay this consultant $300,000 to be paid by the issuance of an aggregate of 75,000 shares as follows: 40,000 shares were issued in January 2018, 35,000 shares during the sixth month from the agreement date. The initial 40,000 shares were valued at $303,200, or $7.58 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $303,200 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 35,000 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On January 5, 2018 pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for business development services to be rendered, the Company agreed to pay this consultant $276,000 per year to be paid by the issuance of an aggregate of 80,000 shares as follows: 20,000 shares were issued in February 2018, 20,000 shares during the sixth month from the agreement date, and 40,000 shares during the twelfth month from the agreement date. The initial 20,000 shares were valued at $181,800, or $9.09 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $181,800 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 60,000 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On January 17, 2018, pursuant to a one-year consulting agreement effective January 17, 2018 between the Company’s wholly-owned subsidiary, EC Technology & Innovations Limited and a consultant for blockchain technological development services to be rendered, the Company agreed to pay this consultant $360,000 to be paid by the issuance of 45,000 shares within 30 days from the date of agreement (or such longer period as shall be required to fulfil the relevant laws, regulations and rules in the United States of America for the issue of shares). The shares were valued at $312,750, or $6.95 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $312,750 over the service period.
On January 19, 2018, pursuant to a two-year consulting agreement between the Company’s wholly-owned subsidiary, EC Manpower Limited and three consultants for business development services to be rendered, the Company agreed to pay these consultant $384,618 per year to be paid by the issuance of an aggregate of 139,872 shares (46,624 shares each) as follows: 34,968 shares (11,656 shares each) were issued in February 2018. 34,968 shares (11,656 shares each) during the sixth month from the agreement date, 34,968 shares (11,656 shares each) during the 12th month from the agreement date, and 34,968 shares (11,656 shares each) during the 18th month from the agreement date. The initial 34,968 shares were valued at $225,544, or $6.45 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $225,544 over the service period. Additionally, pursuant to these consulting agreements, the Company will issue an additional 104,904 share of common stock to these consultants as outlined above, provided that these Agreement are not terminated prior to date of the issuance of these shares. The initial fair value of these shares was valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultants. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultants pursuant these agreement are removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultants for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first and second anniversary date of the date of this agreement, provided that the maximum number of shares issued for the Shortfall shall not exceed 13,989 Shares per year of services.
On January 24, 2018, pursuant to a one-year consulting agreement between the Company’s subsidiary, Inspirit Studio Limited and four individuals for business development services to be rendered, the Company agreed to pay these consultants $412,106 to be paid by the issuance of 70,206 shares (27,931 , 15,455 , 14,065 and 12,755 shares, respectively) The shares were issued in February 2018 and were valued at $353,838, or $5.04 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $353,838 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant these agreement are removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultants for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed 14,041 Shares (5,586, 3,091, 2,813 and 2,551 shares, respectively)
On January 24, 2018, pursuant to a one-year consulting agreement effective January 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for market education development services rendered and to be rendered, the Company agreed to pay this consultant $1,282 per month payable in arrear; and $128,205 to be paid by the issuance of 18,315 shares. The shares were issued in February 2018 and were valued at $92,308, or $5.04 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $92,308 over the service period.
On January 28, 2018, pursuant to a two-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned subsidiary, EC Rental Limited and an individual for business development services to be rendered, the Company agreed to pay this consultant $230,769 annually to be paid by the issuance of an aggregate of 92,308 shares as follows: 46,154 shares were issued in February 2018, 46,154 shares during the sixth month from the agreement date. The initial 46,154 shares were valued at $238,154, or $5.16 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $238,154 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 46,154 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On January 31, 2018, pursuant to a one-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned subsidiary, EC Advertising Limited and an individual for marketing and advertising services to be rendered, the Company agreed to pay this consultant $192,308 to be paid by the issuance of 38,617. The share were issued in March 2018 and were valued at $184,975, or $4.79 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $184,975 over the service period.
On January 31, 2018, pursuant to a one-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned subsidiary, EC Rental Limited and an individual for business development services to be rendered, the Company agreed to pay this consultant $128,205 to be paid by the issuance of an aggregate of 26,325 shares as follows: 17,550 shares were issued in February 2018, 8,775 shares during the third month from the agreement date. The initial 17,550 shares were valued at $84,065, or $4.79 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $84,065 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 8,775 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 5, 2018, pursuant to a two-year consulting agreement effective February 20, 2018 between the Company’s wholly-owned subsidiary, EC Advertising Limited and an individual for advertising services to be rendered, the Company agreed to pay this consultant $192,308 annually to be paid by the issuance of an aggregate of 88,500 shares as follows: 44,250 shares were issued in February 2018, 44,250 shares during the sixth month from the agreement date. The initial 44,250 shares were valued at $192,930, or $4.36 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $192,930 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 44,250 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 6, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned subsidiary, Sharing Economy Investment Limited and a consultant for legal support services to be rendered, the Company agreed to pay this consultant $230,769 to be paid by the issuance of an aggregate of 51,800 shares as follows: 35,000 shares were issued in March 2018, 16,800 shares during the third month from the agreement date. The initial 35,000 shares were valued at $153,650, or $4.39 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $153,650 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 16,800 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 6, 2018, pursuant to a one-year consulting agreement effective April 16, 2018 between the Company’s subsidiary, Inspirit Studio Limited and an individual for business development services to be rendered, the Company agreed to pay this consultant $107,770 to be paid by the issuance of 24,164 shares. The shares were issued in March 2018 and were valued at $106,080, or $4.39 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $106,080 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first day, provided that the maximum number of shares issued for the Shortfall shall not exceed 4,833 Shares.
On February 9, 2018, pursuant to a one-year consulting agreement effective February 1, 2018 between the Company’s wholly-owned subsidiary, Sharing Economy Investment Limited and an individual for executive program management services rendered and to be rendered, the Company agreed to pay this consultant $192,308 to be paid by the issuance of 45,143 shares. The shares were issued in March 2018 and were valued at $180,572, or $4.00 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $180,572 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed 9,029 Shares.
On February 14, 2018, pursuant to a one-year consulting agreement effective February 20, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for interior renovation consultancy services to be rendered, the Company agreed to pay this consultant $256,410 to be paid by the issuance of 63,156 shares. The shares were issued in February 2018 and were valued at $256,413, or $4.06 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $256,413 over the service period.
On February 15, 2018, pursuant to a two-year consulting agreement effective February 20, 2018 between the Company’s wholly-owned subsidiary, EC Advertising Limited and an individual for advertising consultancy services to be rendered, the Company agreed to pay this consultant $166,667 annually to be paid by the issuance of an aggregate of 83,334 shares as follows: 41,667 shares were issued in February 2018, 41,667 shares during the sixth month from the agreement date. The initial 41,667 shares were valued at $176,668, or $4.24 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $176,668 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 41,667 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 19, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned subsidiary, EC Creative Limited and an individual for consultancy services of HR and Administration to be rendered, the Company agreed to pay this consultant $64,103 to be paid by the issuance of an aggregate of 15,410 shares as follows: 10,787 shares were issued in March 2018, 4,623 shares during the fourth month from the agreement date. The initial 10,787 shares were valued at $45,305, or $4.20 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $45,305 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 4,623 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 22, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for IT consultancy services to be rendered, the Company agreed to pay this consultant $82,051 to be paid by the issuance of an aggregate of 19,724 shares as follows: 13,807 shares were issued in March 2018, 5,917 shares during the fourth month from the agreement date. The initial 13,807 shares were valued at $57,851, or $4.19 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $57,851 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 5,917 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 28, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to be rendered, the Company agreed to pay this consultant $60,000 to be paid by the issuance of 14,635 shares. The shares were issued in March 2018 and were valued at $59,272, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $59,272 over the service period.
On February 28, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to be rendered, the Company agreed to pay this consultant $60,000 to be paid by the issuance of 15,000 shares. The shares were issued in March 2018 and were valued at $60,750, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $60,750 over the service period.
On February 28, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s subsidiary, Inspirit Studio Limited and an individual for marketing and advertising services to be rendered, the Company agreed to pay this consultant $347,436 to be paid by the issuance of 84,741 shares. The shares were issued in March 2018 and valued at $343,201, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $343,201 over the service period.
On February 28, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for consultancy and advisory services to be rendered, the Company agreed to pay this consultant $242,308 to be paid by the issuance of an aggregate of 59,100 shares as follows: 41,370 shares were issued in March 2018. 17,730 shares during the fourth month from the agreement date. The initial 41,370 shares were valued at $167,549, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $167,549 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 17,730 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
On February 28, 2018, pursuant to a one-year consulting agreement effective March 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and a consultant for computer and cloud infrastructure support advisory services to be rendered, the Company agreed to pay this consultant $138,462 to be paid by the issuance of an aggregate of 33,772 shares. The shares were valued at $136,777, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $136,777 over the service period.
On March 1, 2018, pursuant to a one-year consulting agreement effective July 1, 2018 between the Company’s wholly owned subsidiary, Sharing Film International Limited and an individual for movie and video development and production management services to be rendered, the Company agreed to pay this consultant $55,846 to be paid by the issuance of 13,722 shares. The shares were issued in March 2018 and were valued at $55,711, or $4.06 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $55,711 over the service period.
On March 5, 2018, pursuant to a four-month consulting agreement effective March 1, 2018 between the Company’s subsidiary, Inspirit Studio Limited and an individual for international business development services rendered and to be rendered, the Company agreed to pay this consultant $17,310 to be paid by the issuance of 4,132 shares. The shares were issued in March 2018 and were valued at $18,759, or $4.54 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $18,759 over the service period.
On March 5, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to be rendered, the Company agreed to pay this consultant $60,000 to be paid by the issuance of 14,320 shares. The shares were issued in March 2018 and were valued at $65,013, or $4.54 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $65,013 over the service period. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed 2,745 Shares.
On March 6, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for consultancy services as a member of the Company’s advisory board to be rendered, the Company agreed to pay this consultant $60,000 to be paid by the issuance of 14,319 shares. The shares were issued in March 2018 and were valued at $68,445, or $4.78 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $68,445 over the service period.
On April 4, 2018, pursuant to a two-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, EC Manpower Limited and an individual for business strategy and management consultancy services to be rendered, the Company agreed to pay an individual $372,000 to be paid in cash of $75,000 for the service rendered in first six months and paid by the issuance of an aggregate of 90,826 shares for the service from the seventh month as follows: 45,413 shares within 30 days from the agreement date, 45,413 shares during the seventh month from the agreement date. The initial 45,413 shares were valued at $146,230, or $3.22 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $146,230 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 45,413 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. If, on the first date when the restrictive legend on the certificate of each lot of the Shares issued to the Consultant pursuant this agreement is removed and such lot of Shares becomes freely tradeable in the NASDAQ Capital Market without restriction, the closing price of the shares drops below the issue price, the Company will compensate the Consultant for the drop in value of such lot of shares, which will be calculated by multiplying the number of shares by the difference between the closing price and the issue price ("Shortfall"). The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first or the second anniversary date of the agreement date, provided that the maximum number of shares issued for the Shortfall shall not exceed 18,166 Shares.
On April 4, 2018, pursuant to a one-year consulting agreement effective April 1, 2018 between the Company’s wholly-owned subsidiary, Sharing Economy Investment Limited and an individual for business development and operation services to be rendered, the Company agreed to pay an individual $128,205 to be paid by the issuance of an aggregate of 37,270 shares as follows: 26,089 shares within 30 days from the agreement date, 11,181 shares during the fourth month from the agreement date. The initial 26,089 shares were valued at $84,007, or $3.22 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $84,007 over the service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 11,181 share of common stock to this consultant as outlined above, provided that this Agreement is not terminated prior to date of the issuance of these shares. The initial fair values of these shares were valued at the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.
Shares issued for bonus to directors and employees
In January 2018, the Company has issued 249,870 shares as bonus to certain directors and employees for performance targets to be achieved for the year in 2018.
Common stock sold for cash
In January 2018, the Note was converted into 200,100 shares of common stock (see Note 11).
In March 2018, pursuant to a stock purchase agreement, the Company sold 69,676 shares of common stock to an investor at a purchase price of $3.68 per share for net cash proceeds a total of $256,410. The Company did not engage a placement agent with respect to these sales.
Acquisition
On January 19, 2018 (the “Closing Date”), the Company completed the acquisition of 60% of the issued and outstanding capital stock of 3D Discovery Co. Limited (“3D Discovery”), a company incorporation in Hong Kong, from its shareholders pursuant to the terms and conditions of a Sale and Purchase Agreement entered into among the Company and the 3D Discovery Stockholders on the Closing Date (the “Acquisition Agreement”). 3D Discovery is a digital marketing services provider which provides various solution such as 3D scanning and modeling, website and mobile app development, video production, and graphic design to its clients. Apart from its existing business, 3D Discovery plans to develop a mobile app which allows users to create an interactive virtual tour of a physical space by using a mobile phone camera. In connection with the acquisition, the Company issued 68,610 unregistered shares of its common stock valued at $442,535, based on the acquisition-date fair value of our common stock of $6.45 per share based on the quoted market price of the Company’s common stock on the Closing date.
On January 30, 2018 (the “Closing Date”), the Company completed the acquisition of 80% of the issued and outstanding capital stock of AnyWorkspace Limited (“AnyWorkspace”), a company incorporation in Hong Kong, from its shareholders pursuant to the terms and conditions of a Sale and Purchase Agreement entered into among the Company and the AnyWorkspace Stockholders on the Closing Date (the “Acquisition Agreement”). AnyWorkspace develops an online, real-time marketplace that connects workspace providers with clients who need temporary office and meeting spaces. In connection with the acquisition, the Company issued 106,464 unregistered shares of its common stock valued at $534,449, based on the acquisition-date fair value of our common stock of $5.02 per share based on the quoted market price of the Company’s common stock on the Closing date. |
Description of Business and Organization (Policies) |
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| Description of Business and Organization [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Going concern | Going concern
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 loss from continuing operations of $12,828,393 for the year ended December 31, 2017. The net cash used in operations were $409,791 for the year ended December 31, 2017. Additionally, during the year ended December 31, 2017, revenues, substantially all of which are derived from the manufacture and sales of textile dyeing and finishing equipment, decreased by 22.1% as compared to the year ended December 31, 2016. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that its capital resources are not currently adequate to continue operating and maintaining its business strategy for twelve months from the date of this report.
The Company may seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from bank loans, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and or classification of recorded asset amounts and or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. |
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| Basis of presentation | Basis of presentation
The Company is on a fiscal year ending December 31; as such the year ended December 31, 2017 is referred to as “fiscal 2017”, and the year ended December 31, 2016 is referred to as “fiscal 2016”. |
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| Principles of Consolidation | Principles of Consolidation
The Company’s consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Fulland, Green Power, Fulland Wind through the date of disposition, and its new subsidiaries discussed above, and the financial statements of the Company’s variable interest entities Huayang Companies Dyeing, which conducts the Company’s continuing operations, and Heavy Industries, which operated discontinued operations. All significant intercompany accounts and transactions have been eliminated in consolidation.
On December 30, 2016, the Company sold and transferred its 100% interest in Fulland Wind to an unrelated party and discontinued the Company’s forged rolled rings and related components business. Additionally, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant declines in revenues and the loss of its major customer. As such, forged rolled rings and related components segment’s and petroleum and chemical segment’s assets and liabilities have been classified on the consolidated balance sheets as assets and liabilities of discontinued operations as of December 31, 2017 and 2016. The operating results of the forged rolled rings and related components and petroleum and chemical segments have been classified as discontinued operations in our consolidated statements of operations for all years presented. Unless otherwise indicated, all disclosures and amounts in the notes to the consolidated financial statements are related to the Company’s continuing operations.
Pursuant to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities (“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s wholly foreign-owned enterprise in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On October 12, 2007, the Company entered into the following contractual arrangements with each of Dyeing and Heavy Industries:
Consulting Services Agreement. Pursuant to the exclusive consulting services agreements between Green Power and the Huayang Companies, Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of dyeing and finishing machines, electrical equipment and related components (the “Services”). Under this agreement, Green Power owns the intellectual property rights developed or discovered through research and development, in the course of providing the Services, or derived from the provision of the Services. The Huayang Companies shall pay a quarterly consulting service fees in Renminbi (“RMB”) to Fulland that is equal to all of the Huayang Companies’ profits for such quarter. To date, no such payments have been made and all profits were reinvested in the Company’s operations.
Operating Agreement. Pursuant to the operating agreement among Green Power, the Huayang Companies and all shareholders of the Huayang Companies, Green Power provides guidance and instructions on the Huayang Companies’ daily operations, financial management and employment issues. The Huayang Companies’ shareholders must designate the candidates recommended by Green Power as their representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in return, agree to pledge their accounts receivable and all of their assets to Green Power. Moreover, each of the Huayang Companies agrees that, without the prior consent of Green Power, it will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of the this agreement, with the extended term to be mutually agreed upon by the parties.
Equity Pledge Agreement. Under the equity pledge agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee the Huayang Companies’ performance of their respective obligations under the consulting services agreement. If the Huayang Companies or the Huayang Companies’ shareholders breach their respective contractual obligations, Green Power, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies’ shareholders also agreed that, upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Huayang Companies’ shareholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Huayang Companies’ shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.
Option Agreement. Under the option agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the parties.
Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, the accounts of the Huayang Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies’ sales are included in the Company’s total sales, its income from operations is consolidated with the Company’s, and the Company’s net income includes all of the Huayang Companies net income. The Company does not record non-controlling interest on these VIE’s and, accordingly, did not subtract any net income in calculating the net income of the VIEs that is attributable to the Company. Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires consolidation of the Company’s and the Huayang Companies’ financial statements.
There are substantial uncertainties regarding the interpretation, application and enforcement of PRC laws and regulations, including but not limited to the laws and regulations governing the Company’s business or the enforcement and performance of its contractual arrangements. These contractual arrangements may not be as effective in providing the Company with control over the VIEs as direct ownership. Due to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs, which exposes it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example, their interests as shareholders of the VIEs and the interests of the Company may conflict and the Company may fail to resolve such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing were to happen, the Company may have to rely on legal or arbitral proceedings to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings may cost substantial financial and other resources, and result in a disruption of its business, and the Company cannot assure that the outcome will be in its favor. In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company is unable to enforce any of these agreements, the Company would not be able to exert effective control over the affected VIEs and consequently, the results of operations, assets and liabilities of the affected VIEs and their subsidiaries would not be included in the Company's consolidated financial statements. If such were the case, the Company's cash flows, financial position and operating performance would be materially adversely affected.
The Company's agreements with respect to its consolidated VIEs are approved and in place. The Company's management believes that such agreements are enforceable, and considers it a remote possibility that PRC regulatory authorities with jurisdiction over the Company's operations and contractual relationships would find the agreements to be unenforceable under existing laws.
The carrying amount of the VIE’s assets and liabilities are included in the accompanying consolidated financial statements of the Company and are summarized as follows:
* Intercompany payables are eliminated in consolidation. |
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| Use of estimates | 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, 2017 and 2016 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. |
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| Cash and cash equivalents | 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, 2017 and 2016, cash balances held in PRC and Hong Kong banks of $952,663 and $1,480,941, respectively, are uninsured. |
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| Fair value of financial instruments | 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, 2017. The following table presents information about equipment held for sale – discontinued operations measured at fair value on a nonrecurring basis at December 31, 2016.
The Company conducted an impairment assessment on the equipment held for sale of discontinued operations based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of the equipment held for sale of discontinued operations as of December 31, 2016. Upon completion of its 2016 impairment analysis, the Company determined that the carrying value exceeded the fair market value on the equipment held for sale of discontinued operations. Accordingly, the Company recorded an impairment loss of $1,660,305 at December 31, 2016, which has been included in loss from discontinued operations, net of income taxes in the accompanying statements of operations. The Company did not have any equipment held for sale of discontinued operations at December 31, 2017.
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, deferred tax assets, receivable from sale of subsidiary, prepaid expenses and other, short-term bank loans, bank acceptance notes payable, note payable, accounts payable, accrued liabilities, advances from customers, amount due to a related party, VAT and service taxes payable 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. |
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| Concentrations of credit risk | 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.
At December 31, 2017 and 2016, the Company’s cash balances by geographic area were as follows:
* Less than 0.1% |
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| Restricted cash | Restricted cash
Restricted cash mainly consists of cash deposits held by various banks to secure bank acceptance notes payable. The Company’s restricted cash totaled $272,991 and $551,047 at December 31, 2017 and 2016, respectively. |
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| Notes receivable | Notes receivable
Notes receivable represents trade accounts receivable due from customers where the customers’ bank has guaranteed the payment of the receivable. This amount is non-interest bearing and is normally paid within six months. Historically, the Company has experienced no losses on notes receivable. The Company’s notes receivable totaled $461,292 and $133,913 at December 31, 2017 and 2016, respectively. |
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| Accounts receivable | 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, 2017 and 2016, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $8,115,876 and $1,797,476, respectively. |
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| Inventories | Inventories
Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded an inventory reserve of $313,930 and $21,177 at December 31, 2017 and 2016, respectively. |
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| Advances to suppliers | Advances to suppliers
Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $2,023,779 and $1,116,525 at December 31, 2017 and 2016, respectively. |
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| Equipment held for sale | Equipment held for sale
Long-lived assets are classified as held for sale when certain criteria are met. These criteria include: management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell. At December 31, 2016, the Company reflected certain manufacturing equipment that was previously used in the petroleum and chemical equipment segment as part of assets of discontinued operations as equipment held for sale, which was included in the assets of discontinued operations on the accompanying consolidated balance sheets. This equipment was sold in March 2017 to a third party. |
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| Property and equipment | 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. |
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| Equity method investment | Equity method investment
Investments in which the Company has the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long term assets on the consolidated balance sheets. Under this method of accounting, the Company’s share of the net earnings or losses of the investee is presented below the income tax line on the consolidated statements of operations. The Company evaluates its equity method investment whenever events or changes in circumstance indicate that the carrying amounts of such investment may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in the current period. (See Note 6). |
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| Impairment of long-lived assets | Impairment of long-lived assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. At December 31, 2017 and 2016, the Company conducted an impairment assessment on property and equipment based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of property and equipment as of December 31, 2017 and 2016. 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 2017 and 2016 impairment analysis, the Company determined that the carrying value exceeded the fair market value on certain equipment formerly used in the Company’s forging and related components, and petroleum and chemical equipment segments. Accordingly, in connection with the impairment of such equipment, the Company recorded impairment charges of $0 and $1,660,305 for the years at December 31, 2017 and 2016, respectively, which was included in loss from discontinued operations on the accompanying consolidated statements of operations and comprehensive loss. |
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| Advances from customers | Advances from customers
Advances from customers at December 31, 2017 and 2016 amounted to $2,454,375 and $427,446, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue when customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy. |
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| Revenue recognition | Revenue recognition
Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.
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.
The Company recognizes revenue from the rental of batteries when earned. |
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| Income taxes | 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, President Trump 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 34%. 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, 2017, 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, 2017 and 2016, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future. |
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| Stock-based compensation | 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.
Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award or on issuance if fully-vested and non-forfeitable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date. |
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| Shipping costs | Shipping costs
Shipping costs are included in selling expenses, general and administrative and totaled $111,776 and $141,180 for the years ended December 31, 2017 and 2016, respectively. |
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| Employee benefits | Employee benefits
The Company’s operations and employees are all located in the PRC and Hong Kong. The Company makes mandatory contributions to the PRC and Hong Kong governments’ health, retirement benefit and unemployment funds in accordance with the relevant Chinese social security laws and law of Mandatory Provident Fund in Hong Kong. The costs of these payments are charged to the same accounts as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $162,531 and $100,045 for the years ended December 31, 2017 and 2016, respectively. |
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| Research and development | Research and development
Research and development costs are expensed as incurred. The costs primarily consist of raw materials and salaries incurred for the development and improvement of the Company’s dyeing and finishing machine product line. Research and development costs totaled $420,023 and $304,054 for the years ended December 31, 2017 and 2016, respectively. |
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| Foreign currency translation | Foreign currency translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”) or Hong Kong dollars (HKD). For the subsidiaries and affiliates, whose functional currencies are the RMB or HKD, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive loss. The cumulative translation adjustment and effect of exchange rate changes on cash for the years ended December 31, 2017 and 2016 was $66,437 and $(519,152), respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries and affiliates. 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.
For operating subsidiaries and VIE’s located in the People’s Republic of China (“PRC”), asset and liability accounts at December 31, 2017 and December 31, 2016 were translated at 6.5075 RMB to $1.00 and at 6.9448 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. For operating subsidiaries in Hong Kong, asset and liability accounts at December 31, 2017 were translated at 7.8128 HKD to $1.00, which were the exchange rates on the balance sheet date. For operating subsidiaries and VIE’s located in the PRC, the average translation rates applied to the statements of operations for the years ended December 31, 2017 and 2016 were 6.7588 RMB and 6.6435 RMB to $1.00, respectively. For operating subsidiaries located in Hong Kong, the average translation rates applied to the statements of operations for the year ended December 31, 2017 was 7.8 HKD to $1.00. The Company did not have operations in Hong Kong during the 2016 periods. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. |
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| Loss per share of common stock | 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) income per share is computed by dividing net (loss) income 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) income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At December 31, 2017, common stock equivalents and potentially dilutive common stock outstanding consisted of 200,100 shares of common stock issuable upon conversion of a note payable. The Company did not have any common stock equivalents and potentially dilutive common stock outstanding during the year ended December 31, 2016. 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:
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| 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, 2017 and 2016 included net loss and unrealized loss from foreign currency translation adjustments. |
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| Noncontrolling interest | 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 income/(loss) attributable to the its noncontrolling interest be clearly identified and presented on the face of the consolidated statements of operations and comprehensive (loss). |
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| Reclassification | 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. |
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| Reverse stock split | Reverse stock split
The Company effected a one-for-four reverse stock split of its common stock on March 20, 2017. All share and per share information has been retroactively adjusted to reflect this reverse stock split. |
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| Recent accounting pronouncements | Recent accounting pronouncements
In May 2014, FASB issued an update (“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 will not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers.
In August 2016, the FASB issued ASU 2016-15 which addresses eight cash flow classification issues, eliminating the diversity in practice. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively applied as of the earliest date practicable. The adoption of ASU will not have a material impact on the Company’s consolidated financial statements.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance did not have any impact on the Company’s financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, or ASU 2017-09. ASC 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The adoption of ASU will not have a material impact on the Company’s consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features , or ASU 2017-11, which updates the guidance related to the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Under ASU 2017-11, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. ASU 2017-11 is effective for public entities for all annual and interim periods beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2017-11 will have on our consolidated financial statements.
On December 22, 2017 the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the TCJA). SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company has applied this guidance to its financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures. |
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Description of Business and Organization (Tables) |
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| Description of Business and Organization [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of carrying amount of the VIE's assets and liabilities included in the accompanying consolidated financial statements |
* Intercompany payables are eliminated in consolidation. |
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| Schedule of equipment held for sale - discontinued operations measured at fair value on a nonrecurring basis |
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| Schedule of cash balances by geographic area |
* Less than 0.1% |
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| Schedule of reconciliation of basic and diluted net loss per share |
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Acquisition (Tables) |
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| Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of estimated fair value of assets acquired and liabilities |
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Discontinued Operations (Tables) |
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| Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of discontinued operations in the Company's consolidated financial statements |
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| Summary of discontinued operations included in the Company's consolidated statements of operations |
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Accounts Receivable (Tables) |
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| Accounts Receivable/Restricted Net Assets [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of accounts receivable |
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Inventories (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of inventories |
|
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Property and Equipment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of property and equipment |
|
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Intangible Assets (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of intangible assets |
|
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| Schedule of amortization of intangible assets attributable to future periods |
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Short-Term Bank Loans (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Short-Term Bank Loans / Convertible Note Payable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of short-term bank loans |
|
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Bank Acceptance Notes Payable (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank Acceptance Notes Payable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of bank acceptance notes payable |
|
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Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of effective tax rate |
|
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| Schedule of deferred tax assets and liabilities |
|
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Accrued Expenses (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||
| Accrued Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of accrued expenses |
|
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Segment Information (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of segment information |
|
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Concentrations (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentrations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of concentrations of purchase from suppliers |
* Less than 10%. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition (Details) |
Dec. 08, 2017
USD ($)
|
|---|---|
| Acquisition [Abstract] | |
| Goodwill | $ 462,111 |
| Account receivable and prepayment | 22,898 |
| Other intangible assets | 92,249 |
| Total assets acquired at fair value | 577,258 |
| Bank Overdraft | (20) |
| Accounts payable and accrued expenses | (25,717) |
| Non-controlling interest assumed | (43,811) |
| Total liabilities and non-controlling interest assumed | (69,548) |
| Total purchase consideration | $ 507,710 |
Acquisition (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 08, 2017 |
Dec. 31, 2017 |
|
| Acquisition (Textual) | ||
| Business acquire, percentage | 51.00% | |
| Business acquisition, shares | 85,473 | |
| Business acquisition, value | $ 507,710 | |
| Business acquisition, per share | $ 5.94 | |
| Goodwill | $ 462,111 | |
| Impairment expense | $ 462,111 |
Description of Business and Organization (Details) - USD ($) |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Current assets | ||
| Accounts receivable, net | $ 9,092,709 | $ 13,922,371 |
| Inventory, net | 4,553,559 | 2,394,179 |
| Total current assets | 22,926,343 | 26,592,126 |
| Equity method investment | 9,053,859 | 8,610,759 |
| Property and equipment, net | 33,181,119 | 29,878,675 |
| Intangible assets, net | 5,394,296 | 5,283,695 |
| Total assets | 70,555,617 | 70,365,255 |
| Liabilities | ||
| Current liabilities | 9,386,537 | 5,053,219 |
| Total liabilities | 9,386,537 | 5,053,219 |
| Variable Interest Entity, Primary Beneficiary [Member] | ||
| Current assets | ||
| Cash | 806,672 | 1,477,593 |
| Accounts receivable, net | 9,059,015 | 13,922,371 |
| Inventory, net | 4,553,559 | 2,394,179 |
| Other current assets | 5,901,119 | 8,157,961 |
| Total current assets | 20,320,365 | 25,952,104 |
| Equity method investment | 9,053,859 | 8,610,759 |
| Property and equipment, net | 33,115,975 | 29,878,675 |
| Intangible assets, net | 5,302,047 | 5,283,695 |
| Total assets | 67,792,346 | 69,725,233 |
| Liabilities | ||
| Current liabilities | 7,629,783 | 4,389,641 |
| Intercompany payables | 13,855,768 | 12,194,352 |
| Total liabilities | 21,485,551 | 16,583,993 |
| Net assets | $ 46,306,795 | $ 53,141,240 |
Description of Business and Organization (Details 2) - USD ($) |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|||
|---|---|---|---|---|---|---|
| Cash balances by geographic area | ||||||
| Total cash and cash equivalents | $ 1,019,437 | $ 1,481,498 | $ 18,790,370 | |||
| Total cash and cash equivalents, percentage | 100.00% | 100.00% | ||||
| United States [Member] | ||||||
| Cash balances by geographic area | ||||||
| Total cash and cash equivalents | $ 66,774 | $ 557 | ||||
| Total cash and cash equivalents, percentage | 6.55% | [1] | ||||
| Hong Kong [Member] | ||||||
| Cash balances by geographic area | ||||||
| Total cash and cash equivalents | $ 142,944 | |||||
| Total cash and cash equivalents, percentage | 14.02% | |||||
| China [Member] | ||||||
| Cash balances by geographic area | ||||||
| Total cash and cash equivalents | $ 809,719 | $ 1,480,941 | ||||
| Total cash and cash equivalents, percentage | 79.43% | 99.96% | ||||
| ||||||
Description of Business and Organization (Details 3) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Reconciliation of basic and diluted net loss per share | ||
| Net Loss for basic and diluted attributable to common shareholders | $ (12,926,350) | $ (11,679,154) |
| From continuing operations | (12,828,393) | (1,393,222) |
| From discontinued operations | $ (97,957) | $ (10,285,932) |
| Weighted average common stock outstanding - basic and diluted | 1,832,900 | 1,189,940 |
| Net (loss) income per share of common stock | ||
| From continuing operations - basic and diluted | $ (6.99) | $ (1.17) |
| From discontinued operations - basic and diluted | (0.05) | (8.64) |
| Net (loss) income per common share - basic and diluted | $ (7.04) | $ (9.81) |
Description of Business and Organization (Details Textual) |
1 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
|
Feb. 24, 2017
shares
|
Dec. 31, 2017
USD ($)
shares
|
Dec. 31, 2016
USD ($)
shares
|
Jan. 30, 2018 |
Dec. 08, 2017 |
Dec. 30, 2016 |
Dec. 26, 2016 |
Dec. 23, 2016 |
|
| Description of Business and Organization (Textual) | ||||||||
| Cash and cash equivalents uninsured amount | $ 952,663 | $ 1,480,941 | ||||||
| Restricted cash | $ 272,991 | $ 551,047 | ||||||
| Concentration risk percentage | 10.00% | 10.00% | ||||||
| Notes receivable | $ 461,292 | $ 133,913 | ||||||
| Allowance for doubtful accounts | 8,115,876 | 1,797,476 | ||||||
| Inventory reserve | 313,930 | 21,177 | ||||||
| Impairment charges | 1,660,305 | |||||||
| Advances to suppliers | 2,023,779 | 1,116,525 | ||||||
| Advances from customers | 2,454,375 | 427,446 | ||||||
| Shipping costs | 111,776 | 141,180 | ||||||
| Employee benefit costs | 162,531 | 100,045 | ||||||
| Research and development | $ 420,023 | $ 304,054 | ||||||
| Asset and liability translation rate (RMB to USD) | 6.5075 | 6.9448 | ||||||
| Average translation rates (RMB to USD) | 6.7588 | 6.6435 | ||||||
| Reverse stock split, Description | The Company filed a certificate of change with the State of Nevada which effected a one-for-four reverse split, which became effective in the marketplace on March 20, 2017. | The Company effected a one-for-four reverse stock split of its common stock on March 20, 2017. | ||||||
| Foreign currency translation description | Asset and liability accounts at December 31, 2017 and December 31, 2016 were translated at 6.5075 RMB to $1.00 and at 6.9448 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. For operating subsidiaries in Hong Kong, asset and liability accounts at December 31, 2017 were translated at 7.8128 HKD to $1.00, which were the exchange rates on the balance sheet date. For operating subsidiaries and VIE's located in the PRC, the average translation rates applied to the statements of operations for the years ended December 31, 2017 and 2016 were 6.7588 RMB and 6.6435 RMB to $1.00, respectively. For operating subsidiaries located in Hong Kong, the average translation rates applied to the statements of operations for the year ended December 31, 2017 was 7.8 HKD to $1.00. The Company did not have operations in Hong Kong during the 2016 periods. Cash flows from the Company's operations are calculated based upon the local currencies using the average translation rate. | |||||||
| Period for non-interest bearing amount | 6 months | |||||||
| Loss from continuing operations | $ (12,828,393) | $ (1,393,222) | ||||||
| Common stock, shares authorized | shares | 12,500,000 | 12,500,000 | ||||||
| Net cash used in operation | $ (409,791) | $ (6,948,531) | ||||||
| Impairment loss - included in loss from discontinued operations | (1,660,305) | |||||||
| Cumulative translation adjustment and effect of exchange rate changes on cash | $ 66,437 | $ (519,152) | ||||||
| Green Power Environment Technology (Shanghai) Co., Ltd.[Member] | ||||||||
| Description of Business and Organization (Textual) | ||||||||
| Percentage of shareholding or ownership | 100.00% | |||||||
| Wuxi Fulland Wind Energy Equipment Co., Ltd. [Member] | ||||||||
| Description of Business and Organization (Textual) | ||||||||
| Percentage of shareholding or ownership | 100.00% | |||||||
| Dyeing [Member] | ||||||||
| Description of Business and Organization (Textual) | ||||||||
| Percentage of shareholding or ownership | 30.00% | |||||||
| Unrelated Third Party [Member] | ||||||||
| Description of Business and Organization (Textual) | ||||||||
| Percentage of shareholding or ownership | 70.00% | |||||||
| Any Workspace Limited [Member] | Subsequent Event [Member] | ||||||||
| Description of Business and Organization (Textual) | ||||||||
| Percentage of shareholding or ownership | 80.00% | |||||||
| Inspirit Studio Limited [Member] | EC Technology [Member] | ||||||||
| Description of Business and Organization (Textual) | ||||||||
| Percentage of shareholding or ownership | 51.00% | |||||||
| Minimum [Member] | ||||||||
| Description of Business and Organization (Textual) | ||||||||
| Common stock, shares authorized | shares | 50,000,000 | |||||||
| Maximum [Member] | ||||||||
| Description of Business and Organization (Textual) | ||||||||
| Common stock, shares authorized | shares | 12,500,000 | |||||||
Discontinued Operations (Details) - USD ($) |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Current assets: | ||
| Accounts receivable, net | $ 33,646 | $ 78,407 |
| Inventories, net of reserve for obsolete inventories | 31,019 | |
| Advances to suppliers | 144,583 | 200,275 |
| Equipment held for sale | 1,147,035 | |
| Prepaid expenses and other | 229,281 | 302,250 |
| Total current assets | 407,510 | 1,758,986 |
| Total assets | 407,510 | 1,758,986 |
| Current liabilities: | ||
| Accounts payable | 387,887 | 458,433 |
| Accrued expenses and other liabilities | 1,746 | 45,280 |
| Accrues from customers | 54,948 | |
| Total current liabilities | 389,633 | 558,661 |
| Total liabilities | $ 389,633 | $ 558,661 |
Discontinued Operations (Details 1) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Discontinued Operations [Abstract] | ||
| Revenues | $ 595,855 | |
| Cost of revenues | 31,872 | 1,562,774 |
| Gross (loss) profit | (31,872) | (966,919) |
| Operating expenses: | ||
| Impairment losses | 1,660,305 | |
| Other operating expenses | 66,085 | 1,124,304 |
| Total operating expenses | 66,085 | 2,784,609 |
| Loss from operations | (97,957) | (3,751,528) |
| Other expense, net | (74,997) | |
| Loss from discontinued operations before income taxes | (97,957) | (3,826,525) |
| Income taxes | ||
| Loss from discontinued operations, net of income taxes | (97,957) | (3,826,525) |
| Loss on sale / disposal of discontinued operations, net of income taxes | (6,459,407) | |
| Loss from discontinued operations, net of income taxes | $ (97,957) | $ (10,285,932) |
Accounts Receivable (Details) - USD ($) |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Components of accounts receivable | ||
| Accounts receivable | $ 17,208,585 | $ 15,719,847 |
| Less: allowance for doubtful accounts | (8,115,876) | (1,797,476) |
| Accounts receivable, net | $ 9,092,709 | $ 13,922,371 |
Inventories (Details) - USD ($) |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Components of inventories | ||
| Raw materials | $ 998,751 | $ 1,003,359 |
| Work-in-process | 2,629,570 | 639,345 |
| Finished goods | 1,239,168 | 772,652 |
| Inventory gross | 4,867,489 | 2,415,356 |
| Less: reserve for obsolete inventories | (313,930) | (21,177) |
| Inventory, net | $ 4,553,559 | $ 2,394,179 |
Inventories (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Inventories (Textual) | ||
| Obsolete inventory | $ 285,334 | $ 0 |
Equity Method Investment (Details) |
12 Months Ended | ||||
|---|---|---|---|---|---|
|
Dec. 31, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2017
CNY (¥)
|
Dec. 26, 2016
USD ($)
|
Dec. 26, 2016
CNY (¥)
|
|
| Equity Method Investment (Textual) | |||||
| Equity method investment | $ 9,053,859 | $ 8,610,759 | |||
| Mr. Xue [Member] | |||||
| Equity Method Investment (Textual) | |||||
| Agreed to invest | $ 21,500,000 | ¥ 140,000,000 | |||
| Interest received | 70.00% | 70.00% | |||
| Contributed amount | $ 9,900,000 | ¥ 60,000,000 | |||
| Remaining investment | 12,200,000 | ¥ 80,000,000 | |||
| Dyeing [Member] | |||||
| Equity Method Investment (Textual) | |||||
| Equity method investment | 9,189,397 | ¥ 59,800,000 | |||
| Agreed to invest | $ 9,200,000 | ¥ 60,000,000 | |||
| Interest received | 30.00% | 30.00% | |||
| Shengxin [Member] | |||||
| Equity Method Investment (Textual) | |||||
| Agreed to invest | $ 30,700,000 | ¥ 200,000,000 | |||
| Net loss | 130,498 | 0 | |||
| Cash | 17,300,000 | 11,300,000 | |||
| Advances to supplier | $ 614,675 | $ 144,000 | |||
Property and Equipment (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Property and Equipment (Textual) | ||
| Depreciation expense | $ 3,950,932 | $ 3,829,345 |
| Depreciation included in cost of revenues and operating expenses | 2,849,988 | 3,311,410 |
| Impairment loss - included in loss from discontinued operations | $ (1,660,305) | |
Intangible Assets (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Components of intangible assets | ||
| Intangible assets, Gross | $ 6,700,131 | $ 6,191,797 |
| Less: accumulated amortization | (1,305,835) | (908,102) |
| Intangible assets, Net | 5,394,296 | 5,283,695 |
| Land use rights [Member] | ||
| Components of intangible assets | ||
| Intangible assets, Gross | $ 4,149,181 | 3,887,915 |
| Patent use rights [Member] | ||
| Components of intangible assets | ||
| Intangible assets, useful life | 10 years | |
| Intangible assets, Gross | $ 2,458,701 | 2,303,882 |
| Other intangible assets [Member] | ||
| Components of intangible assets | ||
| Intangible assets, useful life | 3 years | |
| Intangible assets, Gross | $ 92,249 | |
| Minimum [Member] | Land use rights [Member] | ||
| Components of intangible assets | ||
| Intangible assets, useful life | 45 years | |
| Maximum [Member] | Land use rights [Member] | ||
| Components of intangible assets | ||
| Intangible assets, useful life | 50 years |
Intangible Assets (Details 1) - USD ($) |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Amortization of intangible assets attributable to future periods | ||
| 2018 | $ 354,940 | |
| 2019 | 354,940 | |
| 2020 | 354,940 | |
| 2021 | 324,190 | |
| 2022 | 324,190 | |
| Thereafter | 3,681,096 | |
| Intangible assets, Net | $ 5,394,296 | $ 5,283,695 |
Intangible Assets (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Intangible Assets (Textual) | ||
| Amortization of intangible assets | $ 324,190 | $ 189,329 |
| Land use rights expiration date | Expire on January 1, 2053 and October 30, 2053. | |
| Minimum [Member] | Land use rights [Member] | ||
| Intangible Assets (Textual) | ||
| Intangible assets, useful life | 45 years | |
| Maximum [Member] | Land use rights [Member] | ||
| Intangible Assets (Textual) | ||
| Intangible assets, useful life | 50 years | |
Convertible Note Payable (Details) - USD ($) |
1 Months Ended | |||
|---|---|---|---|---|
Jan. 08, 2018 |
Oct. 09, 2017 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Related Party Transaction [Line Items] | ||||
| Common stock conversion price | $ 3.35 | |||
| Interest related to note payable | $ 670,000 | |||
| Subsequent Events [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Converted into common stock share | 200,100 | |||
| Investor [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Investor purchased note | $ 670,000 | |||
| Bearing interest percentage | 2.00% |
Related Party Transactions (Details) - USD ($) |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Related Party Transactions (Textual) | ||
| Amounts due to related party | $ 347,589 |
Accrued Expenses (Details) - USD ($) |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Accrued Expenses [Abstract] | ||
| Accrued salaries and related benefits | $ 62,726 | $ 143,622 |
| Other payables | 103,023 | 224,773 |
| Total accrued expenses | $ 165,749 | $ 368,395 |
Income Taxes (Details) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| U.S. statutory federal rate and effective tax rate | ||
| U.S. statutory rates | 34.00% | 34.00% |
| U.S. effective rate in excess of China tax rate | (3.30%) | (4.20%) |
| Bad debt allowance | (17.90%) | (8.80%) |
| China valuation allowance | (2.10%) | |
| Effect of change in U.S statutory rate from 34% to 21% | (7.20%) | (11.60%) |
| U.S. valuation allowance | (3.50%) | (9.40%) |
| Total current provision for income taxes | 0.00% | 0.00% |
Income Taxes (Details 1) - USD ($) |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Deferred tax assets: | ||
| Net U.S. operating loss carry forward | $ 1,764,385 | $ 2,694,569 |
| Net PRC and Hong Kong operating loss carry forward | 1,252,015 | 754,143 |
| Foreign tax credit | 206,306 | |
| Allowance for doubtful accounts and reserve for obsolete inventories | 454,663 | |
| Total gross deferred tax assets | 3,222,706 | 3,903,375 |
| Less: valuation allowance | (3,222,706) | (3,516,994) |
| Net deferred tax assets | $ 386,381 |
Income Taxes (Details Textual) - USD ($) |
1 Months Ended | 12 Months Ended | |
|---|---|---|---|
Dec. 22, 2017 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Income Taxes (Textual) | |||
| Income tax effective rate description | The Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a United States corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.
|
The Income Tax Laws of PRC and Hong Kong, Chinese companies are generally subject to an income tax at an effective rate of 25% and 16.5%, respectively, on income reported in the statutory financial statements after appropriate tax adjustments.
|
|
| Net operating loss | $ (12,232,131) | $ (1,312,478) | |
| Operating loss carryforwards, expiration date | Through 2037.
|
||
| Net operating loss carryforwards | $ 827,000 | ||
| Cumulative undistributed earnings | 40,200,000 | 45,200,000 | |
| Valuation allowance on deferred tax assets | 1,092,239 | ||
| Current and deferred income taxes expense | 408,287 | ||
| Valuation allowance related to net operating loss carry forward | 3,222,706 | 3,448,712 | |
| Allowance for doubtful accounts and reserve for obsolete inventories | 313,930 | 21,177 | |
| Loss from discontinued operations | $ (97,957) | (10,285,932) | |
| Deferred tax assets benefit description | The Company has provided a 100% valuation allowance on the deferred tax asset benefit related to its U.S. and foreign net operating loss carry forwards to reduce the asset to zero.
|
||
| Estimated deemed repatriation tax | $ 5,256,000 | ||
| Allowance for doubtful accounts and reserve for inventories [Member] | |||
| Income Taxes (Textual) | |||
| Allowance for doubtful accounts and reserve for obsolete inventories | 0 | $ 68,282 | |
| Valuation allowance [Member] | |||
| Income Taxes (Textual) | |||
| Increase in allowance for deferred tax assets | 797,951 | ||
| PRC [Member] | |||
| Income Taxes (Textual) | |||
| Net operating loss carryforwards | $ 4,462,000 | ||
| Net operating loss carryforwards expire date | Dec. 31, 2022 | ||
| Foreign tax credits related to income tax | $ 982,409 | ||
| United States [Member] | |||
| Income Taxes (Textual) | |||
| Net operating loss | $ 8,402,000 | ||
Statutory Reserve (Details) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Statutory Reserve (Textual) | ||
| Appropriation to the statutory surplus reserve, description | Appropriation to the statutory reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities' registered capital or members' equity. | |
| Company had not appropriated required maximum of registered capital to statutory reserves, description | The Company appropriated the required 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries. Accordingly, no additional statutory reserve for Dyeing and Heavy Industries are required for the year ended December 31, 2017.
|
The Company appropriated the required 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries. Accordingly, no additional statutory reserve for Dyeing and Heavy Industries are required for the year ended December 31, 2017.
|
Segment Information (Details Textual) |
12 Months Ended |
|---|---|
|
Dec. 31, 2016
Segments
| |
| Segment Information (Textual) | |
| Number of reportable business segments | 3 |
Concentrations (Details) |
12 Months Ended | ||||
|---|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
||||
| Concentration of purchase from suppliers | |||||
| Concentration risk supplier, percentage | 10.00% | 10.00% | |||
| Purchase [Member] | Supplier A [Member] | |||||
| Concentration of purchase from suppliers | |||||
| Concentration risk supplier, percentage | 17.00% | 17.00% | |||
| Purchase [Member] | Supplier B [Member] | |||||
| Concentration of purchase from suppliers | |||||
| Concentration risk supplier, percentage | 12.00% | 14.00% | |||
| Purchase [Member] | Supplier C [Member] | |||||
| Concentration of purchase from suppliers | |||||
| Concentration risk supplier, percentage | 10.00% | 10.00% | |||
| Purchase [Member] | Supplier D [Member] | |||||
| Concentration of purchase from suppliers | |||||
| Concentration risk supplier, percentage | 10.00% | [1] | |||
| |||||
Concentrations (Details Textual) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Concentration (Textual) | ||
| Concentration risk percentage | 10.00% | 10.00% |
| Revenue [Member] | ||
| Concentration (Textual) | ||
| Concentration risk percentage | 14.00% | |
| Suppliers accounted for total purchase | One customer | |
| Revenue [Member] | Accounts receivable [Member] | ||
| Concentration (Textual) | ||
| Concentration risk percentage | 10.00% | 11.00% |
| Suppliers accounted for total purchase | No customer | One customer |
| Purchase [Member] | Accounts payable [Member] | ||
| Concentration (Textual) | ||
| Concentration risk percentage | 15.00% | 10.00% |
| Suppliers accounted for total purchase | One suppliers | No suppliers |
Commitment and Contingencies (Details) |
12 Months Ended | |||||
|---|---|---|---|---|---|---|
|
Aug. 04, 2017
USD ($)
days
|
Dec. 31, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2017
CNY (¥)
|
Dec. 26, 2016
USD ($)
|
Dec. 26, 2016
CNY (¥)
|
|
| Commitment and Contingencies (Textual) | ||||||
| Total equity investments amount | $ 9,053,859 | $ 8,610,759 | ||||
| Income (Loss) from Equity Method Investments | (130,498) | |||||
| Transfer Agreement [Member] | ||||||
| Commitment and Contingencies (Textual) | ||||||
| Total consideration | $ 20,000,000 | |||||
| Expiry Date | Aug. 03, 2021 | |||||
| Validity period | 4 years | |||||
| Percentage of installment of sale proceeds | 50.00% | |||||
| Period of trading days | days | 20 | |||||
| Commitments, description | The number of shares to be issued or delivered shall be an amount equal to (i) the balance due; divided by (ii) the VWAP of the shares for the period of twenty trading days immediately preceding the Expiry Date, provided always that in no circumstances shall shares be issued or delivered hereunder to the ECoin in excess of 19% of the issued and outstanding ordinary Shares of the Company. | |||||
| Mr. Xue [Member] | ||||||
| Commitment and Contingencies (Textual) | ||||||
| Agreed to invest | $ 21,500,000 | ¥ 140,000,000 | ||||
| Percentage of capital stock owned | 70.00% | 70.00% | ||||
| Contributed amount | $ 9,900,000 | ¥ 60,000,000 | ||||
| Dyeing [Member] | ||||||
| Commitment and Contingencies (Textual) | ||||||
| Agreed to invest | $ 9,200,000 | ¥ 60,000,000 | ||||
| Percentage of capital stock owned | 30.00% | 30.00% | ||||
| Total equity investments amount | $ 9,189,397 | ¥ 59,800,000 | ||||
| Shengxin [Member] | ||||||
| Commitment and Contingencies (Textual) | ||||||
| Agreed to invest | $ 30,700,000 | ¥ 200,000,000 | ||||
Restricted Net Assets (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Restricted Net Assets (Textual) | ||
| Company's restricted net assets | $ 50,873,000 | $ 57,324,000 |
| Annual appropriations required by statutory reserve fund, description | At least 10% of after-tax profit, if any, of the relevant PRC VIEs and subsidiary. |
Subsequent Events (Details) - USD ($) |
1 Months Ended | 12 Months Ended | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 04, 2018 |
Mar. 31, 2018 |
Mar. 06, 2018 |
Mar. 05, 2018 |
Mar. 01, 2018 |
Feb. 28, 2018 |
Feb. 22, 2018 |
Feb. 19, 2018 |
Feb. 15, 2018 |
Feb. 14, 2018 |
Feb. 09, 2018 |
Feb. 06, 2018 |
Feb. 05, 2018 |
Jan. 31, 2018 |
Jan. 30, 2018 |
Jan. 28, 2018 |
Jan. 24, 2018 |
Jan. 19, 2018 |
Jan. 17, 2018 |
Jan. 05, 2018 |
Jan. 02, 2018 |
Nov. 10, 2017 |
Jun. 06, 2016 |
Jul. 18, 2016 |
Jun. 24, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 08, 2017 |
|
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 3,325,033 | $ 990,280 | ||||||||||||||||||||||||||
| Stock-based professional fees | $ 41,583 | $ 2,150 | ||||||||||||||||||||||||||
| Sale of common stock shares | 57,500 | 65,000 | 57,500 | |||||||||||||||||||||||||
| Purchase price of per share | $ 4.00 | $ 4.16 | $ 4.40 | |||||||||||||||||||||||||
| Acquisition-date fair value of common stock | $ 5.94 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Converted into shares of common stock | 200,100 | |||||||||||||||||||||||||||
| Sale of common stock shares | 69,676 | |||||||||||||||||||||||||||
| Purchase price of per share | $ 3.68 | |||||||||||||||||||||||||||
| Net cash proceeds | $ 256,410 | |||||||||||||||||||||||||||
| Percentage of acquisition issued and outstanding capital stock | 80.00% | 60.00% | ||||||||||||||||||||||||||
| Unregistered shares of its common stock, shares | 106,464 | 68,610 | ||||||||||||||||||||||||||
| Unregistered shares of its common stock | $ 534,449 | $ 442,535 | ||||||||||||||||||||||||||
| Acquisition-date fair value of common stock | $ 5.02 | $ 6.45 | ||||||||||||||||||||||||||
| Subsequent Events [Member] | Directors and employees [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Issued shares | 249,870 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Consultant For Business Development Services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 300,000 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 75,000 | |||||||||||||||||||||||||||
| Additional share of common stock | 35,000 | |||||||||||||||||||||||||||
| Business development services, description | 40,000 shares were issued in January 2018, 35,000 shares during the sixth month from the agreement date. The initial 40,000 shares were valued at $303,200, or $7.58 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $303,200 over the service period. | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, EC Technology & Innovations Limited and a consultant for blockchain technological development services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 360,000 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 45,000 | |||||||||||||||||||||||||||
| Consulting agreement, description | The Company agreed to pay this consultant $360,000 to be paid by the issuance of 45,000 shares within 30 days from the date of agreement (or such longer period as shall be required to fulfil the relevant laws, regulations and rules in the United States of America for the issue of shares). The shares were valued at $312,750, or $6.95 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 312,750 | |||||||||||||||||||||||||||
| Effective date | Jan. 17, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Subsidiary, Inspirit Studio Limited and four individuals for business development services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 412,106 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 70,206 | |||||||||||||||||||||||||||
| Consulting agreement, description | 70,206 shares (27,931 , 15,455 , 14,065 and 12,755 shares, respectively) The shares were issued in February 2018 and were valued at $353,838, or $5.04 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 353,838 | |||||||||||||||||||||||||||
| Common stock for accounting services | 14,041 | |||||||||||||||||||||||||||
| Average closing price, description | The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed 14,041 Shares (5,586, 3,091, 2,813 and 2,551 shares, respectively) | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, EC Manpower Limited and an individual for market education development services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Market education development services, description | Effective January 1, 2018 between the Company's wholly-owned subsidiary, EC Manpower Limited and an individual for market education development services rendered and to be rendered, the Company agreed to pay this consultant $1,282 per month payable in arrear; and $128,205 to be paid by the issuance of 18,315 shares. The shares were issued in February 2018 and were valued at $92,308, or $5.04 per share, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with the issuance of these shares, the Company shall record stock-based professional fees of $92,308 over the service period. | |||||||||||||||||||||||||||
| Effective date | Jan. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, EC Rental Limited and an individual for business development services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 128,205 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 26,325 | |||||||||||||||||||||||||||
| Additional share of common stock | 8,775 | |||||||||||||||||||||||||||
| Consulting agreement, description | 17,550 shares were issued in February 2018, 8,775 shares during the third month from the agreement date. The initial 17,550 shares were valued at $84,065, or $4.79 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 84,065 | |||||||||||||||||||||||||||
| Effective date | Feb. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, EC Advertising Limited and an individual for marketing and advertising services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 230,769 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 92,308 | |||||||||||||||||||||||||||
| Additional share of common stock | 46,154 | |||||||||||||||||||||||||||
| Consulting agreement, description | 46,154 shares were issued in February 2018, 46,154 shares during the sixth month from the agreement date. The initial 46,154 shares were valued at $238,154, or $5.16 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 238,154 | |||||||||||||||||||||||||||
| Effective date | Feb. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, Sharing Economy Investment Limited and a consultant for legal support services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 230,769 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 51,800 | |||||||||||||||||||||||||||
| Additional share of common stock | 16,800 | |||||||||||||||||||||||||||
| Consulting agreement, description | 35,000 shares were issued in March 2018, 16,800 shares during the third month from the agreement date. The initial 35,000 shares were valued at $153,650, or $4.39 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 153,650 | |||||||||||||||||||||||||||
| Effective date | Mar. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Subsidiary, Inspirit Studio Limited and an individual for business development services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 107,770 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 24,164 | |||||||||||||||||||||||||||
| Consulting agreement, description | The shares were issued in March 2018 and were valued at $106,080, or $4.39 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 106,080 | |||||||||||||||||||||||||||
| Common stock for accounting services | 4,833 | |||||||||||||||||||||||||||
| Average closing price, description | The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first day, provided that the maximum number of shares issued for the Shortfall shall not exceed 4,833 Shares. | |||||||||||||||||||||||||||
| Effective date | Apr. 16, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, Sharing Economy Investment Limited and an individual for executive program management services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 192,308 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 45,143 | |||||||||||||||||||||||||||
| Consulting agreement, description | The shares were issued in March 2018 and were valued at $180,572, or $4.00 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 180,572 | |||||||||||||||||||||||||||
| Common stock for accounting services | 9,029 | |||||||||||||||||||||||||||
| Average closing price, description | The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed 9,029 Shares. | |||||||||||||||||||||||||||
| Effective date | Feb. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, EC Manpower Limited and an individual for interior renovation consultancy services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 256,410 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 63,156 | |||||||||||||||||||||||||||
| Consulting agreement, description | The shares were issued in February 2018 and were valued at $256,413, or $4.06 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 256,413 | |||||||||||||||||||||||||||
| Effective date | Feb. 20, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, EC Creative Limited and an individual for consultancy services of HR and Administration [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 64,103 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 15,410 | |||||||||||||||||||||||||||
| Additional share of common stock | 4,623 | |||||||||||||||||||||||||||
| Consulting agreement, description | 10,787 shares were issued in March 2018, 4,623 shares during the fourth month from the agreement date. The initial 10,787 shares were valued at $45,305, or $4.20 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 45,305 | |||||||||||||||||||||||||||
| Effective date | Mar. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, EC Manpower Limited and an individual for IT consultancy services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 82,051 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 19,724 | |||||||||||||||||||||||||||
| Additional share of common stock | 5,917 | |||||||||||||||||||||||||||
| Consulting agreement, description | 13,807 shares were issued in March 2018, 5,917 shares during the fourth month from the agreement date. The initial 13,807 shares were valued at $57,851, or $4.19 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 57,851 | |||||||||||||||||||||||||||
| Effective date | Mar. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, EC Manpower Limited and an individual for consultancy services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 60,000 | $ 60,000 | $ 60,000 | |||||||||||||||||||||||||
| Common stock issued for services, shares | 14,319 | 14,320 | 15,000 | |||||||||||||||||||||||||
| Consulting agreement, description | The shares were issued in March 2018 and were valued at $68,445, or $4.78 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | The shares were issued in March 2018 and were valued at $65,013, or $4.54 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | The shares were issued in March 2018 and were valued at $60,750, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||
| Stock-based professional fees | $ 68,445 | $ 65,013 | $ 60,750 | |||||||||||||||||||||||||
| Common stock for accounting services | 2,745 | |||||||||||||||||||||||||||
| Average closing price, description | The Company will pay for the Shortfall within 30 days after the end of the service period by causing the Company to issue shares at the average closing price of the 5 trading days immediately before that first date, provided that the maximum number of shares issued for the Shortfall shall not exceed 2,745 Shares. | |||||||||||||||||||||||||||
| Effective date | Apr. 01, 2018 | Apr. 01, 2018 | Apr. 01, 2018 | |||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, EC Manpower Limited and a consultant for consultancy and advisory services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 242,308 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 59,100 | |||||||||||||||||||||||||||
| Additional share of common stock | 17,730 | |||||||||||||||||||||||||||
| Consulting agreement, description | 41,370 shares were issued in March 2018. 17,730 shares during the fourth month from the agreement date. The initial 41,370 shares were valued at $167,549, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 167,549 | |||||||||||||||||||||||||||
| Effective date | Mar. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, EC Manpower Limited and a consultant for computer and cloud infrastructure support advisory services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 138,462 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 33,772 | |||||||||||||||||||||||||||
| Consulting agreement, description | The shares were valued at $136,777, or $4.05 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 136,777 | |||||||||||||||||||||||||||
| Effective date | Mar. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly owned subsidiary, Sharing Film International Limited and an individual for movie and video development and production management services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 55,846 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 13,722 | |||||||||||||||||||||||||||
| Consulting agreement, description | The shares were issued in March 2018 and were valued at $55,711, or $4.06 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 55,711 | |||||||||||||||||||||||||||
| Effective date | Jul. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Subsidiary, Inspirit Studio Limited and an individual for international business development services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 17,310 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 4,132 | |||||||||||||||||||||||||||
| Consulting agreement, description | The shares were issued in March 2018 and were valued at $18,759, or $4.54 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 18,759 | |||||||||||||||||||||||||||
| Effective date | Mar. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | One-year consulting agreement [Member] | Wholly-owned subsidiary, Sharing Economy Investment Limited and an individual for business development and operation services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 128,205 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 37,270 | |||||||||||||||||||||||||||
| Additional share of common stock | 11,181 | |||||||||||||||||||||||||||
| Consulting agreement, description | 26,089 shares within 30 days from the agreement date, 11,181 shares during the fourth month from the agreement date. The initial 26,089 shares were valued at $84,007, or $3.22 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 84,007 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | Two-year consulting agreement [Member] | Wholly-owned subsidiary, EC Manpower Limited and an individual for business development services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 276,000 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 80,000 | |||||||||||||||||||||||||||
| Additional share of common stock | 60,000 | |||||||||||||||||||||||||||
| Consulting agreement, description | 20,000 shares were issued in February 2018, 20,000 shares during the sixth month from the agreement date, and 40,000 shares during the twelfth month from the agreement date. The initial 20,000 shares were valued at $181,800, or $9.09 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 181,800 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | Two-year consulting agreement [Member] | Wholly-owned subsidiary, EC Manpower Limited and three consultants for business development services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 384,618 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 139,872 | |||||||||||||||||||||||||||
| Additional share of common stock | 104,904 | |||||||||||||||||||||||||||
| Consulting agreement, description | 139,872 shares (46,624 shares each) as follows: 34,968 shares (11,656 shares each) were issued in February 2018. 34,968 shares (11,656 shares each) during the sixth month from the agreement date, 34,968 shares (11,656 shares each) during the 12th month from the agreement date, and 34,968 shares (11,656 shares each) during the 18th month from the agreement date. The initial 34,968 shares were valued at $225,544, or $6.45 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 225,544 | |||||||||||||||||||||||||||
| Common stock for accounting services | 13,989 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | Two-year consulting agreement [Member] | Wholly-owned subsidiary, EC Rental Limited and an individual for business development services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 230,769 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 92,308 | |||||||||||||||||||||||||||
| Additional share of common stock | 46,154 | |||||||||||||||||||||||||||
| Business development services, description | 46,154 shares were issued in February 2018, 46,154 shares during the sixth month from the agreement date. The initial 46,154 shares were valued at $238,154, or $5.16 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 238,154 | |||||||||||||||||||||||||||
| Effective date | Feb. 01, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | Two-year consulting agreement [Member] | Wholly-owned subsidiary, EC Advertising Limited and an individual for advertising services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 192,308 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 88,500 | |||||||||||||||||||||||||||
| Additional share of common stock | 44,250,000,000,000,000 | |||||||||||||||||||||||||||
| Consulting agreement, description | 44,250 shares were issued in February 2018, 44,250 shares during the sixth month from the agreement date. The initial 44,250 shares were valued at $192,930, or $4.36 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 192,930 | |||||||||||||||||||||||||||
| Effective date | Feb. 20, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | Two-year consulting agreement [Member] | Wholly-owned subsidiary, EC Advertising Limited and an individual for advertising consultancy services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 166,667 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 83,334 | |||||||||||||||||||||||||||
| Additional share of common stock | 41,667 | |||||||||||||||||||||||||||
| Consulting agreement, description | 41,667 shares were issued in February 2018, 41,667 shares during the sixth month from the agreement date. The initial 41,667 shares were valued at $176,668, or $4.24 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 176,668 | |||||||||||||||||||||||||||
| Effective date | Feb. 20, 2018 | |||||||||||||||||||||||||||
| Subsequent Events [Member] | Two-year consulting agreement [Member] | Wholly-owned subsidiary, EC Manpower Limited and an individual for business strategy and management consultancy services [Member] | ||||||||||||||||||||||||||||
| Subsequent Events (Textual) | ||||||||||||||||||||||||||||
| Common stock issued for services, value | $ 372,000 | |||||||||||||||||||||||||||
| Common stock issued for services, shares | 75,000 | |||||||||||||||||||||||||||
| Additional share of common stock | 45,413 | |||||||||||||||||||||||||||
| Consulting agreement, description | The service rendered in first six months and paid by the issuance of an aggregate of 90,826 shares for the service from the seventh month as follows: 45,413 shares within 30 days from the agreement date, 45,413 shares during the seventh month from the agreement date. The initial 45,413 shares were valued at $146,230, or $3.22 per share, the fair market value on the grant date using the reported closing share price on the date of grant. | |||||||||||||||||||||||||||
| Stock-based professional fees | $ 146,230 | |||||||||||||||||||||||||||
| Common stock for accounting services | 18,166 | |||||||||||||||||||||||||||
| Average closing price, description | The Company will pay for the Shortfall annually by causing the Company to issue shares at the average closing price of the 5 trading days immediately before the first or the second anniversary date of the agreement date, provided that the maximum number of shares issued for the Shortfall shall not exceed 18,166 Shares. | |||||||||||||||||||||||||||
| Effective date | Apr. 01, 2018 | |||||||||||||||||||||||||||
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