Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Listing status

On November 26, 2018, Sharing Economy International Inc. (the "Company") received a staff determination notice from The Nasdaq Stock Market ("Nasdaq") informing the Company that as a result of its failure to comply with Nasdaq's shareholder approval requirements set forth in Listing Rule 5635(c) (the "Rule"), the staff determined to deny the Company's request for continued listing based on a plan of compliance submitted on October 26, 2018. The Company's common stock was delisted from Nasdaq at the open of trading on December 5, 2018. The Company's common stock is currently trading on the OTC Markets under the symbol "SEII".

Principles of consolidation

The Company's unaudited condensed consolidated financial statements include the financial statements of its wholly-owned and majority owned subsidiaries, as well as the financial statements of the Huayang Companies, including 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. 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 customers. As such, 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 September 30, 2019 and December 31, 2018. The operating results of the petroleum and chemical segment have been classified as discontinued operations in our consolidated statements of operations for all periods 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.

Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires the Company to consolidate the Huayang Companies in its financial statements as if they are wholly-owned subsidiaries of the Company.

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in the nine months ended September 30, 2019 and 2018 include the allowance for doubtful accounts on accounts and other receivables, the allowance for inventory reserve, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets, and the value of stock-based compensation.

Cash and cash equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains with various financial institutions mainly in the PRC, Hong Kong and the U.S. As of September 30, 2019 and December 31, 2018, cash balances held in PRC and Hong Kong banks of $92,864 and $774,316, respectively, are uninsured.

Fair value of financial instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, receivable from sale of subsidiary, prepaid expenses and other, short-term bank loans, bank acceptance notes payable, convertible note payable, accounts payable, accrued expenses, advances from customers, amounts due to related parties, and income taxes payable approximate their fair market value based on the short-term maturity of these instruments .

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.

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 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 accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. 

Accounts receivable

Accounts receivable are presented net of allowance for doubtful accounts. The Company maintains allowance 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 September 30, 2019 and December 31, 2018, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $10,632,575 and $9,527,060, respectively. 

For the nine months ended September 30, 2019 and 2018, bad debt expense amounted to $4,307,234, and $1,285,990, 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 $4,643,524 and $1,212,706 as of September 30, 2019 and December 31, 2018, respectively.

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of operations in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. Impairment loss has been recorded in current period

For the three months ended September 30, 2019 and 2018, depreciation expense amounted to $709,120 and $979,203, respectively, of which $598,502 and $705,648, respectively, was included in cost of revenues, and the remainder was included in operating expenses.

For the nine months ended September 30, 2019 and 2018, depreciation expense amounted to $2,097,816 and $3,080,857, respectively, of which $1,614,959 and $2,218,554, respectively, was included in cost of revenues, and the remainder was included in operating expenses.

As of September 30, 2019, the Company conducted an impairment assessment on property and equipment. Accordingly, the Company recorded an impairment loss of $13,355,958 on certain equipment and buildings for the nine months ended September 30, 2019. For the nine months ended September 30, 2018, the impairment loss was $0. 

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 under other income (expense) 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. A loss would be recorded if a decline in the value of an equity method investment is determined to be other than temporary (see Note 7).

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.

Additionally, effective January 1, 2017, the Company adopted the Accounting Standards Update No. 2016-09 ("ASU 2016-09"), Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on the Company's consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 in the fourth quarter of 2018 and there was no cumulative effect of adoption.

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 $180,256 and $196,299 for the nine months ended September 30, 2019 and 2018, 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 nine months ended September 30, 2019 and 2018 was $(261,836) and $(274,378), respectively.

The Company did not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

For operating subsidiaries and VIEs located in the People's Republic of China ("PRC"), asset and liability accounts as of September 30, 2019 and December 31, 2018 were translated at 7.1363 RMB to $1.00 and at 6.8778 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 as of September 30, 2019 and December 31, 2018 were translated at 7.8396 and 7.8305 HKD to $1.00, respectively, which were the exchange rates on the balance sheet date. For operating subsidiaries and VIEs located in the PRC, the average translation rates applied to the statements of operations for the nine months ended September 30, 2019 and 2018 were 6.8609 RMB and 6.5187 RMB to $1.00, respectively. For operating subsidiaries located in Hong Kong, the average translation rates applied to the statements of operations for the nine months ended September 30, 2019 and December 31, 2018 were 7.8 HKD and 7.8 HKD to $1.00. 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

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company did not have any common stock equivalents or potentially dilutive common stock outstanding during the three and nine months ended September 30, 2019 and 2018. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. 

The following table presents a reconciliation of basic and diluted net loss per share:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net loss for basic and diluted attributable to common shareholders	$	(1,068,228	)	$	(18,196,461	)	$	(28,102,387	)	$	(28,779,651	)
From continuing operations		(1,068,228	)		(18,196,076	)		(28,102,387	)		(28,796,137	)
From discontinued operations		-			(385	)		-			16,486
Weighted average common stock outstanding – basic and diluted		9,278,106			7,100,416			8,866,755			3,598,265
Net loss per share of common stock
From continuing operations – basic and diluted	$	(0.12	)	$	(2.56	)	$	(3.17	)	$	(8.00	)
From discontinued operations – basic and diluted		-			(0.00	)		-			0.01
Net loss per common share – basic and diluted	$	(0.12	)	$	(2.56	)	$	(3.17	)	$	(7.99	)

Comprehensive loss

Comprehensive loss is comprised of net loss and all changes to the statements of stockholders' equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended September 30, 2019 and 2018 included net loss and unrealized (loss) gain from foreign currency translation adjustments. 

Reclassification

Certain reclassifications have been made in prior period's consolidated financial statements to conform to the current year's financial presentation. The reclassifications have no effect on previously reported net loss.

Recent accounting pronouncements

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". Under ASU 2016-02, lessees will be required to recognize all leases (with the exception of short-term leases) at the commencement date including a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use (ROU) asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In December 2017, January 2018, July 2018, December 2018 and March 2019, the FASB issued ASU 2017-13, ASU 2018-01, ASU 2018-10 & 11, ASU 2018-20 and ASU 2019-01, respectively, which contain modifications and improvements to ASU 2016-02. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under the Optional Transition Method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. On January 1, 2019, the Company adopted ASC Topic 842 using the modified retrospective approach and elected to utilize the Optional Transition Method. In addition, the Company elected the land easement transition practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease. The adoption did not impact the Company's previously reported consolidated financial statements nor did it result in a cumulative effect adjustment to retained earnings as of January 1, 2019. 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment. ASU 2018-07 aligns the accounting for share based payments granted to non-employees with that of share based payments granted to employees. The Company early adopted ASU No. 2018-07 in the fourth quarter of 2018 and there was no cumulative effect of adoption. The adoption of this ASU did not have a material impact on our financial position, results of operations, cash flows, or presentation thereof.