Wuxi, Jiangsu Province, China – November 13, 2018 – Sharing Economy International Inc. (“SEII” or “the Company”) (SEII), a clean technology and sharing economy company that designs, manufactures and distributes of proprietary high and low temperature dyeing and finishing machinery to the textile industry, and is engaged in the development of sharing economy platforms and rental related businesses, today announced its financial results for quarter ended September 30, 2018.
“In the third quarter of 2018, our textile customers in China continued to face challenging conditions such as tight credit, rising raw materials costs and forced closures by the Chinese government which depressed sales and margins during the quarter. This environment also led to our decision to record a $1.9 million impairment on the ozone-ultrasonic patent technology we acquired in August 2016, as we do not believe our customers will be in a position to buy next-generation dying machines based on this technology in the foreseeable future. Our quarterly financial results were also impacted by an $8.9 million loss on our solar farm equity method investment following the Chinese government’s halt on new solar farm installations and reduced subsidies for solar farms already under construction,” said Mr. Jianhua Wu, Chairman and CEO of SEII. “As we look to the future, we are seeking to identify new revenue drivers in both our traditional manufacturing business and, more importantly, our sharing economy businesses. We are moving forward in developing new businesses in fast growing industries such as coworking spaces, online rental sharing and peer-to-peer errand services. We are also making good progress with our initiatives in 3D virtual tours, online advertising and see strong potential in our latest acquisition, Gagfare.”
Mr. Parkson Yip, Vice President of SEII, commented, “Our sharing economy business units are all gaining momentum. During the quarter, BuddiGo, our sharing platform that provides on-demand delivery of items including packages, flowers, cakes and food delivery by ‘buddies’ who can spare idle time to run errands in the Hong Kong market, began online promotions featuring KOLs, driving increases in both buy-side and sell-side users. Our flexible workspace offering, Anyworkspace, saw a 44% increase in website traffic from the second quarter of 2018 and successfully extended its footprint to India with the addition of space providers in New Delhi and Gurgaon. Anyworkspaces’ website rebuild is expected to be completed by year-end, which should help us better monetize advertising opportunities and attract more users in the year ahead.
“Our 3D Discovery business unit currently has contracts totaling approximately $278,000 which are expected to be completed by year end, and Autocap, a mobile application which allows users to create a virtual tour of a physical space on their own without the help of specialized 360 camera equipment, is on track to launch its iOS version in Australia by mid-2019. At EC Advertising, our inhouse online advertising unit that supports Buddigo, Anyworkspace and 3D Discovery, we established a new wholly-owned subsidiary in Mainland China and expect to sign new clients and launch marketing campaigns toward the end of 2018 and in early 2019. Finally, we continue to develop our peer-to-peer rental sharing economy in Asia through our license agreement with ECrent. During the quarter, our sublicensee in South Korea, PTI Corporation, commenced prelaunch activities to develop the platform and we hope to enter other Asian countries in the year ahead,” Mr. Yip concluded.
Third Quarter 2018 Results
Revenue for the third quarter of 2018 decreased by 4.3% to $2.5 million, compared to $2.6 million in the third quarter of 2017. The Company’s dyeing and finishing business generated substantially all revenue in the third quarter of 2018 since the forged rolled rings and related products and petroleum and chemical equipment businesses were discontinued in 2016 and the new sharing economy businesses are still in an early stage. Revenues from the dyeing and finishing business declined due to an anticipated slowdown in shipments of low-emission airflow dyeing machines as many companies in the dyeing industry had already upgraded to new models and did not require additional equipment, and orders for new low-emission airflow dyeing machines continued to slow down in 2018 as potential customers did not have the financial resources or credit to purchase equipment. In addition, 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, which contributed to the decline in revenues. Revenues from the sharing economy businesses were $73,000 in the third quarter of 2018, compared to $24,000 in the third quarter of 2017.
Gross loss for the third quarter of 2018 was $1.7 million compared to gross loss of $446,000 for the same period in 2017. Gross margin was negative 68.6% during the third quarter of 2018 compared to negative 17.0% for the same period in 2017. The gross margin for the third quarter of 2018 was impacted by 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.
Operating expenses increased to $7.8 million, compared to $3.7 million in the third quarter of 2017. The increase was due to $4.4 million in professional fees in the form of stock-based compensation related to implementing a new business plan with the objective of improving long-term growth. In addition, the Company recorded an impairment loss of $1.9 million related to a patent purchased in August 2016 that covers ozone-ultrasonic textile dyeing equipment. Due to the challenging conditions facing its customers, increasing raw materials prices and labor costs, it is unlikely that customers will purchase new equipment based on the patent and therefore the patent is not expected to yield significant value to the Company.
Other expense was $9.1 million, compared to other expense of $68,000 in the third quarter of 2017. The increase was due to an $8.9 million loss in equity investment in Shengxin, a developer and designer of solar farms in China. In April 2018, Shengxin secured and invested in a large solar PV project in GuiZhou province, paid RMB40.0 million for the project rights and also engaged a local contractor to proceed with building the project. However, on June 1, 2018, the Chinese government halted installation of new solar farms for the remainder of the year and reduced subsidies for projects already under construction. Due to significant doubt about the status of this project and recoverability of the Company’s investment, the Company fully impaired the value of its investment during the third quarter of 2018.
Loss from continuing operations was $18.6 million, or $(2.56) per basic and diluted share, compared to loss from continuing operations of $4.2 million, or $(2.10) per basic and diluted share in the third quarter of 2017.
Loss from discontinued operations (Refer to “Discontinued Operations” discussion below) was $385, or $0.00 per basic and diluted share. This compares to $71,339 or $(0.04) in the third quarter of 2017.
Net loss attributable to common shareholders was $18.2 million, or $(2.56) per basic and diluted share, compared a net loss attributable to common shareholders of $4.3 million, or $(2.14) per basic and diluted share in the third quarter of 2017.
Basic and diluted earnings per share were based on 7,100,416 and 1,988,794 weighted average shares outstanding, respectively, for the quarters ended September 30, 2018 and 2017. The increase in weighted average shares was due to shares issued as stock-based compensation, common stock issued for acquisitions, conversion of a convertible note and the sale of common shares during the quarter. All share and per share information has been adjusted to reflect a 1-for-4 reverse stock split effective March 20, 2017.
Nine Month Results
For the nine months ended September 30, 2018, revenue was $7.7 million compared to $11.0 in the first nine months of 2017. Gross loss was $2.8 million, compared to gross profit of $582,000 in the first nine months of 2017. Gross margin was negative 36.7%, compared to 5.3% in the first nine months of 2017. Loss from continuing operations was $29.5 million, or $(8.00) per basic and diluted share, compared to a loss from continuing operations of $4.8 million, or $(2.96) per basic and diluted share for the same period in 2017. Gain from discontinued operations was $16,000 for the first nine months of 2018, compared to a loss from discontinued operations of $71,000 for the first nine months of 2017. Net loss attributable to common shareholders for the first nine months of 2018 was $28.8 million, or $(7.99) per basic and diluted share, compared to a net loss attributable to common shareholders of $4.9 million, or ($3.00) per basic and diluted share, in the first nine months of 2017. Basic and diluted earnings per share were based on 3,598,265 and 1,635,223 weighted average shares outstanding, respectively, for the nine months ended September 30, 2018, and 2017.
As of September 30, 2018, SEII held cash and cash equivalents of $707,000 compared to $1.0 million at December 31, 2017. Accounts receivable were $4.8 million compared to $9.1 million at December 31, 2017. Inventories were $5.3 million compared to $4.6 million at December 31, 2017. The Company had $3.0 million in short-term bank loans payable and short-term convertible debt at September 30, 2018, down from $3.2 million at December 31, 2017. Working capital was $17.6 million at September 30, 2018, compared to $13.5 million at December 31, 2017. Stockholders’ equity was $50.3 million at September 30, 2018.
In the first nine months of 2018, the Company used $3.2 million in cash flow from operations. The Company used $72,000 in cash flow from investing activities, primarily due to cash used for the purchase of property and equipment in Wuxi, China. The Company generated $3.1 million in cash flow from financing activities, primarily due to proceeds from a convertible promissory note, the sale of common stock and an advance from a related party.
On December 30, 2016, the Company sold and transferred 100% of the stock of Wuxi Fulland Wind Energy Equipment Co., Ltd. (“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, the assets and liabilities of these two segments have been classified on the consolidated balance sheet as assets and liabilities of discontinued operations as of September 30, 2018 and December 31, 2017 and the operating results have been classified as discontinued operations in the consolidated statements of operations for all years presented.
On August 17, 2018, SEIL has entered into a Sale and Purchase Agreement with the shareholder of Gagfare Limited (“Gagfare”), to acquire 60% ownership of Gagfare. SEIL will acquire 60% of Gagfare for US$3.6 million, which shall be satisfied by the allotment and issuance of 1,176,087 preferred shares of the Company at a price of $3.061 per share. Gagfare is an online platform enabling travelers to search flights directly with over 500 airlines globally, allowing them to get the best-value airfare for their desired flight and secure a confirmed, impartial best airfare on their desired flight instantly. The acquisition has not yet been completed subject to certain conditions as stipulated in the Agreement, and the expiration date has been extended from October 18, 2018 to January 18, 2019 by mutual agreement of both parties.
On October 8, 2018, the Company received a staff deficiency notice from The Nasdaq Stock Market (“Nasdaq”) informing the Company that it has failed to comply with Nasdaq’s shareholder approval requirements set forth in Listing Rule 5635(c) (the “Rule”). During the period from May 11, 2017 to date, the Company entered into approximately one hundred arrangements resulting in the issuance or potential issuance of more than three million shares to officers, directors, employees, and consultants (“Equity Compensation Grants”). The Company did not receive shareholder approval for the Equity Compensation Grants, and the shares were not issued from a shareholder approval equity compensation plan. The Company submitted its plan to regain compliance on October 26, 2018. If the plan is accepted, Nasdaq can grant an extension of up to one hundred eighty calendar days from October 8, 2018 to evidence compliance. The Company believes that it has otherwise been compliant with its filing obligations pursuant to the Securities Exchange Act of 1934, as amended, including making all appropriate disclosures to the marketplace. The Company is currently doing everything possible to cure its deficiencies regarding the Rule.
About Sharing Economy International Inc.
Sharing Economy International Inc., through its affiliated companies, designs, manufactures and distributes a line of proprietary high and low temperature dyeing and finishing machinery to the textile industry. 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. Moreover, the Company will actively pursue blockchain technology in its existing and to-be-acquired business, enabling the general public to realize the beauty of resource sharing. For more information visit www.seii.com.
Safe Harbor Statement
This release contains certain “forward-looking statements” relating to the business of the Company and its subsidiary and affiliated companies and certain potential transactions that they may enter into. These forward looking statements are often identified by the use of forward looking terminology such as “believes,” “expects” or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company’s periodic reports that are filed with the Securities and Exchange Commission and available on its website, including factors described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-Q for the quarter ended September 30, 2018 and Form 10-K for the year ended December 31, 2017. All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by these factors other than as required under the securities laws. The Company does not assume a duty to update these forward-looking statements.
Sharing Economy International Inc.
Mr. Parkson Yip
Vice President of Strategic Business Development
Joseph Chow, Director of Investor Relations
– Financial Tables Follow –
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|September 30,||December 31,|
|Cash and cash equivalents||$||707,101||$||1,019,437|
|Accounts receivable, net of allowance for doubtful accounts||4,828,813||9,092,709|
|Inventories, net of reserve for obsolete inventories||5,264,334||4,553,559|
|Advances to suppliers||1,231,022||2,023,779|
|Receivable from sale of subsidiary||2,790,008||2,950,442|
|Prepaid license fee – related party, net||829,787||–|
|Prepaid expenses and other||10,798,533||2,144,624|
|Assets of discontinued operations||211,722||407,510|
|Total current assets||26,826,033||22,926,343|
|Equity method investment||–||9,053,859|
|Property and equipment, net||28,541,122||33,181,119|
|Intangible assets, net||4,440,383||5,394,296|
|Total other assets||32,981,505||47,629,274|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Short-term bank loans||$||2,202,246||$||2,074,529|
|Bank acceptance notes payable||145,313||422,589|
|Convertible note payable||668,328||670,000|
|Advances from customers||1,159,530||2,454,375|
|Due to related parties||2,158,404||347,589|
|Income taxes payable||60,031||63,483|
|Liabilities of discontinued operations||242,542||389,633|
|Total current liabilities||9,186,448||9,386,537|
|Commitments and contingencies|
|Preferred stock, $0.001 par value; 10,000,000 shares authorized;|
|Series A Preferred stock ($0.001 par value; 10,000,000 and 0 shares authorized; 0 and 0 issued and outstanding at September 30, 2018 and December 31,2017, respectively)||–||–|
|Common stock ($0.001 par value; 12,500,000 shares authorized; 7,501,304 and 2,527,720 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively)||7,501||2,528|
|Additional paid-in capital||60,839,352||40,241,172|
|Accumulated other comprehensive income – foreign currency translation adjustment||2,549,644||4,923,829|
|Total Sharing Economy International Inc. stockholder’s equity||50,594,167||61,144,850|
|Total stockholders’ equity||50,338,485||61,169,080|
|Total liabilities and stockholders’ equity||$||59,807,538||$||70,555,617|
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|For the Three Months Ended||For the Nine Months Ended|
|September 30,||September 30,|
|COST OF REVENUES||4,244,853||3,075,290||10,462,225||10,415,813|
|GROSS (LOSS) PROFIT||(1,727,652||)||(446,073||)||(2,806,904||)||582,625|
|Selling, general and administrative||5,441,960||883,809||12,863,537||1,751,669|
|Research and development||165,183||107,568||403,611||324,698|
|Bad debt expense||(30,000||)||2,395,983||1,285,990||2,395,983|
|Total operating expenses||7,773,372||3,664,300||17,338,115||5,287,004|
|LOSS FROM OPERATIONS||(9,501,024||)||(4,110,373||)||(20,145,019||)||(4,704,379||)|
|OTHER INCOME (EXPENSE):|
|Loss on equity method investment||(8,892,458||)||(39,060||)||(9,038,303||)||(81,871||)|
|Foreign currency transaction gain (loss)||247||–||(1,666||)||–|
|Other (loss) income||(67,529||)||478||(68,254||)||47,618|
|Total other expense, net||(9,072,310||)||(68,502||)||(9,334,529||)||(131,319||)|
|LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES||(18,573,334||)||(4,178,875||)||(29,479,548||)||(4,835,698||)|
|PROVISIONS FOR INCOME TAXES:|
|Total Income taxes provision||–||113||–||11,196|
|LOSS FROM CONTINUING OPERATIONS||(18,573,334||)||(4,178,988||)||(29,479,548||)||(4,846,894||)|
|Gain (loss) from discontinued operations, net of income taxes||(385||)||(71,339||)||16,486||(71,339||)|
|(LOSS) GAIN FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES||(385||)||(71,339||)||16,486||(71,339||)|
|NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST||(377,258||)||–||(683,411||)||–|
|NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS||$||(18,196,461||)||$||(4,250,327||)||$||(28,779,651||)||$||(4,918,233||)|
|COMPREHENSIVE (LOSS) GAIN:|
|Unrealized foreign currency translation gain||(1,471,792||)||1,224,249||(2,374,185||)||2,807,841|
|Net loss attributable to non-controlling interest||$||(377,258||)||$||–||$||(683,411||)||$||–|
|Unrealized foreign currency translation gain (loss) from non-controlling interest||–||–||–||–|
|Comprehensive loss attributable to common stockholders||$||(19,668,253||)||$||(3,026,078||)||$||(31,153,836||)||$||(2,110,392||)|
|NET (LOSS) GAIN PER COMMON SHARE:|
|Continuing operations – basic and diluted||$||(2.56||)||$||(2.10||)||$||(8.00||)||$||(2.96||)|
|Discontinued operations – basic and diluted||(0.00||)||(0.04||)||0.01||(0.04||)|
|Net loss per common share – basic and diluted||$||(2.56||)||$||(2.14||)||$||(7.99||)||$||(3.00||)|
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:|
|Basic and diluted||7,100,416||1,988,794||3,598,265||1,635,223|
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|For the Nine Months Ended
|CASH FLOWS FROM OPERATING ACTIVITIES:|
|Adjustments to reconcile net loss from operations to net cash|
|provided by operating activities:|
|Amortization of intangible assets||299,373||241,464|
|Bad debt allowance||1,285,990||1,892,821|
|Bad debt recovery – discontinued operations||(16,899||)||–|
|Impairment loss of intangible asset||1,922,674||–|
|Loss on equity method investment||9,038,303||81,871|
|Stock-based employment compensation||879,258||482,243|
|Stock-based professional fees||9,132,385||–|
|Amortization of debt discount||115,836||–|
|Amortization of license fee||210,213||–|
|Changes in operating assets and liabilities:|
|Prepaid and other current assets||(1,021,180||)||929,997|
|Advances to suppliers||720,730||(1,363,517||)|
|Assets of discontinued operations||200,197||116,061|
|VAT and service taxes payable||–||(41,153||)|
|Income taxes payable||–||(20,390||)|
|Advances from customers||(1,226,059||)||552,352|
|Liabilities of discontinued operations||(132,916||)||(221,741||)|
|Net cash used in operating activities||(3,203,741||)||(17,491||)|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Proceed received from acquisition||2,341||–|
|Proceed received from sale of subsidiary, in cash||–||2,115,842|
|Purchase of property and equipment||(74,466||)||(86,402||)|
|Net cash (used in) provided by investing activities||(72,125||)||2,029,440|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Proceed from convertible note||900,000||–|
|Offering costs paid||(195,018||)||–|
|Proceeds from bank loan||1,856,198||1,248,932|
|Repayments of bank loan||(1,303,941||)||(1,469,332||)|
|Decrease in bank acceptance notes payable||(268,458||)||(191,014||)|
|Advance from related party||1,810,815||351,430|
|Proceeds from sale of common stock, net||256,410||860,000|
|Net cash provided by financing activities||3,056,006||800,016|
|Effect of exchange rate changes||(274,378||)||159,686|
|Net increase in cash, cash equivalents and restricted cash||(494,238||)||2,971,651|
|Cash, cash equivalents and restricted cash – beginning of period||1,292,428||2,032,545|
|Cash, cash equivalents and restricted cash – end of period||$||798,190||$||5,004,196|
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:|
|Cash paid in continuing operations for:|
|Cash paid in discontinued operations for:|
|NON-CASH INVESTING AND FINANCING ACTIVITIES:|
|Stock issued for future services to consultants||$||6,335,098||$||1,083,967|
|Stock issued for accrued liabilities||$||–||$||28,400|
|Stock issued for future services to employees and directors||$||496,654||$||–|
|Stock issued for repayment of convertible note||$||670,335||$||–|
|Stock issued for acquisition of subsidiaries||$||976,984||$||–|
|Stock issued for prepayment of license fee – related party||$||829,787||$||–|
|Stock issued for prepayment of rental & management fee||$||1,048,659||$||–|
|Increase in prepaid expenses and other from sale of equipment||$||–||$||1,306,677|
|RECONCILIATION OF CASH,CASH EQUIVALENTS AND RESTRICTED CASH|
|Cash and cash equivalents at beginning of period||$||1,019,437||$||1,481,498|
|Restricted cash at beginning of period||272,991||551,047|
|Restricted cash included in discontinued operations at beginning of period||–||–|
|Total cash, cash equivalents and restricted cash at beginning of period||$||1,292,428||$||2,032,545|
|Cash and cash equivalents at end of period||$||707,101||$||4,774,697|
|Restricted cash at end of period||91,089||229,499|
|Restricted cash included in discontinued operations at end of period||–||–|
|Total cash, cash equivalents and restricted cash at ended of period||$||798,190||$||5,004,196|