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, which was terminated in December, 2019.
With the termination of the manufacturing businesses, we are actively exploring other new ventures and opportunities that could contribute to our business
in the future.
Given the termination of our manufacturing business, we continued to pursue what we believe are high growth opportunities for the Company, particularly our new business divisions focused on the development of sharing economy platforms and related rental businesses within the company. These initiatives are still in an early stage and are dependent in large part on availability of capital to fund their future growth. We did not generate significant revenues from our sharing economy business initiatives in 2021 or during the nine months endedSeptember 30, 2022 . Recent developmentsInspirit Studio During the quarterly period, BuddiGo, the sharing economy mobile platform developed by our wholly-owned subsidiaryInspirit Studio Limited ("Inspirit Studio"), continuously promoted its service to the local market inHong Kong . BuddiGo offers a wide range of errand services. Currently, about 80 percent of the orders received are for on-demand urgent delivery of items such as documents, flowers and cakes. Food delivery services are also available. During the period fromJune 2018 toJune 30, 2019 , over 1,200 individuals have officially registered as sell-side buddies, who completed over 600 delivery orders fromJune 2018 toJune 30, 2020 , majority orders were happened in the third quarter of year 2018. In addition, BuddiGo has signed up with a number of local business partners to provide ongoing delivery services for these clients. BuddiGo's goal is to connect with the community and deliver localized content featuring BuddiGo's core features and advantages. BuddiGo is actively seeking strategic investors or collaborative parties who are enthusiastic about its business model and can help achieve its business targets and expand into different countries. 3DDiscovery Co. Limited Our wholly-owned subsidiary 3D Discovery, an IT service provider that develops virtual tours for the real estate, hospitality and interior design industries. 3D Discovery's space capturing and modeling technology is already used by some ofHong Kong's leading property agencies to provide their clients with a truly immersive, first-hand experience of a physical space while saving them time and money. According to Goldman Sachs, the Real Estate virtual reality industry is predicted to reach$2.6 billion in 2025, supported by a potential user base of over 1.4 million registered real estate agents in some of the world's largest markets. Apart from its existing profitable operations, 3D Discovery is developing a mobile app, Autocap, which allows users to create an interactive virtual tour of a physical space by using a mobile phone camera. 3D Discovery successfully completed a number of projects during the year. First, its "3D Virtual Tours inHong Kong " generated about 1,371,000 impressions in 2018. In addition, 3D Discovery partnered withMidland Realty , one of the largest real estate agencies inHong Kong , to establish the "Creation 200 3D Virtual Tours."EC Advertising Limited We started meeting with a number of potential clients and anticipate that this advertising company will launch several marketing campaigns. In order to maximize our exposure to the potential clients in Mainland China, we are developing a strategic media plan which will cover major cities in MainlandChina such asBeijing ,Shanghai ,Guangzhou andShenzhen . Major banks, real estate developers and consumer products manufacturers and retailers are our target clients. More importantly, our presence in Mainland China can facilitate the rollout of franchise programs of our business units, which is one of the revenue drivers for the Company. 20 ECrent Platform Business
In
Going forward, we will continue 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.
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 GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.
Accounts Receivable
We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery
is considered remote. As a basis for estimating the likelihood of collection has been established, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on at least a quarterly basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. 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 Office equipment and furniture 5 Years Vehicles 5 Years Vessels 5 Years The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of income and comprehensive income in the year of disposition. We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. 21 Stock-based Compensation FASB's ASC Topic 718, "Stock Compensation" ("ASC Topic 718"), prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services are acquired. The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The Company estimates the fair value of each restricted stock award as of the date of grant using the closing price as reported by the OTC Markets Group Inc. on the date of grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. The Company accounts for forfeitures of restricted stock as they occur. Currency Exchange Rates
Our functional currency is the
Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiary. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders' equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future. Our financial statements are expressed inU.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB and theHong Kong dollar. To the extent we hold assets denominated inU.S. dollars, any appreciation of the RMB or HKD against theU.S. dollar could result in a charge in our statement of operations and a reduction in the value of ourU.S. dollar denominated assets. On the other hand, a decline in the value of RMB or HKD against theU.S. dollar could reduce theU.S. dollar equivalent amounts of our financial results.
Recent Accounting Pronouncements
InDecember 2019 , the FASB issued Accounting Standards Update ("ASU") 2019-12, "Simplifying the Accounting for Income Taxes." The standard is expected to reduce cost and complexity related to accounting for income taxes. The new guidance eliminates certain exceptions and clarifies and amends existing guidance to promote consistent application among reporting entities. Depending on the amended guidance within this standard, adoption is to be applied on a retrospective, modified retrospective or prospective basis. The Company adopted this standard effectiveJanuary 1, 2021 , and the adoption did not have a material effect on the Company's consolidated financial statements. InJanuary 2020 , the FASB issued ASU 2020-01, "Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." The new guidance clarifies the interactions between accounting standards that apply to equity investments without readily determinable fair values. Specifically, it addresses the accounting for the transition into and out of the equity method. The Company adopted this standard effectiveJanuary 1, 2021 on a prospective basis, and the adoption did not have a material effect on the Company's consolidated financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
22 RESULTS OF OPERATIONS
Three months ended
The following table sets forth the results of our operations for the three
months ended
Three Months ended September 30, 2022 2021 Revenues$ 69,947 $ 50,397 Cost of revenues - - Gross profit 69,947 50,397 Operating expenses 628,112 589,303 Loss from operations (558,165 ) (538,906 ) Other (expense) income, net (848,274 ) 70,317 Loss from continuing operations before provision for income taxes (1,406,439 ) (468,589 ) Provision for income taxes - - Net loss$ (1,406,439 ) $ (468,589 ) Revenues. During the three months endedSeptember 30, 2022 , we recognized revenues from our sharing economy business of$69,947 compared to$50,397 for the three months endedSeptember 30, 2021 , an increase of$19,550 , or 39%. Cost of revenues.
No cost incurred during the three months ended
Gross profit and gross margin.
Our gross profit was$69,947 for the three months endedSeptember 30, 2022 as compared to gross profit of$50,397 for the three months endedSeptember 30, 2021 , representing gross margins of 100% and 100%, respectively. No change
as compared to last year. Operating expenses. For the three months endedSeptember 30, 2022 , operating expenses were$628,112 compared to$589,303 for the three months endedSeptember 30, 2021 , an increase of$38,809 or 6%, due to increase in selling, general and administrative expense. Loss from operations. As a result of the factors described above, for the three months endedSeptember 30, 2022 , loss from operations amounted to$558,165 as compared to$538,906 for the three months endedSeptember 30, 2021 . 23 Other income (expense). For the three months endedSeptember 30, 2022 , total other expense, net, amounted to$848,274 as compared to other income, net, of$70,317 for the three months endedSeptember 30, 2021 , a decrease of$918,591 . The decrease in other income, net, was primarily increase in unrealized loss on sale of marketable securities in the three months endedSeptember 30, 2022 . Income tax provision.
Income tax expense was
Net loss. As a result of the foregoing, our net loss was$1,406,439 , or$(0.00) per share (basic and diluted), for the three months endedSeptember 30, 2022 as compared with net loss of$468,589 , or$(0.00) in the three months endedSeptember 30, 2021 .
The following table sets forth the results of our operations for the nine months
ended
Nine Months ended September 30, 2022 2021 Revenues$ 251,418 $ 180,682 Cost of revenues - - Gross profit 251,418 180,682 Operating expenses 2,603,391 2,671,807 Loss from operations (2,351,973 ) (2,491,125 ) Other (expense) income, net (1,337,112 ) 476,185 Loss before provision for income taxes (3,689,085 ) (2,014,940 ) Provision for income taxes - - Net loss$ (3,689,085 ) $ (2,014,940 ) Revenues. During the nine months endedSeptember 30, 2022 , we recognized revenues from our sharing economy business of$251,418 compared to$180,625 for the nine months endedSeptember 30, 2021 , an increase of$70,793 , or 39%. Cost of revenues.
No cost incurred during the nine months ended
Gross profit and gross margin.
Our gross profit was$251,418 for the nine months endedSeptember 30, 2022 as compared to gross profit of$180,682 for the nine months endedSeptember 30, 2021 , representing gross margins of 100% and 100%, respectively. No change
compared to last year. Operating expenses.
For the nine months ended
24 Loss from operations. As a result of the factors described above, for the nine months endedSeptember 30, 2022 , loss from operations amounted to$2,351,973 as compared to$2,491,125 for the nine months endedSeptember 30, 2021 . Other income (expense).
Other income (expense) includes interest income, interest expense, foreign currency transaction gain (loss), gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the nine months endedSeptember 30, 2022 , total other expense, net, amounted to$1,337,112 as compared to other income, net, of$476,185 for the nine months endedSeptember 30, 2021 , a decrease of$1,813,297 . The decrease in other income, net, was primarily increase in unrealized loss on sale of marketable securities in the nine months endedSeptember 30, 2022 . Income tax provision.
Income tax expense was
Net loss. As a result of the foregoing, our net loss was$3,689,085 , or$(0.00) per share (basic and diluted), for the nine months endedSeptember 30, 2022 as compared with net loss$2,014,940 , or$(0.00) for the nine months endedSeptember 30, 2021 .
Liquidity and Capital Resources
Nine Months Ended
As of
The following table sets forth a summary of our cash flows for the periods as indicated: For the Nine Months ended September 30, 2022 2021 Net cash used in operating activities$ (1,354,424 ) $ (1,162,623 ) Net cash provided by (used in) investing activities$ 219,033 $ (1,099,755 ) Net cash provided by financing activities$ 1,086,980 $ 734,407 Effect of exchange rate changes on cash and cash equivalents$ 6,067 $ (65,560 ) Net increase (decrease) in cash and cash equivalents$ (42,344 ) $ (1,593,531 ) Cash and cash equivalents at beginning of period$ 66,273 $ 1,805,417 Cash and cash equivalents at end of period$ 23,929 $ 211,886
The following table sets forth a summary of changes in our working capital from
Change in September 30, December 31, Working Percentage 2022 2021 Capital Change Working capital: Total current assets$ 2,735,596 $ 4,139,415 $ (1,403,819 ) 33.9 % Total current liabilities 12,207,830 12,265,428 (57,598 ) 0.5 % Working capital$ (9,472,234 ) $ (8,126,013 ) $ (1,346,221 ) (16.6 )% Working Capital. Total working capital deficit as ofSeptember 30, 2022 amounted to approximately$9.5 million , as compared to approximately$8.1 million as ofDecember 31, 2021 . The decrease in working capital deficit was due to the settlement of debt upon stock conversion. 25 Net cash used in operating activities was$1,354,424 for the nine months endedSeptember 30, 2022 , and consisted primarily of a net loss of$3,689,085 , adjusted for depreciation and amortization of$114,891 , gain on disposal of property, plant and equipment of$25,197 , unrealized loss on marketable securities of$1,278,939 , loss on disposal of marketable securities of$22,013 , stock-based consultancy fees of$240,000 , stock-based director's remuneration of$803,735 , an increase in accounts receivable of$113,711 , a decrease in prepaid expenses and other receivables of$189,092 , an increase in accounts payable and accrual of$14,384 , and an increase in other payable of$51,987 . Net cash flow provided by investing activities was$219,033 for the nine months endedSeptember 30, 2022 as compared to, net cash flow used in investing activities was$1,099,755 for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , net cash flow used in investing activities was purchase of marketable securities of$320,456 , proceeds from sale of marketable securities of$275,274 , proceed from disposal of property, plant and equipment of$30,692 and dividend received of$241,472 . Net cash flow provided by financing activities was$1,086,980 for the nine months endedSeptember 30, 2022 as compared to$734,407 for the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2022 , we received advances from related party of$715,058 and proceeds from bank loan of$666,704 , offset by repayments for bank loans of approximately$294,782 . During the nine months endedSeptember 30, 2021 , we received advances from related party of$1,014,609 and proceeds from issuance of note payable of$535,900 , offset by repayments for bank loans of approximately$816,102 . We have historically funded our capital expenditures through cash flow provided by operations and bank loans. We intend to fund the cost by obtaining financing mainly from local banking institutions with which we have done business in the past. We believe that the relationships with local banks are in good standing and we have not encountered difficulties in obtaining needed borrowings from local banks.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows. The following tables summarize our contractual obligations as ofSeptember 30, 2022 , and the effect these obligations are expected to have on our liquidity and cash flows in future periods. Payments Due by Period Less than Contractual obligations: Total 1 year 1-3 years 3-5 years 5+ years Bank loans$ 10,745,052 $ 5,362,061 $ 5,382,991 $ - $ - Convertible note (1) 1,115,097 1,115,097 - - - Total$ 11,860,149 $ 6,477,158 $ 5,382,991 $ - $ -
(1) Convertible note is currently in default with the outstanding balance of
At the date of filing, both parties have not reached into the mutual agreement. 26
Off-balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us. Inflation
The effect of inflation on our revenue and operating results was not significant.
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