Historically, our main activities involved the design, manufacture and distribution of a range of proprietary high and low temperature dyeing and finishing machines for the textile industry, which ended in December 2019.
With the termination of the manufacturing businesses, we are actively exploring other new ventures and opportunities that could contribute to our business
in the future.
Given the termination of our manufacturing business, we continued to pursue what we believe are high growth opportunities for the Company, particularly our new business divisions focused on the development of sharing economy platforms and related rental businesses within the company. These initiatives are still in an early stage and are dependent in large part on availability of capital to fund their future growth. We did not generate significant revenues from our sharing economy business initiatives in 2020 or during the six months ended
June 30, 2021. Recent developments Inspirit StudioDuring the period, BuddiGo, the sharing economy mobile platform developed by Inspirit Studio Limited("Inspirit Studio"), continuously promoted its service to the local market in Hong 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 from June 2018to June 30, 2019, over 1,200 individuals have officially registered as sell-side buddies, who completed over 600 delivery orders from June 2018to June 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. 3D Discovery Co. Limited3D 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'sleading property agencies to provide their clients with a truly immersive, first-hand experience of a physical space while saving them time and money. According to Goldman Sachs, the Real Estate virtual reality ("VR") industry is predicted to reach $2.6 billionin 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 in Hong Kong" generated about 1,371,000 impressions in 2018. In addition, 3D Discovery partnered with Midland Realty, one of the largest real estate agencies in Hong Kong, to establish the "Creation 200 3D Virtual Tours.". EC Advertising Limited
We started meeting with a number of potential clients there and anticipate that this advertising company will confirm with them several marketing campaigns. In order to maximize our exposure to the potential clients in Mainland China, we are developing a strategic media plan which will cover major cities in Mainland
Chinasuch as Beijing, Shanghai, Guangzhouand Shenzhen. 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
Going forward, we will continue to target the technology and global sharing economy markets, developing online platforms and rental business partnerships that will drive the global development of sharing through cost-effective rental business models. .
Critical accounting conventions and estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted 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 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.
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. 21 Property and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the assets. The estimated useful lives of the assets are as follows:
Useful Life Office equipment and furniture 5 Years Vehicles 5 Years Vessels 5 Years The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of income and comprehensive income in the year of disposition. We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. Stock-based Compensation FASB's ASC Topic 718, Stock Compensation (formerly, FASB Statement 123R) ("ASC Topic 718"), prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services are acquired. The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The Company estimates the fair value of each restricted stock award as of the date of grant using the closing price as reported by the OTC Markets Group Inc. (the "OTCM") on the date of grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. The Company accounts for forfeitures of restricted stock as they occur. 22 Currency Exchange Rates
Our functional currency is
Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiary. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders' equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future. Our financial statements are expressed 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 Kongdollar. 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 positions
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, December 2019and March 2020, 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. 23 RESULTS OF OPERATIONS
Three months ended
The following table presents the results of our operations for the three months ended
Three Months ended June 30, 2021 2020 Revenues
$ 42,078 $ 56,073Cost of revenues - 36,364 Gross profit 42,078 19,709 Operating expenses 1,653,162 1,539,590 Loss from operations (1,611,084 ) (1,519,881 ) Other (expense) income, net 295,959 (413,377 ) Loss from continuing operations before provision for income taxes (1,315,125 ) (1,933,258 ) Provision for income taxes - - Net loss $
Revenues. During the three months ended
June 30, 2021, we recognized revenues from our sharing economy business of $42,078compared to $56,073for the three months ended June 30, 2020, a decrease of $13,995, or 25.0%. Cost of revenues.
Cost of revenues includes commission costs. For the three months ended
June 30, 2021, cost of revenues was $0as compared to $36,364for the three months ended June 30, 2020, a decrease of $36,364, or 100%.
Gross profit and gross margin.
Our gross profit was
$42,078for the three months ended June 30, 2021as compared to gross profit of $19,709for the three months ended June 30, 2020, representing gross margins of 100% and 35%, respectively. The increase in our gross margin for the three months ended June 30, 2021was primarily attributed to the new business revenue from acquisition of a wholly owned subsidiary.
Operating expenses. For the three months ended
June 30, 2021, operating expenses were $1,653,162as compared to $1,539,590for the three months ended June 30, 2020, an increase of $113,572, or 7.38%, due to increase in selling, general and administrative
expense. 24 Loss from operations.
As a result of the factors described above, for the three months ended
June 30, 2021, loss from operations amounted to $1,611,084as compared to $1,519,881for the three months ended June 30, 2020. Other income (expense).
Other income (expense) includes interest income, interest expense, foreign currency transaction gain (loss), gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the three months ended
June 30, 2021, total other income, net, amounted to $295,959as compared to other expense, net, of $413,377for the three months ended June 30, 2020, an increase of $709,336. The increase in other income, net, was primarily attributable to gain on sale of marketable securities incurred in the three months ended June 30, 2021.
Income tax provision. Income tax expense was
Net loss. As a result of the foregoing, our net loss was
$1,315,125, or $(0.01)per share (basic and diluted), for the three months ended June 30, 2021, as compared with net loss $1,933,258, or $(0.00)per share (basic and diluted), for the three months ended June 30, 2020, a change of approximately $618,134, or 32.0%. 25
Six months ended
The following table presents the results of our operations for the half-year ended.
Six Months ended June 30, 2021 2020 Revenues
$ 130,285 $ 67,982Cost of revenues - 37,145 Gross profit 130,285 30,837 Operating expenses 2,082,504 4,132,108 Loss from operations (1,952,219 ) (4,101,271 ) Other income (expense), net 405,868 (509,642 ) Loss from continuing operations before provision for income taxes (1,546,351 ) (4,610,913 ) Provision for income taxes - - Net loss $ (1,546,351 ) $ (4,610,913 )Revenues.
During the six months ended
Cost of revenues. Cost of revenues includes commission costs. For the six months ended
June 30, 2021, cost of revenues was $0as compared to $37,145for the six months ended June 30, 2020, a decrease of $37,145, or 100%.
Gross profit and gross margin.
Our gross profit was
$130,285for the six months ended June 30, 2021as compared to gross profit of $30,837for the six months ended June 30, 2020, representing gross margins of 100% and 45%, respectively. The increase in our gross margin for the six months ended June 30, 2021was primarily attributed to the increase revenue generated from engineering service income of the new acquired wholly owned subsidiary. Operating expenses.
For the six months ended
June 30, 2021, operating expenses were $2,082,504as compared to $4,132,108for the six months ended June 30, 2020, a decrease of $2,049,604, or 49.6%, due to decrease in impairment loss on goodwill and impairment loss on marketable securities. 26 Loss from operations. As a result of the factors described above, for the six months ended June 30, 2021, loss from operations amounted to $1,952,219, as compared to $4,101,271for the six months ended June 30, 2020. Other income (expense)
Other expense includes interest income, interest expense, foreign currency transaction gain (loss), gain on disposal of marketable securities, loss on disposal of a subsidiary, and other income. For the six months ended
June 30, 2021, total other income, net, amounted to $405,868as compared to total other expense $509,642for the six months ended June 30, 2020, an increase of $915,510, or 179.6%. The increase in other income, net, was primarily gain on sale of marketable securities incurred in the six months ended June 30, 2021.
Income tax provision. Income tax expense was
Net loss. As a result of the foregoing, our net loss was
$1,546,351, or $(0.01)per share (basic and diluted), for the six months ended June 30, 2021, as compared with net loss $4,610,913, or $(0.00)per share (basic and diluted), for the six months ended June 30, 2020, a change of approximately $3,064,562, or 66.5%.
Liquidity and capital resources
Six months ended
The following table sets forth a summary of our cash flows for the periods as indicated: For the Six Months ended June 30, 2021 2020 Net cash used in operating activities
$ (795,531 ) $ (755,715 )Net cash used in investing activities $ (724,349 )$ (200,388 Net cash provided by financing activities $ 320,062 $ 1,886,407Effect of exchange rate changes on cash and cash equivalents $ (24,279 ) $ (20,564 )Net increase (decrease) in cash and cash equivalents $ (1,224,097 $ 909,740) Cash and cash equivalents at beginning of period $ 1,805,417 $ 83,667Cash and cash equivalents at end of period $ 581,320 $ 993,407
The following table presents a summary of the changes in our working capital since
Change in June 30, Working Percentage 2021 December 31, 2020 Capital Change Working capital: Total current assets
$ 4,554$ 3,967 $ 487 12.2 % Total current liabilities 11,413 11,707 (294 ) (2.5 )% Working capital $ (6,859 )$ (7,740 ) $ (881 )(11.4 )% 27
Working Capital. Total working capital deficit as of
June 30, 2021amounted to approximately $6.8 million, as compared to approximately $7.7 millionas of December 31, 2020. The decrease in working capital deficit due to the settlement of debt upon stock conversion. Net cash used in operating activities was $802,753for the six months ended June 30, 2021, and consisted primarily of a net loss of $1,546,351, adjusted for depreciation and amortization of $115,844, stock-based consultancy fee of $1,051,410, stock-based business promotion fee of $599,220, gain on disposal of marketable securities of $1,051,410, an increase in accounts receivable of $25,607, an increase in prepaid expenses and other receivables of $429,979, a decrease in accounts payable and accrual of $74,113, an increase in other payable of $120,750, and a decrease in deferred revenue of $107. Net cash flow used in investing activities was $724,349for the six months ended June 30, 2021as compared to $200,838for the six months ended June 30, 2020. For the six months ended June 30, 2021, net cash flow used in investing activities reflects cash received from dividend of $7,222, purchase of marketable securities of $17,381,542and proceeds from sale of marketable securities of $16,649,971. Net cash flow provided by financing activities was $320,062for the six months ended June 30, 2021as compared to $1,886,407for the six months ended June 30, 2020. During the six months ended June 30, 2021, we received advances from related party of $149,884, received from issuance of note payable of $230,770, offset by repayments for bank loans of approximately $60,592. During the six months ended June 30, 2020, we received advances from related party of $329,982and received from issuance of note payable of $183,000, repayments for bank loans of approximately $39,149. We have historically funded our capital expenditures through cash flow provided by operations and bank loans. We intend to fund the cost by obtaining financing mainly from local banking institutions with which we have done business in the past. We believe that the relationships with local banks are in good standing and we have not encountered difficulties in obtaining needed borrowings from local banks.
Contractual obligations and off-balance sheet arrangements
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
June 30, 2021(dollars in thousands), and the effect these obligations are expected to have on our liquidity and cash flows in future periods. Payments Due by Period Less than Contractual obligations: Total 1 year 1-3 years 3-5 years 5+ years Bank loans $ 11,290 $ 6,426 $ 4,864$ - $ - Convertible note (1) 634 634 - - - Total $ 11,924 $ 7,060 $ 4,864$ - $ -
(1) The convertible note is currently in default with the outstanding balance of
filing date, the two parties did not reach a mutual agreement.
Off-balance sheet provisions
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us. Inflation
The effect of inflation on our revenues and operating results was not material.
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