Sharing Economy International Reports First Quarter 2018 Results
Wuxi, Jiangsu Province, China – May 14, 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 March 31, 2018.
“During the first quarter of 2018, our legacy dyeing and finishing business continued to face difficult economic conditions. Among other factors, the persistent lack of credit availability for textile manufacturers in China put pressure on our customers, resulting in declining revenues and negative margins. Although we recorded our loss, our working capital position improved, and we generated positive cash flow from operations during the quarter as we move forward in our efforts to position SEII for success in new markets with strong growth potential,” said Mr. Jianhua Wu, Chairman and CEO of SEII. “We continue to build momentum in our sharing economy businesses, closing two important acquisitions during the quarter: AnyWorkspace and 3D Discovery. More importantly, we recently entered into a licensing agreement with ECrent Capital Holdings Limited to commercialize the ECrent online platform in multiple countries across Asia, which we believe will be truly transformational for our business.”
Mr. Parkson Yip, Vice President of SEII, commented, “We are gearing up for a major push for our sharing economy businesses in the months ahead. The launch of BuddiGo, our sharing platform that allows users to outsource daily chores and mundane tasks to ‘buddies’ who can spare idle time to run errands, we will begin in the second quarter of 2018 with an initial focus on food delivery services in Hong Kong and quickly expand to include grocery shopping and same-day inner-city parcel delivery in Hong Kong and other Asian markets. AnyWorkspace, our flexible workspace offering, currently has over 900 workspace listings in Hong Kong and major cities in Singapore, Indonesia, Thailand and South Korea. In the coming months, we will expand the platform to new geographic regions and focus on driving user growth through aggressive marketing and strategic partnership programs.
“Our 3D Discovery business unit continues to develop a user-friendly application which will allow users to create 3D virtual tours with a smartphone camera. We believe our 3D virtual tour will be an affordable and accessible solution that will allow us to quickly expand our reach and generate valuable big data from real estate markets following its launch in Hong Kong, Australia and Indonesia in the third quarter of 2018. Our EC Advertising unit has begun developing opportunities for each of these three platforms to attract advertisers and we anticipate traffic will reach the point where we can generate advertising revenue later this year. Finally, we remain steadfast in our belief that 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 and believe our new licensing agreement with ECrent puts us in a strong position to capitalize on that dynamic. We look forward to commercializing the ECrent platform in key markets in Asia in the months ahead,” Mr. Yip concluded.
First Quarter 2018 Results
Revenue for the first quarter of 2018 decreased by 44.9% to $2.6 million, compared to $4.7 million in the first quarter of 2017. The Company’s dyeing and finishing business generated substantially all revenue in the first 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 slowed down in 2018 and 2017 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 $31,000 in the first quarter of 2018. Compared to $0 in the first quarter of 2017.
Gross loss for the first quarter of 2018 was $359,000, compared to gross profit of $586,000 for the same period in 2017. Gross margin was negative 14.0% during the first quarter of 2018 compared to 12.6% for the same period in 2017. The gross margin for the first 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 $4.4 million, compared to $0.7 million in the first quarter of 2017. The increase was due to higher professional fees in the form of stock-based compensation related to implementing a new business plan with the objective of improving long-term growth, an increase in bad debt expense, and higher salaries, travel and entertainment expenses to support new business opportunities.
Loss from continuing operations was $4.9 million, or $(1.60) per basic and diluted share, compared to loss from continuing operations of $146,000, or $(0.10) per basic and diluted share in the first quarter of 2017.
Gain from discontinued operations (Refer to “Discontinued Operations” discussion below) was $17,000, or $0.00 per basic and diluted share. This compares to a gain from discontinued operations of $0 or $(0.00) in the first quarter of 2017.
Net loss attributable to common shareholders for the first quarter of 2018 was $4.8 million, or $(1.60) per basic and diluted share, compared to net loss of $146,000, or $(0.10) per basic and diluted share, in the first quarter of 2017.
Basic and diluted earnings per share were based on 2,992,879 and 1,415,441 weighted average shares outstanding, respectively, for the quarters ended March 31, 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.
As of March 31, 2018, SEII held cash and cash equivalents of $2.0 million compared to $1.0 million at December 31, 2017. Accounts receivable were $6.4 million compared to $9.1 million at December 31, 2017. Inventories were $5.2 million compared to $4.6 million at December 31, 2017. The Company had $2.3 million in short-term bank loans payable at March 31, 2018, down slightly from $2.5 million at December 31, 2017. Working capital was $18.2 million at March 31, 2018, compared to $13.5 million at December 31, 2017. Stockholders’ equity was $67.7 million at March 31, 2018.
In the first quarter of 2018, the Company generated $0.5 million in cash flow from operations. The Company used $52,000 in cash flow from investing activities, primarily due to cash used for the purchase of property and equipment in Wuxi, China. The Company generated $0.5 million in cash flow from financing activities, primarily due to proceeds of $0.3 million from the sale of common stock, advances from a related party of $0.4 million and a decrease in restricted cash, which were partially offset by a reduction in bank acceptance notes payable.
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 March 31, 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.
In May 2018, the Company’s wholly-owned subsidiary, Sharing Economy Investment Limited (“Sharing Economy”), entered into a license agreement with ECrent Capital Holdings Limited (“ECrent”). Pursuant to the agreement, ECrent shall grant Sharing Economy an exclusive license to utilize certain software and trademarks in order to develop, launch, operate, commercialize, and maintain an online website platform in Taiwan, Thailand, India, Indonesia, Singapore, Malaysia, Philippines, Vietnam, Cambodia, Japan, and Korea until December 31, 2019. In consideration for the license, the Company shall grant ECrent 530,000 shares of common stock on the closing date of the Agreement, whereas ECrent guarantees that the business will generate revenue of $15.0 million and gross profit of $2.9 million from the closing date of the agreement until December 31, 2019.
In May 2018, the Company closed a private placement of securities with an investor pursuant to which the investor purchased a convertible promissory note in the original principal amount of $0.9 million, convertible into shares of common stock of the Company upon the terms and subject to the limitations and conditions set forth in the note, and a two-year warrant to purchase shares of 134,328 shares of the Company’s common stock at an exercise price of $7.18 per share. In connection with the note, the Company paid an original issue discount of $150,000 and issuance costs of $15,000. The note bears interest at 10% per annum, is unsecured, and has a term of fifteen months. The Company intends to use to proceeds to fund the working capital requirements of its sharing economy businesses as it prepares to launch several new services in the second quarter of 2018.
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 March 31, 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
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|March 31,||December 31,|
|Cash and cash equivalents||$||1,982,661||$||1,019,437|
|Accounts receivable, net of allowance for doubtful accounts||6,407,157||9,092,709|
|Inventories, net of reserve for obsolete inventories||5,204,268||4,553,559|
|Advances to suppliers||1,910,808||2,023,779|
|Receivable from sale of subsidiary||3,053,727||2,950,442|
|Prepaid expenses and other||7,529,365||2,144,624|
|Assets of discontinued operations||298,027||407,510|
|Total current assets||27,259,455||22,926,343|
|Equity method investment||9,297,562||9,053,859|
|Property and equipment, net||33,341,343||33,181,119|
|Intangible assets, net||6,833,455||5,394,296|
|Total other assets||49,472,360||47,629,274|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Short-term bank loans||$||2,147,151||$||2,074,529|
|Bank acceptance notes payable||119,286||422,589|
|Convertible note payable||–||670,000|
|Advances from customers||3,321,444||2,454,375|
|Due to related party||715,367||347,589|
|Income taxes payable||65,705||63,483|
|Liabilities of discontinued operations||265,333||389,633|
|Total current liabilities||9,054,634||9,386,537|
|Commitments and contingencies (see Note 15)|
|Preferred stock ($0.001 par value; 10,000,000 shares authorized; No shares issued and outstanding at March 31, 2018 and December 31, 2017)||–||–|
|Common stock ($0.001 par value; 12,500,000 shares authorized; 4,445,709 and 2,527,720 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively)||4,446||2,528|
|Additional paid-in capital||49,160,622||40,241,172|
|Accumulated other comprehensive income – foreign currency translation adjustment||6,973,464||4,923,829|
|Total Sharing Economy International Inc. stockholder’s equity||67,335,439||61,144,850|
|Total stockholders’ equity||67,677,181||61,169,080|
|Total liabilities and stockholders’ equity||$||76,731,815||$||70,555,617|
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|For the Three Months Ended|
|COST OF REVENUES||2,927,892||4,071,600|
|GROSS (LOSS) PROFIT||(359,365||)||585,854|
|Selling, general and administrative||2,746,984||307,659|
|Research and development||113,447||106,077|
|Bad debt expense||1,318,204||–|
|Total operating expenses||4,421,638||682,101|
|LOSS FROM OPERATIONS||(4,781,003||)||(96,247||)|
|OTHER INCOME (EXPENSE):|
|Loss on equity method investment||(72,412||)||(18,355||)|
|Foreign currency transaction gain (loss)||(1,155||)||–|
|Total other expense, net||(102,558||)||(39,175||)|
|LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES||(4,883,561||)||(135,422||)|
|PROVISIONS FOR INCOME TAXES:|
|Total Income taxes provision||–||(11,062||)|
|LOSS FROM CONTINUING OPERATIONS||(4,883,561||)||(146,484||)|
|Gain from discontinued operations, net of income taxes||16,899||–|
|GAIN FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES||16,899||–|
|NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST||(86,248||)||–|
|NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS||$||(4,780,414||)||$||(146,484||)|
|COMPREHENSIVE (LOSS) GAIN:|
|Unrealized foreign currency translation gain||2,049,635||496,124|
|Comprehensive (loss) gain||$||(2,817,027||)||$||349,640|
|Net loss attributable to non-controlling interest||$||(86,248||)||$||–|
|Unrealized foreign currency translation gain (loss) from non-controlling interest||–||–|
|Comprehensive (loss) gain attributable to common stockholders||$||(2,730,779||)||$||349,640|
|NET LOSS PER COMMON SHARE:|
|Continuing operations – basic and diluted||$||(1.60||)||$||(0.10||)|
|Discontinued operations – basic and diluted||0.00||–|
|Net loss per common share – basic and diluted||$||(1.60||)||$||(0.10||)|
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:|
|Basic and diluted||2,992,879||1,415,441|
SHARING ECONOMY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|For the Three Months Ended|
|CASH FLOWS FROM OPERATING ACTIVITIES:|
|Adjustments to reconcile net loss from operations to net cash provided by operating activities:|
|Amortization of intangible assets||98,482||79,531|
|Bad debt allowance||1,318,204||–|
|Bad debt recovery – discontinued operations||(16,899||)||–|
|Loss on equity method investment||72,412||18,355|
|Stock-based professional fees||1,643,047||9,074|
|Changes in operating assets and liabilities:|
|Prepaid and other current assets||(130||)||(7,374||)|
|Advances to suppliers||181,736||(378,300||)|
|Assets of discontinued operations||139,247||(31,792||)|
|VAT and service taxes payable||–||(20,865||)|
|Income taxes payable||–||(1,746||)|
|Advances from customers||772,306||1,076,712|
|Liabilities of discontinued operations||(136,379||)||(13,106||)|
|Net cash provided by operating activities||536,165||1,338,381|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Proceed received from acquisition||2,341||–|
|Purchase of property and equipment||(54,835||)||(1,444||)|
|Net cash used in investing activities||(52,494||)||(1,444||)|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Proceeds from bank loans||707,614||–|
|Repayments of bank loans||(707,614||)||–|
|(Increase) decrease in restricted cash||157,248||(87,112||)|
|Increase (decrease) in bank acceptance notes payable||(314,495||)||87,112|
|Advance from related party||367,778||–|
|Proceeds from sale of common stock, net||256,410||–|
|Net cash provided by financing activities||466,941||–|
|Effect of exchange rate changes on cash and cash equivalents||12,612||10,257|
|Net increase in cash and cash equivalents||963,224||1,347,194|
|Cash and cash equivalents – beginning of period||1,019,437||1,481,498|
|Cash and cash equivalents – end of period||$||1,982,661||$||2,828,692|
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:|
|Cash paid in continuing operations for:|
|Cash paid in discontinued operations for:|
|NON-CASH INVESTING AND FINANCING ACTIVITIES:|
|Stock issued for future services to consultants||$||6,228,976||$||–|
|Stock issued for future services to employees and directors||$||819,212|
|Stock issued for repayment of convertible note||$||670,335||$||–|
|Stock issued for acquisition of subsidiaries||$||976,984||–|
|Increase in prepaid expenses and other from sale of equipment||$||–||$||1,306,677|