# Sharing Economy International Inc.: Form 10-Q for the period ended Jun 30, 2022

- Company: [Sharing Economy International Inc.](/companies/seii.md) (CIK 819926)
- Form: 10-Q
- Filed: 2022-08-19
- Accepted by EDGAR: Aug 19, 2022, 14:57 ET
- Period: 2022-06-30
- Accession: 0001213900-22-049644
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/819926/000121390022049644/f10q0622_sharingeco.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/819926/000121390022049644/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-04-01 to 2022-06-30 | $124.4k | us-gaap:Revenues |
| Revenue | 6 months, 2022-01-01 to 2022-06-30 | $181.5k | us-gaap:Revenues |
| Gross profit | 3 months, 2022-04-01 to 2022-06-30 | $124.4k | us-gaap:GrossProfit |
| Gross profit | 6 months, 2022-01-01 to 2022-06-30 | $181.5k | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-04-01 to 2022-06-30 | $1.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2022-01-01 to 2022-06-30 | $1.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-04-01 to 2022-06-30 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-01-01 to 2022-06-30 | −$1.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-04-01 to 2022-06-30 | $47.6k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2022-01-01 to 2022-06-30 | $138.5k | us-gaap:InterestExpense |
| Net income | 3 months, 2022-04-01 to 2022-06-30 | −$1.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-01-01 to 2022-06-30 | −$2.3m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2022-04-01 to 2022-06-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-01-01 to 2022-06-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-04-01 to 2022-06-30 | 219,060,833 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-01-01 to 2022-06-30 | 253,354,090 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-01-01 to 2022-06-30 | −$775.3k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-01-01 to 2022-06-30 | $7.9k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2022-06-30 | $3.9m | us-gaap:AssetsCurrent |
| Total assets | at 2022-06-30 | $4.3m | us-gaap:Assets |
| Current liabilities | at 2022-06-30 | $12.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-06-30 | $17.9m | us-gaap:Liabilities |
| Long-term debt | at 2022-06-30 | $5.4m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2022-06-30 | −$12.8m | us-gaap:StockholdersEquity |
| Shares outstanding | at 2022-06-30 | 293,163,890 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 23,521 characters.

### 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 six months ended June 30, 2022.

### Recent developments

#### Inspirit Studio

During the quarterly period, BuddiGo, the sharing economy mobile platform developed by our wholly-owned subsidiary 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 2018 to June 30, 2019, over 1,200 individuals have officially registered as sell-side buddies, who completed over 600 delivery orders from June 2018 to 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. 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 of Hong 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 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 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 Mainland China such as Beijing, Shanghai, Guangzhou and 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.

#### ECrent Platform Business

In December 2019, we acquired the ECrent global businesses.

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.

### 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 U.S. dollar, and the functional currency of our operating subsidiaries is the RMB and Hong Kong Dollar.

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 Kong dollar. 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 Pronouncements

In December 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 effective January 1, 2021, and the adoption did not have a material effect on the Company’s consolidated financial statements.

In January 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 effective January 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.

### RESULTS OF OPERATIONS

### Three months ended June 30, 2022 and 2021

The following table sets forth the results of our operations for the three months ended June 30, 2022 and 2021:

|  | Three Months ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Revenues | $124,413 | $42,078 |
| Cost of revenues | - | - |
| Gross profit | 124,413 | 42,078 |
| Operating expenses | 1,472,523 | 1,653,162 |
| Loss from operations | (1,348,110) | (1,611,084) |
| Other (expense) income, net | (150,533) | 295,959 |
| Loss from continuing operations before provision for income taxes | (1,498,643) | (1,315,125) |
| Provision for income taxes | - |  |
| Net loss | $(1,498,643) | $(1,315,125) |

### Revenues.

During the three months ended June 30, 2022, we recognized revenues from our sharing economy business of $124,413 compared to $42,078 for the three months ended June 30, 2021, an increase of $82,335, or 195%.

### Cost of revenues.

No cost incurred during the three months ended June 30, 2022 and June 30, 2021, respectively.

### Gross profit and gross margin.

Our gross profit was $124,413 for the three months ended June 30, 2022 as compared to gross profit of $42,078 for the three months ended June 30, 2021, representing gross margins of 100% and 100%, respectively. No change as compared to last year.

### Operating expenses.

For the three months ended June 30, 2022, operating expenses were $1,472,523 was compared to $1,653,162 for the three months ended June 30, 2021, a decrease of $180,639 or 10.9%, due to decrease in selling, general and administrative expense.

### Loss from operations.

As a result of the factors described above, for the three months ended June 30, 2022, loss from operations amounted to $1,348,110 as compared to $1,611,084 for the three months ended June 30, 2021.

### Other income (expense).

For the three months ended June 30, 2022, total other expense, net, amounted to $150,533 as compared to other income, net, of $295,959 for the three months ended June 30, 2021, a decrease of $446,492. The decrease in other income, net, was primarily increase in unrealized loss on sale of marketable securities in the three months ended June 30, 2022.

### Income tax provision.

Income tax expense was $0 for the three months ended June 30, 2022 and 2021.

### Net loss.

As a result of the foregoing, our net loss was $1,498,643, or $(0.00) per share (basic and diluted), for the three months ended June 30, 2022 as compared with net loss of $1,315,125, or $(0.00) in the three months ended June 30, 2021.

The following table sets forth the results of our operations for the six months ended June 30, 2022 and 2021:

|  | Six Months ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Revenues | $181,471 | $130,285 |
| Cost of revenues | - | - |
| Gross profit | 181,471 | 130,285 |
| Operating expenses | 1,975,279 | 2,082,504 |
| Loss from operations | (1,793,808) | (1,952,219) |
| Other (expense) income, net | (488,838) | 405,868 |
| Loss from continuing operations before provision for income taxes | (2,282,646) | (1,546,351) |
| Provision for income taxes | - |  |
| Net loss | $(2,282,646) | $(1,546,351) |

### Revenues.

During the six months ended June 30, 2022, we recognized revenues from our sharing economy business of $181,471 compared to $130,285 for the six months ended June 30, 2021, an increase of $51,186, or 39%.

### Cost of revenues.

No cost incurred during the six months ended June 30, 2022 and 2021.

### Gross profit and gross margin.

Our gross profit was $181,471 for the six months ended June 30, 2022 as compared to gross profit of $130,285 for the six months ended June 30, 2021, representing gross margins of 100% and 100%, respectively. No change compared to last year.

### Operating expenses.

For the six months ended June 30, 2022, operating expenses were $1,975,279 was compared to $2,082,504 for the six months ended June 30, 2021, a decrease of $107,225, or 5.2%, due to a decrease in selling, general and administrative expense.

### Loss from operations.

As a result of the factors described above, for the six months ended June 30, 2022, loss from operations amounted to $750,073 as compared to $1,952,219 for the six months ended June 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 six months ended June 30, 2022, total other expense, net, amounted to $488,838 as compared to other income, net, of $405,868 for the six months ended June 30, 2021, a decrease of $894,706. The decrease in other income, net, was primarily increase in unrealized loss on sale of marketable securities in the six months ended June 30, 2022.

### Income tax provision.

Income tax expense was $0 for the six months ended June 30, 2022 and 2021.

### Net loss.

As a result of the foregoing, our net loss was $2,282,646, or $(0.00) per share (basic and diluted), for the six months ended June 30, 2022 as compared with net loss $1,546,351, or $(0.00) for the six months ended June 30, 2021.

### Liquidity and Capital Resources

### Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

As of June 30, 2022 and December 31, 2021, we had cash and cash equivalents of approximately $506,565 and $66,273, respectively.

The following table sets forth a summary of our cash flows for the periods as indicated:

|  | For the Six Months ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(775,250) | $(802,753) |
| Net cash provided by (used in) investing activities | $240,524 | $(724,349) |
| Net cash provided by financing activities | $969,852 | $320,062 |
| Effect of exchange rate changes on cash and cash equivalents | $5,166 | $(17,057) |
| Net increase (decrease) in cash and cash equivalents | $440,292 | $(1,805,417) |
| Cash and cash equivalents at beginning of period | $66,273 | $1,805,417 |
| Cash and cash equivalents at end of period | $506,565 | $581,320 |

The following table sets forth a summary of changes in our working capital from December 31, 2021 to June 30, 2022:

| Working capital: | June 30, 2022 | December 31, 2021 | Change in Working Capital | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Total current assets | $3,906,250 | $4,139,415 | $(233,165) | 17.8% |
| Total current liabilities | 12,515,350 | 12,265,428 | 249,922 | 2.0% |
| Working capital | $(8,609,100) | $(8,126,013) | $(483,087) | (6.0)% |

Working Capital. Total working capital deficit as of June 30, 2022 amounted to approximately $8.6 million, as compared to approximately $8.1 million as of December 31, 2021. The decrease in working capital deficit was due to the settlement of debt upon stock conversion.

Net cash used in operating activities was $775,250 for the six months ended June 30, 2022, and consisted primarily of a net loss of $2,282,646, adjusted for depreciation and amortization of $78,652, gain on disposal of property, plant and equipment of $25,197, unrealized loss on marketable securities of $596,980, loss on disposal of marketable securities of $26,885, stock-based consultancy fees of $240,000, stock-based director’s remuneration of $803,735, an increase in accounts receivable of $75,582, a decrease in prepaid expenses and other receivables of $127,353, an increase in accounts payable and accrual of $9,179, and an increase in other payable of $29,575.

Net cash flow provided by investing activities was $240,524 for the six months ended June 30, 2022 as compared to, net cash flow used in investing activities was $724,349 for the six months ended June 30, 2021. For the six months ended June 30, 2022, net cash flow used in investing activities was purchase of marketable securities of $171,257, proceeds from sale of marketable securities of $144,004, proceed from disposal of property, plant and equipment of $30,692 and dividend received of $245,034.

Net cash flow provided by financing activities was $969,852 for the six months ended June 30, 2022 as compared to $320,062 for the six months ended June 30, 2021. During the six months ended June 30, 2022, we received advances from related party of $501,955 and proceeds from bank loan of $666,704, offset by repayments for bank loans of approximately $198,807. During the six months ended June 30, 2022, we received advances from related party of $149,884 and proceeds from issuance of note payable of $230,770, offset by repayments for bank loans of approximately $60,592.

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 of June 30, 2022, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

| Contractual obligations: | Payments Due by Period Total | Less than 1 year | 1-3 years | 3-5 years | 5+ years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Bank loans | $10,843,600 | $5,428,151 | $5,415,449 | $- | $- |
| Convertible note (1) | 1,553,847 | 1,553,847 | - | - | - |
| Total | $12,397,447 | $6,981,998 | $5,415,449 | $- | $- |

(1) Convertible note is currently in default with the outstanding balance of $1,553,847 in principal and $868,607 accrued interest on June 30, 2022. At the date of filing, both parties have not reached into the mutual agreement.

### 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.

## Controls and procedures

As filed, 4,648 characters.

### Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, our management, including Anthony Che Chung Chan, our chief executive officer, and Ka Man Lam, our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2022.

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based on that evaluation, the management concluded that, because our internal controls over financial reporting are not effective, as described below, our disclosure controls and procedures were not effective as of June 30, 2022.

#### Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(d) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Our management identified material weaknesses related to (i) Lack of segregation of duties within accounting functions, (ii) Lack of accounting expertise in US GAAP, and (iii) Insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines. Our internal controls over financial reporting were not effective on June 30, 2022.

Due to the current size and nature of business, segregation of all conflicting duties may not always be possible and may not be economically feasible, and we continue to rely on third parties for a significant portion of the preparation of our financial statements. As a result, we have not been able to take steps to improve our internal controls over financial reporting. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

In light of these material weaknesses, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the six months ended June 30, 2022 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with the U.S. GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the six months ended June 30, 2022 are fairly stated, in all material respects, in accordance with the U.S. GAAP.

### Changes in Internal Controls over Financial Reporting

There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Aug 19, 2022.
Source: SEC EDGAR, the filing index for accession 0001213900-22-049644. Last ingested by Listed: Oct 24, 2026, 14:57 ET. No prices; not investment advice.