SCIENTIFIC ENERGY, INC 10-K for FY2023
SCIENTIFIC ENERGY, INC (SCGY)
About this 10-K
SCIENTIFIC ENERGY, INC filed this 10-K on April 16, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $38.96M
- down 11.7% from $44.11M a year earlier
- Net income
- $2.09M
- compared with a net loss of $3.77M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Fiscal Year Ended
for The Transition Period From __________To ____________
Commission file number:
(Name of registrant as specified in Its Charter)
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(State or other jurisdiction of incorporation or organization) |
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Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
N/A | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.01
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.
(Check one):
Large accelerated filer | ¨ |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) iof the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Yes
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b). Yes ¨ No x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
State the aggregate market value of the voting and non-voting equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: Approximately $
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
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TABLE OF CONTENTS
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PART I | ||
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PART II | ||
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7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
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PART III | ||
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12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
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13. | Certain Relationships and Related Transactions, and Director Independence | |
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PART IV | ||
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PART I
Item 1. BUSINESS
Background
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Scientific Energy, Inc. (together with its subsidiaries, the “Company,” “we,” “us” or “our”) was incorporated under the laws of the State of Utah on May 30, 2001. From 2001 to 2021, the Company had endeavored a number of business activities, from developing and manufacturing various energy generation devices and energy efficient mechanisms to engaging in a business of e-commerce platform, but weren’t successful.
On April 13, 2006, Todd Crosland, Jana Meyer, Mark Clawson and Dale Gledhill (collectively the “Sellers”) entered into a Share Purchase Agreement with Kelton Capital Group Limited (the “Buyer”), each of the Sellers was a director of the Company. Pursuant to the Share Purchase Agreement, the Buyer acquired from the Sellers an aggregate of 7,905,000 shares of the Company’s issued and outstanding common stock, representing approximately 86.3% of the Company’s outstanding shares at that time, for the aggregate cash purchase price of approximately $539,929. As a result of the transaction, a change of control of the Company occurred.
On January 23, 2018, the Company entered into an agreement with Cityhill Limited, a wholly owned subsidiary of Elate Holdings Limited, a Hong Kong listed company. Pursuant to the agreement, the parties agreed to establish a 50% - 50% joint venture in Hong Kong, Gold, Gold, Gold Limited (the “3G”). 3G operates in Hong Kong and owns the “Goldeck App”, a physical gold trading platform. 3G offers its customers with one-stop services including: physical gold trading, deposits and withdrawals.
On May 10, 2021, the Company acquired 98.75% of the issued and outstanding share capital of Macao E-Media Development Company Limited, a Macau company (“MED”), by issuance of 131,337,500 shares of the Company’s restricted common stock, par value $0.01 per share, at $0.50 per share, for an aggregate consideration of $65,668,750. The acquisition was completed on September 27, 2021. As a result, MED becomes a 98.75% owned subsidiary of the Company.
Based on its gross merchandise volume and market share, MED is a leading food and grocery ordering and delivery service company in Macau. MED was founded in Macau in 2011, and in 2015, once was Meituan Dianping’s exclusive business partner in Macau. Meituan Dianping is the biggest platform in China that offers diversified daily needs services, including food delivery, hotel and travel booking and other goods and services. In June 2016, MED launched its own e-commerce platform. Since then, MED has grown and become the biggest food and grocery ordering and delivery service provider in Macau, with approximately 70% of the market share.
New Subsidiaries
On January 2023, the Company acquired 90% shares of Fresh Life Technology Company Limited (“Fresh Life”) through its subsidiary, Zhuhai Migua Technology Company Limited. The main business of Fresh Life is provision of logistic services in Macau.
On October 9, 2023, the Company acquired 70% shares of Citysearch Technology (HK) Company Limited (“Citysearch”) in Hong Kong. The main business of Citysearch is provision of group dining service platform, which mainly solves the lunch and dinner group dining needs for corporate employees in Hong Kong. As a startup, for the period ended December 31, 2023, Citysearch had a revenue of approximately $27,450, and net loss of approximately $969,632.
On December 22, 2023, the Company established a new wholly-owned subsidiary, Graphite Energy, Inc., which was incorporated in the State of Florida. The purpose of forming this new subsidiary is to enter the business of graphite production and sales, including establishing a production line for graphite refined powder products in Madagascar. Consequently, the Company first needs to ensure the long-term, sufficient and stable supply of graphite ore, which is the most important raw material for the Company’s graphite production line. On January 18, 2024, the Company entered into a Base Agreement for Purchase of Graphite Ore with Madagascar Graphite Limited (the “Supplier”) to ensure the long-term, sufficient and stable supply of graphite ore, which is the most important raw material for the Company’s graphite production line. The Supplier owns approximately 280-square-kilometer graphite mining area in the Tamatave region of Madagascar, with hundreds of millions of tons of the estimated graphite ore reserves and a history of graphite mining for more than a hundred years. On March 22, 2024, this agreement was amended and restated. Under the amended and restated agreement, the Company will not make advance payments to Supplier for the purchase of graphite ore; instead, payments will be made after manufacturing graphite products using the ore as raw material. The agreement term is one year, ending on March 30, 2025. During the term, Supplier agrees to sell and deliver to the Company, and the Company agrees to purchase and accept from Supplier sufficient amount of graphite ore so that the Company can produce up to 100,000 tons of graphite refined powder products with a carbon content of more than 95%. Parties agree to decide whether to renew or reach a new agreement 30 days before the expiration of this agreement.
Due to the uncontrollable variations among different grades of graphite ore, such as volume, weight, carbon content, as well as inaccuracies in testing, to protect each party’s interest and simplify the process of pricing, parties agree that the price for the graphite ore used for the production of refined graphite powder shall be calculated on an output based formula as follows: (i) for each metric ton of refined graphite powder output, the Company shall pay Supplier a fixed price of $200, regardless of how many metric tons
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of graphite ore used as input; and (ii) This fixed price shall cover all mining and transporting the graphite ore to the warehousing facility at the Company’s production line in Tamatave, Madagascar by Supplier.
Parties agree that purchase price shall be paid to Supplier by the Company’s issuance of its common stock shares, at a price of $0.50 per share. The Company’s share payment shall be made quarterly in accordance with the quantity of the refined graphite powder produced for the quarter. Parties agree the Company’s shares shall be issued to Supplier within 90 days of each quarterly settlement.
The Company has not been involved in any bankruptcy, receivership or similar proceedings.
Our Business
Currently we conduct our businesses primarily through our 98.75% owned subsidiary, Macao E-Media Development Company Limited, a Macau Company (“MED”), and 50% owned company, Gold Gold Gold Limited (“3G”), a Hong Kong company.
In the following sections, we will primarily discuss the business of MED, as 3G is a joint venture and its financial position and results of operations are not consolidated with our consolidated financial statements. The financial position and results of operations of 3G are summarized in the notes to our consolidated financial statements.
We are a leading mobile platform of ordering and delivery services for restaurants or other merchants in Macau. We operate in Macau. Our businesses are built on our platform, Aomi App (the “Platform”). The Platform connects restaurants/ merchants (collectively referred to as “merchants”) with consumers and delivery riders. The Platform is created to serve the needs of these three key areas and to become more intelligent and efficient with every customer order. As we grow, we enjoy the benefits of scale and enjoy our competitive advantages, and at the same time we deliver substantial benefits to everyone we serve. In 2023, our Platform generated over 9,182,000 transactions, totaling $1,061,530,000 MOP (approximately $133,000,000) in Gross Merchandise Volume.
We offer customers access to the Platform primarily through our mobile applications designed for iPhone, Android, and iPad devices. To use the mobile applications, customers either enter their delivery address or use geo-location and are thereby connected with local merchants that provide takeout or offer their services. Customers can further refine their search results using the search capability, enabling them to filter results across cuisines or merchandise types, merchant names, proximity, ratings and other criteria. Once customers have found what they are looking for, they place their orders. Once an order is received, the Company transmits the order to the merchant, while saving the customers’ preferences for future orders, thus providing them with a convenient repeat order experience. A customer can choose to have the food delivered or for pick-up/take-away. The Platform informs the customer of the duration of food preparation, and when the food is ready for pick-up or the amount of time it will take for delivery. The customers can also track the meal through the real-time location of the delivery rider as displayed on the Platform.
Customers pay us for their meals or goods when orders are placed. Payment is administered by paying with a credit card, debit card, or third-party payment methods, such as WeChat Pay, Alipay, Apple Pay, Mpay, etc. For these transactions, we collect the total amount of the customer’s order less payment processing fees from the payment processor and remits the net proceeds to the merchants less commission and other fees. We generally accumulate funds and remit the net proceeds to the merchant partners at least on a monthly basis.
Consumers may also access our services through the WeChat mini program, a mobile app operated by a third party. Leveraged by the leading market status of WeChat along with its vast user base, it enables us to broaden our user reach. The WeChat mini program is easy to use. Customers can swipe or search to open the mini app and connect to the Company’s Platform without downloading or installing additional mobile applications. The WeChat mini program provides customers with the same functionality as the Company’s mobile applications, including finding merchant, searching and ordering.
Merchants have the option to either engage the Company to provide the delivery service or deliver by themselves. By providing delivery services, the Company is able to significantly increase the number of merchants it can offer to customers while enhancing the transparency, consistency and reliability of the customer experience. Delivery services benefit the merchants by allowing them to focus on making great food or providing good merchandise while the Company handles the complexity of operating the delivery networks. Presently the Company is by far the largest citywide on-demand food and merchandise delivery network in Macau. The Company’s delivery arrangements with merchants are structured under two models: Instant Delivery and Scheduled Delivery. As of December 31, 2023, the Company had 600 delivery drivers.
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From time to time, merchants run promotion campaigns or other activities via the Company’s Platform. Consumers are able to purchase coupons for merchandise at discounted prices on the Platform, and then go to merchants’ physical retail stores to redeem the coupons, and enjoy the goods or services at a member-discounted price. By doing so, merchants can establish their online presence, grow more customers, and promote and sell goods and services directly to consumers online.
We generate revenues primarily when customers place orders on our Platform. Merchant partners pay a commission, typically a percentage of the transaction, on orders that are processed through our Platform. In many cases, we also provide delivery services to merchants on the Platform that do not have their own delivery operations. Merchant partners that use our delivery services pay an additional commission on the transaction for the use of those services. We also recognize as revenue any fees charged directly to the customer.
We provide our customer with a wide variety of payment methods. Customers may use credit card, debit card, or a third-party payment method to pay for their goods and services when the orders are placed. For Macau customers, we accept debit card and credit card of major Macau banks. International customers can use credit card issued by Visa, Mastercard, or China UnionPay. We also offer third-party payment methods such as WeChat, Alipay and Mpay. For these transactions, we collect the total amount of the customer’s order net of payment processing fees from the payment processor and remits the net proceeds to the merchants less commission and other fees. We generally accumulate funds and remit the net proceeds to the merchant partners at least on a monthly basis.
A significant portion of the Company’s revenues are the commissions earned from merchant partners for consumer orders generated on our Platform.
Additional Services
The Platform of the Company originally serviced only food ordering and delivery, later, built on the Platform’s user base, the Company expands its services to other areas, and continues to drive customer growth and enhance customer value.
(1) Flash Sales Service, which is, the Company utilizes its existing takeout platform, suddenly offering huge discounts, in a specific period of time, to clear a small amount of inventory for merchants. The discounted prices are available to exclusive members for a limited time. Each special sale only lasts for 1- 2 days. First come, first served, while supplies last.
(2) In-Store Service means that after users obtain store information and discounts through the Company’s online platform, they come to offline stores for dining, entertainment, accommodation, etc., from which the platform collects commissions and marketing fees. In addition to in-store dining that complements takeout, In-Store Service also includes various leisure and entertainment, as well as medical beauty, parent-child, education, home decoration, etc.
For the year ended December 31, 2023, approximately 86% of the Company's revenue derived from food ordering and delivery business, about 5% from flash sale service, and approximately 5% from in-store service.
Since 2022, with the changes in the macroeconomic environment, market, and competition, our business strategy was adjusted to maintain a stable market share, reduce costs and increase efficiency, and ensure the Company’s profitability. As a result, in 2022, we reduced or suspended our investment in certain exploratory business activities, such as online supermarket, live broadcasting business, and focus on our main business and the business initiatives with good profitability.
Merchant Benefits
We focus on providing value to both merchants and customers through our Platform. We provide merchants with more orders, help them serve customers better, facilitate delivery logistics, and enable them to improve the efficiency of their business. For customers, we make ordering, takeout accessible, simple and enjoyable, enabling them to discover new merchants and accurately and easily place their orders anytime and from anywhere.
With more than 5,500 merchants currently on our Platform, we believe that we can provide merchants with the following key benefits:
More Orders. Through our Platform, merchants in the network receive more orders at full prices.
Targeted Reach. Merchants in the network gain a mobile presence with the ability to reach their most valuable customers.
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Low Risk, High Return. For merchants, our Platform enables them to grow their business without adding seating capacity or wait/service staff, and enable them to leverage their existing fixed costs.
Higher Efficiency. Merchant partners in the network can receive and handle a larger volume of takeout orders more accurately, increasing their operational efficiency while providing their takeout customers with a high-quality experience.
Delivery Service. In many cases, we provide delivery services to those merchants who do not have their own delivery operations. By providing delivery services, merchants can focus on making great food while we handle the complexity of operating the delivery networks.
Customer Benefits
With 780,000 active registered Platform customers as of December 31, 2023, we believe that we provide customers with the following key benefits:
Discovery. We aggregate menus/merchandise catalogs and enable ordering from more than 5,500 merchants in Macau as of December 31, 2023, in most cases we provide customers with more choices than the menu drawer and allowing them to discover hidden gems from merchants on our Platform.
Lower price. From time to time, merchants run promotion campaigns or other activities via our Platform. Consumers are able to purchase coupons at discount prices on the Platform, and then they go to merchants’ physical stores to redeem the coupons, and enjoy the goods and services at discounted prices.
Convenience. Using our Platform, customers do not need to place their orders over the phone or physically going to the merchants’ place of business. We provide customers with an easy-to-use, intuitive and personalized interface that helps them search and discover local merchants and then accurately and efficiently place orders from any places.
Service. We strive to deliver a comprehensive and smooth end-to-end experience to our customers characterized with speedy delivery, good quality, and ease of use.
Sources of Revenues and Costs of Revenues
We generate revenue primarily from (i) commission from merchants for orders placed on our Platform, which are generally determined as a percentage of the value of the transaction completed, (ii) mobile marketing services in various advertising formats provided to restaurants/merchants or other clients, and (iii) delivery fees from customers and merchants for delivery services provided by us.
For the year ended December 31, 2023, approximately 86% of the Company's revenue derived from food ordering and delivery business, about 5% from flash sale service, and approximately 5% from in-store service.
Our costs of revenue primarily consist of (i) food/merchandise delivery rider costs, (ii) payment processing costs, (iii) employee benefits, expenses for customer service and other personnel, (iv) depreciation of property, plant and equipment, and (v) Cloud server operation and maintenance costs.
A significant portion of costs of our revenues is attributable to delivery driver costs, which accounted for approximately 20% - 25% of our revenues.
Market and Customers
With increased smartphone penetration, in recent years, the mobile food/grocery ordering market has grown worldwide. Mobile ordering has started to become the norm, thanks to the convenience, accuracy, and ability to integrate payments.
We operate in Macau and serve approximately over one million people, of which approximately 700,000 are permanent residents and more than 300,000 are non-Macau residents/college students who work or study full time in Macau. Our customers are mainly Macau residents, i.e., Macau households, office workers, laborers and college students.
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As of December 31, 2023, we had approximately 780,000 active registered Platform customers and served over 5,500 partnered merchants. For the years ended December 31, 2023 and 2022, none of these active Platform customers or merchants accounted for 10% or more of our net revenues.
Sales and Marketing
Our sales team add new restaurant/merchant partners to the network by emphasizing the Platform’s low risk, high return proposition: providing more orders, low upfront payments or subscription fees without requiring any discounts from a restaurant/merchant’s full price menus, and we only get paid for orders we generate for them. Our delivery network has also expanded our offerings and ability to attract restaurants/merchants that do not have their own delivery operations. Leads for new merchants are generated either directly by the merchant through our Platform, or are self-prospected by the sales team. Once merchants have joined our network, our representatives continue to work with them to maintain quality control and to increase their order volume.
We believe that our mobile ordering platform, innovative products and excellent customer care are our best and most effective marketing tools, helping to generate strong word-of-mouth referrals, which have been the primary driver of our customer growth. Our integrated marketing efforts are aimed at encouraging new customers to try the Platform and driving existing customers to engage more frequently with the Platform. We use both mobile and offline advertising.
We worked with the Industrial and Commercial Bank of China to issue a co-branded credit card. Every new card holder is given $50 MOP (approximately $6.25) worth of coupon redeemable on our Platform. Together with our good services, this campaign significantly increased our customer base.
From time to time, we also introduce various types of promotions and activities to keep the existing users active, such as giving out coupons, discounts, and cash back activities.
Technology
Technology has changed consumer behavior and driven a wave of demand for convenience. We enable local brick-and-mortar businesses, which are fundamental to the vitality of local economies and communities, to address consumers’ expectations of ease and immediacy and thrive in an increasingly convenience-driven economy. We generally develop additional features for our Platform in-house, focusing on quick release cycles and constant improvement. Our mobile properties are either stored on secure remote servers and software networks through a public cloud provider or are hosted by a third-party provider of hosting services. The Platform includes a variety of encryption, antivirus, firewall and patch-management technology to protect and maintain systems and computer hardware across the business. We rely on third-party off-the-shelf technology as well as internally developed and proprietary products and systems to ensure rapid, high-quality customer care, software development, website integration, updates and maintenance.
Growth Strategy
We strive to make our Platform an integral part of everyday life for merchants and customers through the following growth strategies:
(1) More merchants. We intend to broaden our network of merchants by providing innovative services that help merchants operate and grow their businesses. We have experienced tremendous success serving merchants. Today we have over 4,400 merchants, the majority of which are restaurants, on our Platform, and there are many more that we have yet to reach. We will continue to innovate and introduce new products and services to add value for our merchants and unlock additional revenue opportunities, and will continue our sales efforts to continue adding new merchants.
(2) More consumers. Presently there are over 780,000 consumers on our Platform. We plan to continue to increase our consumer reach by more consumer engagement. At present, consumers use our Platform for a small fraction of their monthly meals or purchases. We strive to increase the frequency with which consumers use our Platform by being the most delicious, affordable, and convenient way to eat or make purchase. We plan to do this by increasing the breadth of restaurant/merchant selection, expanding availability of meals at all times of the day. In addition, our goal is to satisfy consumers, thereby promoting their use of our Platform and making it easier for us to gain new consumers. We continue to make investments aimed at improving the consumer experience.
We intend to continue to grow the number of customers and orders placed on our Platform primarily through word-of-mouth referrals and marketing that encourages adoption of our ordering Platform and increased order frequency.
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(3) Better Delivery Driver experience. We invest in improving delivery driver experience and satisfaction.
(4) More Service Offerings. As we grow, we plan to expand our service offerings, and grow into a full-category service e-commerce company. We will continue to add new service categories covering more use cases in consumers’ daily lives. We also plan to further broaden service selections within our current service categories. We believe expanding service offerings will improve consumer loyalty and lead to more cross-selling.
(5) Deliver Excellent Customer Care. By meeting and exceeding the expectations of both merchants and customers through customer service, we seek to gain their loyalty and support for our Platform.
(6) Improve Our Operational Efficiency. We will focus on optimizing our cost structure primarily through product improvements meant to enhance the operational efficiency and quality of our logistics platform. These improvements include enhancements to our batching algorithms and order preparation and traffic predictions.
Competition
As a leading mobile food and grocery ordering and take-out delivery service in Macau, we primarily compete with the traditional offline ordering process used by the vast majority of restaurants/grocery stores and diners involving paper menus that restaurants distribute to diners, as well as advertising that restaurants/grocery stores place in local publications to attract customers. For dining customers, we compete with the traditional ordering process by aggregating restaurant and menu information in one place online so that it is easier and more convenient to find a desirable restaurant option and place a customized order without having to interact directly with the restaurants. For restaurants, we offer a more targeted marketing opportunity than the telephone pages, billboards or other local advertising media since dining customers typically access our Platform when they are looking to place a takeout order, and we capture the transaction right at the time when a dining customer has made a decision.
Most restaurants in Macau are small businesses, who do not have their own standalone websites and online interfaces. Compared to other dining platforms, we offer customers a wide range of choices, with over 4,400 restaurants on our Platform, including low cost or no cost delivery, menu price parity with any other online ordering option and the lowest overall pricing and most compelling rewards for customers in Macau.
There is another mobile food delivery service provider in Macau, MFood, which is owned and operated by Mpay, a Macau local digital payment company. While MFood has access to a massive number of users inherited from its parent company, but MFood is small in scale and unable to compete with us effectively.
While we are currently the leading mobile food and grocery take-out delivery service in Macau, new competitors could emerge and existing competitors could continue to grow in our markets. These competitors may have greater resources and other advantages than us and could impact our growth rates and ability to maintain profitability.
Government Regulation
We are subject to a wide variety of laws and regulations in Macau. These laws, regulations, and standards govern issues such as business registration, labor and employment, commissions and fees, anti-discrimination, payments, product liability, environmental protection, personal injury, text messaging, subscription services, intellectual property, consumer protection and warnings, marketing, taxation, privacy, data security, competition, terms of service, mobile application and website accessibility, money transmittal, and background checks. We are also subject to regulations and best practices stipulated by the Monetary and Foreign Exchange Authority of Macau (“AMCM”). Especially, AMCM requires us to open an official bank account under the supervision of AMCM and other equivalent Macau government departments. When a customer places an order on our Platform, the customer’s payment will directly go to this official bank account in the first step. We then settle the payment later with merchants periodically.
The laws and government regulations are constantly evolving, and it is impossible to predict accurately the effect they may have upon our operations, earnings and its competitive position in the future.
Intellectual Property
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We believe that our intellectual property rights are valuable and important to our business. We rely on trademarks, patents, copyrights, trade secrets, license agreements, intellectual property assignment agreements, confidentiality procedures, non-disclosure agreements, and employee non-disclosure agreements to establish and protect our proprietary rights.
We have devoted to identify and protect a substantial portion of our strategic intellectual property in logistics, selection optimization, and other technologies relevant to its business. As of December 31, 2023, we had 6 patents registered. In addition, we owned 96 registered trademarks and 79 software copyrights.
We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective. Despite our efforts to protect our intellectual property rights, they may be infringed in the future or may be invalidated, circumvented, or challenged.
Employees
We believe that our future success will depend, in part, on our continued ability to attract, hire, and retain qualified personnel. As of December 31, 2023, we had approximately 478 full time employees and 369 part time employees. Of 478 full time employees, 231 were delivery drivers. All of our part-time employees are delivery riders. None of our employees are covered by collective bargaining agreements. We have not experienced any work stoppages, and we believe that our relationship with our employees is good.
Item 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide the information called for in this Item.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 1C. CYBERSECURITY
None.
Item 2. DESCRIPTION OF PROPERTY
We do not own any properties. We entered into lease agreements for our offices located in Macau, Hong Kong, and Zhuhai, Guangdong, China, totaling approximately 27,444 square feet.
We believe these facilities are in good condition and sufficient for our current needs but may need to seek additional or expanded facilities if our business continues to grow, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth.
Item 3. LEGAL PROCEEDINGS
From time-to-time, we are involved in legal proceedings relating to claims arising out of our operations in the normal course of business. It is our policy to record accruals for legal contingencies to the extent that we have concluded that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated, and to expense costs associated with loss contingencies, including any related legal fees, as they are incurred. As of December 31, 2023, and through the filing date of this Form 10-K, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to our interests, we believe would be material to our business.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTC Pink marketplace under symbol "SCGY", and has been traded very thinly and infrequently.
Our common stock is considered to be penny stock under rules promulgated by the SEC. Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a penny stock is to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.
Holders of Our Common Stock
As of December 31, 2023, we had approximately 254 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. We have appointed Securities Transfer Corporation, 2901 Dallas Parkway, Suite 380, Plano TX 75093 to act as transfer agent for the common stock.
Dividends
We have never paid or declared any cash dividends on our common stock. We currently intend to retain any future earnings to finance the growth and development of our business, and we do not expect to pay any cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, preferential rights of any preferred stock, restrictions contained in future financing instruments, and other factors our Board of Directors deems relevant.
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock should our stock ever be traded on a public market. Therefore, stockholders may have difficulty selling our securities.
Securities Authorized for Issuance under Equity Compensation Plans
11
We do not have any equity compensation plans under which equity securities may be issued.
Performance graph
Not required for smaller reporting companies.
Recent Sales of Unregistered Securities
On May 10, 2021, the Company entered into a stock purchase agreement with multiple accredited investors to sell and issue to the purchasers in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder, an aggregate of 17,084,148 shares of the Company’s common stock, par value $0.01 per share at a price of $0.50 per Share. Proceeds to the Company from the sale of the Shares were $8,542,074.
On May 10, 2021, the Company entered into a share purchase agreement, by and among the Company, Macao E-Media Development Company Limited, a company registered in Macau (“MED”), and the shareholders of MED (the “MED Shareholders” and, together with MED, the “Sellers”), whereby the Company acquired from the Sellers 98.75% of the issued and outstanding share capital of MED (the “MED Shares”).
As consideration for the MED Shares, the Company agreed to issue the Sellers, or its assigns, in a total of 131,337,500 shares of the Company’s restricted common stock, par value $0.01 per share, at a consideration of $0.50 per share, for an aggregate consideration of $65,668,750.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
No purchases of our equity securities were made by us or any affiliated entity during the year ended December 31, 2023.
Item 6. RESERVED
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of the Company and its subsidiaries for the fiscal years ended December 31, 2023 and 2022. The discussion and analysis that follows should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual report on Form 10-K.
Except for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the Company’s control. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report.
Business Overview
Currently we conduct our businesses primarily through our 98.75% owned subsidiary, Macao E-Media Development Company Limited, a Macau Company (“MED”), and 50% owned company, Gold Gold Gold Limited (“3G”), a Hong Kong company.
In this MD&A section, we will primarily discuss the business of MED, as 3G is a joint venture and its financial position and results of operations are not consolidated with our consolidated financial statements. The financial position and results of operations of 3G are summarized in the Notes to our consolidated financial statements.
As a leading mobile platform of ordering and delivery services for restaurants or other merchants, we operate in Macau, and our businesses are built on our platform, Aomi App (the “Platform”). The Platform connects restaurants/merchants (collectively referred to as “Merchants”) with consumers and delivery riders. The Platform is created to serve the needs of these three key constituencies and to become more intelligent and efficient with every customer order. As we grow, we enjoy the benefits of scale and enjoy our competitive advantages, and at the same time we deliver substantial benefits to everyone we serve. For the year ended December 31, 2023, our Platform generated over 11,779,000 transactions, totaling $1,285,186,000 MOP (approximately $160,248,000) in Gross Merchandise Volume.
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In 2023, with the changes in the macroeconomic environment, market, and competition, our business strategy was adjusted to maintain a stable market share, reduce costs and increase efficiency, and ensure the Company's profitability. During the year, we reduced or suspended our investment in certain exploratory business activities, such as online supermarket, live broadcasting business, and focus on our main business and the business initiatives with good profitability. At the same time, we carried out various measures to reduce distribution costs and platform operating costs, and lay off some employees to reduce labor costs.
New Subsidiaries
On January 2023, the Company acquired 90% shares of Fresh Life Technology Company Limited (“Fresh Life”) through its subsidiary, Zhuhai Migua Technology Company Limited. The main business of Fresh Life is provision of logistic services in Macau.
On October 9, 2023, the Company acquired 70% shares of Citysearch Technology (HK) Company Limited (“Citysearch”) in Hong Kong. The main business of Citysearch is provision of group dining service platform, which mainly solves the lunch and dinner group dining needs for corporate employees in Hong Kong. As a startup, for the period ended December 31, 2023, Citysearch had a revenue of approximately $27,450, and net loss of approximately $969,632.
On December 22, 2023, the Company established a new wholly-owned subsidiary, Graphite Energy, Inc., which was incorporated in the State of Florida. The purpose of forming this new subsidiary is to enter the business of graphite production and sales, including establishing a production line for graphite refined powder products in Madagascar.
Consequently, the Company first needs to ensure the long-term, sufficient and stable supply of graphite ore, which is the most important raw material for the Company’s graphite production line. On January 18, 2024, the Company entered into a Base Agreement for Purchase of Graphite Ore with Madagascar Graphite Limited (the “Supplier”) to ensure the long-term, sufficient and stable supply of graphite ore, which is the most important raw material for the Company’s graphite production line. The Supplier owns approximately 280-square-kilometer graphite mining area in the Tamatave region of Madagascar, with hundreds of millions of tons of the estimated graphite ore reserves and a history of graphite mining for more than a hundred years. On March 22, 2024, this agreement was amended and restated. Under the amended and restated agreement, the Company will not make advance payments to Supplier for the purchase of graphite ore; instead, payments will be made after manufacturing graphite products using the ore as raw material. The agreement term is one year, ending on March 30, 2025. During the term, Supplier agrees to sell and deliver to the Company, and the Company agrees to purchase and accept from Supplier sufficient amount of graphite ore so that the Company can produce up to 100,000 tons of graphite refined powder products with a carbon content of more than 95%. Parties agree to decide whether to renew or reach a new agreement 30 days before the expiration of this agreement.
Due to the uncontrollable variations among different grades of graphite ore, such as volume, weight, carbon content, as well as inaccuracies in testing, to protect each party’s interest and simplify the process of pricing, parties agree that the price for the graphite ore used for the production of refined graphite powder shall be calculated on an output based formula as follows: (i) for each metric ton of refined graphite powder output, the Company shall pay Supplier a fixed price of $200, regardless of how many metric tons of graphite ore used as input; and (ii) This fixed price shall cover all mining and transporting the graphite ore to the warehousing facility at the Company’s production line in Tamatave, Madagascar by Supplier.
Parties agree that purchase price shall be paid to Supplier by the Company’s issuance of its common stock shares, at a price of $0.50 per share. The Company’s share payment shall be made quarterly in accordance with the quantity of the refined graphite powder produced for the quarter. Parties agree the Company’s shares shall be issued to Supplier within 90 days of each quarterly settlement.
2023 Highlights
Our operating results for the year ended December 31, 2023 included the following:
| ● | Total revenue decreased by $5.2 million to $38.9 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. |
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| ● | Total gross profit increased by $4.7 million to $17.9 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. |
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Results of Operations
Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
The following table shows operating results for the years ended December 31, 2023 and 2022.
Years Ended |
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Revenues |
| $ | 38,958,211 |
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| $ | 44,111,814 |
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Cost of revenue |
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| 21,097,763 |
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| 30,901,653 |
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Gross Profit |
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| 17,860,448 |
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| 13,210,161 |
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Operating expense |
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Operating profit/(loss) |
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Other income/(expense) |
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Net profit/(loss) before provision for income taxes |
| $ | 1,837,101 |
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Sales
For the year ended December 31, 2023, the Company generated sales for $38,958,211 compared to $44,111,814 for the year of 2022. The sales were entirely from the subsidiary, MED, which was acquired by the Company in September 2021.
Costs of Revenue
For the year ended December 31, 2023, the Company generated cost of revenue for $21,097,763 compared to $30,901,653 for the year of 2022. Currently the Company is attributable to delivery rider costs and purchase of inventory for the whole year.
Operating expenses
For the year ended December 31, 2023, the Company’s operating expenses were $15,966,837 compared to $17,053,486 for the year of 2022. The decrease is primarily the result of the operational maturity of the business in Macau and Zhuhai in 2023.
Other Income (Expense)
For the year ended December 31, 2023, the Company had $56,510 of other expense, net, as compared to $20,824 of sundry income, net, for the same period last year. The interest income in 2023 is related to loan receivable from a joint venture company. The interest expense in 2023 and 2022 are related to loan interest payable to the banks. The increase is primarily the result of new bank loan paid towards Macao and Zhuhai business operations.
Net Income (Loss)
For the year ended December 31, 2023, the Company had a net income attributable to the Company of $2,087,997, or $0.008 per share, as compared to a net loss of $3,766,129, or $(0.014) per share, for the year of 2022.
Liquidity and Capital Resources
As of December 31, 2023, the Company had cash and cash equivalents of $3,164,464 and a working capital deficit of $5,992,049. The Company does not generate a significant amount of cash flows from operations.
For the year ended December 31, 2023, the Company used net cash of $656,666 from its operating activities primarily from our net income of $1,828,310, net with depreciation and amortization of $111,504, a disposal of equipment of $19,757, an increase in account receivables of $276,618, an decrease in inventories of $40,651, an increase in prepaid expenses of $9,167, a decrease in deposits of $207,324, an increase in other receivables of $437,126, an decrease in accrued expense of $83,611, an increase in deposit received of $225,203, a decrease in other payables of $555,320, a decrease in account payable of $1,727,573. By comparison, net cash used in operating activities was $3,393,848 in 2022.
During the year ended December 31, 2023, the Company provided net cash of $460,064 from its investing activities which comprised with purchase of equipment of $177,844, purchase of intangible asset of $503,668, loan receivable from joint venture of $49,028, repayment from related companies of $937,687, repayment from non-controlling interest of $556,875 and net cash outflow from acquisition of subsidiaries of $402,014. By comparison, net cash provided by investing activities was $303,242 in 2022.
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During the year ended December 31, 2023, the Company’s financing activities provided net cash of $1,255,233, which was comprised of repayment of bank loans of $288,187 and loan borrowing from bank of $1,543,420. By comparison, net cash provided by financing activities was $24,174 in 2022.
We believe that our existing cash, cash equivalents, short term investments and borrowings available under the credit facility will be sufficient to meet our working capital requirements for at least the next twelve months. However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than currently expected. If we are unable to obtain needed additional funds, we will have to reduce operating costs, which could impair our growth prospects and could otherwise negatively impact our business.
The bank loans are borrowed by MED and Zhuhai Chengmi Technology Company Limited (“Chengmi”). The banking credit facility from MED dated March 3, 2020 for a maximum principal of $374,672 expiring July 31, 2025 at an interest rate of 4.25% per annum. This loan is secured against the directors of MED and for the use of MED operation due to the outbreak of COVID-19. On June 13, 2022, MED borrowed another loan from Ant Bank (Macao) Limited with principle of $623,239 (equivalent to MOP5,000,000), at an interest rate of 4% per annum with no fixed term of repayment. In May and June 2023, Chengmi borrowed the loans with principle of $362,505 and $414,731, repaid within a year and at an interest rate of 4.5% per annum. In June 2023, Chengmi borrowed the loans with principle of $85,518 and $59,052, repaid within a year and at an interest rate of 4.4% per annum.
Until we are able to generate sufficient liquidity from operations, we intend to continue to fund operations from cash on-hand, and through private debt or equity placements of our securities. Our continued operations will depend on whether we are able to generate sufficient liquidity from operations and/or raise additional capital through such sources as equity and debt financings, collaborative and licensing agreements and strategic alliances. There can be no assurance that additional capital will become available or, if it does, that it will become available on acceptable terms, or that any additional capital we may obtain will be sufficient to meet our long-term needs. We currently have no commitments for any additional capital, both internally and externally.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Contractual Obligations
The Company leases approximately 250 square feet of space in Jersey City, New Jersey under a month-by-month basis at rent of $650 per month. In addition, the Company entered into a two-year lease for office space of approximately 770 square feet in Hong Kong, expiring January 2024 with monthly payments of approximately $4,404 per month. Besides, the acquisition of Macau and Zhuhai subsidiaries, it results on addition lease for office and warehouse approximately 39,800 square feet in Macau and Zhuhai, expiring within year 2023 and 2024 with monthly payment of approximately $28,351 per month. In 2023, MED’s subsidiary, Citysearch Technology (HK) Company Limited, entered into a two-year lease for a cafe shop space of approximately 708 square feet in Hong Kong, expiring August 2025 with monthly payment of approximately $5,005 per month.
Critical Accounting Policies
In preparing the consolidated financial statements, we follow accounting principles generally accepted in the United States (“GAAP”). GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.
We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. Our significant accounting policies are summarized in Note 2 to our consolidated financial statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As we are a smaller reporting company, we are not required to provide the information required by this Item.
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Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SCIENTIFIC ENERGY, INC. | ||||||||
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 | ||||||||
(Stated in US Dollars) | ||||||||
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | ||||||||
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Report of Independent Registered Public Accounting Firm (PCAOB ID# 2769) | ||||||||
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Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2023 and 2022 | ||||||||
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Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 | ||||||||
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中正達會計師事務所 Centurion ZD CPA & Co. Certified Public Accountants (Practising)
Unit 1304, 13/F, Two Harbourfront, 22 Tak Fung Street, Hunghom, Hong Kong. 香港 紅磡 德豐街22號 海濱廣場二期 13樓1304室 Tel 電話: (852) 2126 2388 Fax 傳真: (852) 2122 9078 |
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Scientific Energy, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Scientific Energy, Inc and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive losses, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2023 and 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023 and 2022 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
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中正達會計師事務所 Centurion ZD CPA & Co. Certified Public Accountants (Practising)
Unit 1304, 13/F, Two Harbourfront, 22 Tak Fung Street, Hunghom, Hong Kong. 香港 紅磡 德豐街22號 海濱廣場二期 13樓1304室 Tel 電話: (852) 2126 2388 Fax 傳真: (852) 2122 9078 |
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Critical Audit Matter Description
As at December 31, 2023, the Company had goodwill of approximately $72.7 million relating to the acquisition of Macao E-Media Development Company Limited and its subsidiaries. Management performs the annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Management’s valuation method is an income approach using a discounted cash flow model. The discounted cash flow model requires projections of revenue, gross margin, operating expenses, working capital investment and fixed asset additions over a multi-year period, and a discount rate based upon a weighted-average cost of capital.
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures included but were not limited to:
·Testing management’s process for developing the fair value.
·Evaluating the appropriateness of the discounted cash flow model, testing the completeness and accuracy of underlying data used in the discounted cash flow model, and evaluating the reasonableness of significant assumptions used by management related to projections of revenue and projections of gross margin.
·Evaluating management’s assumptions related to projections of revenue and projections of gross margin involved evaluating whether the assumptions used by management were reasonable considering
(i)the current and past performance of the Catering Business reporting unit and
(ii)the consistency with external market and industry data. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s discounted cash flow model
/s/ Centurion ZD CPA & Co
April 16, 2024
We have served as the Company’s auditor since 2014.
PCAOB ID #
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SCIENTIFIC ENERGY, INC. | ||
CONSOLIDATED BALANCE SHEETS | ||
DECEMBER 31, 2023 AND 2022 | ||
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2023 | 2022 | |
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | $ |
Loan receivables | ||
Account receivables | ||
Other receivables | ||
Amount due from related companies | ||
Amount due from joint venture | ||
Amount due from non-controlling interest | ||
Inventories | ||
Prepaid expense | ||
Total current assets | ||
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Non-current assets: |
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Property, plant and equipment, net | ||
Intangible assets | ||
Goodwill | ||
Operating lease right to use assets | ||
Deposits | ||
Total non-current assets | ||
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Total assets | $ | $ |
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LIABILITIES AND STOCKHOLDERS' SURPLUS |
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Current liabilities: |
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Accounts payables | $ | $ |
Accrued expenses | ||
Amount due to related company | ||
Deposits received | ||
Other payables | ||
Bank loans | ||
Operating lease liabilities | ||
Bank overdrafts | ||
Total current liabilities | ||
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Non-current liabilities: |
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Bank loans | $ | $ |
Operating lease liability | ||
Total non-current liabilities | ||
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Total liabilities | $ | $ |
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Commitments and contingencies ( | ||
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Stockholders’ deficit: |
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Preferred stock: par value $ | ||
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Common stock: par value $ | ||
Additional paid in capital | ||
Accumulated deficit | ( | ( |
Accumulated other comprehensive income | ||
Total stockholders’ surplus | ||
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Non-controlling interests | ( | ( |
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Total liabilities and stockholders’ surplus | $ | $ |
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See the accompanying notes to the consolidated financial statements | ||
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SCIENTIFIC ENERGY, INC. | ||
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | ||
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2023 | 2022 | |
REVENUE | $ | $ |
COST OF REVENUE | ( | ( |
GROSS PROFIT | ||
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OPERATING EXPENSES: |
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Selling, general and administrative expenses | ||
Depreciation and amortization | ||
Total operating expenses | ||
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NET INCOME (LOSS) FROM OPERATIONS | ( | |
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Other income (expense): |
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Sundry (expense) income, net | ||
Interest (expense) income, net | ( | ( |
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Net income (loss) before provision for income taxes | ( | |
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Income taxes | ( | |
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NET INCOME (LOSS) | $ | $( |
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Net income (loss) attributable to non-controlling interests | ||
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Net income attributable to Scientific Energy, Inc. | $ | $( |
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OTHER COMPREHENIVE LOSS: |
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Net income (loss) | $ | $( |
Foreign translation gain (loss) | ||
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Total comprehensive income (loss) | $ | $( |
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Foreign translation gain (loss) attributable to non-controlling interest | ||
Comprehensive income attributable to Scientific Energy, Inc. | $ | $( |
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Net income (loss) per common share, basic and diluted | $ | $( |
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Weighted average common shares outstanding, basic and diluted | ||
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See the accompanying notes to the consolidated financial statements | ||
21
SCIENTIFIC ENERGY, INC. | |||||||
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT | |||||||
YEARS ENDED DECEMBER 31, 2023 AND 2022 | |||||||
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| Additional |
| Other | Non- |
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| Common stock | Paid in | Accumulated | Comprehensive | controlling |
| |
Shares | Amount | Capital | Deficit | Income (loss) | Interests | Total | |
Balance, December 31, 2021 | ( | ( | ( | ||||
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Foreign currency transaction income | |||||||
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Net loss | ( | ( | ( | ||||
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Balance, December 31, 2022 | $ | $ | $( | $ | $( | $ | |
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Foreign currency transaction income | |||||||
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Acquisition of subsidiary | ( | ( | |||||
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Net income | ( | ||||||
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Balance, December 31, 2023 | $ | $ | $( | $ | $( | $ | |
See the accompanying notes to the consolidated financial statement | |||||||
22
SCIENTIFIC ENERGY, INC. | ||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
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| Year ended December 31, | |
2023 | 2022 | |
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) | $ | $( |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation | ||
Amortization | ||
Loss on disposal of property and equipment | ||
Account receivables | ( | ( |
Inventories | ||
Deposits | ||
Prepaid expenses | ( | ( |
Other receivables | ( | ( |
Accrued expenses | ( | ( |
Deposits received | ||
Other payable | ( | ( |
Accounts payable | ( | |
Net cash used in operating activities | ( | ( |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Repayment from (advances to) related companies | ( | |
Repayment from non-controlling interest | ||
Loan receivable to joint venture | ( | |
Net cash outflow from acquisition of subsidiaries | ( | |
Purchase of intangible assets | ( | ( |
Purchase of equipment | ( | ( |
Net cash provided by investing activities | ||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayment of bank borrowings | ( | ( |
Loan borrowings | ||
Net cash provided by financing activities | ||
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Effect of currency rate changes on cash | ||
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Net increase (decrease) in cash and cash equivalents | ( | |
Cash and cash equivalents, beginning of period | ||
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Cash and cash equivalents, end of period | $ | $ |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
| |
Interest paid, net | $ | $ |
Income taxes paid | $ | $ |
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Non cash financing activities: |
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Record right to use assets upon adoption of ASC 842 | $ | $ |
Record lease liabilities upon adoption of ASC 842 | $ | $ |
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See the accompanying notes to the consolidated financial statements | ||
23
SCIENTIFIC ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Scientific Energy, Inc., (the “Company”) was incorporated under the laws of the State of
On March 28, 2006, the Company set up a wholly owned subsidiary, PDI Global Limited (“PDI”), which was incorporated in the British Virgin Islands in order to engage in a business of e-commerce platform.
In January 2008, the Company entered into a joint venture agreement with China Resources Development Group Ltd., a Hong Kong company. Under the agreement, a joint venture company, Kabond Investments Ltd (the “JVC”), was established in Hong Kong, and the Company invested $39.6 million Hong Kong dollars (approximately $5.09 million) into the JVC for 72% of the JVC’s capital shares, and China Resources Development Group Ltd., jointly with its partner, invested $15.4 million Hong Kong dollars (approximately $1.98 million) into the JVC to receive 28% of the JVC’s capital shares. In December 2008, all equity interest of the JVC owned by the Company was sold to a third party for $39.6 million Hong Kong dollars (approximately $5,109,743).
In January 2009, the Company through its wholly-owned subsidiary, PDI, entered into a joint venture agreement with China Resources Development Group Ltd. Under the agreement, the Company agreed to invest $43,040,000 Hong Kong dollars (approximately $5.55 million) into a joint venture company Sinoforte Ltd. in Hong Kong (“Sinoforte”). The Company got 80% of Sinoforte's capital shares, and China Resources invested $10,222,000 Hong Kong dollars, approximately $1,318,967, and another investor invested $538,000 Hong Kong dollars, or approximately $69,419, into Sinoforte for 19% and 1% of Sinoforte's capital shares, respectively. The main business of Sinoforte was trading mineral products such as graphite produced in China. In June 2009 and September 2009, respectively, China Resources and the other minority investor cancelled their investments in Sinoforte, and the full amount of their original investments was returned. As a result, Sinoforte became a wholly-owned subsidiary of PDI. On December 8, 2020, PDI sold all the shares of Sinoforte to the Company at consideration of HK$10.
On February 28, 2012, the Company set up a wholly-owned subsidiary, Makeliving Ltd., which was incorporated in the Cayman Islands in order to engage in a business of e-commerce platform.
On January 23, 2018, the Company entered into an agreement with Cityhill Limited, a wholly owned subsidiary of South Sea Petroleum Holdings Limited, a Hong Kong listed public company, pursuant to which parties agreed to establish a joint venture (the “Joint Venture”). Each party owns 50% equity interest in the Joint Venture respectively.
On February 8, 2021, the Company acquired an entire share of a Hong Kong company, Qwestro Limited, for HK$1,000 without any goodwill and bargaining purchase.
On March 24, 2021, the Company disposed of its wholly-owned dormant subsidiary, PDI Global Limited, with a positive net worth of $1 to an unaffiliated third-party purchaser for $1.
In September 27, 2021, the Company completed the acquisition of 98.75% shares of Macao E-Media Development Company Limited (“MED”). As consideration for the MED shares, the Company agreed to issue the Sellers, or its assigns, in a total of 131,337,500 shares of the Company’s restricted common stock, par value $0.01 per share, at a consideration of $0.50 per share, in the aggregate consideration of $65,668,750 (the “Purchase Price”). As a result of this acquisition, MED becomes a 98.75% owned subsidiary of the Company. MED was founded at Macau in 2011. Its main area of business includes food and grocery order-pickup-delivery services from local restaurants, supermarkets and hotels.
MED has five subsidiaries, each of which is in charge of respective area such as Development & Maintenance, Marketing & Operation, Logistics & Delivery, Payment & Clearance, Emerging Market Business Development.
On December 22, 2023, the Company established a new wholly-owned subsidiary, Graphite Energy, Inc., which was incorporated in the State of Florida. The purpose of forming this new subsidiary is to enter the business of graphite production and sales, including establishing a production line for graphite refined powder products in Madagascar.
On January 2023, the Company acquired 90% shares of Fresh Life Technology Company Limited (“Fresh Life”) through its subsidiary, Zhuhai Migua Technology Company Limited. The main business of Fresh Life is provision of logistic services in Macau.
24
On October 9, 2023, the Company acquired 70% shares of Citysearch Technology (HK) Company Limited (“Citysearch”) in Hong Kong. The main business of Citysearch is provision of group dining service platform, which mainly solves the lunch and dinner group dining needs for corporate employees in Hong Kong. As a startup, for the period ended December 31, 2023, Citysearch had a revenue of approximately $27,450, and net loss of approximately $969,632.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying audited consolidated financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made that are necessary to present fairly the financial position, and the results of its operations and its cash flows. Operating results as presented are not necessarily indicative of the results to be expected for a full year.
The Company's consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. The management will seek to raise funds from shareholders.
The accompanying consolidated financial statements present the financial position and the results of operations of the Company and its 100% owned subsidiaries, Sinoforte Limited. Qwestro Limited, in turn, is the 100% owned subsidiary and consolidates with Sinoforte Limited. The Company has 100% owned subsidiary, Graphite Energy, Inc., established in USA.
The Company has 98.75% owned subsidiary, MED. Zhuhai Chengmi Technology Limited, Guangzhou Chengmi Technology Company Limited, in turn, are the 100% owned subsidiaries with MED. Squirrel Logistic Company Limited and Green Supply Chain Management Company Limited are the 99% owned subsidiaries with MED. Zhuhai Migua Technology Company Limited is 100% owned subsidiary by Zhuhai Chengmi Technology Limited and has a 90% owned subsidiary, Fresh Life Technology Company Limited. The Company acquired 70% shares of Citysearch. All of the above companies consolidate with MED.
Summaries of subsidiaries:
Name of subsidiary |
| Jurisdiction of organization |
Sinoforte Limited |
| Hong Kong |
Qwestro Limited (100% subsidiary of Sinoforte Limited) |
| Hong Kong |
Macao E-Media Development Company Limited |
| Macau |
Squirrel Logistic Company Limited (99% subsidiary of Macao E-Media Development Company Limited) |
| Macau |
Green Supply Chain Management Company Limited (99% subsidiary of Macao E-Media Development Company Limited) |
| Macau |
Guangzhou Chengmi Technology Company Limited (100% subsidiary of Macao E-Media Development Company Limited) |
| China |
Zhuhai Chengmi Technology Limited (100% subsidiary of Macao E-Media Development Company Limited) |
| China |
Zhuhai Migua Technology Company Limited (100% subsidiary of Zhuhai Chengmi Technology Limited) |
| China |
Fresh Life Technology Company Limited (90% subsidiary of Zhuhai Migua Technology Company Limited) |
| Macau |
Citysearch Technology (HK) Company Limited (70% subsidiary of Macao E-Media Development Company Limited |
| Hong Kong |
Graphite Energy, Inc. |
| USA |
All significant intercompany transactions and balances have been eliminated in consolidation.
Business Combinations
The Company accounts for acquisition of entities that include inputs and processes and has the ability to create outputs as business combinations. The Company allocates the purchase price of the acquisition to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses and integration costs are expensed as incurred.
25
Non-controlling interest
When there is a change in ownership interests that result in a loss of control of a subsidiary, the Company deconsolidates the subsidiary from the date control is lost. Any retained non-controlling investment in the former subsidiary is measured at fair value and is included in the calculation of the gain or loss upon deconsolidation of the subsidiary.
For the Company's majority-owned subsidiaries, a non-controlling interest is recognized to reflect the portion of their equity which is not attributable, directly or indirectly, to the Group. “Net income (loss)” on the consolidated income statements includes the “net loss attributable to non-controlling interests”. The cumulative results of operations attributable to non-controlling interests are also recorded as non-controlling interests in the Company's consolidated balance sheets.
Revenue Recognition
The Company recognizes revenue when: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related revenue is recorded.
The Company defers any revenue for which the product has not been delivered or services have not been rendered or are subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or services have been rendered or no refund will be required.
Revenues on the sale of products, net of estimated costs of returns and allowance, are recognized at the time products are shipped to customers, legal title has passed, and all significant contractual obligations of the Company have been satisfied. Products are generally sold on open accounts under credit terms customary to the geographic region of distribution. The Company performs ongoing credit evaluations of the customers and generally does not require collateral to secure the accounts receivable.
The Company is operating mobile platform of ordering and delivery services for restaurants and supermarket in Macau, together recognizing revenue on closed transactions.
Segment information
ASC 280-10 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. All sales and substantial assets of the Company are in the Greater Bay Area. The Company applies the management approach to the identification of our reportable operating segments as provided in accordance with ASC 280-10. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. Generally, the Company’s cash and cash equivalents in interest-bearing accounts may exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.
As of December 31, 2023, and December 31, 2022, the Company maintained $
The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.
Cash and Cash Equivalents
26
For purposes of the statements of cash flows, cash and cash equivalents include cash on hand and demand deposits held by banks.
Comprehensive Income (Loss)
The Company adopted Accounting Standards Codification subtopic 220-10, Comprehensive Income (“ASC 220-10”) which establishes standards for the reporting and displaying of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. ASC 220-10 requires other comprehensive income (loss) to include foreign currency translation adjustments.
Foreign Currency Translation
The Company translates the foreign currency consolidated financial statements into US Dollars (“USD”) using the year or reporting period-end or average exchange rates in accordance with the requirements of Accounting Standards Codification subtopic 830-10, Foreign Currency Matters (“ASC 830-10”). Assets and liabilities of these subsidiaries were translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented.
The consolidated financial statements were presented in US Dollars except as other specified.
The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within stockholders’ equity (deficit). Foreign currency transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated results of operations. The exchange rates used to translate amounts in HKD and MOP into US Dollars for the purposes of preparing the consolidated financial statements were as follows:
|
|
|
|
|
|
| December 31, 2023 |
| December 31, 2022 |
Exchange rate on balance sheet dates |
|
|
|
|
USD : HKD exchange rate |
| 7.8099 |
| 7.7890 |
USD : MOP exchange rate |
| 8.0441 |
| 8.0226 |
|
|
| ||
|
| Year ended December 31, 2022 |
| Year Ended December 31, 2021 |
Average exchange rate for the period |
|
|
|
|
USD : HKD exchange rate |
| 7.8140 |
| 7.8230 |
USD : MOP exchange rate |
| 8.0484 |
| 8.0577 |
Property, plant and equipment
The estimated useful lives of property, plant and equipment are as follows: |
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| |
|
|
|
|
Office equipment |
|
| |
Furniture and fixtures |
|
| |
Vehicles |
|
|
The Company evaluates the carrying value of items of property, plant and equipment to be held and used whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying value of an item of property, plant and equipment is considered impaired when the projected undiscounted future cash flows related to the asset are less than its carrying value. The Company measures impairment based on the amount by which the carrying value of the respective asset exceeds its fair value. Fair value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved.
Intangible assets
Purchased intangible assets are recognized and measured at fair value upon acquisition. Separately identifiable intangible assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method based on their estimated useful lives as follows:
Software |
| 1-10 years |
|
27
The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Trade receivables
Trade receivables are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
The Company considered the amounts of receivables in dispute and believes an allowance for these receivables were not necessary as of December 31, 2023 and 2022.
Fair Value Measurements
ASC Topic 820 defines fair value, establishes a framework for measuring fair value and enhances disclosure requirements for fair value measurements. This topic does not require any new fair value measurements. ASC Topic 820 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 — | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | |||
Level 2 — | Other inputs that is directly or indirectly observable in the marketplace. |
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|
|
Level 3 — | Unobservable inputs which are supported by little or no market activity. |
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|
|
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Earnings (Loss) Per Share
Earnings Per Share (‘EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants.
The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company's common stock at the average market price during the period. The Company has no stock options, warrants or other potentially dilutive instruments outstanding at December 31, 2023 and 2022.
28
Investment in Unconsolidated Joint Ventures
The Company entered into a JV agreement with an independent third party, to form a JV company. The joint venture agreement provides the Company with only the rights to the assets and obligation for the liabilities of the joint arrangement resting primarily with the JV. In adopting ASC Topic 323, Investments - Equity Method and Joint Ventures (Topic 323), the Company’s investment in joint venture is accounted for using the equity method.
Inventories
Inventories are carried at the lower of cost and net realizable value, as determined using the weighted average cost method. Management compares the cost of inventories with the net realizable value and if applicable, an allowance is made for writing down the inventory to its net realizable value, if lower than cost. On an ongoing basis, inventories are reviewed for potential write-down for estimated obsolescence or unmarketable inventories which equals the difference between the costs of inventories and the estimated net realizable value based upon forecasts for future demand and market conditions. When inventories are written-down to the lower of cost or net realizable value, it is not marked up subsequently based on changes in underlying facts and circumstances.
The Company entered into a purchase agreement with JV company and through their platform to purchase of gold. In adopting ASC Topic 330, Inventory, it permits certain inventories such as precious metals, agricultural and mineral inventories to be stated above cost in exceptional cases. We believe that because our business model is to trade gold and held in short-term, market value is a more useful and relevant measurement than lower of cost or market value.
Goodwill
Goodwill is recorded as the difference between the aggregate consideration paid for in a business combination and the fair value of the acquired net tangible and intangible assets acquired. The Company evaluates goodwill for impairment on an annual basis in the fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Based on that qualitative assessment, if it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company conducts a quantitative goodwill impairment test, which involves comparing the estimated fair value of the reporting unit with its carrying value, including goodwill. The Company estimates the fair value of a reporting unit using a combination of the income and market approach. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss is recorded for the difference.
Lease liabilities
In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. In determining the length of the lease term to its long-term lease, the Company determined it did not have an option to extend either lease.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (the “FASB”) FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” These amendments require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reporting segment are required to provide both the new disclosures and all of the existing disclosures required under ASC 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-07.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023 – 09 are effective for the Company on December 15, 2024, with early adoption permitted. Since this new ASU addresses only disclosures, the Company does not expect the adoption to have any material effects on its financial condition, results of operation or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023–09.
29
The Company’s management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.
NOTE 3 – GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company has an accumulated deficit of $
The Company’s ability to achieve these objectives cannot be determined at this stage. If the Company is unsuccessful in its endeavors, it may be forced to cease operations. These consolidated financial statements do not include any adjustments that might result from this uncertainty which may include adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
These factors have raised substantial doubt about the Company’s ability to continue as a going concern. There can be no assurances that the Company will be able to obtain adequate financing or achieve profitability. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Furniture and equipment as of December 31, 2023 and 2022 is summarized as follows:
|
| December 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Office furniture and fixtures |
| $ |
|
| $ |
| ||
Office equipment |
|
|
|
|
|
| ||
Vehicles |
|
|
|
|
|
| ||
Less: accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
| $ |
|
| $ |
| ||
Depreciation expense for the years ended December 31, 2023 and 2022 was $
NOTE 5 – INTANGIBLE ASSETS
Software as of December 31, 2023 and 2022 is summarized as follows:
|
| December 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Software |
| $ |
|
| $ |
| ||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Intangible assets, net |
| $ |
|
| $ |
| ||
Amortization expense for the years ended December 31, 2023 and 2022 was $
As of December 31, 2023, amortization expenses related to intangible assets for future periods are estimated to be as follows:
|
| For the years ending December 31, |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2029 and |
| ||||||
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| 2028 |
|
| thereafter |
| ||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Amortization expenses |
|
| 69,396 |
|
|
| 69,396 |
|
|
| 69,396 |
|
|
| 69,396 |
|
|
| 69,396 |
|
|
| 1,076,254 |
|
30
NOTE 6 – ACQUISITION OF SUBSIDIARIES
(a)Acquisition of Macao E-Media Development Company Limited
The Company completed the valuations for Macao E-Media Development Company Limited necessary to assess the fair values of the tangible assets acquired and liabilities assumed, resulting from which the amount of goodwill was determined and recognized as of the respective acquisition date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, September 27, 2021:
Property, plant and equipment |
| $ | 65,469 |
Intangible assets |
|
| 1,166,213 |
Inventory |
|
| 210,977 |
Trade receivables |
|
| 707,521 |
Other receivables and prepayment |
|
| 1,696,925 |
Amount due from related parties |
|
| 1,301,657 |
Cash and cash equivalents |
|
| 4,787,418 |
Trade payables |
|
| (6,411,304) |
Other payables and accruals |
|
| (8,519,867) |
Bank loan |
|
| (1,076,796) |
Goodwill |
|
| 71,664,639 |
Non-controlling interest |
|
| 69,349 |
Total consideration paid in cash |
| $ | 65,662,201 |
Less: Cash paid for entire equity interests |
|
| (65,204,275) |
Less: Cash and cash equivalents |
|
| (4,787,418) |
Net cash inflow arising from the acquisition of a subsidiary |
| $ | (4,329,492) |
(b)Acquisition of Citysearch Technology (HK) Company Limited
On October 9, 2023, the Company acquired 70% shares of Citysearch Technology (HK) Company Limited (“Citysearch”) in Hong Kong with $1,149,346 consideration. The main business of Citysearch is provision of group dining service platform, which mainly solves the lunch and dinner group dining needs for corporate employees in Hong Kong.
The Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, resulting from which the amount of goodwill was determined and recognized as of the respective acquisition date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, October 9, 2023.
Property, plant and equipment |
| $ | 6,911 |
|
Other receivables and prepayment |
|
| 94,803 |
|
Amount due from related parties |
|
| 381,086 |
|
Cash and cash equivalents |
|
| 747,332 |
|
Other payables and accruals |
|
| (323,742) |
|
Goodwill |
|
| 170,069 |
|
Non-controlling interest |
|
| 72,887 |
|
Total consideration paid in cash |
| $ | 1,149,346 |
|
Less: Cash and cash equivalents |
|
| (747,332) |
|
Net cash outflow arising from the acquisition of a subsidiary |
| $ | 402,014 |
|
The transaction resulted in allocation of $170,069 to goodwill, representing the financial, strategic and operational value of the transaction to the Company. Goodwill is attributed to the premium that the Company paid to obtain the value of the business of Citysearch and the synergies expected from the combined operations of Citysearch and the Company, the assembled workforce and their knowledge and experience in provision of dining services. The total amount of the goodwill acquired is not deductible for tax purposes.
(c) Acquisition of Fresh Life Technology Company Limited
On January 2023, the Company acquired 90% shares of Fresh Life Technology Company Limited (“Fresh Life”) in Macau with Nil consideration. The main business of Fresh Life is provision of logistic services in order to support MED’s business.
The Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, resulting from which the amount of goodwill was determined and recognized as of the respective acquisition
31
date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, January 1, 2023.
Amount due to related parties |
| $ | (925,423) |
|
Goodwill |
|
| 832,881 |
|
Non-controlling interest |
|
| 92,542 |
|
Net cash outflow arising from the acquisition of a subsidiary |
| $ | - |
|
The transaction resulted in allocation of $832,881 to goodwill, representing the financial, strategic and operational value of the transaction to the Company. Goodwill is attributed to the premium that the Company paid to obtain the value of the business of Fresh Life and the synergies expected from the combined operations of Fresh Life and the Company, the assembled workforce and their knowledge and experience in provision of logistic services. The total amount of the goodwill acquired is not deductible for tax purposes.
NOTE 7 – GOODWILL
|
|
|
|
|
|
|
|
| December 31, 2023 |
|
| December 31, 2022 | |
Goodwill | $ |
|
| $ | ||
Acquisition of subsidiaries |
|
|
|
| ||
Balance at end of period | $ |
|
| $ | ||
Goodwill has been allocated for impairment testing purposes to the acquisition of the shares of Macao E-Media Development Company Limited including its subsidiaries Fresh Life Technology Company Limited and Citysearch Technology (HK) Company Limited by the Company.
The Company performed goodwill impairment test at the reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change indicating the asset might be impaired. As of December 31, 2023, the Company performed testing on reporting unit.
The Company first assessed qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For those reporting units where it is determined that it is more likely than not that their fair values are less than the units’ carrying amounts, the Company will perform the first step of a two-step quantitative goodwill impairment test. After performing the assessment, if the carrying amounts of the reporting units are higher than their fair values, the Company will perform the second step of the two-step quantitative goodwill impairment test.
For the two-step goodwill impairment test, the Company estimated the fair value with income approach for specific reporting unit component. With the income approach, the Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on the best estimate of future net sales and operating expenses, based primarily on expected expansion, pricing, market share, and general economic conditions. Certain estimates of discounted cash flows involve businesses with limited financial history and developing revenue models. Changes in these forecasts could significantly change the amount of impairment recorded, if any.
Nil impairment loss of Goodwill being recorded for the year ended December 31, 2023, 2022 and 2021, respectively.
NOTE 8 – RIGHT TO USE ASSETS AND LEASE LIABILITY
The Company entered into a two-year lease for office space of approximately 770 square feet in Hong Kong, expiring January 10, 2024, with monthly payments of approximately $4,404 per month.
The Company entered the lease agreement for office and supermarket with MED and its subsidiaries in Macao and Zhuhai, with monthly payments of approximately $28,351 per month.
In 2023, MED’s subsidiary, Citysearch Technology (HK) Company Limited, entered into a two-year lease for a cafe shop space of approximately 708 square feet in Hong Kong, expiring August 2025 with monthly payment of approximately $5,005 per month.
At lease commencement date, the Company estimated the lease liability and the right of use assets at present value using the Company’s estimated incremental borrowing rate of 8% and determined the initial present value, at inception, of $
Right to use assets is summarized below:
32
|
| December 31, 2023 |
|
| December 31, 2022 |
| |
Macao and Zhuhai | $ |
|
| $ |
| ||
Hong Kong |
|
|
|
|
| ||
Subtotal |
|
|
|
|
| ||
Less accumulated depreciation |
| ( | ) |
|
| ( | ) |
Right to use assets, net | $ |
|
| $ |
| ||
During the year ended December 31, 2023 and 2022, the Company recorded $
Lease liability is summarized below:
|
| December 31, 2023 |
| December 31, 2021 |
| |
Macao and Zhuhai | $ |
| $ |
| ||
Hong Kong |
|
|
|
| ||
Total lease liability |
|
|
|
| ||
Less: short term portion |
| ( | ) |
| ( | ) |
Long term portion | $ |
| $ |
| ||
Maturity analysis under these lease agreements are as follows:
|
|
|
|
| |||
Year ended December 31, 2023 and 2022 | $ |
|
| $ |
| ||
Less: Present value discount |
| ( | ) |
|
| ( | ) |
Lease liability | $ |
|
| $ |
|
Lease expense for the year ended December 31, 2023 was comprised of the following:
|
|
| ||
Operating lease expense |
| $ |
| |
Short-term lease expense |
|
|
| |
|
| $ |
|
Lease expense for the year ended December 31, 2022 was comprised of the following:
|
|
| ||
Operating lease expense |
| $ |
| |
Short-term lease expense |
|
|
| |
|
| $ |
|
NOTE 9 - LOAN RECEIVABLES
On
NOTE 10 - INVENTORIES
The Company purchased gold from the platform under its joint venture, Gold Gold Gold Limited. Inventories for gold as of December 31, 2023 was $
NOTE 11 – CASH AND CASH EQUIVALENTS
Cash and cash equivalents from consolidated statements of cash flows as follows:
|
| December 31, 2023 |
|
| December 31, 2022 |
| |
Cash at bank and in hand | $ |
|
| $ |
| ||
Overdrafts |
|
|
|
| ( | ) | |
Cash and cash equivalents, net | $ |
|
| $ |
| ||
33
NOTE 12 – BANK LOANS AND OVERDRAFTS
The bank loans are borrowed by MED and Zhuhai Chengmi Technology Company Limited (“Chengmi”). The banking credit facility from MED dated March 3, 2020 for a maximum principal of $
Bank loans and overdrafts are summarized below:
|
| December 31, 2023 |
| December 31, 2022 |
| |
Bank loans | $ |
| $ | 1,009,446 |
| |
Bank overdrafts |
|
|
| 599,978 |
| |
Total bank loans and overdrafts |
|
|
| 1,609,424 |
| |
Less: short term portion |
| ( | ) |
| (892,701 | ) |
Long term portion | $ |
| $ | 716,723 |
| |
NOTE 13 – CAPITAL STOCK
The Company is authorized to issue
As of December 31, 2023, Kelton Capital Group Ltd. owned 31,190,500 shares, or 11.84%, of the Company’s common stock, Jiang Haitao owned 46,588,236 shares, or 17.69%, of the Company’s common stock, and CEDE & Co owned 26,008,850 shares, or 9.88%, of the Company’s common stock. Other than Kelton Capital Group Ltd, Jiang Haitao and CEDE & Co, no person owns 5% or more of the Company’s issued and outstanding shares.
34
NOTE 14 – INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income (loss) per common share for the year ended December 31, 2023 and 2022, respectively:
Schedule of Loss Per Share
|
| For the Years Ended December 31, |
|
| ||||
|
| 2023 |
| 2022 |
|
| ||
Numerator - basic and diluted |
|
|
|
|
|
|
|
|
Net income (loss) |
| $ |
| $ | ( |
|
| |
Denominator |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding —basic and diluted |
|
|
|
|
|
| ||
Income (loss) per common share — basic and diluted |
| $ |
| $ | ( |
|
| |
|
|
|
|
|
|
|
|
|
NOTE 15- INCOME TAXES
The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.
For the year ended December 31, 2023, the Company's realized net taxable income which offset existing deferred tax assets relating to net operating losses, was offset further (100%) by the valuation allowance. Other temporary differences are expected to be immaterial. Therefore, there were no expected income taxes, either current or deferred, reflected in the income statement.
At December 31, 2023, the Company has available for U.S. federal income tax purposes a net operating loss carryforward of approximately $6,400,000, expiring within 20 years, that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized.
Due to possible significant changes in the Company's ownership, the future use of its existing net operating losses may be limited. Components of deferred tax assets as of December 31, 2023 are as follows. All or a portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits.
The Company and its subsidiaries file separate income tax returns.
The United States of America
Scientific Energy, Inc. is incorporated in the State of Utah in the U.S., and is subject to a gradual U.S. federal corporate income tax of 21%. The State of Utah does not impose any corporate state income tax. As of December 31, 2023, future net operation losses of approximately $0.10 million are available to offset future operating income through 2040.
Hong Kong
Sinoforte Limited, Qwestro Limited and Citysearch Technology (HK) Company Limited are incorporated in Hong Kong and Hong Kong Profits Tax has been calculated at 16.5% of the estimated assessable profit for the years ended December 31, 2023, 2022.
Macau
Macao E-Media Development Company Limited, Squirrel Logistic Company Limited and Green Supply Chain Management Company Ltd. are exempted to Macau Corporate Income Tax.
35
People’s Republic of China
Zhuhai Chengmi Technology Company Ltd., Zhuhai Migua Technology Company Ltd. and Guangzhou Chengmi Technology Company Ltd. are subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is 25%.
At December 31, 2023 and 2022, the significant components of the deferred tax (assets) liabilities are summarized below:
Schedule of Income Taxes
Deferred Tax Assets: |
| December 31, 2023 |
|
| December 31, 2022 |
|
|
|
|
|
|
Net operating income (loss) carryforward | $ |
| $ | ( | |
Inventory obsolescence |
|
|
| ||
|
|
|
|
|
|
Total deferred tax assets |
|
|
| ( | |
Valuation allowance |
| ( |
|
| |
Net deferred tax assets | $ |
| $ |
The Company is subject to income tax holidays with respect to its Asian operations, and accordingly has recognized for foreign income taxes.
Rate Reconciliation: |
| December 31, 2023 |
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Book losses (worldwide) at federal statutory rate (21%) | $ |
| $ | ||
Hong Kong Profit Tax rate (16.5%) |
|
|
| ||
PRC Tax rate (25%) |
| ( |
|
| ( |
Change in valuation allowance |
| ( |
|
| |
Net expense (benefit) | $ |
| $ |
The net deferred tax asset generated by the U.S. loss carry-forward has been fully reserved.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31, 2023 and 2022, the Company recognized no interest and penalties. The Company had no accruals for interest and penalties at December 31, 2023 and 2022. Tax years from 2015 through 2023 are open to examination by the taxing authorities.
NOTE 16 - JOINT VENTURE
Gold Gold Gold Limited (“JV”) was created in February 2018. The Company entered into a JV agreement with primary activity of trading of gold. The Company injected $12,839 (HK$100,000) to the JV during the year. The Company shared the operating loss from JV of $12,839.
36
Summarized financial information for joint venture is as follows:
Balance Sheets: |
| December 31, 2023 |
| December 31, 2022 |
| ||
Property, plant and equipment, net |
| $ |
| $ |
| ||
Other receivables and prepaid |
|
|
|
|
| ||
Inventory |
|
|
|
|
| ||
Cash and cash equivalents |
|
|
|
|
| ||
Total assets |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
Accrual expense |
|
| ( | ) |
|
| |
Other payable |
|
| ( | ) |
| ( | ) |
Customer deposits and other |
|
| ( | ) |
| ( | ) |
Total liabilities |
|
| ( | ) |
| ( | ) |
|
|
|
|
|
|
|
|
Net liabilities |
| $ | ( | ) | $ | ( | ) |
Statement of Operations: |
| December 31, |
|
| December 31, |
| |
|
| 2023 |
|
| 202 |
| |
Revenue | $ |
|
| $ |
| ||
Cost of sale |
|
|
|
| ( | ) | |
Gross profit |
|
|
|
|
| ||
Operating expense |
| ( | ) |
|
| ( | ) |
Net loss from operations |
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
Interest (expense) income, net |
| ( | ) |
|
| ( | ) |
Net loss | $ | ( | ) |
| $ | ( | ) |
NOTE 17 – EMPLOYEE PENSION
Regulations in the PRC require the Company to contribute to a defined contribution retirement plan for all permanent employees. The PRC government is responsible for the pension liability to these retired employees. The Company is required to make monthly contributions to the state retirement plan at 20% of the base requirement for all permanent employees. Different geographic locations have different base requirements.
Regulations in the Macau require the Company to contribute to a defined contribution retirement plan for all permanent employees and casual workers. The Macau government is responsible for the pension liability to these retired employees. The Company is required to make monthly or quarterly contributions to the retirement plan for all permanent employees and casual workers.
The Company’s subsidiaries incorporated in Hong Kong participated in defined contribution Mandatory Provident Fund (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. The Company is required to contribute 5% of the monthly salaries for all Hong Kong based employees to the MPF Scheme (subject to a cap).
Total pension expense incurred by the Company were $
37
NOTE 18 - RELATED PARTY BALANCES
Due from related parties
The balance due from related parties was as following:
|
|
|
|
|
| ||
|
| December 31, |
| December 31, |
| ||
|
| $ |
| $ |
| ||
Citysearch Technology (Macao) Limited (1) |
| ||||||
Citysearch Technology (HK) Company Limited (2) |
| ||||||
Fresh Life Technology Company Limited (2) |
| ||||||
Gloryful Company Limited (3) |
| ||||||
Littlemi Technology Company Limited (4) |
| ||||||
Nanjing Chengmi Technology Company Limited (5) |
| ||||||
Watermelon Cultural Communication Company Limited (6) |
| ||||||
| |||||||
Note:
(1) | |
(2) | |
(3) | |
(4) | |
(5) | |
(6) |
NOTE 19 - COMMITMENTS AND CONTINGENCIES
Capital commitment
As of December 31, 2023, and 2022,
Legal Proceeding
As of December 31, 2023, the Company is
NOTE 20 - SUBSEQUENT EVENTS
In accordance with ASC 855, “Subsequent Events,” the Company has evaluated subsequent events through the date of filing. No material subsequent events were noted.
38
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. As of December 31, 2023, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms.
Management’s Annual 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(f) and 15d-15(f) under the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
| • | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| • | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| • | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the 2013 criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on management’s assessment and those criteria, management believes that, as of December 31, 2023, the Company maintained effective internal control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Our management’s report of the effectiveness on the design and operation of our internal control over financial reporting was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting. As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure control and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
There was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act that occurred during the period covered by this report and that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
39
Item 9B. OTHER INFORMATION
None.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
On May 13, 2022, the Company was identified by the Commission pursuant to Section 104(i)(2)(A) of the Sarbanes-Oxley Act of 2002 as having retained, for the preparation of the audit report on its financial statements included in the Form 10-K, a registered public accounting firm that has a branch or office that is located in a foreign jurisdiction and that the Public Company Accounting Oversight Board (“PCAOB”) has determined it is unable to inspect or investigate completely PCAOB registered public accounting firms headquartered in mainland China and Hong Kong. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, the Company does not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 10-K.
As of the date of the Form 10-K for the fiscal year ended December 31, 2023 and up to date, the Company is not owned or controlled by governmental entities in Mainland China or Hong Kong. The Company made this determination based on (1) a review of the Company’s stockholder lists, by which the Company is not aware of any governmental entities in Mainland China or Hong Kong that are beneficial or record holders of any shares of the Company; (2) no governmental entities have made any disclosures on Schedule 13D or Schedule 13G indicating that they own any shares of the Company; (3) the Company is not a party to any material contracts with a foreign governmental entity, and (4) there is no foreign government representative on the Company’s board of directors.
Based on the above, the Company believes that the Company is not owned or controlled by any governmental entities in Mainland China or Hong Kong as of the date of filing of the Form 10-K for the fiscal year ended December 31, 2023.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth the information about our sole director and executive officer:
|
|
|
Name | Age | Positions Held |
|
|
|
Stanley Chan | 69 | President, Chief Executive Officer, Chief Financial Officer, Secretary and Director |
Mr. Stanley Chan has served as our Director, Chief Executive Officer, Chief Financial Officer, Secretary, and Chairman of the Company since May 2006. Mr. Chan has more than ten years of experience in import-export business and financial investment.
Significant Employees
There are no significant employees other than our executive officer.
Family Relationships
None of our directors, executive officers, or key employees is related by blood, marriage, or adoption to any other director, executive officer, or other key employees. To our knowledge, there are no arrangements or understanding between any of our officers and any other person, including directors, pursuant to which the officer was selected to serve as an officer.
Involvement in Certain Legal Proceedings
During the past 10 years, none of our current directors, nominees for directors or current executive officers has been involved in any legal proceeding identified in Item 401(f) of Regulation S-K.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
40
Section 16(a) of the Exchange Act, requires officers and directors of our company and persons who beneficially own more than 10% of a registered class of our company’s equity securities to file initial statements of beneficial ownership of common stock (Form 3) and statements of changes in beneficial ownership of common stock (Forms 4 or 5) with the SEC. Officers, directors, and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all such forms they file.
During the fiscal year ended December 31, 2023, all of our director, executive officer or beneficial owner of more than 10% of our common stock were compliance with the Section 16(a) of the Exchange Act.
Committees of the Board of Directors
The current Board is composed of one director. We currently do not have a separate Audit Committee, Nominating, Governance Committee or Compensation Committee; however, we intend to expand the size of our Board of Directors and intend to seek qualified directors to serve on the Board and ultimately form standing Audit, Nominating, Governance and Compensation Committees.
Classification of Directors; Board Vacancies
The holders of a majority of the outstanding shares of the Company’s common stock have approved an amendment to the Company’s Articles of Incorporation which provides for the division of our Board of Directors into three classes, each class consisting, as nearly as possible, of one-third of the total number of directors, with each class having a three-year term. Vacancies on the Board of Directors may be filled only by persons elected by a majority of the remaining directors. A director elected by the Board of Directors to fill a vacancy shall serve for the remainder of the full term of the class of directors in which the vacancy occurred and until such director’s successor is elected and qualified.
Director and Nominee Qualifications
The Board of Directors is responsible for identifying individuals qualified to become Board members and recommending to the Board director nominees for the next annual meeting of stockholders and candidates to fill vacancies on the Board. Additionally, in selecting nominees for directors, the Board will review candidates recommended by stockholders using the same general criteria as other candidates.
There has not been any defined policy or procedure requirements for stockholders to submit recommendations or nomination for directors. There are no specific, minimum qualifications that the board of directors believes must be met by a candidate recommended by the board of directors. The entire board of directors will assess candidates, whether submitted by management or stockholders, and make recommendations for election or appointment.
Audit Committee Financial Expert
The Company’s board of directors determined that the Company does not have a board member that qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(i) of Regulation S-K, nor do we have a board member that qualifies as "independent" as the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended. The Company believes that, from his business experience in overseeing or assessing the performance of companies, Mr. Stanley Chan is capable of analyzing and evaluating our consolidated financial statements and understanding internal controls and procedures for financial reporting. The Company believes that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not currently warranted. The Company does intend to seek qualified audit committee financial experts.
Director Independence
The Company is presently not required to comply with the director independence requirements of any securities exchange, which requires that a majority of a company's directors be independent. The board of directors of the Company intends to appoint additional members, each of whom will satisfy the director independence guidelines in a manner consistent with the definitions of “independence” set forth in SEC Rule 10A-3 under the Securities Exchange Act of 1934, as amended.
Leadership Structure
The Chairman of our Board of Directors, and Chief Executive Officer positions are currently the same person, Mr. Chan. Our Bylaws do not require our Board of Directors to separate the roles of chairman and chief executive officer but provides our Board of Directors with the flexibility to determine whether the two roles should be combined or separated based upon our needs. Our Board of Directors believes the combination of the chairman and the chief executive officer roles is the appropriate structure for our
41
company at this time. Our Board of Directors believes the current leadership structure serves as an aid in the Board of Directors’ oversight of management and it provides us with sound corporate governance practices in the management of our business.
Risk Management
The Board of Directors discharges its responsibilities, and assesses the information provided by our management and the independent auditor, in accordance with its business judgment. Management is responsible for the preparation, presentation, and integrity of the Company’s financial statements, and management is responsible for conducting business in an ethical and risk mitigating manner. The Board of Directors oversees management in their duty to manage the risk of our company and each of our subsidiaries. Our Board of Directors regularly reviews information provided by management as management works to manage risks in the business. The Board of Directors intends to establish Board Committees to assist the full Board of Directors’ oversight by focusing on risks related to the particular area of concentration of the relevant committee.
Code of Business Conduct and Ethics
The Company has adopted a written Code of Business Conduct and Ethics, which applies to its directors, principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.
The Code of Business Conduct and Ethics addresses, among other things, compliance with laws, rules and regulations, conflicts of interest, corporate opportunities, confidentiality, protection and use of company assets, and the reporting process for any illegal or unethical conduct.
Any waiver of the Code of Business Conduct and Ethics may only be made by the Board of Directors of the Company and will be promptly disclosed on a Form 8-K.
Compensation Interlocks and Insider Participation
There were no compensation committee or board interlocks among the members of our Board.
Legal Proceedings
Neither we, nor any of our property, are currently subject to any material legal proceedings or other regulatory proceedings, and to our knowledge no such proceedings are contemplated.
Item 11. EXECUTIVE COMPENSATION
Executive Compensation
The following tables set forth the compensation of the Company's executive officers during the last two fiscal years:
Summary Compensation Table
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| Incentive |
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| All |
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Name and |
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| Stock |
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| Other |
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Principal |
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| Earnings |
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| Total |
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Position |
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Stanley Chan |
| 2023 |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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CEO and |
| 2022 |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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President |
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There were no "most highly compensated executive officers" as that term is defined in Item 402(a)(2) of Regulation S-K and there were no additional individuals for whom disclosure would have been made in this table.
42
Director Compensation
Directors do not receive any compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity. As of the date of this report, no guidelines for the compensation of our non-employee directors have been adopted.
Equity Compensation Plans
The Company has no equity compensation plans at present, and there have been no grants of plan-based awards made to a named executive officer in the last two completed fiscal years under any plan.
Outstanding Equity Awards at Fiscal Year-End
The Company does not have any equity incentive plans. There were no outstanding equity awards at fiscal year ended December 31, 2023, as defined by Item 402(p) of Regulation S-K.
Option Exercises and Stock Vested
We do not have any equity incentive plans. There have been no exercise of stock options, SARs and similar instruments, and no vesting of stock, including restricted stock, restricted stock units and similar instruments, during the last two completed fiscal years for each of the named executive officers.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
We do not have employment agreements in place with our executive officers and directors. There are no contracts, agreements, plans or arrangements, whether written or unwritten, that provides for payment(s) to a named executive officer at, following, or in connection with the resignation, retirement or other termination of a named executive officer, or a change in control of the Company or a change in the named executive officer's responsibilities following a change in control, with respect to each named executive officer.
Pension Benefits
We do not sponsor any qualified or non-qualified pension benefit plans.
Nonqualified Deferred Compensation
We do not maintain any non-qualified defined contribution or deferred compensation plans. At this time, we do not have a tax qualified defined contribution 401(k) plan in which all eligible executive officers and employees may participate.
Securities Authorized for Issuance under Equity Compensation Plans
As of the end of the most recently completed fiscal year, there were no compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
Potential Conflicts of Interest of Compensation Consultants
No compensation consultants have ever been hired to advise the Company and its Board of Directors.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following tables set forth certain information as of April 16, 2024, regarding (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii) each director, nominee and executive officer of the Company and (iii) all officers and directors as a group. Percentage of ownership is based on 263,337,500 shares of common stock outstanding on April 16, 2024.
43
Security Ownership of Certain Beneficial Owners
Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner (1) |
Percent of Class |
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Common | Liang Huang (2) c/o Room M, 21F, Tong Nam Ah Commercial Centre, 180 Alameda Dr. Carlos D’Assumpca, Macau |
31,261,920 |
11.87% |
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Common | Jiang Haitao c/o Room M, 21F, Tong Nam Ah Commercial Centre 180 Alameda Dr. Carlos D’Assumpca, Macau |
46,588,236 |
17.69% |
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Common | Elate Holdings Limited Unit 1002, 10/F, Euro Trade Centre 13-14 Connaught Road Central and 21-23 Des Voeux Road, Central, Hong Kong | 26,000,000 | 9.87% |
Notes:
(1) Beneficial ownership is determined in accordance with Rule 13d-3 promulgated by the Commission under the Securities Exchange Act of 1934 and generally includes voting or investment power with respect to securities. Except as indicated, we believe each holder possesses sole voting and investment power with respect to all of the shares of voting stock owned by that holder, subject to community property laws where applicable. In computing the number of shares beneficially owned by a holder and the percentage ownership of that holder, shares of common stock subject to options or warrants held by that holder that are currently exercisable or are exercisable within 60 days after the date of the table are deemed outstanding. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person or group.
(2) Includes 31,190,500 shares held by Kelton Capital Group Limited.
Security Ownership of Directors and Executive Officers
As of April 16, 2024, no director, nominee and executive officer of the Company owned the security of the Company.
Changes in Control
There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.
Securities Authorized for Issuance under Equity Compensation Plans
As of the end of the most recently completed fiscal year, there were no compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Certain Related Party Transactions During the Last Two Fiscal Years
During the year ended December 31, 2023, there were no transactions, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest:
● | any director or executive officer of our company; |
● | any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; |
● | any promoters and control persons; and |
● | any member of the immediate family (including spouse, parents, children, siblings and in laws) of any of the foregoing persons. |
Procedures for Approval of Transactions with Related Persons
The Company does not have a written policy relating to the approval of transactions with related persons, and any such transactions are pre-approved by our Board of Directors in accordance with applicable law. Following the Board of Director’s review of the potential transaction, it will determine whether these transactions are in, or not inconsistent with, the best interests of the Company and its stockholders, taking into consideration whether they are on terms no less favorable to the Company than those available with other parties and the related person’s interest in the transaction.
Parents
Not Applicable.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by, Centurion ZD CPA & Co., our independent registered public accounting firms, for the periods indicated. We did not pay any other fees to our independent registered public accounting firm during the periods indicated below.
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Fee Category |
| 2023 |
| 2022 | ||
Audit Fees |
| $ | 144,000 |
| $ | 124,000 |
Audit-Related Fees |
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| - |
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Tax Fees |
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Total Fees |
| $ | 144,000 |
| $ | 124,000 |
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(1) Audit fees represent fees for professional services provided in connection with the audit of our consolidated financial statements and review of our quarterly consolidated financial statements included in our Form 10-Q.
(2) Audit related fees. None.
(3) Tax fees. Tax return preparation.
(4) All other fees. None.
(5) Pre-Approval Policies
It is the policy of the Board of Directors of the Company to approve the engagement to render audit or non-audit services before the accountant is engaged by the Company.
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PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
No. |
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3.1 |
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3.2 |
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3.2(i) |
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3.3 |
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10.1 |
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10.2 |
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10.3 |
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14.1 |
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21 |
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31.1 |
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32.1 |
| Section 1350 Certifications of CEO and CFO
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101.INS |
| XBRL Instance Document |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| SCIENTIFIC ENERGY, INC. |
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April 16, 2024 |
| By:/s/ Stanley Chan |
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| Stanley Chan President, Chief Executive Officer, Chief Financial Officer and Director |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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April 16, 2024 |
| By: /s/ Stanley Chan |
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| Stanley Chan President, Chief Executive Officer, Chief Financial Officer and Director |
47
Exhibit 31.1
CERTIFICATION
Pursuant to Rule 13a–14(a)/15d–14(a)
of the Securities Exchange Act, as amended.
I, Stanley Chan, certify that:
1. I have reviewed this Annual Report on Form 10-K of Scientific Energy, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
/s/ Stanley Chan |
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Stanley Chan |
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Chief Executive Officer and Chief Financial Officer |
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(Principal Executive Officer and Principal Financial Officer) |
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Date: April 16, 2024
Exhibit 32.1
CERTIFICATION
Pursuant to 18 U.S.C. 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Scientific Energy, Inc. (the "Company") for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stanley Chan, the Chief Executive Officer and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Stanley Chan |
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Stanley Chan |
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Chief Executive Officer and Chief Financial Officer |
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(Principal Executive Officer and Principal Financial Officer) |
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Date: April 16, 2024