10-Q
SCIENTIFIC ENERGY, INC (SCGY)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-50559
SCIENTIFIC ENERGY, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0680657
(State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)
Room K, 9F , Golden Dragon Centre , 105 Xian Xinghai Great Road , Macau
(Address of principal executive offices including zip code)
(852) 2530-2089
(Registrant’s telephone number)
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. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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). Yes [X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
|---|---|---|---|
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
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 Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No [X]
Securities registered pursuant to Section 12(b) of the Act: None.
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 263,337,500 shares of common stock, par value $0.01, as of November 20, 2023.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | **** | |
|---|---|---|
| Item 1. | Financial Statements | 3 |
| Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 | 3 | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited) | 4 | |
| Condensed Consolidated Statement of Stockholders’ Deficit for the Nine Months Ended September 30, 2023 (unaudited) | 5 | |
| Condensed Consolidated Statement of Stockholders’ Deficit for the Nine Months Ended September 30, 2022 (unaudited) | 6 | |
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited) | 7 | |
| Notes to Condensed Consolidated Financial Statements (unaudited) | 8 | |
| Item 2. | Management’s Discussion and Analysis of Financial Conditions and Results of Operations | 17 |
| Item 3. | Quantitative and Qualitative Disclosure about Market Risk | 19 |
| Item 4. | Controls and Procedures | 20 |
| PART II – OTHER INFORMATION | ||
| Item 6. | Exhibits | 21 |
| SIGNATURES | 22 |
Item 1. Financial Statements
SCIENTIFIC ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |
|---|---|---|
| 2023 | 2022 | |
| unaudited | ||
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 2,552,473 | $ 2,677,775 |
| Loan receivables | 944,553 | 1,007,562 |
| Accounts receivable | - | 1,061,700 |
| Other receivables | 323,279 | 156,289 |
| Amount due from related companies | 1,726,149 | 1,448,971 |
| Amount due from joint venture | 24,679 | 24,679 |
| Amount due from shareholder | 85,868 | 440,588 |
| Inventories | 113,724 | 108,220 |
| Prepaid expense | 260,728 | 636,500 |
| Total current assets | 6,031,453 | 7,562,284 |
| Non-current assets: | ||
| Property, plant and equipment, net | 77,984 | 78,563 |
| Intangible assets | 1,248,045 | 1,008,878 |
| Goodwill | 71,664,639 | 71,664,639 |
| Operating lease right to use assets | 254,200 | 515,557 |
| Deposits | 348,710 | 352,855 |
| Total non-current assets | 73,593,578 | 73,620,492 |
| Total assets | $ 79,625,031 | $ 81,182,776 |
| LIABILITIES AND STOCKHOLDERS' SURPLUS | ||
| Current liabilities: | ||
| Accounts payable | $ 4,994,260 | $ 6,804,902 |
| Accrued expenses | 2,121,694 | 2,782,849 |
| Amount due to related party | 19,923 | 20,028 |
| Deposit received | 1,041,726 | 1,537,475 |
| Other payables | 897,699 | 981,592 |
| Bank loans | 974,321 | 292,723 |
| Operating lease liabilities | 248,703 | 347,649 |
| Bank overdrafts | - | 599,978 |
| Total current liabilities | 10,298,326 | 13,367,196 |
| Non-current liabilities: | ||
| Bank loans | 657,172 | 716,723 |
| Operating lease liability | 5,497 | 167,908 |
| Total non-current liabilities | 662,669 | 884,631 |
| Total liabilities | 10,960,995 | 14,251,827 |
| Commitments and contingencies | - | - |
| Stockholders' equity: | ||
| Preferred stock: par value $0.01 per share; 25,000,000 shares authorized, none issued and outstanding | - | - |
| Common stock: par value $0.01 per share, 500,000,000 shares authorized, 263,337,500 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | 2,633,375 | 2,633,375 |
| Additional paid in capital | 78,460,638 | 78,460,638 |
| Accumulated deficit | (12,358,564) | (14,034,905) |
| Accumulated other comprehensive income | 73,722 | 32,629 |
| Total stockholders' surplus | 68,809,171 | 67,091,737 |
| Non-controlling interests | (145,135) | (160,788) |
| Total liabilities and stockholders' equity | $ 79,625,031 | $ 81,182,776 |
| See the accompanying notes to the unaudited condensed consolidated financial statements |
3
SCIENTIFIC ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| Three Months<br><br><br>ended<br><br><br>September 30, 2023 | Three Months<br><br><br>ended<br><br><br>September 30, 2022 | Nine Months<br><br><br>ended<br><br><br>September 30, 2023 | Nine Months<br><br><br>ended<br><br><br>September 30,<br><br><br>2022 | |
|---|---|---|---|---|
| REVENUE | $ 9,748,253 | $ 11,249,720 | $ 28,639,189 | $ 33,070,741 |
| COST OF REVENUE | (5,124,456) | (7,637,524) | (15,813,835) | (23,873,771) |
| GROSS PROFIT | 4,623,797 | 3,612,196 | 12,825,354 | 9,196,970 |
| OPERATING EXPENSES: | ||||
| Selling, general and administrative expenses | 3,818,985 | 4,152,071 | 10,965,451 | 12,149,149 |
| Depreciation | 58,846 | 27,844 | 127,256 | 159,268 |
| Total operating expenses | 3,877,831 | 4,179,915 | 11,092,707 | 12,308,417 |
| NET PROFIT/(LOSS) FROM OPERATIONS | 745,966 | (567,719) | 1,732,647 | (3,111,447) |
| Other income (expense): | ||||
| Interest (expense) income | (13,670) | (9,730) | (31,912) | (28,836) |
| Net profit/(loss) before provision for income taxes | 732,296 | (577,449) | 1,700,735 | (3,140,283) |
| Income taxes | (8,741) | (190) | (8,741) | (190) |
| NET PROFIT/(LOSS) | $ 723,555 | $ (577,639) | $ 1,691,994 | $ (3,140,473) |
| Net profit/(loss) attributable to non-controlling interests | (7,987) | 15,307 | (15,653) | 45,008 |
| Net profit/(loss) attributable to Scientific Energy, Inc. | $ 715,568 | $ (562,332) | $ 1,676,341 | $ (3,095,465) |
| OTHER COMPREHENIVE GAIN/(LOSS): | ||||
| Foreign translation gain | 15,259 | 56,252 | 41,093 | 127,018 |
| Comprehensive income/(loss) | $ 730,827 | $ (506,080) | $ 1,717,434 | $ (2,968,447) |
| Net profit/(loss) per common share, basic and diluted | $ 0.003 | $ (0.002) | $ 0.006 | $ (0.012) |
| Weighted average common shares outstanding, basic and diluted | 263,337,500 | 263,337,500 | 263,337,500 | 263,337,500 |
| See the accompanying notes to the unaudited condensed consolidated financial statements |
4
SCIENTIFIC ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 2023
| Common Stock | |||||||
|---|---|---|---|---|---|---|---|
| Shares | Amount | Additional<br>Paid- in<br>Capital | Accumulated<br>Deficit | Other<br>Comprehensive<br>Income (loss) | Non-Controlling<br>Interests | Total | |
| Balance, December 31, 2022 | 263,337,500 | $ 2,633,375 | $ 78,460,638 | $ (14,034,905) | $ 32,629 | $ (160,788) | $ 66,930,949 |
| Foreign currency transaction loss | - | - | - | - | (11,923) | - | (11,923) |
| Net loss | - | - | - | 649,059 | - | 6,510 | 655,569 |
| Balance, March 31, 2023 (unaudited) | 263,337,500 | 2,633,375 | 78,460,638 | (13,385,846) | 20,706 | (154,278) | 67,574,595 |
| Foreign currency transaction gain | - | - | - | - | 37,757 | - | 37,757 |
| Net loss | - | - | - | 311,714 | - | 1,156 | 312,870 |
| Balance, June 30, 2023 (unaudited) | 263,337,500 | 2,633,375 | 78,460,638 | (13,074,132) | 58,463 | (153,122) | 67,925,222 |
| Foreign currency transaction gain | - | - | - | - | 15,259 | - | 15,259 |
| Net loss | - | - | - | 715,568 | - | 7,987 | 723,555 |
| Balance, September 30, 2023 (unaudited) | 263,337,500 | $ 2,633,375 | $ 78,460,638 | $ (12,358,564) | $ 73,722 | $ (145,135) | $ 68,664,036 |
| See the accompanying notes to the unaudited condensed consolidated financial statements |
5
SCIENTIFIC ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 2022
| Common Stock | |||||||
|---|---|---|---|---|---|---|---|
| Shares | Amount | Additional<br>Paid- in<br>Capital | Accumulated<br>Deficit | Other<br>Comprehensive<br>Income (loss) | Non-Controlling<br>Interests | Total | |
| Balance, December 31, 2021 | 263,337,500 | $ 2,633,375 | $ 78,460,638 | $ (10,268,776) | $ (114,160) | $ (104,416) | $ 70,606,661 |
| Foreign currency transaction loss | - | - | - | - | (5,784) | - | (5,784) |
| Net loss | - | - | - | (1,018,322) | - | (12,797) | (1,031,119) |
| Balance, March 31, 2022 (unaudited) | 263,337,500 | 2,633,375 | 78,460,638 | (11,287,098) | (119,944) | (117,213) | 69,569,758 |
| Foreign currency transaction gain | - | - | - | - | 76,550 | - | 76,550 |
| Net loss | - | - | - | (1,514,811) | - | (16,904) | (1,531,715) |
| Balance, June 30, 2022 (unaudited) | 263,337,500 | 2,633,375 | 78,460,638 | (12,801,909) | (43,394) | (134,117) | 68,114,593 |
| Foreign currency transaction gain | - | - | - | - | 56,252 | - | 56,252 |
| Net loss | - | - | - | (562,332) | - | (15,307) | (577,639) |
| Balance, September 30, 2022 (unaudited) | 263,337,500 | $ 2,633,375 | $ 78,460,638 | $ (13,364,241) | $ 12,858 | $ (149,424) | $ 67,593,206 |
| See the accompanying notes to the unaudited condensed consolidated financial statements |
6
SCIENTIFIC ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended<br>September 30, 2023 | Nine months ended<br><br><br>September 30, 2022 | |
|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||
| Net profit/(loss) | $ 1,691,994 | $ (3,140,473) |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||
| Depreciation | 23,290 | 29,648 |
| Amortization | 103,966 | 129,620 |
| Loss on disposal of property and equipment | 647 | 8,020 |
| Over provision of amortization | (63,940) | - |
| Account receivables | 1,061,700 | (65,083) |
| Inventories | (5,504) | 105,902 |
| Deposits | 4,145 | 204,059 |
| Prepaid expenses | 375,772 | 89,931 |
| Other receivables | (166,990) | (436,519) |
| Account payable | (1,810,643) | 102,320 |
| Accrued expenses | (661,155) | (33,086) |
| Deposits received | (495,748) | 641,850 |
| Other payable | (83,893) | (536,098) |
| Net cash used in operating activities | (26,359) | (2,899,909) |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Purchase of property, plant and equipment | (27,892) | (41,561) |
| Purchase of intangible asset | (242,412) | (63,743) |
| Repayment from shareholder | 354,720 | 442,720 |
| Loan receivable from associate | 63,010 | - |
| Advance to related company | (277,178) | (61,274) |
| Net cash (used in)/provided by investing activities | (129,752) | 276,142 |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Loan borrowings | 899,947 | 618,437 |
| Repayment of bank borrowings | (264,322) | (203,363) |
| Net cash provided by financing activities | 635,625 | 415,074 |
| Effect of currency rate changes on cash | (4,838) | 183,878 |
| Net increase/(decrease) in cash and cash equivalents | 474,676 | (2,024,815) |
| Cash and cash equivalents, beginning of period | 2,077,797 | 4,920,375 |
| Cash and cash equivalents, end of period | $ 2,552,473 | $ 2,895,560 |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||
| Interest paid | $ 31,912 | $ 28,836 |
| Income taxes paid | $ - | $ - |
| Non cash financing activities: | ||
| Record right to use assets upon adoption of ASC 842 | $ 254,200 | $ 470,774 |
| Record lease liabilities upon adoption of ASC 842 | $ 254,200 | $ 470,774 |
| See the accompanying notes to the unaudited condensed consolidated financial statements |
7
SCIENTIFIC ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Scientific Energy, Inc., (the "Company") was incorporated under the laws of the State of Utah on May 30, 2001. Prior to August 2011, the Company was principally devoted to the buying and selling of various types and grades of graphite, such as medium- and high-carbon graphite, high-purity graphite, micro-powder graphite and expandable graphite. In August 2011, the Company decided to engage in a business of e-commerce platform. Currently the Company is in the process of developing a website, which provides an e-commerce platform, where registered members can exchange goods and services.
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.
8
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 generate enough revenues and/or obtain necessary equity financing to continue operations and the attainment of profitable operations.
The accompanying consolidated financial statements present the financial position and the results of operations of the Company and its majority-owned subsidiaries, Macao E-Media Development Company Limited, Makeliving, Ltd. and Sinoforte Limited. Qwestro Limited, in turn, is the 100% owned subsidiary and consolidates with Sinoforte Limited.
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.
Interim Financial Statements
The following (a) condensed consolidated balance sheet as of December 31, 2022, which has been derived from audited financial statements, and (b) the unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 2022. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on April 5, 2023.
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.
9
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 Macao. 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 September 30, 2023, and December 31, 2022, the Company maintained $2,536,777 and $2,058,216 in foreign bank accounts not subject to FDIC coverage.
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
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:
10
| September 30, | December 31, | |
|---|---|---|
| 2023 | 2022 | |
| Exchange rate on balance sheet dates | ||
| USD : HKD exchange rate | 7.8300 | 7.7890 |
| USD : MOP exchange rate | 8.0649 | 8.0226 |
| For the nine months ended September 30, | ||
| 2023 | 2022 | |
| Average exchange rate for the period | ||
| USD : HKD exchange rate | 7.8246 | 7.8482 |
| USD : MOP exchange rate | 8.0593 | 8.0836 |
Property, plant and equipment
| The estimated useful lives of property, plant and equipment are as follows: | |
|---|---|
| Office equipment | 3-5 years |
| Furniture and fixtures | 3-5 years |
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 |
|---|
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 September 30, 2023 and December 31, 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:
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| 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. |
| Level 3 — | Unobservable inputs which are supported by little or no market activity. |
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 September 30, 2023 and December 31, 2022.
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.
Non-controlling interest
Non-controlling interests represent the equity interests in the subsidiaries that are not attributable, either directly or indirectly, to the Company.
Recent Accounting Pronouncements
The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements
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that may have a material impact on results of operations, financial condition, or cash flows, based on current information.
NOTE 3 – GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company has an accumulated deficit of $12,358,564 as of September 30, 2023. The Company also experienced insufficient cash flows from operations and will be required continuous financial support from the shareholders. The Company will need to raise capital to fund its operations until it is able to generate sufficient revenue to support the future development. Moreover, the Company may be continuously raising capital through the sale of debt and equity securities.
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
Property, plant and equipment as of September 30, 2023 and December 31, 2022 is summarized as follows:
Schedule of Property and Equipment
| September 30, 2023 | December 31, 2022 | |||||
|---|---|---|---|---|---|---|
| (unaudited) | ||||||
| Office furniture and fixtures | $ | 65,891 | $ | 66,433 | ||
| Office equipment | 168,891 | 148,010 | ||||
| Less: accumulated depreciation | (156,798 | ) | (135,880 | ) | ||
| Property, plant and equipment, net | $ | 77,984 | $ | 78,563 |
Depreciation expense for the three months and nine months ended September 30, 2023 were $5,047 and $23,290 respectively; and for the three months and nine months ended September 30, 2022 were $5,989 and $29,648, respectively.
NOTE 5 – INTANGIBLE ASSETS
Software as of September 30, 2023 and December 31, 2022 is summarized as follows:
| September 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Software | $ | 2,121,170 | $ | 1,878,759 | ||
| Less: accumulated amortization | (873,125 | ) | (869,881 | ) | ||
| Intangible assets, net | $ | 1,248,045 | $ | 1,008,878 |
Amortization expense for the three months and nine months ended September 30, 2023 were $(11,309) and $40,026, respectively; and for the three months and nine months ended September 30, 2022 were $21,855 and $129,620, respectively.
NOTE 6 – GOODWILL
| September 30,<br><br><br>2023 | December 31, 2022 | |||
|---|---|---|---|---|
| Goodwill | $ | 71,664,639 | $ | 71,664,639 |
| Less accumulated impairment losses | - | - | ||
| Balance at end of period | $ | 71,664,639 | $ | 71,664,639 |
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Goodwill has been allocated for impairment testing purposes to the acquisition of the shares of Macao E-Media Development Company Limited by the Company.
The assets were valued using a Fair Market Value basis as defined by The Financial Accounting Standards Board (FASB ASC 820). Liabilities were taken from Macao E-Media Development Company Limited Consolidated Balance Sheet as of September 27, 2021.
NOTE 7 – RIGHT TO USE ASSETS AND LEASE LIABILITY
In January 2020, the Company entered a two-year lease for office space of approximately 770 square feet in Hong Kong, expiring January 10, 2022, with monthly payments of approximately $4,404 per month.
In September 2021, 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.
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 $903,282.
Right to use assets is summarized below:
| September 30,<br><br><br>2023 | December 31, 2022 | |||
|---|---|---|---|---|
| Macao and Zhuhai | $ | 805,253 | $ | 1,257,014 |
| Hong Kong | 98,029 | 98,029 | ||
| Subtotal | 903,282 | 1,355,043 | ||
| Less: accumulated depreciation | (649,082) | (839,486) | ||
| Right to use assets, net | $ | 254,200 | $ | 515,557 |
During the nine months ended September 30, 2023 and 2022, the Company recorded $261,357 and $342,966 as depreciation on ROU assets; and the Company recorded $23,874 and $34,494 as financial interest to current period operations.
Lease liability is summarized below:
| September 30,<br><br><br>2023 | December 31, 2022 | |||
|---|---|---|---|---|
| Macao and Zhuhai | $ | 241,162 | $ | 464,927 |
| Hong Kong | 13,038 | 50,630 | ||
| Total lease liability | 254,200 | 515,557 | ||
| Less: short term portion | (248,703) | (347,649) | ||
| Long term portion | $ | 5,497 | $ | 167,908 |
Maturity analysis under these lease agreements are as follows:
| September 30,<br><br><br>2023 | December 31, 2022 | |||
|---|---|---|---|---|
| Period / year ended September 30, 2023 and December 31, 2022 | $ | 263,491 | $ | 542,699 |
| Less: Present value discount | (9,291) | (27,142) | ||
| Lease liability | $ | 254,200 | $ | 515,557 |
Lease expense for the three months ended September 30, 2023 was comprised of the following:
| Operating lease expense | $ | 74,912 |
|---|---|---|
| Short-term lease expense | 3,427 | |
| $ | 78,339 |
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Lease expense for the nine months ended September 30, 2023 was comprised of the following:
| Operating lease expense | $ | 220,487 |
|---|---|---|
| Short-term lease expense | 41,560 | |
| $ | 262,047 |
Lease expense for the three months ended September 30, 2022 was comprised of the following:
| Operating lease expense | $ | 99,568 |
|---|---|---|
| Short-term lease expense | 24,389 | |
| $ | 123,957 |
Lease expense for the nine months ended September 30, 2022 was comprised of the following:
| Operating lease expense | $ | 342,675 |
|---|---|---|
| Short-term lease expense | 99,251 | |
| $ | 441,926 |
NOTE 8 - LOAN RECEIVABLES
In September 10, 2021, the Company’s subsidiary, Sinoforte Limited entered into a business loan agreement, by and among the joint venture, Gold Gold Gold Limited (“3G”), whereby the Company provide the fund for $1,000,000 to 3G for its business operating use. The loan amount was unsecured, with interest rate 5% per annum and has no fixed terms of repayment.
NOTE 9 - INVENTORIES
The Company purchased gold from the platform under its joint venture, Gold Gold Gold Limited. Inventories for gold as of September 30, 2023 was $522. The Macao subsidiary, Macao E-Media Development Company Limited had $113,202 merchandise inventory as of September 30, 2023.
NOTE 10 – CASH AND CASH EQUIVALENTS
Cash and cash equivalents from consolidated statements of cash flows as follows:
| September 30, 2023 | December 31, 2022 | ||||
|---|---|---|---|---|---|
| Cash at bank and in hand | $ | 2,552,473 | $ | 2,677,775 | |
| Overdrafts | - | (599,978 | ) | ||
| Cash and cash equivalents, net | $ | 2,552,473 | $ | 2,077,797 |
NOTE 11 – BANK LOANS AND OVERDRAFTS
The bank loans are borrowed by MED and Zhuhai Chengmi Technology Company Limited (“Chengmi”), which are the new subsidiaries during business combinations in September 2021. 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%. This loan is secured against the directors of MED and for the use of MED operation due to the outbreak of COVID-19. Another bank loan borrowed by Chengmi with principle of $309,721 and expiring on May 2023, at an interest rate of 4.45% per annum. 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. Chengmi borrowed addition loan from Bank of China for $899,947 in 2023.
Bank loans and overdrafts are summarized below:
| September 30,<br><br><br>2023 | December 31,<br><br><br>2022 | |||||
|---|---|---|---|---|---|---|
| Bank loans | $ | 1,631,493 | $ | 1,009,446 | ||
| Bank overdrafts | - | 599,978 | ||||
| Total bank loans and overdrafts | 1,631,493 | 1,609,424 | ||||
| Less: short term portion | (974,321 | ) | (892,701 | ) | ||
| Long term portion | $ | 657,172 | $ | 716,723 |
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NOTE 12 – CAPITAL STOCK
The Company is authorized to issue 500,000,000 shares of common stock, $0.01 par value, and 25,000,000 shares of preferred stock, $0.01 par value. As of September 30, 2023 and December 31, 2022, there were 263,337,500 shares of the Company’s common stock issued and outstanding, and none of the preferred shares were issued and outstanding.
As of September 30, 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 Elate Holdings Limited owned 26,000,000 shares, or 9.87%, of the Company’s common stock. Other than Kelton Capital Group Ltd, Jiang Haitao and Elate Holdings Limited, no person owns 5% or more of the Company’s issued and outstanding shares.
NOTE 13 – PROFIT/(LOSS) PER SHARE
The following table sets forth the computation of basic and diluted profit/(loss) per common share for the nine months ended September 30, 2023 and 2022, respectively:
| Three Months<br><br><br>Ended<br><br><br>September 30, 2023 | Three Months<br><br><br>Ended<br><br><br>September 30, 2022 | Nine Months<br><br><br>Ended<br><br><br>September 30, 2023 | Nine Months<br><br><br>Ended<br><br><br>September 30, 2022 | |||||
|---|---|---|---|---|---|---|---|---|
| Numerator-basic and diluted | ||||||||
| Net profit/(loss) | $ | 723,555 | $ | (577,639) | $ | 1,691,994 | $ | (3,140,473) |
| Denominator | ||||||||
| Weighted average number of common shares outstanding-basic and diluted | 263,337,500 | 263,337,500 | 263,337,500 | 263,337,500 | ||||
| Profit/(loss) per common share - basic and diluted | $ | 0.003 | $ | (0.002) | $ | 0.006 | $ | (0.012) |
NOTE 14 - 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 ended December 31, 2019. The Company shared the operating loss from JV of $12,839 during the year.
Summarized financial information for joint venture is as follows:
| Balance Sheets: | September 30, 2023 | December 31, 2022 | ||||
|---|---|---|---|---|---|---|
| (unaudited) | (audited) | |||||
| Property, plant and equipment, net | $ | 1,756 | $ | 2,586 | ||
| Other receivables and prepaid | 9,261 | 9,238 | ||||
| Inventory | 119,003 | 1,069,173 | ||||
| Cash and cash equivalents | 113,696 | 187,178 | ||||
| Total assets | 243,716 | 1,268,175 | ||||
| Other payable to shareholder | (4,299,380 | ) | (4,399,049 | ) | ||
| Customer deposit | (349,877 | ) | (994,351 | ) | ||
| Total liabilities | (4,649,257 | ) | (5,393,400 | ) | ||
| Net liabilities | $ | (4,405,541 | ) | $ | (4,125,225 | ) |
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| Statement of Operations: | Nine months ended<br><br><br>September 30, 2023 | ||
|---|---|---|---|
| (unaudited) | |||
| Revenue | $ | 19,238 | |
| Less: Cost of sales | (- | ) | |
| 19,238 | |||
| Operating expense | (159,089 | ) | |
| Depreciation | (817 | ) | |
| Net loss from operations | (140,668 | ) | |
| Other income (expense): | |||
| Interest (expense) income, net | (161,461 | ) | |
| Net loss | $ | (302,129 | ) |
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Legal proceedings
As of September 30, 2023, the Company is not aware of any material outstanding claim and litigation against them.
NOTE 16 - 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains certain forward-looking statements that involve risks and uncertainties. We use words such as "anticipate," "believe," "expect," "future," "intend," "plan," and similar expressions to identify forward-looking statements. These statements are only predictions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Our actual results could differ materially from those anticipated in these forward-looking statements.
Overview
We conduct our businesses primarily through our 98.75% owned subsidiary, Macao E-Media Development Company Limited, a Macau Company (“MED”), and 50% owned subsidiary, Gold Gold Gold Limited (“3G”), a Hong Kong company. 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.
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.
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. Since 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. At the same
17
time, we carried out various measures to reduce distribution costs and platform operating costs, and lay off some employees to reduce labor costs.
Results of Operations
For the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022
Sales
For the three months ended September 30, 2023, the Company generated sales of $9,748,253 compared to $11,249,720 for the same period of 2022. The new generated sales were entirely from the newly acquired 98.75% owned subsidiary, MED.
Costs of Goods Sold
For the three months ended September 30, 2023, the Company generated cost of good sold for $5,124,456 compared to $7,637,524 for the same period of 2022. Currently the Company is attributable to delivery rider costs and purchase of inventory.
Operating expenses
For the three months ended September 30, 2023 and 2022, the Company’s selling, general and administrative expenses were $3,818,985 compared to $4,152,071 for the same period of the previous year. The decrease is primarily the result of mature operation generated from Macao’s and Zhuhai’s subsidiaries.
Other Income (Expense)
For the three months ended September 30, 2023, the Company had $13,670 of interest expense relating to bank loan interest payable, as compared to $9,730 of interest expense for the same period last year.
Net Profit/(Loss)
For the three months ended September 30, 2023, the Company had a net profit of $723,555, or $0.003 per share, as compared to a net loss of $577,639, or $(0.002) per share, for the same period of 2022.
For the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
Sales
For the nine months ended September 30, 2023, the Company generated sales of $28,639,189 compared to $33,070,741 for the same period of 2022. The new generated sales were entirely from the newly acquired 98.75% owned subsidiary, MED.
Costs of Goods Sold
For the nine months ended September 30, 2023, the Company generated cost of goods sold for $15,813,835 compared to $23,873,771 for the same period of 2022. Currently the Company is attributable to delivery rider costs and purchase of inventory.
Operating expenses
For the nine months ended September 30, 2023 and 2022, the Company’s selling, general and administrative expenses were $11,029,391 compared to $12,149,149 for the same period of the previous year. The decrease is primarily the result of mature operation generated from Macao’s and Zhuhai’s subsidiaries.
Other Income (Expense)
For the nine months ended September 30, 2023, the Company had $31,912 of interest expense relating to bank loan interest payable, as compared to $28,836 of interest expense for the same period last year.
Net Profit/(Loss)
For the nine months ended Septembere 30, 2023, the Company had a net profit of $1,691,994, or $0.006 per share, as compared to a net loss of $3,140,473, or $(0.012) per share, for the same period of 2022.
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Liquidity and Capital Resources
As of September 30, 2023, the Company had cash and cash equivalents of $2,552,473 and a working capital deficit of $4,266,873. For the nine months ended September 30, 2023, the Company used net cash of $26,359 from its operating activities primarily from our net profit of $1,691,994, adjusted net with depreciation and amortization of $63,316, a loss of disposal of equipment of $647, a decrease in account receivables of $1,061,700, an increase in inventories of $5,504, a decrease in prepaid expenses of $375,772, a decrease in deposits of $4,145, an increase in other receivables of $166,990, a decrease in accrued expense of $661,155, a decrease in deposit received of $495,748, a decrease in other payables of $83,893, a decrease in account payable of $1,810,643. By comparison, net cash used in operating activities was $2,899,909 for the same period of 2022.
During the nine months ended September 30, 2023, the Company used net cash of $129,752 from its investing activities which comprised with purchase of equipment of $27,892, purchase of intangible asset of $242,412, advance to related company of $277,178, repayment from shareholder of $354,720 and loan receivable from associate company of $63,010. By comparison, net cash provided by investing activities was $276,142 for the same period of 2022.
During the nine months ended September 30, 2023, the Company’s financing activities provided net cash of $635,625, which was comprised of repayment of bank loans of $264,322 and addition borrowing from bank of $899,947. By comparison, net cash provided by financing activities was $415,074 for the same period of 2022.
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
We do not have any off-balance sheet arrangements.
Contractual Obligations
We lease our office space, approximately 250 square feet, in Jersey City, New Jersey, on a month-by-month basis. For the six-month ended June 30, 2020, the rent was $650 per month. We also have an office in Hong Kong, which is leased on a term of two years ending in January 2022. The space is approximately 770 square feet, and the rent is approximately $4,404 per month. With the acquisition with MED, the Company has the office in Macao and Zhuhai, which are leased on terms of two to three years from 2020 to 2024. The rent is approximately $28,351 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 1 to our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A smaller reporting company is not required to provide the information in this Item.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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 Company’s management including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 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, as of September 30, 2023, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, in a manner that allows timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
A smaller reporting company is not required to provide the information in this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits:
Exhibit No. Title of Document
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 INS XBRL Instance Document
101SCH XBRL Taxonomy Extension Schema Document
101 CAL XBRL Taxonomy Extension Calculation Linkbase Document
101LAB XBRL Taxonomy Extension Label Linkbase Document
101PRE XBRL Taxonomy Extension Presentation Linkbase Document
101DEF XBRL Taxonomy Extension Definition Linkbase Document.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SCIENTIFIC ENERGY, INC.
By: /s/ Stanley Chan
Stanley Chan
President and Chief Executive Officer
November 20, 2023
22
Certification
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:
I have reviewed this Quarterly Report on Form 10-Q of Scientific Energy, Inc.;
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;
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;
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
- 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.
Date: November 20, 2023
| /s/ Stanley Chan |
|---|
| Stanley Chan |
| Chief Executive Officer and Chief Financial Officer |
| (Principal Executive Officer and Principal Financial Officer) |
Certification
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 Quarterly Report on Form 10-Q of Scientific Energy, Inc. (the "Company") for the quarter ended September 30, 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.
Date: November 20, 2023
| /s/ Stanley Chan |
|---|
| Stanley Chan |
| Chief Executive Officer and Chief Financial Officer |
| (Principal Executive Officer and Principal Financial Officer) |