SCGY 10-Q
SCIENTIFIC ENERGY, INC (SCGY)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
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Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)
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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 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).
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 | ☐ |
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| Smaller reporting company | ||
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 Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
Securities registered pursuant to Section 12(b) of the Act: None.
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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:
Key Information Related to Doing Business in China and Macau
Company Overview
Scientific Energy, Inc. (the “Company”) was incorporated in the State of Utah on May 30, 2001. As a holding company, we do not conduct operations directly; instead, all business activities are carried out through our two operating subsidiaries, one located in Macau and one located in the United States:
In Macau, our food ordering and delivery business is operated by our 98.75%-owned subsidiary, Macao E-Media Development Company Limited (“MED”), a Macau-based company. To support this operation, we also have several direct and indirect subsidiaries incorporated in Macau, Hong Kong, and mainland (“Mainland China”) of the People’s Republic of China (“PRC”) that provide back-office and technical support to our core business activities in Macau.
Our wholesale graphite products business in the United States are carried out through our newly incorporated wholly-owned subsidiary, Graphite Energy, Inc., which was established in the State of Florida in December 2023.
Our principal executive offices are located in Macau. There is no Chinese Communist Party official who sits on the board of the Company and that the Company’s certificate of incorporation and bylaws do not contain any charter of the Chinese Communist Party.
We do not conduct any operations in, nor do we rely on counterparties that operate in, the Xinjiang Uyghur Autonomous Region.
We do not have, nor do we intend to have, any contractual arrangement to establish a variable interest entity (“VIE”) structure with any entity in Macau, Hong Kong and Mainland China.
The chart below sets forth our corporate structure as of the date of this filing:
As a holding company, we have no operation of our own. Our investors hold shares of common stock in Scientific Energy, Inc., the Utah holding company. Our holding company structure presents unique risks as our investors may not directly
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hold equity interests in our operating subsidiaries and will be dependent upon dividends and other distributions from our subsidiaries to finance our cash flow needs.
There are significant legal and operational risks associated with conducting a substantial portion of our operations in Macau. Our food and grocery ordering and delivery operations are based in Macau, a Special Administrative Region of the PRC. However, due to the long-arm provisions under current PRC laws and regulations, the PRC government may exert significant oversight and discretion over our business operations. It may intervene in or influence our operations at any time, potentially resulting in material changes to our business or the value of our common stock. Additionally, any measures by the Chinese government to increase oversight and control over overseas offerings and/or foreign investment in Macau or China-based issuers could limit or entirely restrict our ability to continue offering securities to investors, potentially causing their value to decline significantly or become worthless. Furthermore, the Chinese government may impose restrictions on capital movement, affecting our ability to transfer funds out of Macau to distribute earnings, pay dividends, or reinvest in business operations outside of Macau. See “1A. Risk Factors — Risks Related to Doing Business in China and Macau — Under the long-arm provisions of current PRC laws and regulations, the Chinese government may exercise significant oversight and discretion over our business operations in Macau. It has the authority to intervene or influence our operations at any time, potentially leading to material changes in our business or the value of our common stock. Additionally, increased government oversight of overseas offerings or foreign investment in China-based issuers could restrict or entirely prevent our ability to offer securities, potentially causing their value to decline significantly or become worthless. Furthermore, the Chinese government may impose capital movement restrictions, limiting our ability to transfer funds out of Macau for purposes such as distributing earnings, paying dividends, or reinvesting in operations outside Macau. Changes in Chinese government policies, regulations, rules, or law enforcement practices may also occur rapidly and with little advance notice. As a result, our assessments of the risks associated with the PRC legal and regulatory system remain uncertain and subject to change.”
Risks and uncertainties arising from the legal system in China and related to doing business in the PRC and Macau.
We encounter a range of legal and operational risks and uncertainties as a company situated in and primarily functioning within Macau, which is a special administrative region of the PRC. The majority of our activities take place in Macau and are subject to its laws, rules, and regulations. The Company and our subsidiaries must adhere to the laws, rules, and regulations governing foreign investment in the country. Given that PRC laws and regulations are relatively recent and rapidly changing, along with the limited availability of published rulings and their non-precedential character, the interpretation and application of these laws can be uncertain, inconsistent, and unpredictable. Consequently, it is possible that our current operations may not fully comply with applicable laws and regulations in the future. Furthermore, the PRC legal framework partially relies on governmental policies and internal guidelines, some of which are not released promptly or at all, and may have a retroactive impact. As a result, we may remain unaware of any violations of these policies and rules until after they have occurred.
The PRC government has significant oversight and discretion over the legal systems in Hong Kong and Macau, two special administrative regions apart from mainland China, and may intervene in or influence our operations through adopting and enforcing rules and regulatory requirements. The control of the PRC government over Macau and Hong Kong injects potential risk exposure from sudden, unexpected changes in laws or regulations or trade regulations that could be adverse to us. Any changes in PRC laws and regulations, or their interpretation, or the imposition of new taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition.
The Chinese government may further promulgate relevant laws, rules and regulations that may impose additional and significant obligations and liabilities on mainland, Hong Kong, or Macau companies. These laws and regulations can be complex and stringent, and many are subject to change and uncertain interpretation, which could result in claims, change to our data and other business practices, regulatory investigations, penalties, increased cost of operations, or declines in user growth or engagement, or otherwise affect our business. In addition, the PRC government has enhanced its regulatory oversight of Chinese companies listing overseas, including enhanced oversight of overseas financing and listing by Chinese companies. These new regulatory requirements could significantly limit or completely hinder our ability and the ability of our subsidiaries to obtain external financing through the issuance of equity securities overseas and cause the value of our securities to significantly decline or become worthless. Please also refer to “1A. Risk Factors — Risks Related to Doing Business in China and Macau — There are significant uncertainties regarding the interpretation of PRC laws, rules, and regulations, which may change at any time with little advance notice and could limit the legal protections available to us.”
Permissions and approvals required to be obtained from PRC and Macau authorities for our business operations.
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We primarily operate our business through our subsidiary in Macau, with some additional small supporting segment in PRC and Hong Kong. Our activities in Macau are mainly regulated by Macau laws and regulations, and other activities in PRC and Hong Kong by local laws and regulations. As of the date of this annual report, all our subsidiaries have obtained all necessary licenses and permits from the respective government authorities that are essential for their operations, including government authorities of PRC, Hong Kong and Macau. Due to the uncertainties surrounding the interpretation and enforcement of applicable laws and regulations, we may need to secure additional licenses, permits, filings, or approvals for our services in the future.
If we or our subsidiaries do not receive or maintain the requisite permissions or approvals for our operations, or inadvertently conclude that such permissions or approvals are not required, we may be unable to obtain such necessary approvals, permits, registrations or filings in a timely manner, or at all, and such approvals, permits, registrations or filings may be rescinded even if obtained. Any of these situations could expose us to fines and other regulatory, civil, or criminal liabilities, and we may be directed by the appropriate PRC authorities to halt relevant operations, which could significantly and negatively impact our business, financial condition, operational results, and future prospects.
Given the uncertainties surrounding the interpretation and enforcement of PRC laws, rules, and regulations, it is conceivable that our current operations may be deemed non-compliant with relevant legal requirements in the future. Additionally, the PRC legal framework is partially founded on government policies and internal guidelines, some of which are not disseminated promptly or at all, and may have retroactive implications. Consequently, we might not recognize our violations of these policies and rules until after they have occurred. Please also see “1A. Risk Factors — Risks Related to Doing Business in China and Macau — The Chinese government may intervene in or influence our operations in the Mainland China, or Macau at any time or may exert more control over offerings conducted overseas and/or foreign investment in us, which could result in a material change in our operations and and/or the value of our securities.”
Permissions and approvals required to be obtained from PRC and Macau authorities for our securities offerings.
The PRC government has enhanced its regulatory oversight of Chinese companies listed overseas. The China Securities Regulatory Commission (CSRC) trial measurement, officially known as the “Administrative Measures for the Overseas Issuance of Securities and Listing by Domestic Enterprises,” is a set of regulations introduced by the CSRC to regulate and oversee fundraising activities of Chinese companies in global markets. These measures aim to govern the issuance and listing of securities by Chinese companies on overseas stock exchanges, such as the Hong Kong Stock Exchange, New York Stock Exchange, or NASDAQ. Currently, this rule specifically applies to domestic enterprises in Mainland China (“Domestic Enterprise”), does not extend to companies based in other regions, such as Hong Kong or Macau. As of the time of this filing, we are not covered by the permission requirements from the regulation or policy issued by Cyberspace Administration of China (CAC) and CSRC.
According to Section 15 of the trial measure, if a Domestic Enterprise must obtain approval from CSRC if it meets any of the following conditions, even if the determination of whether an overseas offering and listing is indirect, is based on a substance-over-form approach:
1. The ratio of any of the following indicators for a Domestic Enterprise in the most recent fiscal year—operating income, total profits, total assets, or net assets—to the corresponding audited consolidated financial statement data of the issuer exceeds 50%;
2. The primary operational activities are conducted within mainland China or the main premises are located in mainland China, or the majority of senior management personnel responsible for operational management are Chinese citizens or have a habitual residence within Mainland China.
As of the date of this annual report, in connection with our issuance of securities to foreign investors, under current PRC laws, regulations and regulatory rules, as of the date of this annual report, we or our subsidiaries, (i) are not required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, (ii) are not required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, and (iii) have not been asked to obtain such permissions by any PRC authority. These statements are based on the following facts: (i) we are a holding company incorporated in the State of Utah, not a company incorporated under PRC law, (ii) our business activities are primarily conducted in Macau, with minimal supporting operations in Mainland China, and (iii) all our officers and directors are non-Chinese citizens or domiciled outside of Mainland China.
However, as the Trial Measures were recently introduced and the determination of whether an overseas offering and listing by a domestic company is considered indirect is based on a substance-over-form approach, there remain substantial uncertainties regarding their implementation and interpretation. The CSRC may adopt a position that differs from our current understanding of the Trial Measures.
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There are uncertainties with respect to how PRC authorities will regulate overseas securities offerings and overseas listings in general, as well as the interpretation and implementation of any related regulations. Although we intend to fully comply with the then effective relevant laws and regulations applicable to any securities offerings we may conduct, there are uncertainties with respect to whether we will be able to fully comply with requirements to obtain any permissions and approvals from, or complete any reporting or filing procedures with, PRC authorities that may be in effect in the future. For example, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based issuers.
If any of our Company, our subsidiaries do not receive or maintain the requisite permissions or approvals for our operations, or inadvertently conclude that such permissions or approvals are not required, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations or failures, including imposing fines, confiscating our incomes and products that are deemed to have been obtained through illegal operations, and discontinuing or restricting our operations. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of required licenses, significantly limit or completely hinder our ability to offer securities to investors and cause our securities to decline in value or become worthless. See “1A. Risk Factors — Risks Related to Doing Business in China and Macau — If the Chinese government were to increase its oversight and control or impose new approval requirements from PRC authorities for issuing our common stock to foreign investors or listing on a foreign exchange, such actions could severely restrict or entirely prevent our ability to offer or continue offering securities to investors. This could result in a significant decline in the value of our securities or render them worthless.”
Regulatory actions under China’s competition laws, anti-monopoly law and anti-unfair law, may materially and adversely affect our business, financial condition and results of operations, as well as the price of our shares.
In recent years, the PRC government has intensified its enforcement against anti-competitive practices, including mergers and acquisitions, cartel activities, monopolistic agreements, unfair pricing, and abusive conduct by dominant firms. In December 2020, the PRC central government announced that enhancing anti-monopoly measures and curbing the unchecked expansion of capital has become a priority, with plans to refine digital regulations and legal standards for identifying monopolistic practices related to data management and consumer rights protection.
For instance, the PRC government has strengthened its anti-monopoly and anti-unfair competition laws, including the implementation of the revised Anti-monopoly Law, which took effect on August 1, 2022. This revised law significantly escalated the penalties for violations, particularly for failing to notify the State Administration for Market Regulation before executing transactions that meet certain thresholds.
As of the date of this annual report, the PRC’s statements and regulatory actions concerning anti-monopoly issues have not adversely affected our business, our capacity to attract foreign investments, or our ability to issue securities to foreign investors. However, we may be subject to these or similar laws and regulations in the future. Compliance with such regulations, along with administrative guidance from regulators, may necessitate substantial resources and efforts, including modifications to our operations, pricing practices, restructuring our activities, and adjusting our investment strategies, which could materially and negatively impact our operations, growth prospects, reputation, and the trading prices of our shares. Please see “1A. Risk Factors — Risks Related to Doing Business in China and Macau —The M&A Rules and certain other PRC regulations concerning anti-monopoly impose complex procedures on certain acquisitions of Chinese companies by foreign investors, potentially making it more difficult for us to pursue growth through acquisitions in China.”
Failure to comply with cybersecurity, data privacy, data protection or any other laws and regulations related to data may have a material and adverse impact on our business, financial condition, and operational results, and subject us to fines, penalties, lawsuits, restrictions on our use or transfer of data and other risks.
Macao E-Media Development Company Limited, our food ordering and delivery subsidiary in Macau, may collect and store certain customer data, including personal information—some of which may belong to individuals in Mainland China—in connection with our business operations and the provision of food delivery services. We may be subject to numerous cybersecurity, data privacy, data protection, and other legal frameworks associated with data management. These regulations govern the collection, sharing, retention, security, disclosure, and transfer of sensitive and private information, encompassing personal data and other relevant information. Such laws apply not only to transactions with external parties but also to internal data transfers within our organization. Any violation or failure to adhere to these rules may expose us to legal actions, and result in fines and considerable legal liabilities, potentially having a significant negative impact on our business, financial health, and operational outcomes.
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On November 1, 2023, the PRC National Information Security Standardization Technical Committee released a draft guide on personal information protection for cross-border data flows in the Guangdong-Hong Kong-Macau Greater Bay Area. This guide outlines fundamental principles and protection requirements that personal information processors must follow in the relevant jurisdictions. If implemented, this guide is likely to apply to businesses operating in Macau and Hong Kong, including ours.
Especially in PRC where we have subsidiaries, laws regarding cybersecurity, data privacy, and data protection are relatively new and still developing, leading to uncertainties in their interpretation and application. For instance, the Cybersecurity Administration of China (CAC) proposed new incident reporting measures in December 2023, mandating that significant cybersecurity incidents be reported within one hour. On January 4, 2022, the CAC introduced the New Measures for Cybersecurity Review, amending previous regulations and expanding the scope to include network platform operators whose data processing activities may impact national security, including those planning to list overseas. Specifically, if a network platform operator with personal information from over one million users intends to list abroad, it must apply for a cybersecurity review, and the CAC can initiate a review if it believes national security may be affected. The New Measures lack clarity on which public offerings will require review and do not adequately define the data processing activities subject to scrutiny. PRC authorities may exercise broad discretion in enforcing these laws, making it difficult for us to anticipate their impact. We will closely monitor regulatory developments. If these measures necessitate cybersecurity reviews and other actions from companies in Macau like us, we face uncertainty regarding the timeliness of obtaining necessary clearances. Although we have not received any formal notification regarding a cybersecurity review, we cannot rule out such possibilities in the future.
On November 14, 2021, the CAC published draft regulations for cyber data security for public input. These regulations stipulate that data processors engaged in certain activities must apply for a cybersecurity review, including (i) mergers or reorganizations of online platform operators with significant data resources impacting national security; (ii) overseas listings for processors handling over one million users’ personal information; (iii) listings in Hong Kong affecting national security; or (iv) other data processing that may influence national security. It also mandates that data processors dealing with critical data or listed outside China conduct annual data security assessments and submit reports to the CAC. Given the ongoing uncertainty regarding the enactment and interpretation of new regulations, we cannot predict their potential impact on our operations. In September 2023, the National People’s Congress indicated its intent to finalize the review of the PRC Cyber Security Law, effective since 2017, with proposed amendments increasing penalties for violations.
Additionally, the PRC Data Security Law, which became effective on September 1, 2021, requires that data collection be conducted legitimately and properly, stipulating that data processing activities adhere to classification and protective systems for data security. Recent directives on combating illegal securities activities call for (i) expedited revisions to provisions on confidentiality and archival management for overseas securities issuance and (ii) enhancements to data security laws and cross-border information management. The PRC Personal Information Protection Law, enacted on November 1, 2021, consolidates various privacy protections and applies to personal information processing both within and outside China.
As of the date of this annual report, neither we nor our Macau operating subsidiary are subject to permission requirements from the Cyberspace Administration of China (CAC) for approval of our subsidiary’s operations. Our subsidiary is unlikely to be classified as an “operator” or “data processor” required to undergo a cybersecurity review before listing in the United States, due to the following reasons: (i) our subsidiary is incorporated and operates in Macau, and the aforementioned regulations do not clearly specify whether they apply to companies like ours; (ii) as of the date of this filing, our Macau subsidiary has collected and stored personal information from fewer than one million individuals in Mainland China, and we have obtained their separate consent for data collection and storage; (iii) all customer data collected by our subsidiary is stored on servers located in Macau; and (iv) our subsidiary has not received any notification from PRC authorities requiring it to undergo a cybersecurity or China Securities Regulatory Commission (CSRC) review.
Furthermore, under the Basic Law, PRC laws and regulations do not apply in Macau except for those pertain only to national defense, foreign affairs, and other matters outside Macau’s autonomous scope. Based on current Mainland China laws and regulations, and subject to future interpretations by PRC authorities, neither we nor our Macau subsidiary are currently required to obtain permission or approval from PRC authorities, including the CSRC and CAC, to operate our business or offer securities to foreign investors. Therefore, no application for such approvals has been required, and no approvals have been denied as of the date of this filing.
However, due to uncertainties within the legal systems of Mainland China and Macau—particularly regarding the interpretation and enforcement of PRC laws, as well as the PRC government’s significant authority to intervene in or influence offshore holding companies headquartered in Macau—there remains substantial uncertainty in the application and enforcement of Mainland China’s cybersecurity laws and other regulations. If our subsidiary is classified as an “Operator,” or if the Measures for Cybersecurity Review (2021) or the PRC Personal Information Protection Law are deemed to apply to our operations, our Macau subsidiary’s business activities and the quotation of our common stock on
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the OTC Markets in the United States could become subject to a cybersecurity review by the Cyberspace Administration of China (CAC) or an overseas issuance and listing review by the China Securities Regulatory Commission (CSRC). Should regulatory changes or new interpretations subject our Macau subsidiary to CAC or CSRC oversight, we cannot guarantee full compliance with all regulatory requirements. Our current data collection and processing practices could be subject to mandatory rectification or even termination by regulatory authorities. If we were required to obtain additional permissions or approvals to maintain the quotation of our common stock on the OTC Markets or another exchange outside of the PRC, the timeframe for securing such approvals would be uncertain. Moreover, even if approval is granted, there is a risk that it could later be revoked. Failure or delays in obtaining necessary permissions from PRC authorities for offshore listings or offerings could expose us to regulatory sanctions, including fines, penalties, legal proceedings, or other enforcement actions. Such restrictions could limit our ability to conduct business, invest in Mainland China as a foreign entity, accept foreign investments, or list our stock on U.S. or other overseas exchanges. Consequently, the value of our common stock could decline significantly or become worthless, and our business, reputation, financial condition, and overall operations could suffer material adverse effects. Compliance with privacy laws, regulations, and standards may escalate our operational costs and negatively impact our ability to market our products and services. These regulations may limit information sharing, complicating efforts to gather or disseminate information about at-risk individuals. Furthermore, non-compliance by us or third parties we engage may expose us to fines, penalties, lawsuits, or restrictions on our data usage and transfer. See also “1A. Risk Factors — Risks Related to Doing Business in China and Macau — If certain PRC laws and regulations were to become applicable to a company like us, our business, financial condition, and results of operations, as well as the value of our common stock and our ability to offer or continue offering securities to investors, could be materially and adversely affected. In such a scenario, we may face risks and uncertainties associated with the evolving PRC legal and regulatory landscape, including the interpretation and enforcement of laws, potential regulatory changes, and the broader complexities of the PRC legal system.”
Holding Foreign Companies Accountable Act (HFCAA)
Our common stock may be prohibited from trading on a national exchange or over-the-counter (“OTC”) markets under the Holding Foreign Companies Accountable Act (“HFCAA”) if the Public Company Accounting Oversight Board (“PCAOB”) determines that it is unable to inspect or fully investigate our auditor. In such a case, the exchange where our securities are traded may delist our securities. Additionally, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”), which was signed into law on December 29, 2022. This legislation amends the HFCAA by requiring the Securities and Exchange Commission (“SEC”) to prohibit an issuer’s securities from trading on any U.S. stock exchange if its auditor is not subject to PCAOB inspections for two consecutive years, instead of the previous threshold of three consecutive years.
On December 16, 2021, the Public Company Accounting Oversight Board (“PCAOB”) notified the Securities and Exchange Commission (“SEC”) that it was unable to fully inspect or investigate registered public accounting firms based in Mainland China and Hong Kong, including our auditor. Following the filing of our annual report on Form 10-K for the fiscal year ended December 31, 2021, the SEC officially designated us as a Commission-Identified Issuer under the Holding Foreign Companies Accountable Act (“HFCAA”) on May 13, 2022. On August 26, 2022, the SEC announced that the PCAOB had signed a Statement of Protocol (“SOP”) with the China Securities Regulatory Commission (“CSRC”) and the Ministry of Finance of the PRC, establishing a framework for audit inspections and investigations of firms based in Mainland China and Hong Kong. Subsequently, on December 15, 2022, the PCAOB confirmed that it had secured full access to inspect and investigate registered public accounting firms in these jurisdictions and, as a result, voted to vacate its previous 2021 Determination Report.
However, the PCAOB’s ability to continue conducting satisfactory inspections of PCAOB-registered public accounting firms in Mainland China and Hong Kong remains uncertain and depends on various factors beyond our control and that of our auditor. If, in the future, the PCAOB determines that it can no longer fully inspect and investigate auditors in these jurisdictions, we would once again be designated as a Commission-Identified Issuer and could face potential delisting under the Holding Foreign Companies Accountable Act (“HFCAA”). Such a delisting could significantly reduce the liquidity of our common stock, limit our access to U.S. capital markets, and increase trading price volatility, materially and adversely impacting the market value of our stock. See “1A. Risk Factors — Risks Related to Doing Business in China and Macau — Our common stock may be delisted and prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, as amended by Consolidated Appropriations Act 2023, if the PCAOB is unable to inspect or investigate completely auditors located in Mainland China and Hong Kong. The delisting of our common stock or the threat of their being delisted could cause the value of our common stock to significantly decline or be worthless, and thus you could lose all or substantial portion of your investment.”
Cash Flows Through Our Organization
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Cash generated from financing activities and operations is primarily retained by our operating subsidiaries to fund their operational needs and capital expenditures. Within our corporate group, cash is primarily transferred between subsidiaries through intercompany loan arrangements. Financing raised by Scientific Energy, Inc. is distributed to our operating subsidiaries via equity capital contributions or intercompany loan arrangements. In 2022 and 2023, apart from cash transfers made for the settlement of intragroup loan or charges, no cash was transferred from our subsidiaries to our holding company, Scientific Energy, Inc.
A significant portion of our cash is currently held in Macau, with no restrictions on cross-border transfers at this time. However, due to political uncertainty, the PRC may impose limitations in the future. Changes in Macau’s regulatory landscape could impact our ability to transfer funds, potentially affecting our operations. If such restrictions are enacted, we may be unable to use funds outside of Macau. We currently intend to retain the majority, if not all, of our available funds and future earnings to support the development and expansion of our business. Consequently, we do not anticipate paying cash dividends in the foreseeable future.
Our limited operating history, available resources for regulatory compliance, and political uncertainty create risks for our ability to conduct business, attract foreign investment, or list on a U.S. or foreign exchange. These factors could lead to significant changes in our operations, impact the value of the securities we are registering, or restrict our ability to offer securities, potentially causing their value to decline or become worthless.
Recent Regulatory Development in the PRC
Macau is a Special Administrative Region of the People’s Republic of China (PRC), and its governing framework is outlined in the Basic Law, which functions as Macau’s constitution. Under the Basic Law, Macau maintains a high degree of autonomy, with independent executive, legislative, and judicial powers, including final adjudication, under the principle of “one country, two systems.” Accordingly, we believe that current PRC laws and regulations related to cybersecurity, mergers and acquisitions, and oversight of overseas securities offerings do not materially impact our business, financial condition, or results of operations. However, there is no guarantee that future changes in Macau’s economic, political, or legal environment will not affect our operations. If these PRC laws and regulations were to become applicable to us, our business, financial condition, and results of operations, as well as the value of our common stock and our ability to offer or continue offering securities to investors, could be materially and adversely affected.
We are aware that, in recent years, the PRC government has initiated a series of regulatory actions and issued statements aimed at tightening oversight of business operations in certain sectors in Mainland China, often with little advance notice. These measures include cracking down on illegal activities in the securities market, increasing supervision of Mainland China-based companies listed overseas that use a variable interest entity (VIE) structure, expanding cybersecurity review requirements, and strengthening anti-monopoly enforcement. These actions reflect the PRC government’s intent to exert greater control over overseas offerings and foreign investments in Mainland China-based issuers.
As these regulatory actions and statements are relatively new, there is significant uncertainty regarding how quickly legislative or administrative bodies will respond and whether existing laws and regulations will be modified or new ones introduced. Additionally, the potential impact of such changes on our daily business operations, our ability to accept foreign investments, and the listing of our common stock on the OTC Markets in the United States or other foreign exchanges remains unclear. These regulatory developments could lead to material changes in our operations, adversely affect the value of our common stock, and significantly limit—or even entirely prevent—our ability to offer or continue offering our common stock to investors.
Regulations on Cybersecurity Review
On September 22, 2020, the Ministry of Public Security issued the Guidelines on Cybersecurity Protection System and Critical Information Infrastructure Security Protection System. These guidelines mandate that relevant authorities in various sectors—including public communication, information services, energy, transportation, water conservancy, finance, public services, government services, and national defense—develop regulations to identify critical information infrastructure within their domains. They are also required to provide the Ministry of Public Security with a list of these identified entities. Specifically, key protected assets such as basic networks, large private networks, core business systems, cloud platforms, big data platforms, Internet of Things (IoT) systems, industrial control systems, intelligent manufacturing systems, and new internet and emerging communication technologies that meet the identification criteria must be recognized as critical information infrastructure.
On August 20, 2021, the 30th meeting of the Standing Committee of the 13th National People’s Congress voted and passed the “Personal Information Protection Law of the People’s Republic of China”, or “PRC Personal Information Protection
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Law”, which became effective on November 1, 2021. The PRC Personal Information Protection Law applies to the processing of personal information of natural persons within the territory of Mainland China that is carried out outside of Mainland China where (i) such processing is for the purpose of providing products or services for natural persons within Mainland China, (ii) such processing is to analyze or evaluate the behavior of natural persons within Mainland China, or (iii) there are any other circumstances stipulated by related laws and administrative regulations.
On December 28, 2021, the CAC jointly with the relevant authorities formally published the Measures which took effect on February 15, 2022, and replaced the former Measures for Cybersecurity Review (2020) issued on July 10, 2021. The Measures provide that operators of critical information infrastructure purchasing network products and services, and online platform operators carrying out data processing activities that affect or may affect national security (together with the operators of critical information infrastructure, the “Operators”), shall conduct a cybersecurity review, and that any online platform operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country. The publication of the Measures expands the application scope of the cybersecurity review to cover data processors and indicates greater oversight by the CAC over data security, which may impact our business and this Offering in the future.
Our Macau operating subsidiary may collect and store data, including certain personal information, from its customers—some of whom may be individuals in Mainland China—in connection with our business operations and the provision of food delivery services. We believe that the Measures for Cybersecurity Review, the PRC Personal Information Protection Law, and the Draft Overseas Listing Regulations will not impact our business operations or the quotation of our common stock on the OTC Markets in the United States. This belief is based on the following factors: (i) our operating subsidiary is incorporated in Macau; (ii) we do not have any subsidiaries, a variable interest entity (VIE) structure, or direct operations in Mainland China; and (iii) under the Basic Law—a national law of the PRC and Macau’s constitutional framework—Mainland China’s national laws do not apply in Macau except for those listed in Annex III of the Basic Law, which is limited to laws concerning defense, foreign affairs, and other matters outside Macau’s autonomy.
Furthermore, we do not believe our Macau operating subsidiary qualifies as an “Operator” required to file for a cybersecurity review before listing in the United States, based on the following reasons: (i) our Macau operating subsidiary was incorporated and operates solely in Macau, without any subsidiaries or a VIE structure in Mainland China. The Measures for Cybersecurity Review, the PRC Personal Information Protection Law, and the Draft Overseas Listing Regulations do not explicitly state whether they apply to Macau-based companies; (ii) as of the date of this filing, our Macau operating subsidiary has collected and stored personal information from fewer than one million users; (iii) all data collected by our Macau operating subsidiary is stored on servers located in Macau; and (iv) as of the date of this filing, our Macau operating subsidiary has not been notified by any PRC governmental authority that it is required to undergo a cybersecurity review or a China Securities Regulatory Commission (CSRC) review. Based on these factors, we do not believe we are subject to permission requirements from the CSRC or the Cyberspace Administration of China (CAC).
However, due to uncertainties within the legal systems of Mainland China and Macau—particularly regarding the interpretation and enforcement of PRC laws, as well as the PRC government’s significant authority to intervene in or influence offshore holding companies headquartered in Macau, there remains substantial uncertainty in the application and enforcement of Mainland China’s cybersecurity laws and other regulations. Failure to comply with cybersecurity, data privacy, data protection or any other laws and regulations related to data may have a material and adverse impact on our business, financial condition, and operational results, and subject us to fines, penalties, lawsuits, restrictions on our use or transfer of data and other risks.
Regulations on Data Security
On June 10, 2021, the Standing Committee of the National People’s Congress enacted the Data Security Law (“DSL”), which took effect on September 1, 2021. This law establishes a classified and tiered framework for data protection, categorizing data based on its significance to economic and social development and the potential risks it poses to national security, public interests, or the legal rights of individuals and organizations in cases of manipulation, destruction, leakage, illegal acquisition, or misuse. Additionally, the law clarifies that the Cyber Security Law governs the security management of cross-border transfers of important data collected and generated by operators of “critical information infrastructure” during their operations in China.
On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly released the Opinions on Strictly Combating Illegal Securities Activities. These opinions call for enhancements to the laws and regulations governing data security, cross-border data transfer, and the management of confidential information. They emphasize the need to reinforce the primary responsibility for information security among overseas listed companies, establish standardized mechanisms for cross-border information sharing, and improve regulatory cooperation for cross-border audits in accordance with legal frameworks and the principle of reciprocity.
9
On November 14, 2021, the Cyberspace Administration of China released a draft of the Management Measures for Internet Data Security. This draft requires data processors to apply for cybersecurity reviews for activities such as mergers involving large data resources, overseas listings of processors handling over one million users' personal information, and any actions that may affect national security. Operators of large internet platforms must report when establishing overseas centers.
On February 24, 2023, the CSRC and other authorities issued the Provisions on Strengthening the Management of Confidentiality and Archives for Overseas Offerings, effective March 31, 2023. These provisions mandate that domestic companies and related entities establish confidentiality systems to protect state secrets during overseas listings. They must obtain approvals before disclosing sensitive documents and provide statements confirming compliance. Working papers must be stored in China, and companies must follow specified procedures for sharing accounting archives and responding to overseas regulator inquiries, utilizing a cross-border supervision mechanism for assistance.
According to Article 2 of the DSL, the law applies to data processing activities within Mainland China, as well as those conducted outside of Mainland China that may jeopardize the national or public interest of the PRC, or infringe upon the rights and interests of any PRC organization or citizen. Entities that fail to comply with the DSL may face corrective orders, warnings, or penalties, including business suspension, revocation of business licenses, or other sanctions. As of the date of this filing, we do not have significant operations in Mainland China, other than certain supporting activities, and we have not engaged in any data processing activities that could endanger the national or public interest of the PRC or infringe upon the rights of PRC organizations or citizens. Therefore, we do not believe that the Data Security Law is applicable to us.
Nevertheless, given the uncertainties within the legal systems of Mainland China and Macau—especially regarding the interpretation and enforcement of PRC laws, as well as the PRC government’s significant authority to intervene in or influence offshore holding companies based in Macau, there remains substantial uncertainty in the application and enforcement of Mainland China’s cybersecurity laws and other regulations. Non-compliance with cybersecurity, data privacy, data protection, or any related laws and regulations may materially and adversely affect our business, financial condition, and operational results, exposing us to fines, penalties, lawsuits, restrictions on our data use or transfer, and other risks.
Regulations on Anti-Monopoly and Anti-Unfair Competition
On September 2, 1993, the Standing Committee of the National People’s Congress adopted the Anti-Unfair Competition Law of the PRC, effective December 1, 1993, and amended on April 23, 2019. This law defines unfair competition as actions by operators that disrupt market order and harm the rights of other operators or consumers. Operators must adhere to principles of voluntariness, equality, integrity, and business ethics. Violations can result in civil, administrative, or criminal liabilities.
On September 11, 2020, the Anti-Monopoly Commission of the State Council released Anti-Monopoly Compliance Guidelines, requiring operators to implement compliance management systems under the PRC Anti-Monopoly Law.
On February 7, 2021, the Anti-Monopoly Commission issued guidelines specifying monopolistic behaviors in the internet platform economy and outlining concentration filing procedures.
On August 17, 2021, the State Administration for Market Regulation published a draft Provisions on the Prohibition of Unfair Competition on the Internet. This prohibits operators from using data or algorithms to manipulate traffic or user choices, spreading misleading information about competitors, or employing deceptive marketing practices like fake reviews.
On December 24, 2021, the National Development and Reform Commission and eight other authorities issued opinions to combat monopolistic practices in the platform economy.
On June 24, 2022, the Anti-Monopoly Law was amended, effective August 1, 2022, increasing fines for illegal business concentrations to a maximum of 10% of the previous year's sales revenue if harmful to competition.
On March 10, 2023, the State Administration for Market Regulation introduced four implementing rules to clarify the new Anti-Monopoly Law, addressing abuse of power and market dominance.
On January 22, 2024, the State Council promulgated amended Provisions on Thresholds for Prior Notification of Concentration of Undertakings, effective immediately. Transactions meeting certain revenue thresholds must be filed with anti-monopoly authorities before completion.
Regulations on Overseas Securities Offerings and Investment
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On August 8, 2006, six PRC regulatory agencies jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”), which came into effect on September 8, 2006, and were later amended on June 22, 2009. The M&A Rules require that an offshore special purpose vehicle (SPV) formed for overseas listing purposes and controlled directly or indirectly by PRC citizens obtain approval from the China Securities Regulatory Commission (“CSRC”) before its securities can be listed and traded on an overseas stock exchange.
Based on our understanding of the Chinese laws and regulations currently in effect at the time of this filing, we do not believe we are required to submit an application to the CSRC for approval of this offering or the quotation of our common stock on the OTC Markets in the United States under the M&A Rules. However, there remains uncertainty regarding how the M&A Rules may be interpreted or implemented in the future. The opinions stated above are subject to any new laws, regulations, or detailed implementations and interpretations that may arise concerning the M&A Rules. We cannot guarantee that the relevant PRC regulatory authorities, including the CSRC, would reach the same conclusion.
The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Strictly Cracking Down on Illegal Securities Activities (“Opinions”), which were made public on July 6, 2021. The Opinions emphasize the need to enhance oversight of illegal securities activities and strengthen supervision over overseas listings by PRC-based companies. According to the Opinions, Chinese regulators are required to expedite the formulation of rules related to the overseas issuance and listing of securities and update existing laws and regulations concerning data security, cross-border data flows, and the management of confidential information. A range of regulations, guidelines, and other measures are expected to be introduced under, or in addition to, the Cybersecurity Law and the Data Security Law. As of the date of this filing, no official guidance or implementation rules have been issued. Consequently, the interpretation, amendment, and enforcement of the Opinions on Strictly Cracking Down on Illegal Securities Activities by the relevant PRC regulatory authorities remain uncertain.
On December 24, 2021, the China Securities Regulatory Commission (“CSRC”), along with other relevant PRC government authorities, issued the Draft Overseas Listing Regulations. These regulations require that any overseas issuance and listing of securities complete the necessary filing procedures and submit relevant information to the CSRC. The Draft Overseas Listing Regulations apply to both direct and indirect overseas issuances and listings. An issuance and listing will be considered an Indirect Overseas Issuance and Listing if a company whose principal business activities are conducted in the PRC issues and lists its shares under the name of an overseas issuer based on the equity, assets, income, or other similar rights and interests of a relevant PRC domestic enterprise.
On February 17, 2023, the China Securities Regulatory Commission (“CSRC”) released the Trial Measures along with five supporting guidelines, which came into effect on March 31, 2023. The Trial Measures introduce several key requirements for domestic companies seeking to offer or list securities overseas, both directly and indirectly:
1. Domestic companies must complete the filing procedures with the CSRC before proceeding with an overseas offering or listing. Failure to do so may result in administrative penalties.
2. If a domestic company seeks to indirectly offer and list securities in an overseas market, it must designate a major domestic operating entity responsible for handling the filing procedures with the CSRC. These filings must be submitted to the CSRC within three business days after the overseas offering and listing application is filed.
On the same day, the CSRC held a press conference regarding the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies. This notice clarifies the following:
1. Domestic companies that, on or before the effective date of the Trial Measures, have already submitted valid applications for overseas offering and listing but have not yet received approval from overseas regulatory authorities or stock exchanges may arrange the timing of their filing applications with the CSRC. However, they must complete the filing before finalizing their overseas offering and listing.
2. A six-month transition period is granted to domestic companies that, prior to the effective date of the Trial Measures, have already obtained approval from overseas regulatory authorities or stock exchanges but have not yet completed their indirect overseas listing. If such companies fail to complete their overseas listing within this transition period, they must file with the CSRC as per the new requirements.
3. The CSRC will consult with relevant regulatory authorities and oversee the filing process for companies utilizing contractual arrangements (Variable Interest Entity or VIE structures) that meet compliance requirements, supporting the development and growth of such companies.
These measures mark a significant step toward strengthening oversight and regulatory compliance for Chinese companies seeking overseas listings.
11
Since recent statements, laws, and regulatory actions by the PRC government are newly issued, their interpretation, application, and enforcement remain unclear. Additionally, there is significant uncertainty regarding the enactment, interpretation, and implementation of other regulatory requirements related to overseas securities offerings and capital markets activities. It is also uncertain whether the PRC government will impose additional requirements or extend existing regulations to our operating subsidiary in Macau.
Furthermore, it remains unclear whether the Macau government could be mandated by the PRC government—despite the constitutional constraints of the Basic Law—to exert control over overseas offerings or foreign investments involving Macau-based entities, including our Macau operating subsidiary. If the PRC government were to strengthen its oversight and control over overseas offerings (including businesses primarily operating in Macau) or foreign investments in Macau-based issuers, our ability to offer or continue offering securities to investors could be significantly restricted or entirely blocked.
If there is a major shift in the political arrangements between Mainland China and Macau, or if applicable laws, regulations, or interpretations change in a way that requires us to obtain additional approvals, our ability to maintain the quotation of our common stock on the OTC Markets in the United States or a U.S. exchange could be jeopardized. If we fail to obtain or maintain necessary approvals, or if permission is denied by Mainland China or Macau authorities, we would be unable to continue offering securities to investors. Such restrictions would materially impact investor interests and could cause the value of our common stock to decline significantly or become worthless.
As of the date of this filing, our food ordering and delivery operating subsidiary is based in Macau, a Special Administrative Region of the PRC. We believe that, as of this date, the PRC government does not exert direct influence or discretion over the way we conduct our business activities in Macau, which operates outside of Mainland China. Furthermore, we do not expect to be materially affected by recent statements from the PRC government indicating an intent to increase oversight and control over overseas offerings and foreign investments in Mainland China-based issuers, particularly those listed overseas using a Variable Interest Entity (VIE) structure. Since we do not currently have any VIE structure or contractual arrangements in Mainland China, we believe these regulatory developments do not apply to our operations.
However, it remains uncertain whether the PRC government will impose additional requirements or extend existing regulations to apply to our operating subsidiary in Macau. Additionally, it is unclear whether the Macau government could be directed by the PRC government—despite the constitutional constraints of the Basic Law—to exert control over overseas offerings or foreign investments involving Macau-based entities, including our Macau operating subsidiary.
Given the PRC’s recent expansion of authority in Macau, there are risks and uncertainties that we cannot fully anticipate at this time. Regulations, rules, and enforcement practices in the PRC can change rapidly, often with little or no advance notice. The PRC government may intervene in or influence our current and future operations in Macau at any time or may impose stricter oversight and control over overseas offerings and foreign investments in issuers like us.
If the PRC government takes actions to exert greater control over overseas offerings—including those by businesses primarily operating in Macau—or foreign investments in Macau-based issuers, our ability to offer or continue offering securities to investors could be significantly restricted or entirely prohibited. Such regulatory changes could cause the value of our securities to decline substantially or become worthless.
Summary of Risk Factors
The following is a summary of significant risk factors and uncertainties that may affect our business, which are discussed in more detail below under “Item 1A. Risk Factors” included in this Annual Report on Form 10-K:
Risks Related to Doing Business in China and Macau
·Under the long-arm provisions of current PRC laws and regulations, the Chinese government may exercise significant oversight and discretion over our business operations in Macau. It has the authority to intervene or influence our operations at any time, potentially leading to material changes in our business or the value of our common stock. Additionally, increased government oversight of overseas offerings or foreign investment in China-based issuers could restrict or entirely prevent our ability to offer securities, potentially causing their value to decline significantly or become worthless. Furthermore, the Chinese government may impose capital movement restrictions, limiting our ability to transfer funds out of Macau for purposes such as distributing earnings, paying dividends, or reinvesting in operations outside Macau. Changes in Chinese government policies, regulations, rules, or law enforcement practices may also occur rapidly and with little advance notice. As a result, our assessments of the risks associated with the PRC legal and regulatory system remain uncertain and subject to change.
12
·Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in policies, laws and regulations in China, could adversely affect us.
·The Chinese government may intervene in or influence our operations in the Mainland China, or Macau at any time or may exert more control over offerings conducted overseas and/or foreign investment in us, which could result in a material change in our operations and and/or the value of our securities.
·If the Chinese government chooses to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
·Our common stock may be delisted and prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, as amended by Consolidated Appropriations Act 2023, if the PCAOB is unable to inspect or investigate completely auditors located in Mainland China and Hong Kong. The delisting of our common stock or the threat of their being delisted could cause the value of our common stock to significantly decline or be worthless, and thus you could lose all or substantial portion of your investment.
·There are significant uncertainties regarding the interpretation of PRC laws, rules, and regulations, which may change at any time with little advance notice and could limit the legal protections available to us.
·The enforcement of laws, rules, and regulations in China can change quickly with little advance notice. Similarly, the PRC laws and regulations and the enforcement of such that apply or are to be applied to Macau can change quickly with little or no advance notice. As a result, the Macau legal system presents uncertainties which could limit the availability of legal protections. Such uncertainties could lead to material changes in the operations of our Macau-based subsidiary and/or adversely impact the value of our common stock.
·Recent interventions by the PRC government in the business activities of U.S.-listed, China-based companies may negatively impact our operations in Macau.
·If certain PRC laws and regulations were to become applicable to a company like us, our business, financial condition, and results of operations, as well as the value of our common stock and our ability to offer or continue offering securities to investors, could be materially and adversely affected. In such a scenario, we may face risks and uncertainties associated with the evolving PRC legal and regulatory landscape, including the interpretation and enforcement of laws, potential regulatory changes, and the broader complexities of the PRC legal system.
·It may be difficult for overseas regulators to conduct investigations or collect evidence within the territory of China, including Macau and Hong Kong.
·There may be difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us and our management.
·Adverse regulatory developments in China may subject us to heightened regulatory review and additional compliance requirements. In response to risks associated with recent regulatory changes in China, the SEC may adopt new disclosure requirements and enhanced regulatory scrutiny for companies like ours with Macau- and Hong Kong-based operations. These measures could increase our compliance costs and require us to meet additional disclosure obligations, potentially impacting our operations and regulatory burden.
·If the Chinese government were to increase its oversight and control or impose new approval requirements from PRC authorities for issuing our common stock to foreign investors or listing on a foreign exchange, such actions could severely restrict or entirely prevent our ability to offer or continue offering securities to investors. This could result in a significant decline in the value of our securities or render them worthless.
·Recent increased oversight by the Cyberspace Administration of China (“CAC”) regarding data security, particularly for companies seeking to list on a foreign exchange, could negatively impact our food and grocery ordering and delivery business in Macau if our online food ordering platform directly targets Mainland China consumers.
·The M&A Rules and certain other PRC regulations concerning anti-monopoly impose complex procedures on certain acquisitions of Chinese companies by foreign investors, potentially making it more difficult for us to pursue growth through acquisitions in China.
13
·There are political risks associated with conducting business in Macau.
·Fluctuations in the value of the Pataca, Hong Kong dollar, or RMB may negatively impact our expenses and profitability.
Risks Related to Our Food Delivery Business and Industry
·There is substantial doubt regarding our ability to continue as a going concern.
·Our revenue heavily depends on a limited customer base, a trend likely to continue.
·If we fail to retain our existing merchants and consumers or acquire new merchants and consumers in a cost-effective manner, our revenue, revenue growth, and margins may decrease and our business, financial condition, and results of operations could be adversely affected.
·We face intense competition and if we are unable to compete effectively, our business, financial condition, and results of operations would be adversely affected.
·We rely on merchants on our platform for many aspects of our business, and to the extent they fail to maintain their service levels or increase the prices they charge consumers on our platform, our business would be adversely affected.
·We are subject to payment-related risks, and if payment processors are unwilling or unable to provide us with payment processing service or impose onerous requirements on us in order to access their services, or if they increase the fees they charge us for these services, our business and results of operations could be harmed.
·We rely on third parties, including our payment processor, cloud providers and data center host, and if these or other third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business and results of operations could be harmed.
Risks Related to Our Graphite Sales Business and Industry
·Graphite mineral prices are subject to dramatic and unpredictable fluctuations.
·The graphite industry is highly competitive. Our market share, net sales or net income could decline due to vigorous price and other competition.
·Our future sales opportunities depend, to a large extent, on the growth of markets for electronic vehicles and other graphite-based battery applications. These applications may develop slower or at a size that is less than expected, to the extent they develop at all.
·Our business and our partners are subject to market changes in the availability and cost of electricity and fuel that could adversely affect our business.
·We are subject to a variety of legal, economic, social and political risks associated with the nature of our business in association with natural resources, with customers scattered all around the world, which could have a material adverse effect on our financial and business operations.
·We are currently operating in a period significantly affected by geopolitical instability. Our business, financial condition, and operational results may be materially adversely impacted by any negative effects on the global economy stemming from these conflicts and geopolitical tensions. This is especially pertinent in light of the ongoing military conflict between Russia and Ukraine, as well as the unrest in the Middle East.
·We may not respond quickly and profitably to the cutting-the-edge innovations or technologies in the graphite industry.
·Our graphite products sales history is limited. Our ability to generate revenue is subject to a number of factors, any one or more of which may adversely affect our financial condition and operating results.
·If we fail to effectively implement our sales, marketing, and service strategies, our sales growth will be hindered, negatively impacting our operational results.
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Risks Related to Our Common Stock
·Because our common stock is deemed a low-priced "Penny" stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.
·There currently is only a minimal liquid public market for our common stock. Failure to develop or maintain a liquid public trading market could negatively affect the value of our common stock and make it difficult or impossible for stockholders to sell their shares when desired or at desired prices.
·We may, in the future, issue additional common shares, which would reduce investors’ percent of ownership and may dilute the Company’s share value.
·There is a limited market for the Company’s common stock, which may make it difficult for holders of the Company’s common stock to sell their stock.
·We have never declared or paid cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future.
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TABLE OF CONTENTS
16
Item 1. Consolidated Financial Statements
SCIENTIFIC ENERGY, INC. | ||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
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| (Unaudited) September 30, | (Audited) December 31, |
2025 | 2024 | |
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ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | $ |
Loan receivables, net | ||
Accounts receivables | ||
Other receivables and deposits | ||
Amount due from related companies | ||
Amount due from joint venture | ||
Inventories | ||
Prepaid expense | | |
Total current assets | ||
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Non-current assets: |
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Investments in joint venture | ||
Property, plant and equipment, net | | |
Intangible assets | | |
Crypto assets | ||
Goodwill | | |
Operating lease right-of-use assets | | |
Deposits | | |
Total non-current assets | ||
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Total assets | $ | $ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable | $ | $ |
Accrued expenses | ||
Deposit received | ||
Other payables | ||
Bank loans | ||
Operating lease liabilities - current | | |
Total current liabilities | ||
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Non-current liabilities: |
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Operating lease liabilities - non-current | | |
Total non-current liabilities | ||
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Total liabilities | $ | $ |
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Commitments and contingencies (Note 22) |
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Stockholders’ equity: |
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Preferred stock: par value $ | | |
Common stock: par value $ | | |
Additional paid in capital | | |
Accumulated deficit | ( | ( |
Accumulated other comprehensive income | | |
Total stockholders’ equity | | |
Non-controlling interests | ( | ( |
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Total liabilities and stockholders’ equity | $ | $ |
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See the accompanying notes to the unaudited condensed consolidated financial statements | ||
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SCIENTIFIC ENERGY, INC. | |||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) | |||||
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| (Restated) |
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Three Months ended September 30, 2025 | Three Months ended September 30, 2024 | Nine Months ended September 30, 2025 | Nine Months ended September 30, 2024 | ||
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 PROFIT FROM OPERATIONS | |||||
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Other income / (expense): |
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Gain on disposal of joint venture | |||||
Unrealized gain on crypto asset | |||||
Interest expense, net | ( | ( | ( | ( | |
Total other income / (expense) | ( | ( | |||
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Net income before income taxes | |||||
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Income taxes | ( | ( | ( | ( | |
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NET INCOME | $ | $ | $ | $ | |
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Add: Net loss attributable to non-controlling interests | |||||
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Net income attributable to Scientific Energy, Inc. | $ | $ | $ | $ | |
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OTHER COMPREHENIVE INCOME: |
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Loss on disposal of subsidiary | ( | ||||
Foreign translation loss | ( | ( | ( | ( | |
Total other comprehensive income | $ ( | $ ( | $ ( | $ ( | |
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Comprehensive income | $ | $ | $ | $ | |
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Add: Comprehensive loss attributable to non-controlling interest | | | | | |
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Comprehensive income attributable to Scientific Energy, Inc. | $ | $ | $ | $ | |
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Net income per common stock, basic and diluted | $ | $ | $ | $ | |
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Weighted average number of common stock outstanding, basic and diluted | | | | | |
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See the accompanying notes to the unaudited condensed consolidated financial statements | |||||
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SCIENTIFIC ENERGY, INC. | |||||||
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY | |||||||
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024 | |||||||
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| Common stock | Paid in | Accumulated | Comprehensive | Controlling |
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Shares | Amount | Capital | Deficit | Income | Interests | Total | |
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Balance, January 1, 2025 | | $ | $ | $ ( | $ | $ ( | $ |
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Foreign currency transaction loss | | | | | ( | ( | ( |
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Net income/(loss) | | | | | | ( | |
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Balance, March 31, 2025 (unaudited) | | $ | $ | $ ( | $ | $ ( | $ |
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Foreign currency transaction gain/(loss) | | | | | ( | ||
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Net income/(loss) | | | | | | ( | |
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Balance, June 30, 2025 (unaudited) | | $ | $ | $ ( | $ | $ ( | $ |
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Foreign currency transaction gain/(loss) | | | | | ( | | ( |
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Net income/(loss) | | | | | | ( | |
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Balance, September 30, 2025 (unaudited) | | $ | $ | $ ( | $ | $ ( | $ |
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19
SCIENTIFIC ENERGY, INC. | |||||||
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY | |||||||
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024 (CONTINUED) | |||||||
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| Additional | (Restated) | Other | Non- |
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Balance, January 1, 2024 | | $ | $ | $ ( | $ | $ ( | $ |
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Foreign currency transaction gain | | | | | |||
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Disposal of subsidiary | | | | | ( | ( | |
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Net income/(loss) | | | | | | ( | ( |
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Balance, March 31, 2024 (unaudited) | | $ | $ | $ ( | $ | $ ( | $ |
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Foreign currency transaction loss | | | | | ( | ( | |
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Net income/(loss) | | | | | | ( | |
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Balance, June 30, 2024 (unaudited) | | $ | $ | $ ( | $ | $ ( | $ |
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Foreign currency transaction loss | | | | | ( | ( | |
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Net income/(loss) | | | | | | ( | |
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Balance, September 30, 2024 (unaudited) | | $ | $ | $ ( | $ | $ ( | $ |
See the accompanying notes to the unaudited condensed consolidated financial statements | |||||||
20
SCIENTIFIC ENERGY, INC. | ||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
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Nine months ended September 30, 2025 | (Restated) Nine months ended September 30, 2024 | |
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CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $ | $ |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation | ||
Amortization | ||
Loss on disposal of property and equipment | ||
Loss of disposal of a subsidiary | ||
Impairment loss on loan receivables | ||
Unrealized gain on crypto asset | ( | |
Change in operating assets and liabilities: |
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Account receivables | ( | ( |
Other receivables | ( | ( |
Inventories | ( | ( |
Deposits | ( | |
Prepaid expenses | ( | |
Accounts payable | ( | |
Accrued expenses | ( | ( |
Deposits received | ( | |
Other payables | | |
Net cash provided by operating activities | | |
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CASH FLOWS FROM INVESTING ACTIVITIES | ||
Purchase of property, plant and equipment | ( | ( |
Proceeds from a joint venture disposal | ( | |
Repayment from related companies | ||
Net cash outflow from disposal of subsidiary | ( | |
Loan to joint venture | ( | ( |
Net cash used in investing activities | ( | ( |
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CASH FLOWS FROM FINANCING ACTIVITIES | ||
Repayment of bank loans | ( | ( |
Drawdown of bank loans | | |
Net cash (used in) / provided by financing activities | ( | |
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Effect of currency rate changes on cash and cash equivalents | ( | |
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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 | $ | $ |
Income taxes paid | $ | $ |
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Supplemental schedule of non-cash investing and financing activities: | ||
Record right-of-use assets upon adoption of ASC 842 | $ | $ |
Record lease liabilities upon adoption of ASC 842 | $ | $ |
See the accompanying notes to the unaudited condensed consolidated financial statements | ||
21
SCIENTIFIC ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MOTNHS ENDED SEPTEMBER 30, 2025 AND 2024
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Scientific Energy, Inc., (the “Company”) was incorporated under the laws of the State of
In January 2024, Macao E-Media Development Company Limited (“MED”) disposed all shares of Squirrel Logistic Company Limited (“Squirrel Logistic”) to third party with cash consideration of $
In March 2024, MED set up Zhuhai Aomi E-commerce Company Limited (“Zhuhai Aomi”), a 100% owned subsidiary of MED, in order to carry out in-store business in mainland (“Mainland China”) of the People’s Republic of China (“PRC”), predominantly and initially in Zhuhai city.
In October 2024, Guangzhou Chengmi Technology Company Limited, a 100% owned subsidiary of MED, ceased operation and completed the deregistration process.
In October 2024, the MED set up Zhuhai Wanmi Technology Company Limited (“Zhuhai Wanmi”), a 100% owned subsidiary of MED. The main business of Zhuhai Wanmi is in provision of IT development, maintenance, and support services in terms of mobile application to MED.
In December 2024, the Company acquired 100% shares of Celebrity Chef Catering Management Limited (“Celebrity Catering”), a Hong Kong corporation, through its Hong Kong subsidiary Citysearch Technology (HK) Company Limited (“Citysearch”). The main business of Celebrity Catering is to (i) supply Citysearch with ready-to-eat meal, so that Citysearch, as a group dining service provider, can solve the lunch and dinner group dining needs for corporate employees in Hong Kong, and (ii) act as a merchant offering only online food order and delivery services in Hong Kong.
In March 2025, the Company established AgriJoy Catering Management Company Limited in Hong Kong with 55% equity interest, the main business of which is provision of dining management services for our catering business in Hong Kong.
In September 2025, the Company established AOMI Corporation in Cayman Islands, holding 100% equity interest, the main business of which is to hold equity shares and not carry out any businesses.
In September 2025, MED established a 50% owned subsidiary, Profit One Investment Limited in Hong Kong, and its does not carry out any businesses.
In September 2025, the Company’s subsidiary, Sinoforte Limited (“Sinoforte”) disposed all shares of its joint venture, Gold Gold Gold Limited (“3G”) to third party with consideration of $111,246 which settled through the equivalent 31,069 units crypto token on disposal date.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP and stated in U.S. dollars. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the balances and results for the periods presented. A description of the Company’s significant accounting policies is included in the Company’s
22
audited consolidated financial statements as of December 31, 2024. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s 2024 Annual Report on Form 10-K, filed with the SEC on May 28, 2025.
The accompanying unaudited 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. In September 2025, the Company established wholly owned subsidiary, AOMI Corporation in Cayman Islands.
The Company has 98.75% owned subsidiary, MED. Zhuhai Chengmi Technology Company Limited is the 90% owned subsidiary with MED. Zhuhai Migua Technology Company Limited is 100% owned subsidiary by Zhuhai Chengmi Technology Company Limited and has a 90% owned subsidiary, Fresh Life Technology Company Limited. Green Supply Chain Management Company Limited is the 99% owned subsidiaries with MED. The Company acquired 70% shares of Citysearch and this subsidiary acquired all the shares of Celebrity Chef Catering Management Limited in Hong Kong. MED sold out all the shares of Squirrel Logistic Company Limited to third party and Guangzhou Chengmi Technology Company Limited ceased operation during 2024. At the same year, MED set up Zhuhai Aomi E-commerce Company Limited and Zhuhai Wanmi Technology Company Limited in China, which are the 100% owned subsidiaries of MED. In March 2025, Citysearch established AgriJoy Catering Management Company Limited in Hong Kong with 55% equity interest, the main business of which is provision of dining management services for our catering business in Hong Kong. All of the above companies consolidate with MED. In September 2025, MED established 50% owned subsidiary, Profit One Investment Limited.
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 |
Green Supply Chain Management Company Limited (99% subsidiary of Macao E-Media Development Company Limited) |
| Macau |
Zhuhai Chengmi Technology Company Limited (90% subsidiary of Macao E-Media Development Company Limited) |
| China |
Zhuhai Migua Technology Company Limited (100% subsidiary of Zhuhai Chengmi Technology Company 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 |
Celebrity Chef Catering Management Limited (100% subsidiary of Citysearch Technology (HK) Company Limited) |
| Hong Kong |
Graphite Energy, Inc. |
| USA |
Zhuhai Aomi E-commerce Company Limited (100% subsidiary of Macao E-Media Development Company Limited) |
| China |
Zhuhai Wanmi Technology Company Limited (100% subsidiary of Macao E-Media Development Company Limited) |
| China |
AgriJoy Catering Management Company Limited (55% subsidiary of Citysearch Technology (HK) Company Limited) |
| Hong Kong |
AOMI Corporation |
| Cayman Islands |
Profit One Investment Limited (50% subsidiary of Macao E-Media Development Company Limited) |
| Hong Kong |
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.
23
Interim Financial Statements
The following (a) condensed consolidated balance sheet as of December 31, 2024, 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, 2025 are not necessarily indicative of results that may be expected for the year ending December 31, 2025. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2024 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on May 28, 2025.
Revenue Recognition
In accordance with ASC, Topic 606, Revenue from Contracts with Customers, revenue is recognized when control of the promised goods or services is transferred to its customers. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services.
The core principle of the standard is that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve that core principle, we apply the following five step model:
1.Identify the contract with the customer;
2.Identify the performance obligations in the contract;
3.Determine the transaction price;
4.Allocate the transaction price to the performance obligations in the contract; and
5.Recognize revenue when (or as) each performance obligation is satisfied.
The Company recognizes revenue when: (1) persuasive evidence of an arrangement exists; (2) delivery has completed; (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.
Food & Beverage and Delivery
We provide food and beverage sales and delivery services. Services are completed to customers when the food and beverages are transferred to the customers. Transaction price includes mainly delivery fees from delivery services. Payments were received upon receipt of delivery orders. For food and beverage sales and delivery services, we recognize revenue when control of an order of food and beverages is transferred to the customers. Payment terms are short-term in nature. The Company defers any revenue for which the product has not been delivered or services not yet rendered or are subjected 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. Revenue is recognized at a point in time upon the customers received the delivered products.
Graphite Trading
Revenue from sale of graphite products is recognized at the point in time when the control of graphite product is transferred to customers. Transaction price is the sales price agreed with customers net of estimated costs of returns and allowance. Performance obligation is satisfied when customers obtained control of graphite products, and when all significant contractual obligations of the Company have been satisfied, typically upon completion of delivery.
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.
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IT Supporting Services
The Company operates a mobile platform of ordering and delivery services for restaurants and supermarket mainly in Macau. Performance obligation is satisfied when the transactions of delivery services in the mobile platform are closed. Revenue is recognized at a point in time upon such performance obligation is satisfied. Transaction price was the service charge agreed with customers.
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 revenues of the Company are disclosed in Note 21. 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, 2025, and December 31, 2024, 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
For purposes of the statements of cash flows, cash and cash equivalents include cash on hand and cash on banks.
Comprehensive Income
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” or “US$”) using the year or reporting period-end or average exchange rates in accordance with the requirements of Accounting Standards Codification subtopic 830-10, Foreign Currency Matters (“ASC 830-10”). Assets and liabilities of these subsidiaries were translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented.
The functional currency of the Company and its subsidiaries is primarily the currency of their country of domicile, which the functional currency of the Company is USD and the subsidiaries are USD, Macau Pataca (“MOP”), Hong Kong Dollar
25
(“HK$”) and Chinese Renminbi (“RMB”). The consolidated financial statements were presented in USD except as other specified.
The cumulative translation adjustment is included in the accumulated other comprehensive loss within stockholders’ equity. 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 HK$, MOP and RMB into USD for the purposes of preparing the consolidated financial statements were as follows:
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| September 30, |
| December 31, |
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| 2025 |
| 2024 |
Exchange rate on balance sheet dates |
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USD : HK$ exchange rate |
| 7.7860 |
| 7.7742 |
USD : MOP exchange rate |
| 8.0196 |
| 8.0074 |
USD : RMB exchange rate |
| 7.1250 |
| 7.2817 |
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| For the nine months ended September 30, | ||
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| 2025 |
| 2024 |
Average exchange rate for the period |
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USD : HK$ exchange rate |
| 7.8205 |
| 7.7993 |
USD : MOP exchange rate |
| 8.0551 |
| 8.0333 |
USD : RMB exchange rate |
| 7.1562 |
| 7.1614 |
Property, plant and equipment
The estimated useful lives of property, plant and equipment are as follows: |
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Office equipment |
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Furniture and fixtures |
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Vehicles |
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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 |
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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.
Digital Assets
The Company’s digital assets solely represented Multiple-Up Point (“MUP”) tokens. The Company refers to digital assets which fall within the scope of ASC 350-60 as “crypto assets”.
As of September 30, 2025, the Company held $0.1 million of crypto assets comprised of 31,069 MUP that are in the scope of ASC 350-60 at fair value. The Company reflects crypto assets held at fair value on the consolidated balance sheets as “crypto assets”. The activity from remeasurement of crypto assets at fair value is reflected in the consolidated statements of operations within unrealized gain on crypto assets. Contributions of crypto assets received as the consideration received in disposal of a joint venture are presented as noncash investing activities in the consolidated statements of cash flows.
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Account receivables
Account 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 credit loss 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 provision of credit loss is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for credit loss after management has determined that the likelihood of collection is not probable.
The Company considered allowance for credit loss for these receivables were not insignificant as of September 30, 2025 and December 31, 2024.
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. |
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.
Net Income Per Common Stock
Net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year or period. Diluted net income per common share 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 net income per common share 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 as of September 30, 2025 and December 31, 2024.
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. The investments in unconsolidated joint ventures were fully impaired in prior years due to the loss-making position of the JV company.
In September 2025, the Company disposed all shares of 3G to independent third party with consideration of $111,246 which settled through the equivalent 31,069 units crypto token on disposal date.
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
27
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.
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.
Lease liabilities
Operating leases
In adopting ASC Topic 842, Leases (Topic 842), the Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. 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.
Upon lease inception, operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term discounted using the rate implicit in the lease. In cases where the implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
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.
Short-term leases
In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 months or less.
Recent Adopted 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 that are regularly provided to the Chief Operating Decision Maker (“CODM”) and assets that are currently required annually. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. 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.
On December 14, 2023, the Financial Accounting Standards Board (FASB or Board) issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). The amendments in this ASU address investor requests for more transparency about income tax information through improvements to income
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tax disclosures primarily related to an entity’s effective tax rate reconciliation and income taxes paid information. However, ASU 2023-09 does not amend the recognition or measurement requirements of Accounting Standards Codification (ASC or Codification) Topic 740 (ASC 740).
Under the ASU, public business entities (PBEs) are required to disclose an annual tabular effective tax rate reconciliation using both reporting currency amounts and percentages, disaggregated into the eight categories specified by the ASU. PBEs are also required to provide further disaggregation within the effective tax rate reconciliation of certain reconciling items, based on a quantitative threshold equal to 5% or more of the amount determined by multiplying income (or loss) from continuing operations before income taxes by the applicable federal statutory tax rate. Entities other than PBEs are not required to provide the numerical tabular effective tax rate reconciliation but instead are required to qualitatively disclose the nature and effect of the specific categories of reconciling items (required for PBEs) and individual jurisdictions that result in a significant difference between the statutory tax rate and the effective tax rate.
The ASU also requires all entities to annually disclose the amount of income taxes paid, net of refunds received, disaggregated by federal (national), state and foreign jurisdiction. All entities are also required to disclose the amount of income taxes paid, net of refunds received, to each individual jurisdiction that comprises 5% or more of total income taxes paid (net of refunds received).
ASU 2023-09 also added an annual disclosure requirement for all entities to further disaggregate income from continuing operations and the related income tax expense from continuing operations by jurisdiction. Specifically, for each annual reporting period, entities are required to disaggregate income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between its domestic and foreign components together with income tax expense (or benefit) from continuing operations disaggregated between its federal (national), state and foreign components.
For PBEs, the amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024 (i.e., 2025 for PBEs with calendar year ends). For entities other than PBEs, the amendments are effective one year later.
Recent Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued ASU no. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosure (Subtopic 220-40). The amendments in this update enhance disclosures about a public business entity’s expenses and provide more detailed information about the types of expenses included in certain notes in the consolidated financial statements. ASU no. 2024-03 is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption permitted. The amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the consolidated financial statements. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2024-03.
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 unaudited condensed 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 unaudited condensed 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.
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NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment as of September 30, 2025 and December 31, 2024 is summarized as follows:
Schedule of Property and Equipment
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|
| September 30, 2025 |
|
| December 31, 2024 |
| ||
|
|
|
|
|
|
|
|
|
Office furniture and fixtures |
| $ |
|
| $ |
| ||
Office equipment |
|
|
|
|
|
| ||
Vehicle |
|
|
|
|
|
| ||
Less: accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
| $ |
|
| $ |
| ||
Depreciation expense included in “Depreciation and amortization” for the three months and nine months ended September 30, 2025 were $
For the nine months ended September 30, 2025 and 2024, the Company has additional purchase of property, plant and equipment of $
NOTE 5 – INTANGIBLE ASSETS
Software
Software as of September 30, 2025 and December 31, 2024 is summarized as follows:
|
| September 30, |
|
| December 31, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Software |
| $ |
|
| $ |
| ||
Less: accumulated amortization |
|
| ( |
|
|
| ( |
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
| $ |
|
| $ |
| ||
Amortization expense included in “Depreciation and amortization” for the three months and nine months ended September 30, 2025 were $
No impairment loss on intangible assets have been recognized for the three and nine months ended September 30, 2025 and 2024.
NOTE 6 – CRYPTO ASSETS
Crypto assets as of September 30, 2025 and December 31, 2024 is summarized as follows:
|
| September 30, |
|
| December 31, | ||
|
| 2025 |
|
| 2024 | ||
MUP |
| $ |
|
| $ | ||
Change in fair value |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ | ||
As of September 30, 2025, the Company held $
30
NOTE 7 – ACQUISITION / DISPOSAL OF SUBSIDIARIES
(a)Acquisition of Celebrity Catering
On December 16, 2024, the Company through its subsidiary Citysearch, to acquire 100% shares of Celebrity Catering in Hong Kong at nil consideration. The main business of Celebrity Catering is to (i) supply Citysearch with ready-to-eat meal, so that Citysearch, as a group dining service provider, can solve the lunch and dinner group dining needs for corporate employees in Hong Kong, and (ii) act as a merchant offering online-only food order and delivery services 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, December 16, 2024.
|
|
| ||
Property, plant and equipment, net |
| $ |
| |
Inventories |
|
|
| |
Account receivables |
|
|
| |
Other receivables and deposits |
|
|
| |
Amount due from related companies |
|
|
| |
Cash and cash equivalents |
|
|
| |
Accounts payables |
|
| ( |
|
Other payables and accrued expenses |
|
| ( |
|
Goodwill |
|
|
| |
Total consideration paid in cash |
| $ |
| |
Less: Cash and cash equivalents |
|
| ( |
|
Net cash inflow arising from the acquisition of a subsidiary |
| $ | ( |
|
The transaction resulted goodwill amounted to $
(b) Disposal of Squirrel Logistic
On January 12, 2024, the Company disposed through its subsidiary MED, the entire 100% shares of Squirrel Logistic to a third party at nil cash consideration. As a result of disposal, there was a disposal loss amounted to $
NOTE 8 – GOODWILL
|
|
|
|
|
|
|
|
| September 30, 2025 |
|
| December 31, 2024 | |
Balance at beginning of period | $ |
|
| $ | ||
Acquisition of subsidiaries |
|
|
|
| ||
Less: accumulated impairment losses |
|
|
|
| ( | |
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, Citysearch, Fresh Life and Celebrity Catering 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, 2024, the Company performed testing on reporting unit.
31
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.
At each interim reporting date, the management of the Company performs qualitative assessment to determine whether the quantitative impairment test is necessary. For the nine months ended September 30, 2025 and 2024, the Company assessed and did not identify any triggering events. Therefore, no interim quantitative test was performed.
NOTE 9 – OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
Operating leases
In 2023, MED’s subsidiary, Citysearch, 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. In 2024, Citysearch entered into a two-year lease for another cafe shop space of approximately 99 square feet in Hong Kong, expiring June 2026 with monthly payment of approximately $2,571 per month. Citysearch establish a new office in Hong Kong with a two-year lease and expiring July 2026 with monthly payment of approximately $5,539 per month. In 2025, Citysearch entered into a three-year lease for a restaurant in Hong Kong, expiring September 2027 with monthly payment of approximately $16,067 per month.
In 2024, the Company entered into a two-year lease for office space of approximately 770 square feet in Hong Kong, with monthly payments of approximately $4,404 per month.
In 2024, the Company entered the lease agreements for offices and distribution points in Macau and Zhuhai for 2-3 years, with average monthly payments of approximately $40,449 per month.
In 2024, Citysearch’s subsidiary, Celebrity Catering, entered into a lease for a restaurant in Hong Kong, expiring October 2025 with monthly payment of approximately $15,424 per month.
At lease commencement date, the Company estimated the operating lease liabilities and the right-of-use assets at present value using the Company’s estimated weighted average incremental borrowing rate of 5.875% (2024: 5.875%).
Operating lease right-of-use assets are summarized below:
|
|
|
|
|
|
|
|
| September 30, 2025 |
|
| December 31, 2024 | |
Macau and Zhuhai | $ |
|
| $ | ||
Hong Kong |
|
|
|
| ||
Operating lease right-of-use assets |
|
|
|
| ||
The Company has
During the three months and nine months ended September 30, 2025, the Company recorded $
32
Lease liabilities are summarized below:
|
|
|
|
|
|
|
| September 30, 2025 |
| December 31, 2024 | |
Macau and Zhuhai | $ |
| $ | ||
Hong Kong |
|
|
| ||
Total operating lease liabilities |
|
|
| ||
Less: short term portion |
| ( |
|
| ( |
Long term portion | $ |
| $ | ||
| September 30, 2025 |
| December 31, 2024 |
Weighted average remaining lease term (years) |
| ||
Weighted average discount rate |
|
Maturity analysis under operating leases as of September 30, 2025 are as follows:
| ||
2025 (remainder of the year) | $ | |
2026 |
| |
2027 |
| |
2028 and thereafter |
| |
Total lease payments |
| |
Less: Present value discount |
| ( |
Operating lease liabilities | $ |
Maturity analysis under operating leases as of December 31, 2024 are as follows:
| ||
2025 | $ | |
2026 |
| |
2027 |
| |
2028 and thereafter |
| |
Total lease payments |
| |
Less: Present value discount |
| ( |
Operating lease liabilities | $ |
Lease expense for the three months ended September 30, 2025 and 2024 was comprised of the following:
|
| September 30, 2025 |
|
| September 30, 2024 |
|
Operating lease expense | $ |
| $ |
| ||
Short-term lease expense |
|
|
|
| ||
|
|
|
|
Lease expense for the nine months ended September 30, 2025 and 2024 was comprised of the following:
|
| September 30, 2025 |
|
| September 30, 2024 |
|
Operating lease expense | $ |
| $ |
| ||
Short-term lease expense |
|
|
|
| ||
|
|
|
|
NOTE 10 – LOAN RECEIVABLES, NET
On
33
The Company owns 50% of shares in 3G and 3G is a joint venture of the Company. The interest in joint venture has been suffering losses and, thus, fully impaired in prior periods. Fully impairment on the loan receivables from 3G was recognized for the nine months ended September 30, 2025 and 2024.
The loan amount was
| September 30, 2025 |
|
|
| December 31, 2024 |
| |
Balance at beginning of period | $ |
|
| $ |
| ||
Addition loan |
|
|
|
|
| ||
Less: impairment loss |
| ( | ) |
|
| ( | ) |
Balance at end of period | $ |
|
| $ |
|
NOTE 11 – ACCOUNT RECEIVABLES
Account receivables are summarized below:
| September 30, 2025 |
|
|
| December 31, 2024 |
| |
Account receivables | $ |
|
| $ |
|
For the three and nine months ended September 30, 2025 and 2024, the Company had
NOTE 12 – OTHER RECEIVABLES AND DEPOSITS
Other receivables and deposits are summarized below:
| September 30, 2025 |
|
|
| December 31, 2024 |
| |
Rental deposit | $ |
|
| $ |
| ||
Customer’s deposit |
|
|
|
|
| ||
Others |
|
|
|
|
| ||
$ |
|
| $ |
|
NOTE 13 – INVENTORIES
Our inventories consist of solely finished goods – merchandise inventory as summarized below:
| September 30, 2025 |
|
|
| December 31, 2024 |
| |
Finished goods – merchandise inventory | $ |
|
| $ |
| ||
Food and beverages – merchandise inventory |
|
|
|
|
| ||
$ |
|
| $ |
|
NOTE 14 – BANK LOANS
Bank loans are summarized below:
|
| September 30, 2025 |
| December 31, 2024 |
| |
Bank loans | $ |
| $ |
| ||
Less: short term portion |
| ( | ) |
| ( | ) |
Long term portion | $ |
| $ |
| ||
34
Bank loans as of September 30, 2025 consisted of the followings:
Bank |
| September 30, 2025 |
| Interest rate per annum (%) |
| Maturity date |
|
| Bank loans in original currency | ||
$ |
|
| (2) |
| MOP | 7,000,000 | |||||
|
|
| (2) |
| RMB | 1,000,000 | |||||
|
|
| (2) |
| RMB | 1,853,785 | |||||
|
|
| (1) |
| RMB | 393,557 | |||||
|
|
| (3) |
| RMB | 1,920,241 | |||||
|
|
| (4) |
| RMB | 700,000 | |||||
| $ |
|
|
|
|
|
|
|
| ||
The bank loan from Ant Bank (Macau) Limited amounted to $494,826, with maturity date June 6, 2026 has been borrowed in June 2025 and fully repaid early on July 29, 2025 and August 14, 2025 with 3 installments. The Company had borrowed new loan $872,864 from the same bank and therefore, the Company had early repayment to replace prior bank loan.
The bank loan from Bank of China amounted to $412,763 with maturity date July 8, 2025 has been fully repaid on July 8, 2025.
The bank loan from Bank of China amounted to $371,622 with maturity date August 9, 2025 has been fully repaid on August 11, 2025.
The bank loan from Industrial and Commercial Bank of China (Macau) amounted to $18,732 as of December 31, 2024, with original maturity date July 31, 2025 has been fully repaid early on March 10, 2025.
The bank loan from Bank of China amounted to $271,065, with maturity date June 21, 2025 has been borrowed in March 2025 and fully repaid on June 23, 2025.
The bank loan from Ant Bank (Macau) Limited amounted to $1,248,841 as of December 31, 2024 with original maturity date August 8, 2025 has been fully repaid early in 6 installments. $875,821 was repaid in 5 installments between February 2025 and March 2025 and the remaining $373,020 was repaid in the last installment on April 24, 2025.
The loans outstanding were guaranteed by:
(1)
(2)
(3)
(4)
Bank loans as of December 31, 2024 consisted of the followings:
Bank |
| December 31, 2024 |
| Interest rate per annum (%) |
| Maturity date |
|
| Bank loans in original currency | ||
$ |
|
| (1) |
| MOP | 150,000 | |||||
|
|
| (2) |
| MOP | 10,000,000 | |||||
|
|
| (2) |
| RMB | 1,000,000 | |||||
|
|
| (1) |
| RMB | 393,557 | |||||
|
|
| (1) |
| RMB | 2,670,174 | |||||
|
|
| (1) |
| RMB | 2,965,783 | |||||
|
|
| (1) |
| RMB | 1,970,486 | |||||
| $ |
|
|
|
|
|
|
|
| ||
35
The loans outstanding were guaranteed by:
(1)
(2)
NOTE 15 – REVENUE
Revenue is summarized by nature as below:
At a point in time: |
| For the nine months ended September 30, 2025 |
| For the nine months ended September 30, 2024 | |
Food & Beverage and Delivery | $ |
| $ | ||
IT Supporting Services |
|
|
| ||
Graphite Trading |
|
|
| ||
$ |
| $ | |||
At a point in time: |
| For the three months ended September 30, 2025 |
| For the three months ended September 30, 2024 | |
Food & Beverage and Delivery | $ |
| $ | ||
IT Supporting Services |
|
|
| ||
Graphite Trading |
|
|
| ||
$ |
| $ | |||
NOTE 16 – CAPITAL STOCK
The Company is authorized to issue
As of September 30, 2025 and December 31, 2024, Liang Huang owned 31,261,920 shares or 11.87%, of the Company’s common stock, which 31,190,500 shares, or 11.84%, were held via Kelton Capital Group Ltd., 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 Liang Huang, Kelton Capital Group Ltd, Jiang Haitao and Elate Holdings Limited, no person owns 5% or more of the Company’s issued and outstanding shares.
36
NOTE 17 – NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income per common share for the three months and nine months ended September 30, 2025 and 2024, respectively:
|
| For the nine months ended |
|
| ||||||
|
| September 30, 2025 |
| September 30, 2024 |
|
| ||||
|
|
|
|
|
|
|
|
| ||
Numerator - basic and diluted |
|
|
|
|
|
|
|
| ||
Net income attributable to the Company |
| $ |
| $ |
|
| ||||
Denominator |
|
|
|
|
|
|
|
| ||
Weighted average number of common shares outstanding —basic and diluted |
|
|
|
|
|
| ||||
Net income per common share — basic and diluted |
| $ |
| $ |
|
| ||||
|
|
|
|
|
|
|
|
| ||
|
| For the three months ended |
|
| ||||||
|
| September 30, 2025 |
| September 30, 2024 |
|
| ||||
|
|
|
|
|
|
|
|
| ||
Numerator - basic and diluted |
|
|
|
|
|
|
|
| ||
Net income attributable to the Company |
| $ |
| $ |
|
| ||||
Denominator |
|
|
|
|
|
|
|
| ||
Weighted average number of common shares outstanding —basic and diluted |
|
|
|
|
|
| ||||
Net income per common share — basic and diluted |
| $ |
| $ |
|
| ||||
|
|
|
|
|
|
|
|
| ||
NOTE 18 – 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 nine months ended September 30, 2025, the Company’s realized net taxable income which offset existing deferred tax assets relating to net operating loss carry forward, 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.
As of September 30, 2025, the Company has available for U.S. federal income tax purposes a net operating loss carryforward of approximately $6,700,000, 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 September 30, 2025 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.
37
The Company and its subsidiaries file separate income tax returns.
The United States of America
Scientific Energy, Inc. and Graphite Energy, Inc. are incorporated in the State of Utah in the U.S., and are subject to a gradual U.S. federal corporate income tax of 21%. The State of Utah does not impose any corporate state income tax. For the nine months ended September 30, 2025, future net operation losses of approximately $0.001 million are available to offset future operating income for 20 years until 2040.
Hong Kong
Sinoforte Limited, Qwestro Limited, Citysearch Technology (HK) Company Limited and Celebrity Chef Catering Management Limited are incorporated in Hong Kong and Hong Kong Profits Tax has been calculated at 16.5% of the estimated assessable profit for the nine months ended September 30, 2025.
Macau
Macao E-Media Development Company Limited, Fresh Life Technology Company Limited and Green Supply Chain Management Company Ltd. are subjected to Macau Corporate Income Tax.
PRC
Zhuhai Chengmi Technology Company Limited., Zhuhai Migua Technology Company Limited., Zhuhai Aomi E-commerce Company Limited and Zhuhai Wanmi Technology Company Limited 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%.
As of September 30, 2025 and December 31, 2024, the significant components of the deferred tax assets are summarized below:
Schedule of Income Taxes
Deferred Tax Assets: |
| September 30, 2025 |
|
| December 31, 2024 |
|
|
|
|
|
|
Net operating loss carryforward | $ | ( |
| $ | ( |
Total deferred tax assets |
| ( |
|
| ( |
Valuation allowance |
|
|
| ||
Net deferred tax assets | $ |
| $ |
Movement of valuation allowance: |
|
|
|
|
|
|
| September 30, 2025 |
|
| December 31, 2024 |
|
|
|
|
|
|
At the beginning of the period/year | $ |
| $ | ||
Additions/(deductions) |
|
|
| ( | |
|
|
|
|
|
|
$ |
| $ |
38
The Company is subject to income tax holidays with respect to its Asian operations, and accordingly has recognized for foreign income taxes.
Rate Reconciliation: |
| For the nine months ended September 30, 2025 (unaudited) |
|
| For the nine months ended September 30, 2024 (unaudited) |
|
|
|
|
|
|
Book income (worldwide) at federal statutory rate (21%) | $ |
| $ | ||
Hong Kong Profits Tax rate (16.5%) |
| ( |
|
| ( |
Macau Corporate Income Tax rate (12%) |
|
|
| ||
PRC Tax rate (25%) |
|
|
| ( | |
Change in valuation allowance |
| ( |
|
| |
Net expense | $ |
| $ |
The effective tax rate for the nine months ended September 30, 2025 and 2024 were 0.9% and 0.0%. 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 three and nine months ended September 30, 2025 and 2024, the Company recognized
NOTE 19 – INVESTMENTS IN JOINT VENTURE
Gold Gold Gold Limited
3G was incorporated in February 2018. The Company entered into a joint venture agreement for 50% of shareholding in 3G. The Company contributed $12,839 (equivalent to HK$100,000) to 3G upon incorporation. The primary activity of 3G is gold trading. The Company accounted for the interest in joint venture using equity method. Since the joint venture has been suffering losses, the interest in joint venture has been fully impaired in prior year. Upon impairment, the Company has shared the operating losses up to the investment cost from joint venture amounted to $12,839.
39
Summarized financial information for joint venture is as follows:
Balance Sheets: |
|
| December 31, 2024 |
| |||
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: |
|
|
| ||||
|
|
|
| For the year ended December 31,2024 |
| ||
Revenue |
|
|
|
| $ |
| |
Cost of sale |
|
|
|
|
|
| |
Gross profit |
|
|
|
|
|
| |
Operating expense |
|
|
|
|
| ( | ) |
Net loss from operations |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
Other expense: |
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
| ( | ) |
Net loss |
|
|
|
| $ | ( | ) |
In September 2025, the Company disposed all shares of 3G to independent third party with consideration of $111,246 which settled through the equivalent 31,069 units crypto token on disposal date.
NOTE 20 – RELATED PARTY BALANCES AND TRANSACTIONS
Due from/(to) related companies
The balance due from/(to) related companies was as following:
|
|
|
|
|
|
| ||
|
| September 30, |
|
| December 31, |
| ||
|
| $ |
|
| $ |
| ||
Citysearch Technology (Macau) Limited (1) |
|
|
|
|
|
| ||
Gloryful Company Limited (2) |
|
|
|
|
|
| ||
Littlemi Technology Company Limited (3) |
|
|
|
|
|
| ||
Watermelon Cultural Communication Company Limited (4) |
|
|
|
|
|
| ||
Kangaroo Technology Company Limited (5) |
|
| ( |
|
|
| ( |
|
Zhuhai Xiangguo Technology Company Limited (6) |
|
|
|
|
|
| ||
|
|
|
|
|
| |||
Note:
(1) | |
(2) | |
(3) | |
(4) |
40
(5) | |
(6) |
Loan receivables, net
The Company has loan receivables from a joint venture, 3G amounted to US$
Related party transactions
The transactions within the group were as following:
During nine months ended September 30, 2025, MED had the cost of delivery for $11,605,854 and $950,072 (2024: $9,999,875 and $913,812) from its subsidiaries, Fresh Life and Green Supply Chain Management Company Limited respectively. MED had incurred the software and IT supporting service expense for $4,124,871 (2024: $3,391,515) from its subsidiary Zhuhai Chengmi Technology Company Limited. Fresh Life incurred the cost of sales for IT supporting service from Zhuhai Chengmi Technology Company Limited for $160,962 (2024: $267,128). Citysearch had incurred software and IT supporting service expense from Zhuhai Chengmi Technology Company Limited with $266,058 (2024: $797,759) and purchased the cost of group dining meal from Celebrity Catering for $1,149,353 (2024: $Nil).
During three months ended September 30, 2025, MED had the cost of delivery for $3,939,072 and $310,712 (2024: $3,466,927 and $328,158) from its subsidiaries, Fresh Life and Green Supply Chain Management Company Limited respectively. MED had incurred the software and IT supporting service expense for $1,650,844 (2024: $861,497) from its subsidiary Zhuhai Chengmi Technology Company Limited. Fresh Life incurred the cost of sales for IT supporting service from Zhuhai Chengmi Technology Company Limited for $54,250 (2024: $115,011). Citysearch had incurred software and IT supporting service expense from Zhuhai Chengmi Technology Company Limited with $Nil (2024: $322,274) and purchased the cost of group dining meal from Celebrity Catering for $524,626 (2024: $Nil).
All of the above transactions were eliminated from the consolidated statement of operations and comprehensive loss.
NOTE 21 – SEGMENT INFORMATION
The Company’s segments are business units that offer different products and services and are reviewed separately by the chief operating decision maker (the “CODM”), or the decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s CODM is the Company’s Chief Executive Officer, who reviews the Company’s operating results on an aggregate basis and manages the Company’s operations. The CODM assesses performance for the segment and evaluates the Company’s budget with the actual results in order to decide how to allocate resources in developing business plan. There were three segments for the nine months ended September 30, 2025 and 2024, consisting of the provision of food & beverage and delivery, located in Hong Kong and Macau, IT supporting services, solely located in China, and graphite trading, solely located in the USA.
Factors used in determining the reportable segment include the nature of the operating activities, locations, the organizational and reporting structure and the type of information reviewed by the CODM to allocate resources and evaluate financial performance. The Company’s long-lived assets are based on the physical location of these assets. The CODM defines long-lived assets as property, plant and equipment and operating lease right-of-use assets since these are hard assets which cannot be readily moved and are relatively illiquid.
As of September 30, 2025, less than 1%, approximately 81% and 19% (December 31, 2024: less than 1%, approximately 75% and 25%) respectively, of the Company’s long-lived assets were located in the United States, Hong Kong and Macau, and PRC, respectively. The accounting policies of the segment are the same as those described in the summary of significant accounting policies.
41
Nine months ended September 30, 2025 | Food & Beverage and Delivery |
| IT Supporting Services |
| Graphite trading |
| Corporate unallocated (note) |
|
Consolidated |
Revenue - third parties | $ |
| $ |
| $ |
| $ |
| $ |
- USA |
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- Hong Kong & Macau |
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| |||||
- PRC |
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| 37,746,319 |
| 15,693 |
| 27,625,253 |
| - |
| 65,387,265 |
Cost of revenue | ( |
| ( |
| ( |
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| ( | |
Gross profit / (loss) | |
| ( |
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Interest expense | ( |
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Total other (expense) / income, net | ( |
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Net income / (loss) before provision for income taxes | $ |
| $ ( |
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| $ ( |
| $ |
42
Nine months ended September 30, 2024 | Food & Beverage and Delivery |
| IT Supporting Services |
| Graphite trading |
| Corporate unallocated (note) |
|
Consolidated |
Revenue - third parties | $ |
| $ |
| $ |
| $ |
| $ |
- USA |
|
|
|
| |||||
- Hong Kong & Macau |
|
|
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| |||||
- PRC |
|
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| 31,682,978 |
| 519,652 |
| 18,357,617 |
| - |
| 50,560,247 |
Cost of revenue | ( |
| ( |
| ( |
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Gross profit | |
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Net income / (loss) from operation |
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Interest income |
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Interest expense | ( |
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Interest (expense) / income, net | ( |
| ( |
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Net income / (loss) before provision for income taxes | $ |
| $ ( |
| $ |
| $ ( |
| $ |
Note: The Company does not allocate its expenses incurred to its reportable segments because these activities are managed at a corporate level.
NOTE 22 – COMMITMENTS AND CONTINGENCIES
Capital commitment
As of September 30, 2025 and December 31, 2024, no capital commitment was expected.
Legal Proceeding
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. Management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate, a material adverse effect on the Company’s business, financial condition, or operating results.
As of September 30, 2025 and December 31, 2024, the Company is not aware of any material outstanding claim and litigation against it.
43
Lease commitment
The Company has operating leases for its corporate and sales offices and warehousing facilities. The Company’s leases have remaining terms of less than 1 year to less than 4 years. The Company’s future minimum lease payments required under leases as of September 30, 2025 provides the following lease commitment:
For the year ending December 31, |
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2025 (remainder of year) | $ | |
2026 |
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2027 |
| |
2028 and thereafter |
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Total lease payments | $ |
The Company’s future minimum lease payments required under leases as of December 31, 2024 provides the following lease commitment:
For the year ending December 31, |
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2025 | $ | |
2026 |
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2027 |
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2028 and thereafter |
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Total lease payments | $ |
NOTE 23 – SUBSEQUENT EVENTS
In accordance with ASC 855, “Subsequent Events,” the Company has evaluated subsequent events through [December 15, 2025]. No material subsequent events were noted.
44
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.
Business Overview
Currently our businesses segments are divided into: (i) food ordering & delivery business in Macau, primarily through our 98.75% owned subsidiary, Macao E-Media Development Company Limited, a Macau Company (“MED”); and (ii) sales of graphite products, a business carried out by our wholly-owned subsidiary, Graphite Energy, Inc, (“GEI”).
In this MD&A section, we will primarily discuss the business of MED and GEI, and are consolidated with our consolidated financial statements and 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.
New Subsidiaries
In September 2025, the Company established AOMI Corporation in Cayman Islands, holding 100% equity interest, it has not carried out any businesses.
In September 2025, the Company through its subsidiary, Macao E-Media Development Company Limited established a 50% owned subsidiary, Profit One Investment Limited in Hong Kong, and it has not carried out any businesses.
Results of Operations
For the Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024
The following table shows operating results for the nine months ended September 30, 2025 and 2024:
| Nine Months Ended September 30, |
|
| ||||
|
| 2025 |
|
| 2024 | $ Change | % Change |
|
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Revenues | $ | 65,387,265 |
| $ | 50,560,247 | 14,827,018 | 29% |
Cost of revenue |
| (44,551,365) |
|
| (34,011,793) | 10,539,572 | 31% |
Gross Profit |
| 20,835,900 |
|
| 16,548,454 | 4,287,446 | 26% |
|
|
|
|
|
|
|
|
Operating expense |
| (20,369,119) |
|
| (14,052,724) | 6,316,395 | 45% |
Operating profit |
| 466,781 |
|
| 2,495,730 | (2,028,949) | (81%) |
|
|
|
|
|
|
|
|
Other income/(expense), net |
| 100,392 |
|
| (61,715) | 162,107 | 262% |
Net income before taxes | $ | 567,173 |
| $ | 2,434,015 | (1,866,842) | (77%) |
Income taxes |
| (5,180) |
|
| (766) | 4,414 | 576% |
Net income | $ | 561,993 |
| $ | 2,433,249 | (1,871,256) | (77%) |
Sales
45
For the nine months ended September 30, 2025, the Company generated sales of $65,387,265 compared to $50,560,247 for the same period of 2024. The increment in sales was mainly contributed from the subsidiary, Graphite Energy Inc.
Costs of Goods Sold
For the nine months ended September 30, 2025, the Company generated cost of good sold for $44,551,365 compared to $34,011,793 for the same period of 2024. Currently the Company is attributable to delivery rider costs and purchase of graphite inventory.
Operating expenses
For the nine months ended September 30, 2025 and 2024, the Company’s selling, general and administrative expenses were $20,369,119 compared to $14,052,724 for the same period of the previous year. The increase is primarily the result of additional expense from subsidiary, Graphite Energy, Inc.
Other income/(expense), net
For the nine months ended September 30, 2025, the Company had $100,392 of interest expense relating to bank loan interest payable and gain on disposal of joint venture, as compared to $61,715 of interest expense for the same period last year.
Net income
For the nine months ended September 30, 2025, the Company had a net income of $561,993, or $0.004 per share, as compared to a net income of $2,433,249, or $0.011 per share, for the same period of 2024.
Liquidity and Capital Resources
As of September 30, 2025, the Company had cash and cash equivalents of $5,795,661 and a working capital deficit of $6,815,843. For the nine months ended September 30, 2025, the Company provided net cash of $2,162,568 from its operating activities primarily from our net income of $561,993, adjusted net with depreciation and amortization of $185,397, a loss of disposal of equipment of $2,809, an impairment loss on loan receivables of $247,055, an increase in account receivables of $4,714,029, an increase in inventories of $91,396, a decrease in prepaid expenses of $497,224, a decrease in deposits of $15,897, an increase in other receivables of $138,157, a decrease in accrued expense of $53,815, an increase in deposit received of $1,481,987, an increase in other payables of $7,925,078, a decrease in account payable of $3,755,968. By comparison, net cash provided by operating activities was $3,913,296 for the same period of 2024.
During the nine months ended September 30, 2025, the Company used net cash of $422,175 from its investing activities which comprised with purchase of equipment of $132,882, proceeds from disposal of a joint venture of $111,739, repayment from related companies of $69,501 and loan to joint venture of $247,055. By comparison, net cash used by investing activities was $383,496 for the same period of 2024.
During the nine months ended September 30, 2025, the Company’s financing activities used net cash of $832,425, which was comprised of repayment of bank loans of $6,794,708 and bank borrowings of $5,962,283. By comparison, net cash provided by financing activities was $91,846 for the same period of 2024.
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
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
46
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. In 2024, Citysearch entered into a two-year lease for another cafe shop space of approximately 99 square feet in Hong Kong, expiring June 2026 with monthly payment of approximately $2,571 per month. Citysearch establish a new office in Hong Kong with a two-year lease and expiring July 2026 with monthly payment of approximately $5,539 per month. In September 2024, Citysearch entered into a three-year lease for a restaurant in Hong Kong, expiring September 2027 with monthly payment of approximately $16,067 per month. In 2024, Citysearch’s subsidiary, Celebrity Chef Catering Management Limited, entered into a lease for a restaurant in Hong Kong, expiring October 2025 with monthly payment of approximately $15,424 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.
47
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A smaller reporting company is not required to provide the information in this Item.
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, 2025, 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
You should carefully consider the risk factors discussed below, as well as all other information, as an investment in the Company involves a high degree of risk. We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially and adversely affect our operations. Any of the following risks could materially and adversely affect our business, financial condition, results of operations or prospects. However, the selected risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, results of operations or prospects. In such a case, the trading price of our securities could decline.
Summary of Risk Factors
Risks Related to Doing Business in China and Macau
·Under the long-arm provisions of current PRC laws and regulations, the Chinese government may exercise significant oversight and discretion over our business operations in Macau. It has the authority to intervene or influence our operations at any time, potentially leading to material changes in our business or the value of our common stock. Additionally, increased government oversight of overseas offerings or foreign investment in China-based issuers could restrict or entirely prevent our ability to offer securities, potentially causing their value to decline significantly or become worthless. Furthermore, the Chinese government may impose capital movement restrictions, limiting our ability to transfer funds out of Macau for purposes such as distributing earnings, paying dividends, or reinvesting in operations outside Macau. Changes in Chinese government policies, regulations, rules, or law enforcement practices may also occur rapidly and with little advance notice. As a result, our assessments of the risks associated with the PRC legal and regulatory system remain uncertain and subject to change.
48
·Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in policies, laws and regulations in China, could adversely affect us.
·The Chinese government may intervene in or influence our operations in the Mainland China, or Macau at any time or may exert more control over offerings conducted overseas and/or foreign investment in us, which could result in a material change in our operations and and/or the value of our securities.
·If the Chinese government chooses to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
·Our common stock may be delisted and prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, as amended by Consolidated Appropriations Act 2023, if the PCAOB is unable to inspect or investigate completely auditors located in Mainland China and Hong Kong. The delisting of our common stock or the threat of their being delisted could cause the value of our common stock to significantly decline or be worthless, and thus you could lose all or substantial portion of your investment.
·There are significant uncertainties regarding the interpretation of PRC laws, rules, and regulations, which may change at any time with little advance notice and could limit the legal protections available to us.
·The enforcement of laws, rules, and regulations in China can change quickly with little advance notice. Similarly, the PRC laws and regulations and the enforcement of such that apply or are to be applied to Macau can change quickly with little or no advance notice. As a result, the Macau legal system presents uncertainties which could limit the availability of legal protections. Such uncertainties could lead to material changes in the operations of our Macau-based subsidiary and/or adversely impact the value of our common stock.
·Recent interventions by the PRC government in the business activities of U.S.-listed, China-based companies may negatively impact our operations in Macau.
·If certain PRC laws and regulations were to become applicable to a company like us, our business, financial condition, and results of operations, as well as the value of our common stock and our ability to offer or continue offering securities to investors could be materially and adversely affected. In such a scenario, we may face risks and uncertainties associated with the evolving PRC legal and regulatory landscape, including the interpretation and enforcement of laws, potential regulatory changes, and the broader complexities of the PRC legal system.
·It may be difficult for overseas regulators to conduct investigations or collect evidence within the territory of China, including Macau and Hong Kong.
·There may be difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us and our management.
·Adverse regulatory developments in China may subject us to heightened regulatory review and additional compliance requirements. In response to risks associated with recent regulatory changes in China, the SEC may adopt new disclosure requirements and enhanced regulatory scrutiny for companies like ours with Macau- and Hong Kong-based operations. These measures could increase our compliance costs and require us to meet additional disclosure obligations, potentially impacting our operations and regulatory burden.
·If the Chinese government were to increase its oversight and control or impose new approval requirements from PRC authorities for issuing our common stock to foreign investors or listing on a foreign exchange, such actions could severely restrict or entirely prevent our ability to offer or continue offering securities to investors. This could result in a significant decline in the value of our securities or render them worthless.
·Recent increased oversight by the Cyberspace Administration of China (“CAC”) regarding data security, particularly for companies seeking to list on a foreign exchange, could negatively impact our food and grocery ordering and delivery business in Macau if our online food ordering platform directly targets Mainland China consumers.
·The M&A Rules and certain other PRC regulations concerning anti-monopoly impose complex procedures on certain acquisitions of Chinese companies by foreign investors, potentially making it more difficult for us to pursue growth through acquisitions in China.
49
·There are political risks associated with conducting business in Macau.
·Fluctuations in the value of the Pataca, Hong Kong dollar, or RMB may negatively impact our expenses and profitability.
Risks Related to Our Food Delivery Business and Industry
·There is substantial doubt regarding our ability to continue as a going concern.
·Our revenue heavily depends on a limited customer base, a trend likely to continue.
·If we fail to retain our existing merchants and consumers or acquire new merchants and consumers in a cost-effective manner, our revenue, revenue growth, and margins may decrease and our business, financial condition, and results of operations could be adversely affected.
·We face intense competition and if we are unable to compete effectively, our business, financial condition, and results of operations would be adversely affected.
·We rely on merchants on our platform for many aspects of our business, and to the extent they fail to maintain their service levels or increase the prices they charge consumers on our platform, our business would be adversely affected.
·We are subject to payment-related risks, and if payment processors are unwilling or unable to provide us with payment processing service or impose onerous requirements on us in order to access their services, or if they increase the fees they charge us for these services, our business and results of operations could be harmed.
·We rely on third parties, including our payment processor, cloud providers and data center host, and if these or other third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business and results of operations could be harmed.
Risks Related to Our Graphite Sales Business and Industry
·Graphite mineral prices are subject to dramatic and unpredictable fluctuations.
·The graphite industry is highly competitive. Our market share, net sales or net income could decline due to vigorous price and other competition.
·Our future sales opportunities depend, to a large extent, on the growth of markets for electronic vehicles and other graphite-based battery applications. These applications may develop slower or at a size that is less than expected, to the extent they develop at all.
·Our business and our partners are subject to market changes in the availability and cost of electricity and fuel that could adversely affect our business.
·We are subject to a variety of legal, economic, social and political risks associated with the nature of our business in association with natural resources, with customers scattered all around the world, which could have a material adverse effect on our financial and business operations.
·We are currently operating in a period significantly affected by geopolitical instability. Our business, financial condition, and operational results may be materially adversely impacted by any negative effects on the global economy stemming from these conflicts and geopolitical tensions. This is especially pertinent in light of the ongoing military conflict between Russia and Ukraine, as well as the unrest in the Middle East.
·We rely on, and will continue to rely on, third parties for the provision of graphite ores or graphite products as the key for our operations, which involves a significant degree of risk and uncertainty in terms of quality or quantity of the ore/product supply in a timely and cost-saving manner.
·Our reliance on third parties to manufacture and process certain of our graphite products subjects us to certain risks, for example, if they fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
50
·If existing customers do not place purchasing orders from us or renew purchasing agreements with us, and we fail to expand new customer pool, our revenue could fall, and our results of operations would be adversely impacted.
·We may not respond quickly and profitably to the cutting-the-edge innovations or technologies in the graphite industry.
·Our graphite products sales history is limited. Our ability to generate revenue is subject to a number of factors, any one or more of which may adversely affect our financial condition and operating results.
·If we fail to effectively implement our sales, marketing, and service strategies, our sales growth will be hindered, negatively impacting our operational results
Risks Related to Our Common Stock
·Because our common stock is deemed a low-priced "Penny" stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.
·There currently is only a minimal liquid public market for our common stock. Failure to develop or maintain a liquid public trading market could negatively affect the value of our common stock and make it difficult or impossible for stockholders to sell their shares when desired or at desired prices.
·We may, in the future, issue additional common shares, which would reduce investors’ percent of ownership and may dilute the Company’s share value.
·There is a limited market for the Company’s common stock, which may make it difficult for holders of the Company’s common stock to sell their stock.
·We have never declared or paid cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future.
Risks Related to Doing Business in China and Macau
Under the long-arm provisions of current PRC laws and regulations, the Chinese government may exercise significant oversight and discretion over our business operations in Macau. It has the authority to intervene or influence our operations at any time, potentially leading to material changes in our business or the value of our common stock. Additionally, increased government oversight of overseas offerings or foreign investment in China-based issuers could restrict or entirely prevent our ability to offer securities, potentially causing their value to decline significantly or become worthless. Furthermore, the Chinese government may impose capital movement restrictions, limiting our ability to transfer funds out of Macau for purposes such as distributing earnings, paying dividends, or reinvesting in operations outside Macau. Changes in Chinese government policies, regulations, rules, or law enforcement practices may also occur rapidly and with little advance notice. As a result, our assessments of the risks associated with the PRC legal and regulatory system remain uncertain and subject to change.
Macau and Hong Kong are Special Administrative Regions of the People's Republic of China (PRC). Due to certain long-arm provisions in existing PRC laws and regulations, there is ongoing regulatory uncertainty regarding their implementation, interpretation, and potential impact on these regions. The PRC government may choose to exert additional oversight and discretion, leading to rapid changes in policies, regulations, rules, and law enforcement practices, often with little or no advance notice to us or our shareholders. As a result, the application, interpretation, and enforcement of both new and existing PRC laws and regulations remain uncertain, making it inherently difficult to assess the associated risks.
Furthermore, PRC laws and regulations may be interpreted and applied inconsistently across different agencies or authorities, potentially creating discrepancies with our existing policies and practices. Compliance with new laws, regulations, and government directives in the PRC may also incur significant costs, and any related inquiries, investigations, or government actions could: (i) delay or hinder our development; (ii) generate negative publicity or increase our operating costs; (iii) require significant management time and resources; and (iv) expose us to legal liabilities, including remedies, administrative penalties, or even criminal charges, that could adversely affect our business, such as fines for past or current operations or demands to modify or cease certain business practices.
We are aware that the PRC government has recently implemented a series of regulatory actions and issued statements aimed at tightening oversight of business operations in certain sectors in China, often with little advance notice. These actions
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include: (i) cracking down on illegal activities in the securities market; (ii) increasing supervision of China-based companies listed overseas, particularly those using a VIE structure; (iii) introducing new cybersecurity measures, including expanded cybersecurity reviews; and (iv) strengthening anti-monopoly enforcement efforts.
Given the recent nature of these regulatory developments, there is significant uncertainty regarding the speed at which PRC legislative or administrative bodies will respond, what new or existing laws and regulations may be introduced or amended, how they will be implemented and interpreted, and the potential impact on our daily operations. These uncertainties may also affect our ability to attract foreign investment, the quotation of our common stock on the OTC Markets in the United States, and our prospects for listing on a U.S. or other foreign stock exchange.
The legal and operational risks associated with operating in the PRC also extend to our activities in Macau and Hong Kong. The PRC government has the authority to intervene in or influence our operations at any time and may impose stricter controls over overseas offerings and foreign investment in issuers based in Macau and Hong Kong. Such actions could result in material changes to our operations and adversely affect the value of our common stock.
Any efforts by the PRC government to enhance oversight and regulation of overseas offerings and foreign investment in Macau, Hong Kong, or China-based issuers could significantly limit or even prohibit our ability to offer or continue offering securities to investors, potentially causing their value to decline substantially or become worthless.
Currently, there are no restrictions or limitations under Macau or Hong Kong laws on converting Macau Pataca (MOP) or Hong Kong Dollar (HK$) into foreign currencies or transferring funds out of these regions. Additionally, PRC currency conversion controls do not presently have a material impact on cash transfers between our ultimate holding company and our operating subsidiary in Macau.
However, the PRC government may impose restrictions or limitations on fund transfers out of Macau in the future, which could impact our ability to distribute earnings, pay dividends, or reinvest in our business outside of Macau. If such measures are introduced, they could delay or hinder our business expansion beyond Macau and affect our ability to receive funds from our Macau-based operating subsidiary.
Furthermore, the introduction of new laws or regulations, or revised interpretations of existing ones, that impose unfavorable restrictions on our business could require us to adjust our operations to maintain compliance. Such changes may decrease demand for our services, reduce revenue, increase costs, necessitate additional licenses or approvals, or expose us to greater liabilities. Any of these factors could adversely affect our business, financial condition, and operational results, potentially leading to a decline in the value of our stock or rendering it worthless.
Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in policies, laws and regulations in China, could adversely affect us.
The PRC legal system is based on written statutes and court decisions that have limited precedential value. The PRC legal system is evolving rapidly, and therefore the interpretations and enforcement of many laws, regulations and rules may contain reasonable uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since partial statutory and contractual terms may remain reasonable blank or uncertainty due to the rapid evolvement, it may be difficult to predict the outcome of a judicial or administrative proceeding.
The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has also recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.
The Chinese government may intervene in or influence our operations in the Mainland China, or Macau at any time or may exert more control over offerings conducted overseas and/or foreign investment in us, which could result in a material change in our operations and and/or the value of our securities.
The Chinese government exercises significant oversight and discretion over business operations and may intervene in or influence our activities in Mainland China or Macau as it deems necessary to further regulatory, political, or societal objectives. In recent years, the Chinese government has implemented new policies that have had a substantial impact on
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certain industries, such as education and the internet sector. While our business operations in Macau have not been directly affected thus far, we cannot rule out the possibility that future regulations or policies may be introduced that could require us to seek approval from Chinese authorities to continue operating our business, which could negatively impact our operations, financial condition, and results.
Additionally, recent statements by the Chinese government suggest an intent to enhance oversight and control over foreign market offerings by companies with significant operations in China, as well as foreign investment in PRC-based issuers. While we are not currently subject to such direct intervention, there is no guarantee that we will remain unaffected in the future due to legal changes or unforeseen regulatory developments. There is always a risk that the Chinese government may seek to influence or regulate the operations of any company with activities in Mainland China or Macau.
If such intervention were to occur, it could lead to a significant decline in the value of our common stock or render it worthless. Moreover, if we were to become subject to direct oversight or influence from the PRC government due to regulatory changes or other unforeseen factors, it could require substantial modifications to our operations, result in higher compliance costs, or expose us to penalties for failing to meet new regulatory requirements.
If the Chinese government chooses to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
We face risks arising from China including risks and uncertainties regarding the enforcement of laws and that rules and regulations in China can change quickly with little advance notice. The Chinese government may intervene or influence the operations of our subsidiaries in China, Macau and Hong Kong at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in the operations of our subsidiaries in Mainland China, Macau and Hong Kong and/or the value of our securities.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China through our subsidiaries in Mainland China, Macau and Hong Kong may be harmed by changes in laws and regulations in China, including those relating to securities regulation, data protection, cybersecurity and mergers and acquisitions and other matters. The PRC central or local governments may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our and our subsidiaries’ compliance with such regulations or interpretations.
Government actions in the future could significantly affect economic conditions in China or particular regions thereof, and could require our subsidiaries in Mainland China, Macau and Hong Kong to materially change their operating activities or divest ourselves of any interests we hold in Chinese assets. Our subsidiaries in Mainland China, Macau and Hong Kong may be subject to various government and regulatory interference. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Such subsidiaries’ operations could be adversely affected, directly or indirectly, by changes to existing laws or implementation of future laws and regulations relating to their business or industry.
As of the date of this filing, we and our subsidiaries in the Mainland China, Macau and Hong Kong (1) are not required to obtain permissions from any PRC authorities to operate or issue our common stock to foreign investors, (2) are not subject to permission requirements from the CSRC, CAC or any other entity that is required to approve their operations in the Mainland China, Macau and Hong Kong, and (3) have not received or were denied such permissions by any PRC authorities. Nevertheless, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. The regulatory agencies like CSRC or CAC may impose fines and penalties on our operations in the Mainland China, Macau or Hong Kong, limit our ability to pay dividends outside of the Mainland China, Macau or Hong Kong, limit our operations in the Mainland China, Macau or Hong Kong, delay or restrict the repatriation of the proceeds from security offering into the Mainland China, Macau or Hong Kong or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities.
Any actions by the Chinese government to exert more oversight and control over security that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or complete hinder our ability to offer or continue to offer our securities and cause the value of such securities to significantly decline or be worthless.
Our common stock may be delisted and prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, as amended by Consolidated Appropriations Act 2023, if the PCAOB is
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unable to inspect or investigate completely auditors located in Mainland China and Hong Kong. The delisting of our common stock or the threat of their being delisted could cause the value of our common stock to significantly decline or be worthless, and thus you could lose all or substantial portion of your investment.
Pursuant to the Holding Foreign Companies Accountable Act, as amended by the Consolidated Appropriations Act 2023, (the “HFCAA”), if the United States Securities and Exchange Commission, or the SEC, determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the Public Company Accounting Oversight Board of the United States, or PCAOB, for two consecutive years beginning in 2021, the SEC shall prohibit the company’s shares from being traded on a national securities exchange or in the over-the-counter trading market in the United States. Our auditor, an independent registered public accounting firm responsible for the audit report included in this annual report, is registered with the PCAOB and audits publicly traded companies in the United States. As such, it is subject to U.S. laws requiring the PCAOB to conduct regular inspections to ensure compliance with professional standards. However, the auditor is based in Hong Kong, a jurisdiction where the PCAOB was historically unable to conduct full inspections and investigations before 2022. Without these inspections, investor confidence in the reliability of our financial reporting and the integrity of our financial statements may be affected. Additionally, under the Holding Foreign Companies Accountable Act (HFCAA) and related regulations, companies whose auditors cannot be inspected for two consecutive years risk being delisted from U.S. national securities exchanges.
In 2022, the PCAOB announced that it had signed a Statement of Protocol with the China Securities Regulatory Commission (CSRC) and the Ministry of Finance of the PRC. This agreement was described as a significant first step toward granting the PCAOB full access to inspect and investigate registered public accounting firms in Mainland China and Hong Kong. Following this, the PCAOB vacated its 2021 determination that restrictions in these jurisdictions had prevented it from conducting complete inspections and investigations.
As a result, and unless the PCAOB issues a new adverse determination, the SEC has stated that no issuers are currently at risk of a trading prohibition under the Holding Foreign Companies Accountable Act (HFCAA). However, the PCAOB’s ability to continue conducting satisfactory inspections of firms in Mainland China and Hong Kong remains uncertain and depends on factors beyond our control.
If the PCAOB were to determine in the future that it cannot fully inspect and investigate auditors in these jurisdictions, we would again be designated as a Commission-Identified Issuer and could face potential delisting under the HFCAA. Such a delisting could restrict the liquidity of our common stock, limit our access to U.S. capital markets, and increase trading price volatility, materially and adversely affecting our stock’s market value.
There are significant uncertainties regarding the interpretation of PRC laws, rules, and regulations, which may change at any time with little advance notice and could limit the legal protections available to us.
The PRC legal system is primarily based on written statutes, and prior court decisions hold limited precedent value. As the PRC legal system continues to evolve rapidly, the interpretation of laws, regulations, and rules may change at any time with little advance notice and is not always uniform.
Since the late 1970s, the PRC government has progressively established a comprehensive legal framework governing economic activities. Over the past four and a half decades, legislative developments have strengthened protections for various forms of foreign and private-sector investment in the PRC. However, uncertainties persist in the interpretation and enforcement of these laws, which may affect the legal protections available to us.
However, the PRC has not yet established a fully integrated legal system, and newly enacted laws and regulations may not comprehensively address all aspects of economic activities in the country. In particular, the interpretation and enforcement of these laws and regulations remain uncertain.
Additionally, the PRC legal system is partially based on government policies and internal rules, some of which may not be published in a timely manner—or at all—and may even have retroactive effects. As a result, we may unknowingly violate such policies or rules and only become aware of a violation after the fact.
These uncertainties, including ambiguity surrounding the scope and enforcement of our contractual, property (including intellectual property), and procedural rights, as well as any failure to adapt to regulatory changes in the PRC, could materially and adversely impact our business and hinder our ability to continue operations in the PRC.
PRC laws and regulations are also continuously evolving, with their enactment, interpretation, and implementation remaining highly uncertain. Should any PRC laws or regulations become applicable to our business, we may face risks and uncertainties associated with the PRC legal system, including challenges in law enforcement and the possibility of regulatory changes being introduced with little or no advance notice.
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As a result, we may occasionally need to pursue administrative and court proceedings to enforce our legal rights. However, PRC administrative and judicial authorities have broad discretion in interpreting and applying statutory and contractual provisions, making it more challenging to predict the outcomes of legal proceedings and assess the extent of legal protections available, particularly when compared to more developed legal systems.
The enforcement of laws, rules, and regulations in China can change quickly with little advance notice. Similarly, the PRC laws and regulations and the enforcement of such that apply or are to be applied to Macau can change quickly with little or no advance notice. As a result, the Macau legal system presents uncertainties which could limit the availability of legal protections. Such uncertainties could lead to material changes in the operations of our Macau-based subsidiary and/or adversely impact the value of our common stock.
As a condition for the handover of Macau’s sovereignty to China, China agreed to certain conditions, including the adoption of Macau’s Basic Law. The Basic Law guarantees Macau a high degree of autonomy, allowing it to retain its own currency, legal system, and parliamentary structure. As a Special Administrative Region, Macau is responsible for managing its own domestic affairs, including but not limited to its judiciary and courts of last resort, immigration and customs, public finance, currency, and extradition.
However, any changes that could potentially impact Macau’s legal system may create uncertainty, which, in turn, could materially and adversely affect the business and operations of our Macau-based subsidiary. As a result, we cannot predict the potential effects of future developments in Macau’s legal system, including the enactment of new laws, amendments to existing laws, changes in their interpretation or enforcement, or the possible preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us.
Recent interventions by the PRC government in the business activities of U.S.-listed, China-based companies may negatively impact our operations in Macau.
We were incorporated in the State of Utah, United States, and have an operating subsidiary, MED, which is incorporated under the laws of Macau. We are not a Mainland Chinese company, and neither we nor MED are required to obtain permission from the government of the People’s Republic of China (“PRC”) to operate or to issue our common stock to foreign investors.
Recently, the Chinese government announced plans to strengthen supervision of Mainland Chinese firms listed offshore. Under these new measures, the PRC aims to enhance the regulation of cross-border data flows and security, crack down on illegal activities in the securities market, and impose stricter penalties for fraudulent securities issuances, market manipulation, and insider trading. Additionally, the PRC will monitor sources of funding for securities investments and regulate leverage ratios.
The Cyberspace Administration of China (“CAC”) has also launched cybersecurity probes into several large U.S.-listed technology companies, focusing on anti-monopoly and financial technology regulations. More recently, with the passage of the Data Security Law, regulatory scrutiny has expanded to include how companies collect, store, process, and transfer data.
If we become subject to such a probe or are required to comply with heightened regulatory oversight, our management may need to dedicate significant time and resources to compliance efforts and responding to regulatory inquiries. This could divert valuable resources and attention away from our core operations, potentially having a negative impact on our business operations.
As a Macau-based operating company that does not operate in Mainland China, PRC laws and regulations currently do not have a material impact on our business, financial condition, or operations. However, due to our operations in Macau and the Chinese government’s significant oversight authority over business activities in the region, there is always a risk that the PRC government may, in the future, seek to influence or regulate companies with any level of operations in the PRC (including Macau). Such actions could impact our ability to offer securities to investors, list our securities on a U.S. or other foreign exchange, conduct business, or accept foreign investment.
Given the PRC’s recent expansion of authority in Hong Kong, there are risks and uncertainties that we cannot currently anticipate, and PRC laws and regulations are subject to rapid changes. The Chinese government may intervene in or influence our current and future operations in Macau or the PRC at any time and could impose greater restrictions on overseas offerings and foreign investment in issuers like us.
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If any or all of the foregoing were to occur, it could lead to a material change in our operations, significantly impact the value of our common stock, and substantially limit or entirely prevent our ability to offer or continue offering securities to investors, potentially causing their value to decline significantly or become worthless.
If certain PRC laws and regulations were to become applicable to a company like us, our business, financial condition, and results of operations, as well as the value of our common stock and our ability to offer or continue offering securities to investors, could be materially and adversely affected. In such a scenario, we may face risks and uncertainties associated with the evolving PRC legal and regulatory landscape, including the interpretation and enforcement of laws, potential regulatory changes, and the broader complexities of the PRC legal system.
Our food ordering and delivery operating subsidiary is based in Macau, a Special Administrative Region of China. Currently, PRC laws and regulations do not have a material impact on our business, financial condition, or results of operations. We are not a Mainland Chinese company, and neither we nor our Macau subsidiaries are required to obtain permission from the PRC government to operate or to issue our common stock to foreign investors. Additionally, we are not subject to the requirements of the China Securities Regulatory Commission (CSRC) or the Cyberspace Administration of China (CAC), and our Macau operations do not require review or approval from any other PRC governmental authority.
However, if we have incorrectly determined that such approvals are not required, or if applicable laws, regulations, or interpretations change and we become subject to new approval requirements, obtaining such approvals could severely restrict or entirely prevent our ability to offer or continue offering securities to investors. This could lead to a significant decline or complete loss of value in our securities, including our common stock.
If PRC regulatory approval were required, it could result in material changes to our operations, including restrictions on our ability to continue our current business and accept foreign investments. Such adverse regulatory actions could significantly impact the value of our securities, expose us to penalties and sanctions imposed by PRC regulatory agencies, and potentially lead to delisting or trading prohibitions.
If certain PRC laws and regulations—whether existing or enacted in the future—were to become applicable to a company such as ours, their implementation could have a material adverse impact on our business, financial condition, and results of operations, as well as our ability to offer or continue offering securities to investors. Any of these developments could cause the value of our securities, including our common stock, to decline significantly or become worthless.
For example, if the PRC Data Security Law were to apply to our Macau-based business, we could be subject to heightened data security and privacy obligations. This may include conducting a national security review of data-related activities that could impact PRC national security and obtaining approval from relevant PRC regulatory authorities before providing data stored in Macau to foreign judicial or law enforcement agencies.
Additionally, if laws restricting the Public Company Accounting Oversight Board’s (PCAOB) access to auditor files were to apply to a company such as ours or our auditor, the PCAOB may be unable to fully inspect our auditor. This could lead to our securities, including our common stock, being delisted or prohibited from trading under the Holding Foreign Companies Accountable Act (HFCAA), materially and adversely affecting both the value and liquidity of your investment.
Relevant PRC government authorities have recently issued statements and taken regulatory actions concerning data security, anti-monopoly enforcement, and the overseas listings of PRC businesses. For example, the PRC Data Security Law and the Measures for the Security Assessment of Outbound Data Transfer introduce new requirements related to data security and cross-border data transfers. Additionally, PRC regulatory agencies have taken antitrust enforcement actions against certain PRC-based businesses under the PRC Anti-Monopoly Law, which applies to monopolistic activities within China as well as those outside the PRC that restrict or eliminate market competition within the country.
Furthermore, on February 17, 2023, the China Securities Regulatory Commission (“CSRC”) issued the Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies and relevant supporting guidelines, establishing a filing-based regulatory framework for both direct and indirect overseas listings of PRC domestic companies, including those using variable interest entity (VIE) structures. These measures took effect on March 31, 2023. In response to such developments, the U.S. Securities and Exchange Commission (“SEC”) has imposed enhanced disclosure requirements on PRC-based companies seeking to register securities in the United States.
As our company currently does not have operations in Mainland China, including customer-facing business in the PRC, and does not utilize a VIE structure, we believe that the PRC government’s recent statements and regulatory actions—including those related to the PRC Data Security Law, the Measures for the Security Assessment of Outbound Data Transfer, the PRC Personal Information Protection Law, and anti-monopoly enforcement—will not have a material adverse impact on our ability to conduct business, accept foreign investments, or list on a U.S. or other foreign exchange. However, there
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is no assurance that this will remain the case, nor can we guarantee that the PRC government will not seek to intervene in or influence our operations in the future.
If these regulatory developments were to become applicable to a company such as ours, they could have a material adverse impact on our business, financial condition, and results of operations, as well as our ability to accept foreign investments or offer and maintain the listing of our securities on a U.S. or other international exchange. Any of these factors could result in a significant decline in the value of our securities, including our common stock, or render them worthless.
PRC laws and regulations are continuously evolving, and their enactment timeline, interpretation, and implementation remain highly uncertain. If any PRC laws and regulations become applicable to us, we may be exposed to risks and uncertainties associated with the evolving legal and regulatory framework in China, including challenges related to their interpretation, enforcement, and implementation. Additionally, the PRC legal system is subject to rapid regulatory changes, and new rules or amendments may be introduced with little or no advance notice, which could impact our business and operations.
It may be difficult for overseas regulators to conduct investigations or collect evidence within the territory of China, including Macau and Hong Kong.
Shareholder claims and regulatory investigations that are common in the United States are generally difficult to pursue in China, both legally and practically. Significant legal and procedural barriers exist in China that restrict access to information needed for regulatory investigations or litigation initiated outside China. While Chinese authorities may establish regulatory cooperation mechanisms with foreign securities regulators to facilitate cross-border supervision and administration, such cooperation with U.S. securities regulatory authorities may be inefficient or limited due to the absence of a mutual and practicable cooperation framework.
Additionally, Article 177 of the PRC Securities Law, which took effect in March 2020, explicitly prohibits overseas securities regulators from directly conducting investigations or collecting evidence within Mainland China. As detailed interpretations and implementation rules for Article 177 have yet to be promulgated, its restrictions may further complicate efforts to protect shareholder rights and enforce legal claims.
If U.S. regulators initiate an investigation into us that requires access to evidence or witnesses in Mainland China, they may not be able to directly conduct such investigations or evidence collection under PRC law. In the future, U.S. regulators may seek cross-border cooperation with PRC securities regulatory authorities through judicial assistance, diplomatic channels, or an established regulatory cooperation mechanism. However, the effectiveness and feasibility of such cooperation remain uncertain.
There may be difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us and our management.
As a company incorporated under the laws of the State of Utah, it may be difficult for you to enforce judgments obtained in U.S. courts based on civil liability provisions of the U.S. federal securities laws against us in the PRC. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the U.S. or any state.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between PRC and the country where the judgment is made or on principles of reciprocity between jurisdictions. PRC does not have any treaties or other forms of written arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.
Adverse regulatory developments in China may subject us to heightened regulatory review and additional compliance requirements. In response to risks associated with recent regulatory changes in China, the SEC may adopt new disclosure requirements and enhanced regulatory scrutiny for companies like ours with Macau- and Hong Kong-based operations. These measures could increase our compliance costs and require us to meet additional disclosure obligations, potentially impacting our operations and regulatory burden.
Currently, Macau and Hong Kong maintain separate legal systems from Mainland China, with independent legislative frameworks and judicial systems distinct from the PRC government. However, recent regulatory developments in China,
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particularly those related to restrictions on offshore capital-raising by China-based companies, may result in increased regulatory scrutiny over our financing and capital-raising activities in the United States.
Additionally, we may become subject to industry-wide regulations introduced by PRC authorities, which could limit our service offerings, restrict our operational scope in Macau, or even lead to the suspension or termination of our business operations in Macau. To comply with adverse regulatory changes or policy shifts, we may need to adjust, modify, or significantly alter our business operations. However, we cannot guarantee that any remedial measures we adopt will be completed in a timely, cost-effective, or risk-free manner—or at all.
On July 30, 2021, in response to regulatory developments in China and actions taken by the PRC government, the Chairman of the SEC issued a statement directing SEC staff to seek additional disclosures from offshore issuers affiliated with PRC-based operating companies, including those in Macau and Hong Kong, before their registration statements could be declared effective.
On August 1, 2021, the China Securities Regulatory Commission (CSRC) issued a statement acknowledging the SEC's new disclosure requirements related to the listings of China-related issuers and recent regulatory changes in China. The CSRC also emphasized the need for enhanced communication between U.S. and Chinese regulators regarding the regulation of such companies.
Although we primarily operate in Macau, we cannot guarantee that we will not be subject to heightened regulatory scrutiny or government interference from China, which could impact our operations and regulatory compliance obligations.
If the Chinese government were to increase its oversight and control or impose new approval requirements from PRC authorities for issuing our common stock to foreign investors or listing on a foreign exchange, such actions could severely restrict or entirely prevent our ability to offer or continue offering securities to investors. This could result in a significant decline in the value of our securities or render them worthless.
On February 17, 2023, the China Securities Regulatory Commission (“CSRC”) issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”), along with five interpretive guidelines, which came into effect on March 31, 2023.
Under the Trial Measures, a PRC domestic company seeking to offer and list securities in overseas markets—whether through a direct or indirect offering—must complete the required filing procedures with the CSRC and report relevant information.
1. Direct overseas offering and listing refers to an offering and listing conducted by a joint-stock company incorporated in China.
2. Indirect overseas offering and listing occurs when an issuer meets both of the following conditions:
(i) Domestic companies contribute 50% or more of the issuer’s operating revenue, total profit, total assets, or net assets, as documented in its audited consolidated financial statements for the most recent accounting year.
(ii) The issuer's main business activities are conducted in Mainland China, its principal places of business are in Mainland China, or the majority of its senior management responsible for business operations and management are Chinese citizens or domiciled in Mainland China.
The determination of whether an overseas offering and listing is indirect is based on a substance-over-form approach.
As of the date of this filing, we are not required to obtain approval from or complete the filing with the CSRC for our common stock. Accordingly, we have not submitted an application for CSRC approval under the Trial Measures, based on the following facts:
1. We are a holding company incorporated in the State of Utah, not a company incorporated under PRC law.
2. Our business activities are primarily conducted in Macau, with minimal supporting operations in Mainland China.
3. All our officers and directors are non-Chinese citizens or domiciled outside of Mainland China.
Therefore, we do not meet the specific conditions outlined in the Trial Measures that would classify our overseas offering as an indirect overseas offering and listing by a domestic company.
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However, as the Trial Measures were recently introduced and the determination of whether an overseas offering and listing by a domestic company is considered indirect is based on a substance-over-form approach, there remain substantial uncertainties regarding their implementation and interpretation. The CSRC may adopt a position that differs from our current understanding of the Trial Measures.
If the CSRC requires us to submit and complete the filing procedures for this offering and listing, we cannot guarantee that we will be able to do so in a timely manner, or at all. Failure to comply with such filing requirements under the Trial Measures could result in regulatory actions, including orders for rectification, warnings, or fines ranging from RMB 1 million to RMB 10 million imposed on our Shanghai subsidiary. Such penalties could materially and adversely affect our business operations and financial outlook, significantly restrict or entirely prevent our ability to offer or continue offering our common stock to investors, and cause the value of our common stock to decline substantially or even become worthless.
On February 24, 2023, the China Securities Regulatory Commission (CSRC), in collaboration with other PRC government authorities, issued the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by Domestic Enterprises (the “Confidentiality and Archives Administration Provisions”), which came into effect on March 31, 2023.
The Confidentiality and Archives Administration Provisions require that PRC domestic enterprises seeking to offer and list securities overseas—whether directly or indirectly—establish a confidentiality and archives management system. Additionally, such enterprises, or their overseas listing entities, must complete approval and filing procedures with competent authorities if they provide or publicly disclose documents or materials involving state secrets or work secrets of PRC government agencies to securities companies, securities service institutions, overseas regulatory agencies, or other entities and individuals.
Furthermore, the provisions stipulate that any disclosure of documents or materials that may adversely affect national security or public interests, as well as accounting files or other materials of significant preservation value to the state and society, must follow the appropriate procedures in accordance with applicable laws and regulations.
As of the date of this filing, our Macau operating subsidiary and Mainland China supporting subsidies are not subject to these approval requirements, as we do not possess or disclose any documents or materials involving state secrets or work secrets of PRC government agencies.
As of the date of this filing, neither we nor our operating subsidiary in Macau, nor our supporting subsidiaries in Mainland China and Hong Kong:
1. Are required to obtain permission from any PRC authorities to operate or issue our common stock to foreign investors;
2. Are subject to approval requirements from the China Securities Regulatory Commission (CSRC), the Cyberspace Administration of China (CAC), or any other PRC regulatory entity overseeing our subsidiaries’ operations; and
3. Have received or been denied any such permissions by PRC authorities.
However, on July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severely Cracking Down on Illegal Securities Activities According to Law (the “Opinions”). The Opinions emphasize the need for stricter oversight and enforcement against illegal securities activities and call for enhanced regulation of overseas listings by Chinese companies. While the full scope and implications of these policies remain uncertain, we cannot rule out the possibility of increased regulatory scrutiny over companies with ties to China, including those operating in Macau and Hong Kong.
We have been closely monitoring regulatory developments in the PRC regarding any potential approval requirements from the China Securities Regulatory Commission (CSRC) or other PRC governmental authorities for overseas listings, including our quotation of common stock on the OTC Markets in the U.S.
As of the date of this filing, we have not received any inquiry, notice, warning, sanctions, or regulatory objections from the CSRC or other PRC governmental authorities. However, there remains significant uncertainty regarding the enactment, interpretation, and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities.
Given the evolving PRC regulatory landscape, it is uncertain whether, and when, we, our Macau operating subsidiary, or our supporting subsidiaries in Mainland China and Hong Kong may be required to obtain permission from the PRC government for a future listing on U.S. exchanges. Furthermore, even if such permission is granted, there is no assurance that it will not be later denied or rescinded. This regulatory uncertainty could materially and adversely affect our business
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operations, financial outlook, and our ability to accept foreign investments or maintain our listing on a U.S. or other foreign exchange.
Recent increased oversight by the Cyberspace Administration of China (“CAC”) regarding data security, particularly for companies seeking to list on a foreign exchange, could negatively impact our food and grocery ordering and delivery business in Macau if our online food ordering platform directly targets Mainland China consumers.
Our majority-owned operating subsidiary, MED, is a Macau-registered entity and is subject to Macau laws applicable to entities operating in the region. MED provides food ordering and delivery services in Macau. We believe that MED is in full compliance with the laws and regulations governing its existence and operations in Macau, including, but not limited to, those related to data privacy, unfair competition, and anti-monopoly regulations, to the extent such laws and regulations apply to MED.
While we are not currently subject to PRC laws and regulations on privacy, data security, cybersecurity, and data protection, if our food ordering platform were to directly target Mainland China customers and collect a substantial amount of their personal information to expand our business in the future, we may become subject to the oversight of the CAC and its related regulations and measures.
On June 10, 2021, the Standing Committee of the National People’s Congress enacted the PRC Data Security Law, which came into effect on September 1, 2021. This law mandates that data collection be conducted lawfully and appropriately and requires data processing activities to adhere to a classification-based and hierarchical protection system for data security.
On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a directive aimed at cracking down on certain activities in the securities markets and promoting the high-quality development of capital markets. Among other measures, the directive calls for relevant governmental authorities to strengthen cross-border oversight of law enforcement and judicial cooperation, enhance supervision of China-based companies listed overseas, and establish and improve the extraterritorial application framework of PRC securities laws.
On August 20, 2021, the Standing Committee of the National People’s Congress enacted the Personal Information Protection Law of the People’s Republic of China (the "PRC Personal Information Protection Law"), which took effect on November 1, 2021. This law governs the processing of personal information of PRC natural persons, including activities conducted outside China, if (1) the processing is for the purpose of providing products or services to individuals within China, (2) the processing involves analyzing or evaluating the behavior of individuals within China, or (3) other circumstances as stipulated by relevant laws and administrative regulations apply.
On December 28, 2021, the Cyberspace Administration of China (CAC), in conjunction with relevant authorities, officially released the Measures for Cybersecurity Review (2021), which came into effect on February 15, 2022, replacing the Measures for Cybersecurity Review (2020) issued on April 13, 2020. The 2021 Measures require that operators of critical information infrastructure purchasing network products and services, as well as online platform operators engaged in data processing activities that impact or may impact national security (collectively, the “Operators”), undergo a cybersecurity review. Additionally, any online platform operator controlling personal information of more than one million users must undergo a cybersecurity review by the cybersecurity review office before seeking to list in a foreign country.
On September 24, 2024, the State Council promulgated the Regulations on Network Data Security Management, which will take effect on January 1, 2025. These regulations further govern the processing of important data, the security management of cross-border data transfers, the obligations of network platform operators, and the protection of personal information. Additionally, the regulations stipulate that any entity or individual engaged in network data processing activities outside the PRC that endangers PRC national security, public interests, or the lawful rights and interests of citizens or organizations may be held legally accountable in accordance with the law.
We currently do not control personal information for over one million users, nor do we collect data that affects or may affect national security. As of the date of this filing, we have not received any notice from authorities identifying our operating subsidiary in Macau as a critical information infrastructure operator (“CIIO”) or requiring us or our subsidiary to undergo a cybersecurity or network data security review by the Cyberspace Administration of China (“CAC”). However, if our food ordering platform were to directly target PRC consumers and collect personal information from over one million of such consumers, that platform would likely be subject to CAC oversight and its regulations and measures. In such a scenario, failure to comply with CAC regulations could result in significant compliance costs and potential fines.
In the future, we may collect and store certain data, including limited personal information from our customers—some of whom may be PRC individuals—as part of our food ordering and delivery membership programs. However, we do not anticipate collecting personal information from more than one million users or handling data that could impact national
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security in the foreseeable future. Non-compliance with applicable laws and regulations could materially and adversely affect our business, financial condition, and operating results. Additionally, failure to comply may limit our ability to offer or continue offering our common stock to investors, potentially leading to a significant decline in its value or rendering it worthless.
The M&A Rules and certain other PRC regulations concerning anti-monopoly impose complex procedures on certain acquisitions of Chinese companies by foreign investors, potentially making it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the “M&A Rules”), initially adopted by six PRC regulatory agencies in August 2006 and amended in 2009, along with other relevant regulations, impose additional procedures and requirements that may make mergers and acquisitions by foreign investors more time-consuming and complex. These include, in certain cases, a requirement for prior notification to the Ministry of Commerce (“MOFCOM”) of any change-of-control transaction in which a foreign investor gains control of a PRC domestic enterprise.
For instance, the M&A Rules mandate that MOFCOM be notified in advance if a foreign investor acquires control of a PRC domestic enterprise under any of the following circumstances: (i) the transaction involves an important industry, (ii) it may impact national economic security, or (iii) it results in a change of control over a domestic enterprise that holds a well-known trademark or a PRC time-honored brand.
Additionally, the Anti-Monopoly Law, which was promulgated by the Standing Committee of the National People's Congress (“SCNPC”) and became effective in 2008, was recently amended on June 24, 2022, and came into effect on August 1, 2022. Under this law, transactions that qualify as concentrations and involve parties meeting specified turnover thresholds must receive clearance from MOFCOM before they can be completed. Specifically, prior approval is required if, in the previous fiscal year: (i) the total global turnover of all operators involved in the transaction exceeded RMB 10 billion, with at least two operators each having a turnover of more than RMB 400 million within China, or (ii) the total turnover within China of all operators involved exceeded RMB 2 billion, with at least two operators each having a turnover of more than RMB 400 million within China.
Moreover, the Anti-Monopoly Law requires that MOFCOM be notified in advance of any concentration of undertakings if certain thresholds are met. Additionally, the security review rules issued by MOFCOM, which took effect in September 2011, mandate a strict review of mergers and acquisitions by foreign investors that involve concerns related to national defense and security or where foreign investors may acquire de facto control over domestic enterprises that raise national security concerns. These rules also prohibit any attempts to bypass security reviews, including structuring transactions through proxies or contractual control arrangements.
In the future, we may seek to grow our business through acquisitions of complementary businesses. However, compliance with the aforementioned regulations and other relevant rules may be time-consuming, and any required approval processes—including obtaining clearance from MOFCOM or its local counterparts—could delay or prevent the completion of such transactions. This, in turn, may impact our ability to expand our business or maintain our market share.
We are currently not subject to the Anti-Monopoly Law as we have not met the filing threshold stipulated by the State Council, even if such a law were to apply in Macau, where our food ordering and delivery operations are located. However, if we were found to be subject to this law, we would be required to file a declaration with the State Administration for Market Regulation (“SAMR”), and no concentration could proceed until SAMR grants anti-monopoly clearance.
During such reviews, we may be required to suspend operations or face other disruptions, which could materially and adversely affect our business, financial condition, and operating results. This, in turn, could result in a significant decline in the value of our securities or, in extreme cases, render them worthless.
Even if we were subject to the aforementioned regulatory actions, it would not impact our ability to accept foreign investments or list on a U.S. or other foreign exchange. However, there remain substantial uncertainties regarding the interpretation and application of PRC laws and regulations, as well as potential future regulatory changes. There can be no assurance that relevant government agencies will not adopt a stance contrary to or otherwise different from the conclusions stated above. If they do, it could have a material adverse effect on the business, operating results, and reputation of our Macau operating subsidiary, as well as the trading price of our common stock and our ability to accept foreign investments or list on a U.S. or other foreign exchange.
Uncertainties surrounding the enforcement of laws in China, the potential for rapid regulatory changes with little advance notice, and the risk of government intervention or influence over our operations at any time could materially impact our business. Additionally, increased government control over overseas offerings and foreign investment in China-based issuers
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could lead to significant changes in our operations, financial performance, and the value of our Ordinary Shares, or hinder our ability to raise capital.
There are political risks associated with conducting business in Macau.
All of our food ordering and delivery operations are based in Macau. During the periods covered by the financial information incorporated by reference in this annual report on Form 10-K for the years ended December 31, 2022, and 2023, all of our revenue was generated from our operations in Macau. Accordingly, the business operations and financial condition of our operating subsidiary in Macau are subject to political and legal developments in the region. Adverse economic, social, or political conditions—such as material social unrest, strikes, riots, civil disturbances, or significant natural disasters—could impact the market and negatively affect our operations. Given Macau’s relatively small geographical size, any such incident could have a widespread impact on our business, potentially causing material adverse effects on our operations, financial results, and overall financial condition.
Macau is a Special Administrative Region of the People's Republic of China (PRC), and the PRC’s basic policies regarding Macau are outlined in the Basic Law, Macau’s constitutional document. The Basic Law grants Macau a high degree of autonomy, including executive, legislative, and independent judicial powers, as well as final adjudication under the “one country, two systems” principle. However, there is no guarantee that the political arrangement between the PRC and Macau, or Macau’s economic, political, and legal environment, will remain unchanged in the future. Since all of our food ordering and delivery operations are based in Macau, any changes to these political arrangements could destabilize Macau’s economy, directly and adversely affecting our financial position and operational results.
Fluctuations in the value of the Macau Pataca, Hong Kong dollar, or RMB may negatively impact our expenses and profitability.
While our reporting currency is the U.S. dollar, our Macau operating subsidiary generates revenue primarily in Macau Patacas and Hong Kong dollars. As a result, we are exposed to foreign exchange risk, as fluctuations in the exchange rate between the U.S. dollar and these local currencies may impact our revenues and overall financial performance. The value of the Macau Pataca and Hong Kong dollar against the U.S. dollar may be influenced by various factors, including political and economic conditions.
Although the Hong Kong dollar has been pegged to the U.S. dollar since 1983 and the Macau Pataca is pegged to the Hong Kong dollar, there is no assurance that these pegs will remain in place. Any change in these exchange rate arrangements could increase our exposure to currency fluctuations. Furthermore, the currency market for Macau Patacas is relatively small and underdeveloped, which may limit our ability to convert large amounts of Macau Patacas into U.S. dollars. This could create challenges in meeting U.S. dollar-denominated expenses.
Conversely, if we need to convert U.S. dollar financings into Hong Kong dollars or Macau Patacas to support our operations, exchange rate fluctuations could negatively impact the amounts received from such conversions, potentially affecting our liquidity and financial stability.
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Risks Related to Our Food Delivery Business and Industry
There is substantial doubt regarding our ability to continue as a going concern.
The report of AOGB CPA Limited, our independent registered public accounting firm, with respect to our consolidated financial statements as of and for the year ended December 31, 2024 contains an explanatory paragraph as to our potential ability to continue as a going concern. As a result, this may adversely affect our ability to obtain new financing on reasonable terms or at all. Investors may be unwilling to invest in a company that will not have the funds necessary to continue to deploy its business strategies.
Failure to raise additional capital to fund future operations could harm our business and results of operations.
As reflected on our audited consolidated financial statements as of and for the year ended December 31, 2024 contained herein, we had net profit of $122,490, and had an accumulated deficit of $10,902,051. We will control our operating costs and require additional financing in order to maintain our corporate existence and to implement our business plans and strategy. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain credit facilities. The timing and amount of our capital requirements will depend on a number of factors, including our operational results, the need for other expenditures, and competitive pressures. If additional funds are raised through the issuance of equity, the percentage ownership of our then-existing stockholders will likely be reduced significantly. We cannot make assurances that any financing will be available on terms favorable to us or at all. Current or past lenders may decline to provide new funding. If adequate funds are not available on acceptable terms, our ability to fund our business strategy, ongoing operations, take advantage of unanticipated opportunities, and in turn our business, financial condition and results of operations will be significantly and adversely affected.
Our revenue heavily depends on a limited customer base, a trend likely to continue.
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. Due to the nature of our industry, we have a limited customer base and have depended on a small number of customers for a significant portion of our revenue. As of December 31, 2024, we had approximately 1,820,000 registered platform customers and served over 5,684 partnered merchants. For the years ended December 31, 2024 and 2023, none of these active platform customers or merchants accounted for 10% or more of our net revenues. Our limited customer base could make it difficult to grow our business significantly.
If we fail to retain our existing merchants and consumers or acquire new merchants and consumers in a cost-effective manner, our revenue, revenue growth, and margins may decrease and our business, financial condition, and results of operations could be adversely affected.
As of December 31, 2024, we retained more than 5,684 merchants on our platform We believe that growth of our business and revenue is dependent on our ability to cost-effectively grow our platform by retaining our existing merchants and consumers and adding new merchants and consumers, including in new markets. The increase in merchants attracts more consumers to our platform and the increase in consumers attracts more merchants. This network takes time to build and may grow slower than we expect or slower than it has grown in the past. If we fail to retain either our existing merchants, especially our most popular merchants, or consumers, the value of our network would be diminished. We expect to continue to incur expenses to acquire additional merchants and consumers. In expanding our operations into new markets to acquire additional merchants and consumers, we may be placed into unfamiliar competitive environments, and we may invest significant resources with the possibility that the return on such investments will not be achieved for several years or at all. We cannot assure you that the revenue from the merchants and consumers we acquire will ultimately exceed the cost of acquisition.
In addition, if merchants on our platform were to cease operations, temporarily or permanently, or face financial distress or other business disruption, or if our relationships with merchants on our platform deteriorate, we may not be able to provide consumers with sufficient merchant selection. This risk is particularly pronounced with restaurants, as each year a significant percentage of restaurants go out of business, and in markets where we have fewer merchants. Similarly, if we are unsuccessful in attracting and retaining popular merchants, if merchants enter into exclusive arrangements with our competitors, if we fail to negotiate satisfactory terms with merchants, or if we ineffectively manage our relationships with merchants, our business, financial condition, and results of operations could be adversely affected.
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We face intense competition and if we are unable to compete effectively, our business, financial condition, and results of operations would be adversely affected.
The online food delivery market in which we operate are intensely competitive and characterized by shifting customer preferences, fragmentation, and frequent introductions of new services and offerings. 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 5,684 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 was established in 2020. While MFood has access to a massive number of customers inherited from its partner, MFood is relatively small in scale and unable to compete with us effectively. However, MFood and Flash Bee, Macau’s second and third largest food delivery platforms merged in 2024, capturing a large share of market in Macau. The formation of this strategic alliance will further enhance its negotiation power and ability to reduce the operational costs. Following the merge, we still hold 50% of Macau local market.
As we continue to expand to verticals beyond food, we may compete with additional businesses with substantial resources, users, and market and brand power. Our competitors may also introduce new offerings with competitive price and performance characteristics or undertake more aggressive marketing campaigns than ours. Such efforts may lead us to lose market share or require us to increase our marketing expenses in order to maintain our market share. For all of these reasons, we may not be able to compete successfully. If we lose existing merchants, consumers, or fail to attract new merchants or consumers, or are forced to reduce our commission rate or make pricing concessions as a result of increased competition, our business, financial condition, and results of operations would be adversely affected.
We rely on merchants on our platform for many aspects of our business, and to the extent they fail to maintain their service levels or increase the prices they charge consumers on our platform, our business would be adversely affected.
We rely on merchants on our platform to provide quality goods to our consumers at expected price points. If these merchants experience difficulty servicing consumer demand, producing quality goods, meeting our requirements and standards, or price their goods on our platform at unreasonable rates, our reputation and brand could be damaged. An increase in merchant operating costs, whether due to inflation or otherwise, could cause merchants on our platform to raise prices, renegotiate commission rates, or cease operations, which could in turn adversely affect our revenue, operational costs, and efficiency. Further, some items on our platform are listed at higher prices relative to their in-store prices. This practice can negatively affect consumer perception of our platform and could result in a decline in consumers or order volume, or both, which would adversely affect our business, financial condition, and results of operations.
Systems failures and resulting interruptions in the availability of our websites, mobile applications, or platform could adversely affect our business, financial condition, and results of operations.
It is critical to our success that merchants, consumers, and delivery riders be able to access our platform at all times. Our systems, or those of third parties upon which we rely, may experience service interruptions or degradation or other performance problems because of hardware and software defects or malfunctions, distributed denial-of-service and other cyberattacks, infrastructure changes, human error, earthquakes, hurricanes, floods, fires, other natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses, ransomware, malware, or other events. Our systems also may be subject to break-ins, sabotage, theft, and intentional acts of vandalism, including by our own employees. It may become increasingly difficult and expensive to maintain and improve the performance of our systems and the availability of our platform, especially during peak usage times, as our operations grow and the usage of our platform increases.
We have not experienced, but may likely experience, in the future, significant system failures and other events or conditions that interrupt the availability or reduce or affect the speed or functionality of our platform. These events could result in significant losses of revenue and may harm our brand and reputation. Affected customers could also seek monetary recourse
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from us for their losses and such claims, even if unsuccessful, would likely be time-consuming and costly for us to address. Further, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. A prolonged interruption in the availability or reduction in the availability, speed, or other functionality of our platform could adversely affect our business and reputation and could result in the loss of customers.
Growth of our business will depend on a strong brand and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our base of merchants and customers and our ability to increase their level of engagement.
We believe that a strong brand is necessary to continue to attract and retain customers and, in turn, the merchants in our network. We need to maintain, protect and enhance our brand in order to expand our base of customers and increase their engagement with our platform and mobile applications. This will depend largely on our ability to continue to provide differentiated products, and we may not be able to do so effectively. While we may choose to engage in a broader marketing campaign to further promote our brand, this effort may not be successful or cost effective. If we are unable to maintain or enhance merchants and customers awareness in a cost-effective manner, our brand, business, results of operations and financial condition could be harmed. Furthermore, negative publicity about our platform, including delivery problems, issues with our technology and complaints about our personnel or customer service, could diminish confidence in, and the use of, our products, which could harm our results of operations and business.
We are subject to payment-related risks, and if payment processors are unwilling or unable to provide us with payment processing service or impose onerous requirements on us in order to access their services, or if they increase the fees they charge us for these services, our business and results of operations could be harmed.
We accept payments using a variety of methods, including credit and debit cards, WeChat pay, Alipay and Mpay. For certain payment methods, including credit and debit cards, we pay bank interchange and other fees. These fees may increase over time and raise our operating costs and lower our profitability. We rely on third parties to provide payment processing services, including the processing of credit and debit cards. Our business may be disrupted for an extended period of time if any of these companies becomes unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and/or lose our ability to accept credit and debit card payments from customers or facilitate other types of online payments, and our business and results of operations could be harmed.
We rely on third parties, including our payment processor, cloud providers and data center host, and if these or other third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business and results of operations could be harmed.
Our success will depend upon our relationships with third parties, including our payment processor, cloud providers and data center host. We rely on a third-party payment processor and encryption and authentication technology licensed from third parties that is designed to effect secure transmission of personal information provided by our diners. We also rely on a combination of a third-party data center host and cloud providers to provide a reliable network backbone with the speed, data capacity, security and hardware necessary for reliable Internet access and services. If our payment processor, a cloud provider or data center host, or another third party, does not perform adequately, terminates its relationship with us or refuses to renew its agreement with us on commercially reasonable terms, we may have difficulty finding an alternate provider on similar terms and in an acceptable timeframe, our costs may increase and our business and results of operations could be harmed.
Cyberattacks or risks related to cybersecurity could have a material effect on our business.
As a mobile platform-based business, we face ongoing risks from cyberattacks. We may be unable to anticipate all potential types of attacks or intrusions or to implement adequate security barriers or other preventative measures.
Network disruptions, security breaches and other significant failures of our platform and networks could (i) disrupt the proper functioning of our networks and systems and therefore our operations or those of certain of our customers; (ii) result in the unauthorized use of our services or products without payment; (iii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or our customers, including trade secrets, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; and (iv) require significant management attention or financial resources to remedy the damages that result or to change our systems and processes. We could be subject to claims for contract breach, damages, credits, fines, penalties, termination, or other remedies from our customers, and subject to additional scrutiny or litigation by regulators, as a result of network disruptions, security breaches and other significant failures of the above-
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described systems, any or all of which could result in a loss of business, damage to our reputation among our customers and the public generally and have a negative impact on our results of operations, financial condition, and cash flows.
Our success depends on certain key personnel. We rely on highly skilled and qualified personnel, and if we are unable to continue to attract and retain such qualified personnel it will adversely affect our business.
Our performance to date has been and will continue to be largely dependent on the talents, efforts and performance of our senior management and key technical personnel, who generally have, in our opinion, significant experience with us and substantial relationships and reputations within the industry of our services. We do not currently have an employment agreement or non-competition agreement with our key executive personnel, or with most of our key technical and engineering personnel. The loss of our executive officers or our other key personnel, particularly with little or no notice, could cause delays on business developments and projects and could have an adverse impact on our customers and industry relationships, our business, operating results or financial condition. While we may rely on independent contractors or consultants for technical needs, we may also experience an inability to hire such expertise in the future. The job market for experienced IT personnel is competitive in PRC and Hong Kong, our primary markets, as well as globally. We also lack the resources or funding to match more established competitors’ compensation packages for the kind of experienced executive personnel and key technical personnel that is critical to our company’s survival and success. Currently we have not developed a formal succession plan for key personnel and do not have key man life insurance.
Our business, financial condition, and operational results could be significantly impacted by any economic downturns in Macroeconomic environment, especially Macau and PRC.
The majority of our operations are based in Macau. Consequently, our financial condition and operational results may be significantly impacted by major political, social, and economic developments in Macau and PRC. A slowdown in economic growth in either region could adversely affect user numbers and their spending through our mobile application, which, in turn, could materially impact our financial performance.
Several factors have contributed to recent economic challenges in the PRC, including government measures to stabilize the housing market and disruptions from COVID-19, which have led to reduced consumer discretionary budgets and lower spending on travel and leisure. Additionally, the PRC's common prosperity initiative, launched in 2021, aims to reduce wealth inequality, which may alter spending habits. Changes in income tax rates or policies aimed at discouraging conspicuous consumption could further influence our patrons' spending patterns. These government measures, along with others aimed at controlling economic growth—such as tightening credit and liquidity—have likely contributed to a slowdown in the PRC’s economy. According to preliminary estimates from the National Bureau of Statistics of China, the GDP growth rate for the PRC was 5% in 2024, down from 5.2% in 2023 but up from 3% recorded in 2022. Any future slowdown in the PRC’s growth could negatively affect financial markets, currency exchange rates, and other economies, as well as our users' willingness to spend in Macau or PRC.
There is no assurance that economic downturns, whether actual or perceived, will not occur or persist, or that governments will respond effectively to mitigate these conditions. Such uncertainties could materially and adversely affect our business, financial condition, and results of operations.
Tensions between the United States and China have been escalating due to ongoing trade disputes and various political factors. Continued global political tensions could diminish trade, investment, technological exchanges, and other economic activities between these two major economies, which would adversely affect global economic conditions and the stability of financial markets. The implementation of the National Security Law for Hong Kong and subsequent statements from the U.S. Department of State have further strained Sino-U.S. relations, potentially harming the Chinese economy and reducing consumer spending.
Since 2022, ongoing pressure on the Chinese property market and the economic downturn following COVID-19 have negatively impacted the high-yield bond market for issuers across sectors connected to the PRC. Additionally, factors influencing discretionary consumer spending—such as disposable income levels, recession fears, diminished consumer confidence, shifting preferences, and rising costs of energy, fuel, and travel—could adversely affect our business. A prolonged period of reduced discretionary spending and disruptions in travel could materially impact our operations, results, and financial condition.
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Risks Related to Our Graphite Sales Business and Industry
Graphite mineral prices are subject to dramatic and unpredictable fluctuations.
We anticipate generating revenue from the sale of graphite mineral products sourced from mine site in Tamatave, Madagascar. However, in recent years, the prices of these commodities have fluctuated significantly due to various external factors beyond our control. These factors include international economic and political trends, inflation expectations, currency exchange rates, interest rates, global or regional consumption patterns, speculative activities, and increased production from new extraction developments and enhanced production techniques. Consequently, the impact of these factors on the prices of base and precious metals—and, by extension, on the economic viability of our exploration properties and projects—remains unpredictable.
The graphite industry is highly competitive. Our market share, net sales or net income could decline due to vigorous price and other competition.
Competition in the graphite industry primarily hinges on factors such as price, quality and performance, local presence, product portfolio, delivery reliability, and customer service. In particular, graphite fine powder products face intense price competition. The competitive landscape for new products is expected to remain focused on price, performance, cost-effectiveness, customer service, and product innovation. This competition could hinder our ability to implement price increases, compel us to reduce prices, or make higher investment on marketing and sales. Such financial pressures could adversely affect our operations. In this competitive environment, fluctuations in market conditions—including changes in customer demand and technological advancements—could negatively impact our competitiveness, sales, and overall profitability.
Our future sales opportunities depend, to a large extent, on the growth of markets for electronic vehicles and other graphite-based battery applications. These applications may develop slower or at a size that is less than expected, to the extent they develop at all.
Our growth and future demand for graphite products largely depend on the adoption of alternative fuel vehicles and other electrically powered transportation modes. The market for new energy vehicles is still developing, characterized by evolving technologies, competitive pricing, shifting government regulations, industry standards, and changing consumer preferences and behaviors.
Market estimates and growth forecasts carry significant uncertainty and are based on assumptions. For instance, if our assumptions regarding the ongoing development and availability of high-performance batteries at competitive price points, investments in vehicles, and software, consumer preferences, and regulatory approvals for electric air transportation prove to be inaccurate, the anticipated growth may occur more slowly than expected—or not at all. If the market for graphite-based battery fails to develop as anticipated or progresses more slowly than projected, it could adversely impact our business, financial condition, prospects, and operational results.
Our business and our partners are subject to market changes in the availability and cost of electricity and fuel that could adversely affect our business.
We operate in an energy-intensive industry that relies heavily on fuel, natural gas, and electricity during the manufacturing and international shipping processes. As we primarily depend on third parties for the production of our products, the prices and availability of fuel, electricity and natural gas from these third parties can be highly volatile. These market conditions are often influenced by factors beyond our control, and we may find it challenging to raise the prices of our products to offset increases in energy costs associated with manufacturing or shipping. Furthermore, our customers are also affected by these same market conditions, which could impact their purchasing decisions and, in turn, our sales.
We are subject to a variety of legal, economic, social and political risks associated with the nature of our business in association with natural resources, with customers scattered all around the world, which could have a material adverse effect on our financial and business operations.
A substantial majority of our net sales come from customers in a diverse array of countries. Given the nature of our business—trading in graphite, a natural resource often subject to national regulations and restrictions—we are exposed to several risks, including: (i) variations and devaluations in currency exchange rates; (ii) imposition or increases in customs duties and tariffs, or loss of protective measures; (iii) restrictions on the conversion of various currencies into dollars, euros, or other currencies; (iv) increases in revenue, income, or earnings taxes, along with withholdings and other taxes on payments by customers or partners; (v) inflation, deflation, and stagflation in countries where we operate; (vi) new or
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increased restrictions by the United States or other jurisdictions, including trade sanctions; (vii) compliance with laws on anti-corruption, export controls, customs, sanctions, environmental and other laws governing our operations, including in challenging jurisdictions; (viii) difficulties in determining or satisfying legal requirements, enforcing contracts, and obtaining complete financial information under local systems; and (ix) risks arising from changes in government, government policy, or political, social, or economic instability.
Any of these risks could have a material adverse effect on our business, financial condition, results of operations or cash flows, and we may not be able to mitigate these effects.
We are currently operating in a period significantly affected by geopolitical instability. Our business, financial condition, and operational results may be materially adversely impacted by any negative effects on the global economy stemming from these conflicts and geopolitical tensions. This is especially pertinent in light of the ongoing military conflict between Russia and Ukraine, as well as the unrest in the Middle East.
The ongoing military conflicts and geopolitical tensions have led to widespread disruption, and while their duration and outcomes remain uncertain, any of these conflicts could significantly affect markets, causing volatility in commodity prices and energy supplies, financial market instability, increased inflation, supply chain interruptions, and shifts in consumer preferences. While we expect the direct impacts on our business to be limited, the indirect effects on the economy, particularly in the graphite and natural resources sectors, could negatively influence our operations. Additionally, current macroeconomic factors—exacerbated by these conflicts, such as inflation and supply chain constraints—are likely to adversely affect our overall performance.
We rely on, and will continue to rely on, third parties for the provision of graphite ores or graphite products as the key for our operations, which involves a significant degree of risk and uncertainty in terms of quality or quantity of the ore/product supply in a timely and cost-saving manner.
To ensure the long-term, sufficient and stable supply of graphite ore, which is the most important raw material for the Company’s or Company’s third-party partner’s graphite production line, on January 18, 2024, the Company entered into a Base Agreement for Purchase of Graphite Ore with Madagascar Graphite Limited (“MGL”), which was later amended and restated on March 22, 2024. During the term, MGL agrees to sell and deliver to the Company, and the Company agrees to purchase and accept from MGL 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.
In addition to sourcing graphite ores from suppliers and partnering with third parties for processing into graphite products, we occasionally opt to directly purchase ready-to-ship graphite products from other entities. We depend on third-party suppliers, including MGL and others, to fulfill the varying demands of our customers. This reliance exposes us to risks concerning the availability of these materials and products, which may lead to demand shortages and supply chain challenges. Furthermore, we may lack sufficient purchasing power to mitigate the risk of price increases for the raw materials and products we require.
Separately, we may be subject to various supply chain requirements related to conflict minerals and labor practices. Compliance with these and potential future requirements may necessitate significant costs, including the need to find new suppliers to replace existing ones. We may encounter challenges in locating new suppliers for certain raw materials or ores essential for our operations, and those suppliers may not be willing or able to provide us with the necessary products.
We anticipate incurring considerable costs associated with procuring the materials needed to manufacture and assemble our batteries, which will involve negotiating purchase agreements and delivery timelines under favorable terms. However, we may struggle to control price fluctuations for these materials or secure agreements with suppliers that are advantageous to us. Significant increases in raw material prices or our inability to reduce these costs as we scale could adversely affect our prospects.
Our reliance on third parties to manufacture and process certain of our graphite products subjects us to certain risks, for example, if they fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
As a graphite trading company, GEI does not possess any production lines or manufacturing facilities. Instead, GEI opt for outsourcing the possessing and production of graphite ores to third-party partners who has not only qualified professionals and facilities in terms of manufacturing. By entering into graphite production & processing contracts with third-party partner with reputable experience with graphite products processing and manufacturing, third-party partners generally should be responsible for processing GEI’s graphite ore into graphite products, as per GEI’s instructions and under GEI’s supervision.
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Any contract manufacturers and suppliers we engage must comply with numerous federal, state, and local environmental, health, and safety laws, regulations, and permitting requirements. These encompass regulations related to laboratory procedures, the handling and disposal of hazardous materials, and employee health and safety. We cannot fully eliminate the risks of contamination or injury associated with hazardous materials or waste during the manufacturing process. Should contamination or injury occur, we, along with our manufacturers and suppliers, could be held liable for resulting damages, which might exceed our financial resources. Additionally, under certain environmental laws, we could be held responsible for contamination costs at our current or past facilities, as well as at third-party sites. This could lead to significant civil or criminal fines and penalties.
Compliance with environmental laws and regulations can be costly. Moreover, we cannot completely eliminate the risk of accidental injuries or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Therefore, in the event of contamination or injury, particularly under extreme circumstances, we could face liabilities or fines that exceed our resources. This could also lead to suspensions of our clinical trials or regulatory approvals, materially adversely affecting our business, financial condition, operational results, and prospects.
We depend on third parties for certain transportation, warehousing and logistics services.
We also rely primarily on third parties for the transportation of the products we manufacture. In particular, a significant portion of the goods we manufacture are transported to different countries, which requires sophisticated warehousing, logistics and other resources. If any of the third parties that we use to transport products are unable to deliver the goods we manufacture in a timely manner, we may be unable to sell these products at full value or at all, which could cause us to miss deliveries and breach our contracts, which could damage our relationships with our customers and subject us to claims for damages under our contracts. Any of these events could have a material adverse effect on our business, financial condition, results of operations or cash flows.
If existing customers do not place purchasing orders from us or renew purchasing agreements with us, and we fail to expand new customer pool, our revenue could fall, and our results of operations would be adversely impacted.
A significant portion of our revenue in the graphite business comes from existing customers with stable and mutually beneficial relationships. Expanding the size and number of deployments among these customers is a key component of our growth strategy. However, we may not effectively execute this or any other aspect of our growth plans.
Our clients in the graphite sales segment are important to our business, yet none accounted for 10% or more of our total net revenues for the year ending December 31, 2024. Consequently, we cannot predict future demand levels from these larger customers, and there is no guarantee that they will continue to purchase from us.
Renewing or expanding deployments may require increasingly sophisticated and costly sales efforts that might not result in additional sales. Furthermore, our customers' decisions to broaden their use of our graphite products depend on various factors, including general economic conditions, the performance of our products, and their satisfaction with our offerings. If our initiatives to expand within our existing customer base are unsuccessful, our business may be adversely affected.
We may not respond quickly and profitably to the cutting-the-edge innovations or technologies in the graphite industry.
We believe that technological advances in graphite manufacturing will persist, enabling new developments in the field. These advancements could allow our competitors to produce graphite more quickly, efficiently, or at a lower cost than our partners, potentially providing them with greater resources to accelerate their innovation. If we are unable to adapt to or incorporate these technological advancements into our operations, or if we cannot swiftly transition to a more capable partner, our operational efficiency may suffer, leading to a decline in our competitive edge.
Our graphite products sales history is limited. Our ability to generate revenue is subject to a number of factors, any one or more of which may adversely affect our financial condition and operating results.
We have a limited history of graphite product sales and generating revenue. On December 22, 2023, the Company established a new wholly-owned subsidiary GEI, which was incorporated in the State of Florida. The purpose of forming this new subsidiary is to enter the business of graphite sales.
Our ability to generate revenue from the sale of graphite products is influenced by several factors, including but not limited to: (i) a significant and sustained decline in the market price of graphite ores; (ii) difficulties in effectively marketing and selling graphite fine powder; (iii) unexpectedly high costs related to extraction, international shipping, fuel prices, and other
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expenses; (iv) significantly lower than anticipated extraction of graphite ores; (v) delays, reductions, or stoppages in graphite extraction activities and; (vi) the introduction of more stringent regulatory laws and regulations. The occurrence of any one or more of these factors could negatively impact our financial condition and operating results.
If we fail to effectively implement our sales, marketing, and service strategies, our sales growth will be hindered, negatively impacting our operational results
Our sales and marketing efforts may not achieve intended results and, therefore, may not generate the projected revenue we anticipate. As a result of our corporate strategies, we have decided to focus our resources on selected vertical markets. We may change our focus to other markets or applications in the future. There is no assurance that our focus or our near-term plans will be successful. If we are not able to address markets for graphite successfully, we may not be able to grow our business, compete effectively or achieve profitability. There can also be no assurance that we will be able to secure the contracts from our potential customers or extension of agreements from our existing customers.
We are unlikely to secure long-term agreements with our customers primarily due to the fluctuating prices of graphite, along with prevailing customer practices that make demand contingent on their specific needs and business decisions. This uncertainty can lead to fluctuations in our sales and impact our overall financial performance. If our future customers stop purchasing from us and we cannot replace them promptly with new customers, our financial results may suffer. However, we believe that our customers are unlikely to switch to alternative competitors due to our competitive pricing and quality, which set us apart.
Risks Related to Our Common Stock
Because our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.
The common stock of the Company is considered to be penny stock under rules promulgated by the SEC. The SEC adopted Rule 3a51-1 (17 CFR §240.3a51-1) under the Exchange Act, which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 of Exchange Act requires:
| * | that a broker or dealer approve a person’s account for transactions in penny stocks, and |
| * | the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and |
| * | quantity of the penny stock to be purchased. |
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
| * | obtain financial information and investment experience objectives of the person, and |
| * | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
| * | sets forth the basis on which the broker or dealer made the suitability determination, and |
| * | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock. Brokers may also have internal rules against trading, supporting as a market maker or otherwise handling or accepting for deposit any “penny stock” in general.
There currently is only a minimal liquid public market for our common stock. Failure to develop or maintain a liquid public trading market could negatively affect the value of our common stock and make it difficult or impossible for stockholders to sell their shares when desired or at desired prices.
The common stock of the Company is quoted on the OTC Pink marketplace, and has been traded very thinly and infrequently. Due to a lack of a significant public float, institutional investor support and primary market makers, our
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common stock is less liquid, receives little if no coverage by security analysts and news media, and generates lower prices than might otherwise be obtained if the common stock was listed on a national securities exchange or quoted on NASDAQ, had institutional investor support, active primary market makers and had analysts’ coverage. The penny stock status of the Company makes very difficult to attract institutional investor or market maker support, which in turn negatively impacts the liquidity and price of the Common Stock.
The market price for our common stock can be volatile given our status as a relatively unknown company with a small and thinly traded public float, limited operating history of our current services and lack of sustained profits from fiscal year to fiscal year – all of those factors can foster fluctuations in our share price.
The market for our common stock can be characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be potentially more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common stock is sporadically and very thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of shares of our common Stock are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited operations and lack of sustained profits to date, and uncertainty of future market acceptance for our existing and potential products and services. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our common stock will sustain their current market prices, or as to what effect that the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.
We may, in the future, issue additional common shares, which would reduce investors’ percent of ownership and may dilute the Company’s share value.
The Articles of Incorporation of the Company authorizes the issuance of 500,000,000 shares of common stock. As of June 30, 2025, we have 263,337,500 shares of common stock issued and outstanding. The future issuance of common stock will result in substantial dilution in the percentage of the Company’s common stock held by the Company’s then existing shareholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by the Company’s investors and might have an adverse effect on any trading market for the Company’s common stock.
There is a limited market for the Company’s common stock, which may make it difficult for holders of the Company’s common stock to sell their stock.
The common stock of the Company currently trades on the OTC Pink Sheets under the symbol “SCGY” and currently there is minimal trading in the Company’s common stock. There can be no assurance as to the liquidity of any markets that may develop for the Company’s common stock, the ability of holders of the Company’s common stock to sell the Company’s common stock, or the prices at which holders may be able to sell the Company’s common stock. Further, many brokerage firms will not process transactions involving low price stocks, especially those that come within the definition of a “penny stock.” If we cease to be quoted, holders of the Company’s common stock may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of the Company’s common stock, and the market value of the Company’s common stock would likely decline.
We have never declared or paid cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, operating results, capital requirements, applicable contractual restrictions and other such factors as our Board of Directors may deem relevant.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
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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
December 15, 2025
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