SCIENTIFIC ENERGY, INC 10-Q for FY2024 Q3
SCIENTIFIC ENERGY, INC (SCGY)
About this 10-Q
SCIENTIFIC ENERGY, INC filed this 10-Q on November 21, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $19.38M
- up 98.8% from $9.75M a year earlier
- Net income
- $1.85M
- up 158.2% from net income of $715.57K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
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.
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:
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Company Overview
Scientific Energy, Inc, (the "Company") was incorporated under the laws of the State of Utah on May 30, 2001. It is not a Chinese operating company, but a Utah holding company with business operations primarily conducted through its majority-owned direct operating subsidiary, Macao E-Media Development Company Limited, a company incorporated in Macau (“MEMD”). We also have several direct or indirect subsidiaries incorporated in Macau, Hong Kong and the mainland China that provide back-office and technical support to our main business operations in Macau. Substantially all of our assets are located in Macau and substantially all of our revenue are derived from Macau. We do not conduct any operations in, nor do we rely on counterparties that operate in, the Xinjiang Uyghur Autonomous Region.
Our principal executive offices are located in Macau. 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.
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. Due to the significant influence of the Chinese government on Hong Kong and Macau, as a China-based company, our business operations are also affected by the Chinese government. Below are some risk factors relating to doing business in China.
The Public Company Accounting Oversight Board (the “PCAOB”) had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor has deprived our investors of the benefits of such inspections.
Our auditor, the independent registered public accounting firm that issues the audit report in our SEC filings, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor is located in Hong Kong Special Administrative Region of the PRC ("Hong Kong"), China, a jurisdiction where the PCAOB was unable to conduct inspections and investigations before 2022. As a result, we and investors in our securities were deprived of the benefits of such PCAOB inspections. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong in 2022. However, the inability of the PCAOB to conduct inspections of auditors in Hong Kong in the past made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China mainland and Hong Kong that have been subject to the PCAOB inspections, which could cause investors and potential investors in our securities to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
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, and related regulations, 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.
Pursuant to the Holding Foreign Companies Accountable Act, as amended by the Consolidated Appropriations Act 2023, (the "HFCAA"), if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. On May 13, 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of the annual report on Form 10-K for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file the annual report on Form 10-K for the fiscal year ended December 31, 2022. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in Hong Kong to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 10-K for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA and our securities may be delisted from OTC Markets as a result. Delisting of our securities would force holders of our securities to sell their securities. Further, we may be prohibited from listing our securities on another U.S. securities exchange. The market price of our securities could be adversely affected as a result of anticipated negative impacts of such legislative or executive actions upon, as well as negative investor sentiment toward, companies with significant operations in mainland China and Macau/Hong Kong that are listed in the United States, regardless of whether such actions are implemented and regardless of our actual operating performance. See “Item 1A. Risk Factors - Risks Related To Doing Business In China- The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors of the benefits of such inspections" and “Item 1A. Risk Factors—Risks Related To Doing Business In China - Our common stock may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of our common stock, or the threat of their being delisted, may materially and adversely affect the value of your investment."
Corporate Structure
Our corporate organizational chart, as of September 30, 2024, is as follows:
Our holding company structure presents unique risks as our investors may never directly 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. Our ability to receive dividends and other contributions from our subsidiaries are significantly affected by regulations promulgated by Macau, Hong Kong and mainland China authorities. Any change in the interpretation of existing rules and regulations or the promulgation of new rules and regulations may materially affect our operations and/or the value of our securities, including causing the value of our securities to significantly decline or become worthless. For a detailed description of the risks facing the Company associated with our structure, please refer to Item 1A. Risk Factors disclosed in Form 10-K/A (Amendment No. 2) for the fiscal year ended December 31, 2023
There was 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.
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TABLE OF CONTENTS
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Item 1. Financial Statements
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SCIENTIFIC ENERGY, INC. | ||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
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| September 30, | December 31, |
2024 | 2023 | |
ASSETS | unaudited |
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Current assets: |
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Cash and cash equivalents | $ | $ |
Loan receivables | ||
Accounts receivable | ||
Other receivables | ||
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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Property, plant and equipment, net | ||
Intangible assets | ||
Goodwill | ||
Operating lease right to use assets | ||
Deposits | ||
Total non-current assets | ||
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Total assets | $ | $ |
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LIABILITIES AND STOCKHOLDERS' SURPLUS |
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Current liabilities: |
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Accounts payable | $ | $ |
Accrued expenses | ||
Deposit received | ||
Other payables | ||
Bank loans | ||
Operating lease liabilities | ||
Total current liabilities | ||
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Non-current liabilities: |
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Bank loans | ||
Operating lease liability | ||
Total non-current liabilities | ||
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Total liabilities | ||
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Commitments and contingencies | ||
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Stockholders' 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' surplus | ||
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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.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| Three Months ended September 30, 2024 | Three Months ended September 30, 2023 | Nine Months ended September 30, 2024 | Nine Months ended September 30, 2023 |
REVENUE | $ | $ | $ | $ |
COST OF REVENUE | ( | ( | ( | ( |
GROSS PROFIT | ||||
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OPERATING EXPENSES: |
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Selling, general and administrative expenses | ||||
Loss on disposal of subsidiary | ||||
Depreciation | ||||
Total operating expenses | ||||
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NET PROFIT/(LOSS) FROM OPERATIONS | ||||
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Other income (expense): |
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Interest (expense) income | ( | ( | ( | ( |
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Net profit/(loss) before provision for income taxes | ||||
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Income taxes | ( | ( | ( | ( |
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NET PROFIT/(LOSS) | $ | $ | $ | $ |
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Net profit/(loss) attributable to non-controlling interests | ( | ( | ||
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Net profit/(loss) attributable to Scientific Energy, Inc. | $ | $ | $ | $ |
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OTHER COMPREHENIVE GAIN/(LOSS): |
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Net income | $ | $ | $ | $ |
Foreign translation gain | ( | ( | ( | |
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Total comprehensive income | $ | $ | $ | $ |
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Foreign translation gain (loss) attributable to non-controlling interest | ||||
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Comprehensive income attributable to Scientific Energy, Inc. | $ | $ | $ | $ |
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Net profit/(loss) per common share, basic and diluted | $ | $ | $ | $ |
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Weighted average common shares outstanding, basic and diluted | ||||
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See the accompanying notes to the unaudited condensed consolidated financial statements | ||||
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SCIENTIFIC ENERGY, INC. | |||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT | |||||||
NINE MONTHS ENDED SEPTEMBER 30, 2024 | |||||||
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| Other |
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| Common stock | Additional | Accumulated | Comprehensive | Non-Controlling |
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Shares | Amount | Paid-in Capital | Deficit | Income (loss) | Interests | Total | |
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Balance, December 31, 2023 | $ | $ | $ ( | $ | $ ( | $ | |
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Foreign currency transaction gain | |||||||
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Disposal of subsidiary | ( | ( | |||||
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Net profit | | | | | ( | ( | |
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Balance, March 31, 2024 (unaudited) | $ | $ | $ ( | $ | $ ( | $ | |
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Foreign currency transaction gain | ( | ( | |||||
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Net profit | | | | | ( | ||
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Balance, June 30, 2024 (unaudited) | $ | $ | $ ( | $ | $ ( | $ | |
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Foreign currency transaction gain |
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Net profit | | | | | ( | ||
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Balance, September 30, 2024 (unaudited) | $ | $ | $ ( | $ | $ ( | $ | |
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See the accompanying notes to the unaudited condensed consolidated financial statements | |||||||
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| SCIENTIFIC ENERGY, INC. | |||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT | |||||||
| NINE MONTHS ENDED SEPTEMBER 30, 2023 | |||||||
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| Common Stock |
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Shares | Amount | Additional Paid- in Capital | Accumulated Deficit | Other Comprehensive Income (loss) | Non-Controlling Interests | Total | ||
Balance, December 31, 2022 | $ | $ | $ ( | $ | $ ( | $ | ||
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Foreign currency transaction loss | ( | ( | ||||||
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Net loss | | | | | ||||
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Balance, March 31, 2023 (unaudited) | ( | ( | ||||||
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Foreign currency transaction gain | ||||||||
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Net loss | | | | | ||||
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Balance, June 30, 2023 (unaudited) | ( | ( | ||||||
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Foreign currency transaction gain | ||||||||
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Net loss | | | | | ||||
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Balance, September 30, 2023 (unaudited) | $ | $ | $ ( | $ | $ ( | $ | ||
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| See the accompanying notes to the unaudited condensed consolidated financial statements | |||||||
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SCIENTIFIC ENERGY, INC. | ||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
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Nine months ended September 30, 2024 | Nine months ended September 30, 2023 | |
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net profit/(loss) | $ | $ |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation | ||
Amortization | ||
Loss on disposal of property and equipment | ||
Loss on disposal of subsidiary | ||
Over provision of amortization | ( | |
Account receivables | ( | |
Inventories | ( | ( |
Deposits | ( | |
Prepaid expenses | ||
Other receivables | ( | ( |
Accrued expenses | ( | ( |
Deposits received | ( | ( |
Other payable | ( | ( |
Accounts payable | ( | |
Net cash provided by / (used in) operating activities | ( | |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchase of property, plant and equipment | ( | ( |
Purchase of intangible asset | ( | |
Repayment from / (advance to) related company | ( | |
Repayment from associate | ||
Repayment from shareholder | ||
Net cash outflow from disposal of subsidiary | ( | |
Loan receivable (to) / from associate | ( | |
Net cash provided by / (used in) investing activities | ( | |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Loan borrowings | ||
Repayment of bank borrowings | ( | ( |
Net cash provided by financing activities | ||
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Effect of currency rate changes on cash | ( | |
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Net decrease in cash and cash equivalents | ||
Cash and cash equivalents, beginning of period | ||
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Cash and cash equivalents, end of period | $ | $ |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Interest paid | $ | $ |
Income taxes paid | $ | $ |
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Non cash financing activities: |
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Record right to use assets upon adoption of ASC 842 | $ | $ |
Record lease liabilities upon adoption of ASC 842 | $ | $ |
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See the accompanying notes to the unaudited condensed consolidated financial statements | ||
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SCIENTIFIC ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Scientific Energy, Inc., (the "Company") was incorporated under the laws of the State of
On March 28, 2006, the Company set up a wholly owned subsidiary, PDI Global Limited (“PDI”), which was incorporated in the British Virgin Islands in order to engage in a business of e-commerce platform.
In January 2008, the Company entered into a joint venture agreement with China Resources Development Group Ltd., a Hong Kong company. Under the agreement, a joint venture company, Kabond Investments Ltd (the “JVC”), was established in Hong Kong, and the Company invested $39.6 million Hong Kong dollars (approximately $5.09 million) into the JVC for 72% of the JVC’s capital shares, and China Resources Development Group Ltd., jointly with its partner, invested $15.4 million Hong Kong dollars (approximately $1.98 million) into the JVC to receive 28% of the JVC’s capital shares. In December 2008, all equity interest of the JVC owned by the Company was sold to a third party for $39.6 million Hong Kong dollars (approximately $5,109,743).
In January 2009, the Company through its wholly-owned subsidiary, PDI, entered into a joint venture agreement with China Resources Development Group Ltd. Under the agreement, the Company agreed to invest $43,040,000 Hong Kong dollars (approximately $5.55 million) into a joint venture company Sinoforte Ltd. in Hong Kong (“Sinoforte”). The Company got 80% of Sinoforte's capital shares, and China Resources invested $10,222,000 Hong Kong dollars, approximately $1,318,967, and another investor invested $538,000 Hong Kong dollars, or approximately $69,419, into Sinoforte for 19% and 1% of Sinoforte's capital shares, respectively. The main business of Sinoforte was trading mineral products such as graphite produced in China. In June 2009 and September 2009, respectively, China Resources and the other minority investor cancelled their investments in Sinoforte, and the full amount of their original investments was returned. As a result, Sinoforte became a wholly-owned subsidiary of PDI. On December 8, 2020, PDI sold all the shares of Sinoforte to the Company at consideration of HK$10.
On February 28, 2012, the Company set up a wholly-owned subsidiary, Makeliving Ltd., which was incorporated in the Cayman Islands in order to engage in a business of e-commerce platform.
On January 23, 2018, the Company entered into an agreement with Cityhill Limited, a wholly owned subsidiary of South Sea Petroleum Holdings Limited, a Hong Kong listed public company, pursuant to which parties agreed to establish a joint venture (the “Joint Venture”). Each party owns 50% equity interest in the Joint Venture respectively.
On February 8, 2021, the Company acquired an entire share of a Hong Kong company, Qwestro Limited, for HK$1,000 without any goodwill and bargaining purchase.
On March 24, 2021, the Company disposed of its wholly-owned dormant subsidiary, PDI Global Limited, with a positive net worth of $1 to an unaffiliated third-party purchaser for $1.
In September 27, 2021, the Company completed the acquisition of 98.75% shares of Macao E-Media Development Company Limited (“MED”). As consideration for the MED shares, the Company agreed to issue the Sellers, or its assigns, in a total of 131,337,500 shares of the Company’s restricted common stock, par value $0.01 per share, at a consideration of $0.50 per share, in the aggregate consideration of $65,668,750 (the “Purchase Price”). As a result of this acquisition, MED becomes a 98.75% owned subsidiary of the Company. MED was founded at Macao in 2011. Its main area of business includes food and grocery order-pickup-delivery services from local restaurants, supermarkets and hotels.
MED has five subsidiaries, each of which is in charge of respective area such as Development & Maintenance, Marketing & Operation, Logistics & Delivery, Payment & Clearance, Emerging Market Business Development.
In January 2023, the Company acquired 90% shares of Fresh Life Technology Company Limited (“Fresh Life”) through its subsidiary, Zhuhai Migua Technology Company Limited. The main business of Fresh Life is provision of logistic services in Macao.
On October 9, 2023, the Company acquired 70% shares of Citysearch Technology (HK) Company Limited (“Citysearch”) in Hong Kong. The main business of Citysearch is provision of group dining service platform, which mainly solves the lunch and dinner group dining needs for corporate employees in Hong Kong. As a startup, for the period ended December 31, 2023, Citysearch had a revenue of approximately $27,450, and net loss of approximately $969,632.
On December 22, 2023, the Company established a new wholly-owned subsidiary, Graphite Energy, Inc., which was incorporated in the State of Florida. The purpose of forming this new subsidiary is to enter the business of graphite production and sales, including establishing a production line for graphite refined powder products in Madagascar.
In January 2024, MED disposed all shares of Squirrel Logistic Company Limited ("Squirrel Logistic") to third party with cash consideration of $12,286.
In April 2024, MED set up Zhuhai Aomi E-commerce Company Limited, a 100% owned subsidiary of MED, in order to carry out in-store business in mainland China, predominantly and initially in Zhuhai city.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying audited consolidated financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made that are necessary to present fairly the financial position, and the results of its operations and its cash flows. Operating results as presented are not necessarily indicative of the results to be expected for a full year.
The Company's consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. The management will seek to raise funds from shareholders.
The accompanying consolidated financial statements present the financial position and the results of operations of the Company and its 100% owned subsidiaries, Sinoforte Limited. Qwestro Limited, in turn, is the 100% owned subsidiary and consolidates with Sinoforte Limited. The Company has 100% owned subsidiary, Graphite Energy, Inc., established in USA.
The Company has a 98.75% owned subsidiary, MED. Zhuhai Chengmi Technology Company Limited, Guangzhou Chengmi Technology Company Limited, in turn, are the 100% owned subsidiaries with MED. Green Supply Chain Management Company Limited is the 99% owned subsidiary with MED. Zhuhai Migua Technology Company Limited is 100% owned subsidiary by Zhuhai Chengmi Technology Limited and has a 90% owned subsidiary, Fresh Life Technology Company Limited. MED acquired 70% shares of Citysearch, before MED set up a wholly-owned subsidiary Zhuhai Aomi E-commerce Company Limited. All of the above companies consolidate with MED.
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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 |
| Macao |
Green Supply Chain Management Company Limited (99% subsidiary of Macao E-Media Development Company Limited) |
| Macao |
Guangzhou Chengmi Technology Company Limited (100% subsidiary of Macao E-Media Development Company Limited) |
| China |
Zhuhai Chengmi Technology Company Limited (100% subsidiary of Macao E-Media Development Company Limited) |
| China |
Zhuhai Migua Technology Company Limited (100% subsidiary of Zhuhai Chengmi Technology Limited) |
| China |
Fresh Life Technology Company Limited (90% subsidiary of Zhuhai Migua Technology Company Limited) |
| Macao |
Citysearch Technology (HK) Company Limited (70% subsidiary of Macao E-Media Development Company Limited |
| Hong Kong |
Graphite Energy, Inc. |
| USA |
Zhuhai Aomi E-commerce Company Limited (100% subsidiary of Macao E-Media Development Company Limited |
| China |
All significant intercompany transactions and balances have been eliminated in consolidation.
Business Combinations
The Company accounts for acquisition of entities that include inputs and processes and has the ability to create outputs as business combinations. The Company allocates the purchase price of the acquisition to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses and integration costs are expensed as incurred.
Interim Financial Statements
The following (a) condensed consolidated balance sheet as of December 31, 2023, 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, 2024 are not necessarily indicative of results that may be expected for the year ending December 31, 2023. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on April 16, 2024.
The Company recognizes revenue when: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related revenue is recorded.
The Company defers any revenue for which the product has not been delivered or services have not been rendered or are subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or services have been rendered or no refund will be required.
Revenues on the sale of products, net of estimated costs of returns and allowance, are recognized at the time products are shipped to customers, legal title has passed, and all significant contractual obligations of the Company have been satisfied. Products are generally sold on open accounts under credit terms customary to the geographic region of distribution. The Company performs ongoing credit evaluations of the customers and generally does not require collateral to secure the accounts receivable.
The Company is operating mobile platform of ordering and delivery services for restaurants and supermarkets in Macao, together recognizing revenue on closed transactions.
Segment information
ASC 280-10 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. All sales and substantial assets of the Company are disclosed in note 17. 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, 2024, and December 31, 2023, 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 demand deposits held by banks.
Comprehensive Income (Loss)
The Company adopted Accounting Standards Codification subtopic 220-10, Comprehensive Income (“ASC 220-10”) which establishes standards for the reporting and displaying of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. ASC 220-10 requires other comprehensive income (loss) to include foreign currency translation adjustments.
Foreign Currency Translation
The Company translates the foreign currency consolidated financial statements into US Dollars (“USD”) using the year or reporting period-end or average exchange rates in accordance with the requirements of Accounting Standards Codification subtopic 830-10, Foreign Currency Matters (“ASC 830-10”). Assets and liabilities of these subsidiaries were translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented.
The consolidated financial statements were presented in US Dollars except as other specified.
The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within stockholders’ equity (deficit). Foreign currency transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated results of operations.
The exchange rates used to translate amounts in HKD and MOP into US Dollars for the purposes of preparing the consolidated financial statements were as follows:
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| September 30, |
| December 31, |
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| 2024 |
| 2023 |
Exchange rate on balance sheet dates |
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|
USD : HKD exchange rate |
| 7.7911 |
| 7.8099 |
USD : MOP exchange rate |
| 8.0248 |
| 8.0441 |
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|
|
| For the nine months ended September 30, | ||
|
| 2024 |
| 2023 |
Average exchange rate for the period |
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|
|
|
USD : HKD exchange rate |
| 7.7993 |
| 7.8246 |
USD : MOP exchange rate |
| 8.0333 |
| 8.0593 |
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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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.
Trade receivables
Trade receivables are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
The Company considered the amounts of receivables in dispute and believes an allowance for these receivables were not necessary as of September 30, 2024 and December 31, 2023.
Fair Value Measurements
ASC Topic 820 defines fair value, establishes a framework for measuring fair value and enhances disclosure requirements for fair value measurements. This topic does not require any new fair value measurements. ASC Topic 820 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 — | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | |||
Level 2 — | Other inputs that is directly or indirectly observable in the marketplace. |
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Level 3 — | Unobservable inputs which are supported by little or no market activity. |
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The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Earnings (Loss) Per Share
Earnings Per Share (‘EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants.
The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company's common stock at the average market price during the period. The Company has no stock options, warrants or other potentially dilutive instruments outstanding at September 30, 2024 and December 31, 2023.
Investment in Unconsolidated Joint Ventures
The Company entered into a JV agreement with an independent third party, to form a JV company. The joint venture agreement provides the Company with only the rights to the assets and obligation for the liabilities of the joint arrangement resting primarily with the JV. In adopting ASC Topic 323, Investments - Equity Method and Joint Ventures (Topic 323), the Company’s investment in joint venture is accounted for using the equity method.
Inventories
Inventories are carried at the lower of cost and net realizable value, as determined using the weighted average cost method. Management compares the cost of inventories with the net realizable value and if applicable, an allowance is made for writing down the inventory to its net realizable value, if lower than cost. On an ongoing basis, inventories are reviewed for potential write-down for estimated obsolescence or unmarketable inventories which equals the difference between the costs of inventories and the estimated net realizable value based upon forecasts for future demand and market conditions. When inventories are written-down to the lower of cost or net realizable value, it is not marked up subsequently based on changes in underlying facts and circumstances.
The Company entered into a purchase agreement with JV company and through their platform to purchase of gold. In adopting ASC Topic 330, Inventory, it permits certain inventories such as precious metals, agricultural and mineral inventories to be stated above cost in exceptional cases. We believe that because our business model is to trade gold and held in short-term, market value is a more useful and relevant measurement than lower of cost or market value.
Goodwill
Goodwill is recorded as the difference between the aggregate consideration paid for in a business combination and the fair value of the acquired net tangible and intangible assets acquired. The Company evaluates goodwill for impairment on an annual basis in the fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Based on that qualitative assessment, if it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company conducts a quantitative goodwill impairment test, which involves comparing the estimated fair value of the reporting unit with its carrying value, including goodwill. The Company estimates the fair value of a reporting unit using a combination of the income and market approach. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss is recorded for the difference.
11
Non-controlling interest
Non-controlling interests represent the equity interests in the subsidiaries that are not attributable, either directly or indirectly, to the Company.
Recent Accounting Pronouncements
The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.
NOTE 3 – GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company has an accumulated deficit of $
The Company’s ability to achieve these objectives cannot be determined at this stage. If the Company is unsuccessful in its endeavors, it may be forced to cease operations. These consolidated financial statements do not include any adjustments that might result from this uncertainty which may include adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
These factors have raised substantial doubt about the Company’s ability to continue as a going concern. There can be no assurances that the Company will be able to obtain adequate financing or achieve profitability. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of September 30, 2024 and December 31, 2023 is summarized as follows:
Schedule of Property and Equipment
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| September 30, 2024 |
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| December 31, 2023 |
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| (unaudited) |
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Office furniture and fixtures |
| $ |
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| $ |
| ||
Office equipment |
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Vehicles |
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Less: accumulated depreciation |
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| ( | ) |
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| ( | ) |
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Property, plant and equipment, net |
| $ |
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| $ |
| ||
Depreciation expense for the three months and nine months ended September 30, 2024 were $14,227 and $35,993 respectively; and for the three months and nine months ended September 30, 2023 were $5,047 and $23,290, respectively.
NOTE 5 – INTANGIBLE ASSETS
Software as of September 30, 2024 and December 31, 2023 is summarized as follows:
|
| September 30, |
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| December 31, |
| ||
|
| 2024 |
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| 2023 |
| ||
Software |
| $ |
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| $ |
| ||
Less: accumulated amortization |
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| ( | ) |
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| ( | ) |
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Intangible assets, net |
| $ |
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| $ |
| ||
Amortization expense for the three months and nine months ended September 30, 2024 were $40,804 and $106,470, respectively; and for the three months and nine months ended September 30, 2023 were $(11,309) and $40,026, respectively.
NOTE 6 – ACQUISITION OF SUBSIDIARIES
The Company completed the valuations for Macao E-Media Development Company Limited necessary to assess the fair values of the tangible assets acquired and liabilities assumed, resulting from which the amount of goodwill was determined and recognized as of the respective acquisition date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, September 27, 2021:
(a) Acquisition of Citysearch Technology (HK) Company Limited
On October 9, 2023, the Company acquired 70% shares of Citysearch Technology (HK) Company Limited (“Citysearch”) in Hong Kong with $1,149,346 consideration. The main business of Citysearch is provision of group dining service platform, which mainly solves the lunch and dinner group dining needs for corporate employees in Hong Kong.
The Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, resulting from which the amount of goodwill was determined and recognized as of the respective acquisition date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, October 9, 2023.
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Property, plant and equipment |
| $ |
| |
Other receivables and prepayment |
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| |
Amount due from related parties |
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| |
Cash and cash equivalents |
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| |
Other payables and accruals |
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| ( |
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Goodwill |
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| |
Non-controlling interest |
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| |
Total consideration paid in cash |
| $ |
| |
Less: Cash and cash equivalents |
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| ( |
|
Net cash outflow arising from the acquisition of a subsidiary |
| $ |
| |
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|
The transaction resulted in allocation of $170,069 to goodwill, representing the financial, strategic and operational value of the transaction to the Company. Goodwill is attributed to the premium that the Company paid to obtain the value of the business of Citysearch and the synergies expected from the combined operations of Citysearch and the Company, the assembled workforce and their knowledge and experience in provision of dining services. The total amount of the goodwill acquired is not deductible for tax purposes.
(b) Acquisition of Fresh Life Technology Company Limited
On January 2023, the Company acquired 90% shares of Fresh Life Technology Company Limited (“Fresh Life”) in Macau with Nil consideration. The main business of Fresh Life is provision of logistic services in order to support MED’s business.
The Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, resulting from which the amount of goodwill was determined and recognized as of the respective acquisition date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, January 1, 2023.
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Amount due to related parties |
| $ | ( |
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Goodwill |
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Non-controlling interest |
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Net cash outflow arising from the acquisition of a subsidiary |
| $ |
| |
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The transaction resulted in allocation of $832,881 to goodwill, representing the financial, strategic and operational value of the transaction to the Company. Goodwill is attributed to the premium that the Company paid to obtain the value of the business of Fresh Life and the synergies expected from the combined operations of Fresh Life and the Company, the assembled workforce and their knowledge and experience in provision of logistic services. The total amount of the goodwill acquired is not deductible for tax purposes.
NOTE 7 – DISPOSAL OF A SUBSIDIARY
In January 2024, the Company entered into a sale and purchase agreement to dispose of its entire equity interest in its subsidiary, Squirrel Logistic Company Limited which is incorporated in the Macau, (referred to as the “Disposal subsidiary”) to an independent third party at a consideration of $12,286. The principal activity of the Disposal subsidiary is provision of logistic services. The disposal was completed on the same date of the agreement.
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Analysis of assets and liabilities over which control was lost: |
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Other receivables |
| $ |
| |
Cash and cash equivalents |
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Amount due from related parties |
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Amount due to immediate holding company |
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| ( |
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Other payables and accruals |
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| ( |
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| $ | ( |
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Loss on disposal of subsidiary: |
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Total consideration |
| $ |
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Less: Waiver of amount due to immediate holding company |
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| ( |
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Add: Net liabilities disposed of |
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Loss on disposal |
| $ |
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Total consideration satisfied by: |
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Cash consideration received |
| $ |
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Net cash outflow arising on disposal: |
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Cash consideration received |
| $ |
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Cash and cash equivalents disposed of |
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Net cash outflow |
| $ | ( |
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NOTE 8 – GOODWILL
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| September 30, 2024 |
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| December 31, 2023 | |
Goodwill | $ |
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| $ | ||
Acquisition of subsidiaries |
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Balance at end of period | $ |
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| $ | ||
Goodwill has been allocated for impairment testing purposes to the acquisition of the shares of Macao E-Media Development Company Limited including its subsidiaries Fresh Life Technology Company Limited and Citysearch Technology (HK) Company Limited by the Company.
The Company performed goodwill impairment test at the reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change indicating the asset might be impaired. As of December 31, 2023, the Company performed testing on reporting unit.
The Company first assessed qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For those reporting units where it is determined that it is more likely than not that their fair values are less than the units’ carrying amounts, the Company will perform the first step of a two-step quantitative goodwill impairment test. After performing the assessment, if the carrying amounts of the reporting units are higher than their fair values, the Company will perform the second step of the two-step quantitative goodwill impairment test.
For the two-step goodwill impairment test, the Company estimated the fair value with income approach for specific reporting unit component. With the income approach, the Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on the best estimate of future net sales and operating expenses, based primarily on expected expansion, pricing, market share, and general economic conditions. Certain estimates of discounted cash flows involve businesses with limited financial history and developing revenue models. Changes in these forecasts could significantly change the amount of impairment recorded, if any.
NOTE 9 – RIGHT TO USE ASSETS AND LEASE LIABILITY
In January 2024, the Company entered a two-year lease for office space of approximately 770 square feet in Hong Kong, expiring January 10, 2026, with monthly payments of approximately $4,404 per month.
In 2023, the Company entered into the renewal lease agreement for office with MED and its subsidiaries in Macao and Zhuhai, with monthly payments of approximately $20,527 per month.
In 2023, MED’s subsidiary, Citysearch Technology (HK) Company Limited, entered into a two-year lease for a cafe shop space of approximately 708 square feet in Hong Kong, expiring August 2025 with monthly payment of approximately $5,005 per month.
At lease commencement date, the Company estimated the lease liability and the right of use assets at present value using the Company’s estimated incremental borrowing rate of 8% and determined the initial present value, at inception, of $587,855.
Right to use assets is summarized below:
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| September 30, 2024 |
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| December 31, 2023 | |
Macao and Zhuhai | $ |
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| $ | ||
Hong Kong |
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Subtotal |
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Less: accumulated depreciation |
| ( |
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Right to use assets, net | $ |
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| $ | ||
During the nine months ended September 30, 2024 and 2023, the Company recorded $
Lease liability is summarized below:
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| September 30, 2024 |
| December 31, 2023 | |
Macao and Zhuhai | $ |
| $ | ||
Hong Kong |
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Total lease liability |
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Less: short term portion |
| ( |
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Long term portion | $ |
| $ | ||
Maturity analysis under these lease agreements are as follows:
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| September 30, 2024 |
| December 31, 2023 | |
Period / year ended September 30, 2024 and December 31, 2023 | $ |
| $ | ||
Less: Present value discount |
| ( |
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| ( |
Lease liability | $ |
| $ | ||
12
Lease expense for the three months ended September 30, 2024 was comprised of the following:
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Operating lease expense |
| $ |
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Short-term lease expense |
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| $ |
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Lease expense for the nine months ended September 30, 2024 was comprised of the following:
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Operating lease expense |
| $ |
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Short-term lease expense |
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| $ |
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Lease expense for the three months ended September 30, 2023 was comprised of the following:
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Operating lease expense |
| $ |
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Short-term lease expense |
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| $ |
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Lease expense for the nine months ended September 30, 2023 was comprised of the following:
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Operating lease expense |
| $ |
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Short-term lease expense |
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| $ |
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NOTE 10 - LOAN RECEIVABLES
In
NOTE 11 - INVENTORIES
The Company purchased gold from the platform under its joint venture, Gold Gold Gold Limited. Inventories for gold as of September 30, 2024 was $522. The Company’s subsidiary, MED was trading as mobile platform of ordering and delivery services for restaurants and had approximately $80,355 merchandise inventory. In October 2023, the Company’s subsidiary, Citysearch Technology (HK) Limited (“Citysearch”) established a new cafe restaurant in Hong Kong and had approximately $12,529 of inventory for food and beverage as of September 30, 2024. Fresh Life Technology Company Limited had approximately $18,749 of inventory for delivery box as of September 30, 2024.
NOTE 12 – BANK LOANS
The bank loans are borrowed by MED and Zhuhai Chengmi Technology Company Limited (“Chengmi”). The banking credit facility from MED dated March 3, 2020 for a maximum principal of $
Bank loans are summarized below:
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| September 30, 2024 |
| December 31, 2023 |
| |
Bank loans | $ |
| $ |
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Less: short term portion |
| ( | ) |
| ( | ) |
Long term portion | $ |
| $ |
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NOTE 13 – CAPITAL STOCK
The Company is authorized to issue
As of September 30, 2024, Kelton Capital Group Ltd. owned 31,190,500 shares, or 11.84%, of the Company’s common stock, Jiang Haitao owned 46,588,236 shares, or 17.69%, of the Company’s common stock, and Elate Holdings Limited owned 26,000,000 shares, or 9.87%, of the Company’s common stock. Other than Kelton Capital Group Ltd, Jiang Haitao and Elate Holdings Limited, no person owns 5% or more of the Company’s issued and outstanding shares.
NOTE 14 – INCOME PER SHARE
The following table sets forth the computation of basic and diluted profit per common share for the three and nine months ended September 30, 2024 and 2023, respectively:
| Three Months Ended September 30, 2024 |
| Three Months Ended September 30, 2023 |
| Nine Months Ended September 30, 2024 |
| Nine Months Ended September 30, 2023 | ||||
Numerator-basic and diluted |
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Net income | $ |
| $ |
| $ |
| $ | ||||
Denominator |
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Weighted average number of common shares outstanding-basic and diluted |
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Profit/(loss) per common share - basic and diluted | $ |
| $ |
| $ |
| $ | ||||
NOTE 15 - JOINT VENTURE
Gold Gold Gold Limited (“JV”) was created in February 2018. The Company entered into a JV agreement with primary activity of trading of gold. The Company injected $12,839 (HK$100,000) to the JV during the year ended December 31, 2019. The Company shared the operating loss from JV of $12,839 during the year.
Summarized financial information for joint venture is as follows:
Balance Sheets: |
| September 30, 2024 |
| December 31, 2023 |
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| (unaudited) |
| (audited) |
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Property, plant and equipment, net |
| $ |
| $ |
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Other receivables and prepaid |
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Inventory |
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Cash and cash equivalents |
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Total assets |
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Accrued expense |
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| ( | ) | |
Other payable to shareholder |
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| ( | ) |
Customer deposit |
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| ( | ) |
| ( | ) |
Total liabilities |
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| ( | ) |
| ( | ) |
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Net liabilities |
| $ | ( | ) | $ | ( | ) |
13
Statement of Operations: |
| Nine months ended September 30, 2024 |
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| (unaudited) |
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Revenue |
| $ |
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Less: Cost of sales |
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| ( | ) |
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Operating expense |
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| ( | ) |
Depreciation |
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| ( | ) |
Net loss from operations |
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| ( | ) |
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Other income (expense): |
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Interest (expense) income, net |
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| ( | ) |
Net loss |
| $ | ( | ) |
NOTE 16 - RELATED PARTY BALANCES
Due from related parties
The balance due from related parties was as following:
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| September 30, |
| December 31, |
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| $ |
| $ |
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Citysearch Technology (Macao) Limited (1) |
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Kangaroo Technology Co., Limited (2) |
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Gloryful Company Limited (3) |
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Littlemi Technology Company Limited (4) |
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Nanjing Chengmi Technology Company Limited (5) |
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Watermelon Cultural Communication Company Limited (6) |
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Zhuhai Xiangguo Technology Co., Limited (7) |
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Note:
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(7) |
NOTE 17 – 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. During 2021, after the acquisition of MED, there are two segments, consisting of the provision of food & beverage and delivery services and IT supporting services. During 2024, after the incorporation of Graphite Energy, Inc., there is one additional segment, consisting of the trading of graphite products.
Nine Months Ended September 30, 2024 | Food & Beverage and Delivery |
| IT Supporting Services |
| Graphite product |
| Corporate unallocated (note) |
|
Consolidated |
Revenue | $ |
| $ |
| $ |
| $ |
| $ |
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Nine Months Ended September 30, 2023 |
|
| Food & Beverage and Delivery |
| IT Supporting Services |
| Corporate unallocated (note) |
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Consolidated |
Revenue |
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| $ |
| $ |
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Cost of revenue |
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Net profit / (loss) before provision for income taxes |
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| $ |
Note: The Company does not allocate its expenses incurred to its reportable segments because these activities are managed at a corporate level.
NOTE 18 - COMMITMENTS AND CONTINGENCIES
Legal proceedings
As of September 30, 2024, the Company is
NOTE 19 - SUBSEQUENT EVENTS
In accordance with ASC 855, “Subsequent Events,” the Company has evaluated subsequent events through the date of filing. No material subsequent events were noted.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains certain forward-looking statements that involve risks and uncertainties. We use words such as "anticipate," "believe," "expect," "future," "intend," "plan," and similar expressions to identify forward-looking statements. These statements are only predictions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Our actual results could differ materially from those anticipated in these forward-looking statements.
Overview
We conduct our businesses primarily through our 98.75% owned subsidiary, Macao E-Media Development Company Limited, a Macao Company (“MED”), and 50% owned subsidiary, Gold Gold Gold Limited (“3G”), a Hong Kong company. MED has five subsidiaries, each of which is in charge of respective area such as Development & Maintenance, Marketing & Operation, Logistics & Delivery, Payment & Clearance, Emerging Market Business Development.
In this MD&A section, we will primarily discuss the business of MED, as 3G is a joint venture and its financial position and results of operations are not consolidated with our consolidated financial statements. The financial position and results of operations of 3G are summarized in the Notes to our consolidated financial statements.
As a leading mobile platform of ordering and delivery services for restaurants or other merchants, we operate in Macao, 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.
On January 2023, the Company acquired 90% shares of Fresh Life Technology Company Limited (“Fresh Life”) through its subsidiary, Zhuhai Migua Technology Company Limited. The main business of Fresh Life is provision of logistic services in Macao.
On October 9, 2023, the Company acquired 70% shares of Citysearch Technology (HK) Company Limited (“Citysearch”) in Hong Kong. The main business of Citysearch is provision of group dining service platform, which mainly solves the lunch and dinner group dining needs for corporate employees in Hong Kong. As a startup, for the period ended December 31, 2023, Citysearch had a revenue of approximately $27,450, and net loss of approximately $969,632.
In April 2024, MED set up a wholly owned subsidiary Zhuhai Aomi E-commerce Company Limited, of which the purpose is to carry out in-store business in mainland China, predominantly and initially in Zhuhai city. In-store business offers Macao users various types of vouchers, coupons, discount tickets issued by mainland merchants.
On January 3, 2024, the Company established a new wholly-owned subsidiary, Graphite Energy, Inc., which was incorporated in the State of Florida. The purpose of forming this new subsidiary is to enter the business of graphite production and sales, including establishing a production line for graphite refined powder products in Madagascar. Consequently, the Company first needs to ensure the long-term, sufficient and stable supply of graphite ore, which is the most important raw material for the Company’s graphite production line. On January 18, 2024, the Company entered into a Base Agreement for Purchase of Graphite Ore with Madagascar Graphite Limited (the “Supplier”) to ensure the long-term, sufficient and stable supply of graphite ore, which is the most important raw material for the Company’s graphite production line. The Supplier owns approximately 280-square-kilometer graphite mining area in Tamatave region of Madagascar, with hundreds of millions of tons of the estimated graphite ore reserves and a history of graphite mining for more than a hundred years. On March 22, 2024, this agreement was amended and restated. Under the amended and restated agreement, the Company will not make advance payments to Supplier for the purchase of graphite ore; instead, payments will be made after manufacturing graphite products using the ore as raw material. The agreement term is one year, ending on March 30, 2025. During the term, Supplier agrees to sell and deliver to the Company, and the Company agrees to purchase and accept from Supplier sufficient amount of graphite ore so that the Company can produce up to 100,000 tons of graphite refined powder products with a carbon content of more than 95%. Parties agree to decide whether to renew or reach a new agreement 30 days before the expiration of this agreement.
Due to the uncontrollable variations among different grades of graphite ore, such as volume, weight, carbon content, as well as inaccuracies in testing, to protect each party’s interest and simplify the process of pricing, parties agree that the price for the graphite ore used for the production of refined graphite powder shall be calculated on an output based formula as follows: (i) for each metric ton of refined graphite powder output, the Company shall pay Supplier a fixed price of $200, regardless of how many metric tons of graphite ore used as input; and (ii) This fixed price shall cover all mining and transporting the graphite ore to the warehousing facility at the Company’s production line in Tamatave, Madagascar by Supplier.
Parties agree that purchase price shall be paid to Supplier by the Company’s issuance of its common stock shares, at a price of $0.50 per share. The Company’s share payment shall be made quarterly in accordance with the quantity of the refined graphite powder produced for the quarter. Parties agree the Company’s shares shall be issued to Supplier within 90 days of each quarterly settlement.
Results of Operations
For the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
The following table shows operating results for the three months ended September 30, 2024 and 2023:
|
| Three Months Ended September 30, |
|
|
|
| ||||||||||
|
| 2024 |
| 2023 |
| $ Change |
| % Change | ||||||||
Revenues |
| $ | 19,378,637 |
|
| $ | 9,748,254 |
|
|
| 9,630,383 |
|
|
| 98.79 | % |
Cost of revenue |
|
| 12,871,058 |
|
|
| 5,124,456 |
|
|
| 7,746,602 |
|
|
| 151.17 | % |
Gross Profit |
|
| 6,507,579 |
|
|
| 4,623,798 |
|
|
| 1,883,781 |
|
|
| 40.74 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense |
|
| 4,845,065 |
|
|
| 3,877,832 |
|
|
| 967,233 |
|
|
| 24.94 | % |
Operating profit |
|
| 1,662,514 |
|
|
| 745,966 |
|
|
| 916,548 |
|
|
| 122.87 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income / (expense) |
|
| (15,060 | ) |
|
| (13,670 | ) |
|
| 1,390 |
|
|
| 10.17 | % |
Net profit |
| $ | 1,647,454 |
|
| $ | 732,296 |
|
|
| 915,158 |
|
|
| 124.97 | % |
Sales
For the three months ended September 30, 2024, the Company generated sales of $19,378,637 compared to $9,748,254 for the same period of 2023. The new generated sales were entirely from the newly incorporated subsidiary, Graphite Energy, Inc. trading with graphite products.
Costs of Goods Sold
For the three months ended September 30, 2024, the Company generated cost of goods sold for $12,871,058 compared to $5,124,456 for the same period of 2023. Currently the Company is attributable to delivery rider costs and purchase of inventory.
Operating expenses
For the three months ended September 30, 2024 and 2023, the Company’s selling, general and administrative expenses were $4,845,065 compared to $3,877,832 for the same period of the previous year. The increase is primarily the result of increase of wages and promotion expenses from Macao’s and Zhuhai’s subsidiaries.
Other Income (Expense)
For the three months ended September 30, 2024, the Company had $15,060 of interest expense relating to bank loan interest payable, as compared to $13,670 of interest expense for the same period last year.
Net Profit/(Loss)
For the three months ended September 30, 2024, the Company had a net profit of $1,647,454, or $0.006 per share, as compared to a net profit of $732,296, or $0.003 per share, for the same period of 2023.
For the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
The following table shows operating results for the nine months ended September 30, 2024 and 2023:
|
| Nine Months Ended September 30, |
|
|
|
| ||||||||||
|
| 2024 |
| 2023 |
| $ Change |
| % Change | ||||||||
Revenues |
| $ | 50,560,247 |
|
| $ | 28,639,189 |
|
|
| 21,921,058 |
|
|
| 76.54 | % |
Cost of revenue |
|
| 34,011,793 |
|
|
| 15,813,835 |
|
|
| 18,197,958 |
|
|
| 115.08 | % |
Gross Profit |
|
| 16,548,454 |
|
|
| 12,825,354 |
|
|
| 3,723,100 |
|
|
| 29.03 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense |
|
| 14,081,369 |
|
|
| 11,092,707 |
|
|
| 2,988,662 |
|
|
| 26.94 | % |
Operating profit |
|
| 2,467,085 |
|
|
| 1,732,647 |
|
|
| 734,438 |
|
|
| 42.39 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income / (expense) |
|
| (61,715 | ) |
|
| (31,912 | ) |
|
| 29,803 |
|
|
| 93.39 | % |
Net profit |
| $ | 2,405,370 |
|
| $ | 1,700,735 |
|
|
| 704,635 |
|
|
| 41.43 | % |
Sales
For the nine months ended September 30, 2024, the Company generated sales of $50,560,247 compared to $28,639,189 for the same period of 2023. The new generated sales were entirely from the newly incorporated subsidiary, Graphite Energy, Inc. trading with graphite products.
Costs of Goods Sold
For the nine months ended September 30, 2024, the Company generated cost of goods sold for $34,011,793 compared to $15,813,835 for the same period of 2023. Currently the Company is attributable to delivery rider costs and purchase of inventory.
Operating expenses
For the nine months ended September 30, 2024 and 2023, the Company’s selling, general and administrative expenses were $14,081,369 compared to $11,092,707 for the same period of the previous year. The increase is primarily the result of increasing wages and promotion expenses from Macao’s and Zhuhai’s subsidiaries
Other Income (Expense)
For the nine months ended September 30, 2024, the Company had $61,715 of interest expense relating to bank loan interest payable, as compared to $31,912 of interest expense for the same period last year.
Net Profit/(Loss)
For the nine months ended September 30, 2024, the Company had a net profit of $2,405,370, or $0.009 per share, as compared to a net profit of $1,700,735, or $0.006 per share, for the same period of 2023.
Liquidity and Capital Resources
As of September 30, 2024, the Company had cash and cash equivalents of $6,795,889 and a working capital deficit of $3,583,956. For the nine months ended September 30, 2024, the Company provided net cash of $3,136,526 from its operating activities primarily from our net profit of $2,405,370, adjusted net with depreciation and amortization of $142,463, a loss of disposal of equipment of $83,758, a loss of disposal of subsidiary of $425,588, an increase in account receivables of $4,446,906, an increase in inventories of $44,585, a decrease in prepaid expenses of $21,810, an increase in deposits of $1,824,371, an increase in other receivables of $638,948, a decrease in accrued expense of $189,595, a decrease in deposit received of $214,585, a decrease in other payables of $35,656, an increase in account payable of $7,452,183. By comparison, net cash used in operating activities was $26,359 for the same period of 2023.
During the nine months ended September 30, 2024, the Company provided net cash of $388,148 from its investing activities which comprised with purchase of equipment of $112,044, repayment from related company of $137,936, repayment from shareholder of $687,497, repayment from associate company of $24,359, net cash outflow from acquisition of subsidiaries of $118,105 and loan to associate of $231,495. By comparison, net cash used in investing activities was $129,752 for the same period of 2023.
During the nine months ended September 30, 2024, the Company’s financing activities provided net cash of $91,846, which was comprised of repayment of bank loans of $2,229,513 and loan borrowings from banks of $2,321,359. By comparison, net cash provided by financing activities was $635,625 for the same period of 2023.
Until we are able to generate sufficient liquidity from operations, we intend to continue to fund operations from cash on-hand, and through private debt or equity placements of our securities. Our continued operations will depend on whether we are able to generate sufficient liquidity from operations and/or raise additional capital through such sources as equity and debt financings, collaborative and licensing agreements and strategic alliances. There can be no assurance that additional capital will become available or, if it does, that it will become available on acceptable terms, or that any additional capital we may obtain will be sufficient to meet our long-term needs. We currently have no commitments for any additional capital, both internally and externally.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations
We have an office in Hong Kong, which is leased on a term of two years ending in January 2026. The space is approximately 770 square feet, and the rent is approximately $4,404 per month. Besides, the acquisition of Macao and Zhuhai subsidiaries, it results on addition lease for office and warehouse approximately 39,800 square feet in Macao and Zhuhai, expiring within year 2023 and 2024 with monthly payment of approximately $20,527 per month. In 2023, MED’s subsidiary, Citysearch Technology (HK) Company Limited, entered into a two-year lease for a cafe shop space of approximately 708 square feet in Hong Kong, expiring August 2025 with monthly payment of approximately $5,005 per month.
Critical Accounting Policies
In preparing the consolidated financial statements, we follow accounting principles generally accepted in the United States (“GAAP”). GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.
We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. Our significant accounting policies are summarized in Note 1 to our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A smaller reporting company is not required to provide the information in this Item.
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, 2024, 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
In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Report on Form 10-Q, as well as the risk factors disclosed in Form 10-K/A (Amendment No. 2) for the fiscal year ended December 31, 2023, and other reports that we have filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits:
Exhibit No. Title of Document
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 INS XBRL Instance Document
101SCH XBRL Taxonomy Extension Schema Document
101 CAL XBRL Taxonomy Extension Calculation Linkbase Document
101LAB XBRL Taxonomy Extension Label Linkbase Document
101PRE XBRL Taxonomy Extension Presentation Linkbase Document
101DEF XBRL Taxonomy Extension Definition Linkbase Document.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SCIENTIFIC ENERGY, INC.
By: /s/ Stanley Chan
Stanley Chan
President and Chief Executive Officer
November 19, 2024
15
Exhibit 31.1
CERTIFICATION
Pursuant to Rule 13a–14(a)/15d–14(a)
of the Securities Exchange Act, as amended.
I, Stanley Chan, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Scientific Energy, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 19, 2024
/s/ Stanley Chan |
|
|
Stanley Chan |
|
|
Chief Executive Officer and Chief Financial Officer |
|
|
(Principal Executive Officer and Principal Financial Officer) |
|
|
CERTIFICATION
Pursuant to 18 U.S.C. 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Scientific Energy, Inc. (the "Company") for the quarter ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stanley Chan, the Chief Executive Officer and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 19, 2024
/s/ Stanley Chan |
|
|
Stanley Chan |
|
|
Chief Executive Officer and Chief Financial Officer |
|
|
(Principal Executive Officer and Principal Financial Officer) |
|
|