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 three months ended March 31, 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 supermarket in Macau, together recognizing revenue on closed transactions.
12
Segment information
ASC 280-10 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. All sales and substantial assets of the Company are in the Greater Bay Area. The Company applies the management approach to the identification of our reportable operating segments as provided in accordance with ASC 280-10. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. Generally, the Company’s cash and cash equivalents in interest-bearing accounts may exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.
As of March 31, 2024, and December 31, 2023, the Company maintained $2,703,511 and $3,157,764 in foreign bank accounts not subject to FDIC coverage.
The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include cash on hand and demand deposits held by banks.
Comprehensive Income (Loss)
The Company adopted Accounting Standards Codification subtopic 220-10, Comprehensive Income (“ASC 220-10”) which establishes standards for the reporting and displaying of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. ASC 220-10 requires other comprehensive income (loss) to include foreign currency translation adjustments.
Foreign Currency Translation
The Company translates the foreign currency consolidated financial statements into US Dollars (“USD”) using the year or reporting period-end or average exchange rates in accordance with the requirements of Accounting Standards Codification subtopic 830-10, Foreign Currency Matters (“ASC 830-10”). Assets and liabilities of these subsidiaries were translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented.
The consolidated financial statements were presented in US Dollars except as other specified.
The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within stockholders’ equity (deficit). Foreign currency transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated results of operations.
13
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:
|
| March 31,
|
| December 31,
|
|
| 2024
|
| 2023
|
Exchange rate on balance sheet dates
|
|
|
|
|
USD : HKD exchange rate
|
| 7.8235
|
| 7.8099
|
USD : MOP exchange rate
|
| 8.0582
|
| 8.0441
|
|
|
|
|
|
|
| For the three months ended March 31,
|
|
| 2024
|
| 2023
|
Average exchange rate for the period
|
|
|
|
|
USD : HKD exchange rate
|
| 7.8207
|
| 7.8388
|
USD : MOP exchange rate
|
| 8.0553
|
| 8.0740
|
Property, plant and equipment
The estimated useful lives of property, plant and equipment are as follows:
|
| |
|
|
|
|
|
Office equipment
|
| 3-5 years
|
|
Furniture and fixtures
|
| 3-5 years
|
|
The Company evaluates the carrying value of items of property, plant and equipment to be held and used whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying value of an item of property, plant and equipment is considered impaired when the projected undiscounted future cash flows related to the asset are less than its carrying value. The Company measures impairment based on the amount by which the carrying value of the respective asset exceeds its fair value. Fair value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved.
Intangible assets
Purchased intangible assets are recognized and measured at fair value upon acquisition. Separately identifiable intangible assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method based on their estimated useful lives as follows:
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 March 31, 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:
14
Level 1 —
| Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
Level 2 —
| Other inputs that is directly or indirectly observable in the marketplace.
|
|
|
|
Level 3 —
| Unobservable inputs which are supported by little or no market activity.
|
|
|
|
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Earnings (Loss) Per Share
Earnings Per Share (‘EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants.
The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company's common stock at the average market price during the period. The Company has no stock options, warrants or other potentially dilutive instruments outstanding at March 31, 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.
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.
15
NOTE 3 – GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company has an accumulated deficit of $11,922,334 as of March 31, 2024. The Company also experienced insufficient cash flows from operations and will be required continuous financial support from the shareholders. The Company will need to raise capital to fund its operations until it is able to generate sufficient revenue to support the future development. Moreover, the Company may be continuously raising capital through the sale of debt and equity securities.
The Company’s ability to achieve these objectives cannot be determined at this stage. If the Company is unsuccessful in its endeavors, it may be forced to cease operations. These consolidated financial statements do not include any adjustments that might result from this uncertainty which may include adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
These factors have raised substantial doubt about the Company’s ability to continue as a going concern. There can be no assurances that the Company will be able to obtain adequate financing or achieve profitability. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of March 31, 2024 and December 31, 2023 is summarized as follows:
Schedule of Property and Equipment
|
|
|
|
|
|
|
|
| March 31, 2024
|
|
| December 31, 2023
|
|
|
|
| (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office furniture and fixtures
|
| $
| 39,117
|
|
| $
| 41,725
|
|
Office equipment
|
|
| 280,324
|
|
|
| 243,151
|
|
Vehicles
|
|
| 6,391
|
|
|
| 6,402
|
|
Less: accumulated depreciation
|
|
| (112,380
| )
|
|
| (98,942
| )
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
| $
| 213,452
|
|
| $
| 192,336
|
|
Depreciation expense for the three months ended March 31, 2024 and 2023 was $18,246 and $9,555, respectively.
NOTE 5 – INTANGIBLE ASSETS
Software as of March 31, 2024 and December 31, 2023 is summarized as follows:
|
| March 31,
|
|
| December 31,
|
|
|
| 2024
|
|
| 2023
|
|
Software
|
| $
| 2,317,778
|
|
| $
| 2,345,637
|
|
Less: accumulated amortization
|
|
| (940,532
| )
|
|
| (922,403
| )
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
| $
| 1,377,246
|
|
| $
| 1,423,234
|
|
Amortization expense for the three months ended March 31, 2024 and 2023 was $29,053 and $21,913, 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
16
date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, October 9, 2023.
|
|
| |
|
Property, plant and equipment
|
| $
| 6,911
|
|
Other receivables and prepayment
|
|
| 94,803
|
|
Amount due from related parties
|
|
| 381,086
|
|
Cash and cash equivalents
|
|
| 747,332
|
|
Other payables and accruals
|
|
| (323,742)
|
|
Goodwill
|
|
| 170,069
|
|
Non-controlling interest
|
|
| 72,887
|
|
Total consideration paid in cash
|
| $
| 1,149,346
|
|
Less: Cash and cash equivalents
|
|
| (747,332)
|
|
Net cash outflow arising from the acquisition of a subsidiary
|
| $
| 402,014
|
|
|
|
|
|
|
The transaction resulted in allocation of $170,069 to goodwill, representing the financial, strategic and operational value of the transaction to the Company. Goodwill is attributed to the premium that the Company paid to obtain the value of the business of Citysearch and the synergies expected from the combined operations of Citysearch and the Company, the assembled workforce and their knowledge and experience in provision of dining services. The total amount of the goodwill acquired is not deductible for tax purposes.
(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.
|
|
| |
|
Amount due to related parties
|
| $
| (925,423)
|
|
Goodwill
|
|
| 832,881
|
|
Non-controlling interest
|
|
| 92,542
|
|
Net cash outflow arising from the acquisition of a subsidiary
|
| $
| -
|
|
|
|
|
|
|
The transaction resulted in allocation of $832,881 to goodwill, representing the financial, strategic and operational value of the transaction to the Company. Goodwill is attributed to the premium that the Company paid to obtain the value of the business of Fresh Life and the synergies expected from the combined operations of Fresh Life and the Company, the assembled workforce and their knowledge and experience in provision of logistic services. The total amount of the goodwill acquired is not deductible for tax purposes.
NOTE 7 – 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.
17
|
|
| |
|
Analysis of assets and liabilities over which control was lost:
|
|
|
|
|
Other receivables
|
| $
| 21,892
|
|
Cash and cash equivalents
|
|
| 118,105
|
|
Amount due from related parties
|
|
| 344,251
|
|
Amount due to immediate holding company
|
|
| (1,704,251)
|
|
Other payables and accruals
|
|
| (46,374)
|
|
|
| $
| (1,266,377)
|
|
Loss on disposal of subsidiary:
|
|
|
|
|
Total consideration
|
| $
| 12,286
|
|
Less: Waiver of amount due to immediate holding company
|
|
| (1,704,251)
|
|
Add: Net liabilities disposed of
|
|
| 1,266,377
|
|
Loss on disposal
|
| $
| 425,588
|
|
|
|
|
|
|
Total consideration satisfied by:
|
|
|
|
|
Cash consideration received
|
| $
| -
|
|
|
|
|
|
|
Net cash outflow arising on disposal:
|
|
|
|
|
Cash consideration received
|
| $
| -
|
|
Cash and cash equivalents disposed of
|
|
| (118,105)
|
|
Net cash outflow
|
| $
| (118,105)
|
|
NOTE 8 – GOODWILL
|
|
|
|
|
|
|
|
| March 31,
2024
|
|
| December 31, 2023
|
Goodwill
| $
| 72,667,589
|
|
| $
| 71,664,639
|
Acquisition of subsidiaries
|
| -
|
|
|
| 1,002,950
|
Balance at end of period
| $
| 72,667,589
|
|
| $
| 72,667,589
|
Goodwill has been allocated for impairment testing purposes to the acquisition of the shares of Macao E-Media Development Company Limited including its subsidiaries Fresh Life Technology Company Limited and Citysearch Technology (HK) Company Limited by the Company.
The Company performed goodwill impairment test at the reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change indicating the asset might be impaired. As of December 31, 2023, the Company performed testing on reporting unit.
The Company first assessed qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For those reporting units where it is determined that it is more likely than not that their fair values are less than the units’ carrying amounts, the Company will perform the first step of a two-step quantitative goodwill impairment test. After performing the assessment, if the carrying amounts of the reporting units are higher than their fair values, the Company will perform the second step of the two-step quantitative goodwill impairment test.
For the two-step goodwill impairment test, the Company estimated the fair value with income approach for specific reporting unit component. With the income approach, the Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on the best estimate of future net sales and operating expenses, based primarily on expected expansion, pricing, market share, and general economic conditions. Certain estimates of discounted cash flows involve businesses with limited financial history and developing revenue models. Changes in these forecasts could significantly change the amount of impairment recorded, if any.
Nil impairment loss of Goodwill being recorded for the three months ended March 31, 2024, and year ended December 31, 2023, respectively.
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.
18
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:
|
|
|
|
|
|
|
| March 31,
2024
|
| December 31, 2023
|
Macao and Zhuhai
| $
| 374,154
|
| $
| 805,253
|
Hong Kong
|
| 213,701
|
|
| 213,701
|
Subtotal
|
| 587,855
|
|
| 1,018,954
|
Less: accumulated depreciation
|
| (391,255)
|
|
| (782,476)
|
Right to use assets, net
| $
| 196,600
|
| $
| 236,478
|
During the three months ended March 31, 2024 and 2023, the Company recorded $61,231 and $88,669 as depreciation on ROU assets; and the Company recorded $4,092 and $9,724 as financial interest to current period operations.
Lease liability is summarized below:
|
|
|
|
|
|
|
| March 31,
2024
|
| December 31, 2023
|
Macao and Zhuhai
| $
| 21,517
|
| $
| 134,375
|
Hong Kong
|
| 175,083
|
|
| 102,103
|
Total lease liability
|
| 196,600
|
|
| 236,478
|
Less: short term portion
|
| (124,131)
|
|
| (188,214)
|
Long term portion
| $
| 72,469
|
| $
| 48,264
|
Maturity analysis under these lease agreements are as follows:
|
| March 31,
2024
|
| December 31, 2023
|
Period / year ended March 31, 2024 and December 31, 2023
| $
| 209,319
|
| $
| 248,389
|
Less: Present value discount
|
| (12,719)
|
|
| (11,911)
|
Lease liability
| $
| 196,600
|
| $
| 236,478
|
Lease expense for the three months ended March 31, 2024 was comprised of the following:
|
|
| |
|
Operating lease expense
|
| $
| 58,811
|
|
Short-term lease expense
|
|
| 52,574
|
|
|
| $
| 111,385
|
|
Lease expense for the three months ended March 31, 2023 was comprised of the following:
|
|
| |
|
Operating lease expense
|
| $
| 75,103
|
|
Short-term lease expense
|
|
| 15,887
|
|
|
| $
| 90,990
|
|
NOTE 10 - LOAN RECEIVABLES
On September 10, 2021, the Company’s subsidiary, Sinoforte Limited entered into a business loan agreement, by and among the company, Gold Gold Gold Limited (“3G”), whereby the Company provide the fund for $1,000,000 to 3G for the business operating use. The loan amount was unsecured, with interest rate 5% p.a. and no fixed term of repayment.
19
NOTE 11 - INVENTORIES
The Company purchased gold from the platform under its joint venture, Gold Gold Gold Limited. Inventories for gold as of March 31, 2024 was $522. The Company's subsidiary, MED was trading as mobile platform of ordering and delivery services for restaurants and had approximately $79,665 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 $8,386 of inventory for food and beverage as of March 31, 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 $374,672 expiring July 31, 2025 at an interest rate of 4.25% per annum. This loan is secured against the directors of MED and for the use of MED operation due to the outbreak of COVID-19. On June 13, 2022, MED borrowed another loan from Ant Bank (Macao) Limited with principle of $623,239 (equivalent to MOP5,000,000), at an interest rate of 5.5% per annum. In 2023, the Company borrowed addition loan from Ant Bank with principle of $617,731 (equivalent to MOP5,000,000), at an interest rate of 5.5% per annum. Both loan from Ant Bank will be expired on June 18, 2024.In May and June 2023, Chengmi borrowed the loans with principle of $362,505 and $414,731, repaid within a year and at an interest rate of 4.5% per annum. In June 2023, Chengmi borrowed the loans with principle of $85,518 and $59,052, repaid within a year and at an interest rate of 4.4% per annum.
Bank loans are summarized below:
|
| March 31,
2024
|
|
| December 31, 2023
|
|
Bank loans
| $
| 2,226,130
|
| $
| 2,258,181
|
|
Less: short term portion
|
| (2,226,130
| )
|
| (2,239,534
| )
|
Long term portion
| $
| -
|
| $
| 18,647
|
|
NOTE 13 – CAPITAL STOCK
The Company is authorized to issue 500,000,000 shares of common stock, $0.01 par value, and 25,000,000 shares of preferred stock, $0.01 par value. As of March 31, 2024 and December 31, 2023, there were 263,337,500 shares of the Company’s common stock issued and outstanding, and none of the preferred shares were issued and outstanding.
As of March 31, 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 CEDE & Co owned 26,008,850 shares, or 9.88%, of the Company’s common stock. Other than Kelton Capital Group Ltd, Jiang Haitao and CEDE & Co, no person owns 5% or more of the Company’s issued and outstanding shares.
NOTE 14 – INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted profit/(loss) per common share for the three months ended March 31, 2024 and 2023, respectively:
|
|
|
|
|
| March 31, 2024
|
| March 31, 2023
|
|
|
|
|
| (unaudited)
|
|
| (unaudited)
|
|
|
Numerator - basic and diluted
|
|
|
|
|
|
|
|
|
Net income
|
| $
| $24,574
|
| $
| 649,059
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding —basic and diluted
|
|
| 263,337,500
|
|
| 263,337,500
|
|
|
Income per common share — basic and diluted
|
| $
| 0.000
|
| $
| 0.002
|
|
|
|
|
|
|
|
|
|
|
|
20
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:
|
| March 31, 2024
|
| December 31, 2023
|
|
|
| (unaudited)
|
| (audited)
|
|
Property, plant and equipment, net
|
| $
| 1,213
|
| $
| 1,488
|
|
Other receivables and prepaid
|
|
| 9,413
|
|
| 9,213
|
|
Amount due from related company
|
|
| 9,126
|
|
| -
|
|
Inventory
|
|
| 119,101
|
|
| 119,310
|
|
Cash and cash equivalents
|
|
| 17,123
|
|
| 49,422
|
|
Total assets
|
|
| 155,976
|
|
| 179,433
|
|
|
|
|
|
|
|
|
|
Accrual expense
|
|
| (1,003
| )
|
| (1,152
| )
|
Other payable to shareholder
|
|
| (4,352,779
| )
|
| (4,310,453
| )
|
Customer deposit
|
|
| (433,781
| )
|
| (404,659
| )
|
Total liabilities
|
|
| (4,787,563
| )
|
| (4,716,264
| )
|
|
|
|
|
|
|
|
|
Net liabilities
|
| $
| (4,631,587
| )
| $
| (4,536,831
| )
|
Statement of Operations:
|
| Three months ended
March 31, 2024
|
|
|
| (unaudited)
|
|
Revenue
|
| $
| -
|
|
Less: Cost of sales
|
|
| -
|
|
|
|
| -
|
|
Operating expense
|
|
| (48,320
| )
|
Depreciation
|
|
| (273
| )
|
Net loss from operations
|
|
| (48,593
| )
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
Interest (expense) income, net
|
|
| (54,118
| )
|
Net loss
|
| $
| (102,711
| )
|
NOTE 16 - RELATED PARTY BALANCES
Due from related parties
The balance due from related parties was as following:
|
|
|
|
|
|
|
| March 31,
2024
|
| December 31,
2023
|
|
|
| $
|
| $
|
|
Citysearch Technology (Macao) Limited (1)
|
| 1,402
|
| 1,405
|
|
Kangaroo Technology Co., Limited (2)
|
| (177,268)
|
| -
|
|
Gloryful Company Limited (3)
|
| 2,110
|
| 2,113
|
|
Littlemi Technology Company Limited (4)
|
| 117,078
|
| 117,282
|
|
Nanjing Chengmi Technology Company Limited (5)
|
| 149,934
|
| 151,297
|
|
Watermelon Cultural Communication Company Limited (6)
|
| 218,776
|
| 219,159
|
|
Zhuhai Xiangguo Technology Co., Limited (7)
|
| 22,212
|
| -
|
|
|
| 334,244
|
| 491,256
|
|
21
Note:
(1)
| Citysearch Technology (Macao) Limited is 90% controlled by Jiang Haitao, the shareholder of the Company. The balances represented the amount paid on behalf of the Company for its daily operation purpose.
|
(2)
| Kangaroo Technology Co., Limited has common director with Jiang Haitao, the shareholder of the Company. The balances represented the amount paid on behalf of the Company for its daily operation purpose.
|
(3)
| Gloryful Company Limited is 6% controlled by Jiang Haitao, the shareholder of the Company. The balances represented the amount paid on behalf of the Company for its daily operation purpose.
|
(4)
| Littlemi Technology Company Limited is 50% controlled by Jiang Haitao, the shareholder of the Company. The balances represented the amount paid on behalf of the Company for its daily operation purpose.
|
(5)
| Nanjing Chengmi Technology Company Limited is 100% controlled by Jiang Haitao, the shareholder of the Company. The balances represented the amount paid on behalf of the Company for its daily operation purpose.
|
(6)
| Watermelon Cultural Communication Company Limited 51% controlled by Jiang Haitao, the shareholder of the Company. The balances represented the amount paid on behalf of the Company for its daily operation purpose.
|
(7)
| Zhuhai Xiangguo Technology Co., Limited has common director with Jiang Haitao, the shareholder of the Company. The balances represented the amount paid on behalf of the Company for its daily operation purpose.
|
NOTE 17 - COMMITMENTS AND CONTINGENCIES
Legal proceedings
As of March 31, 2024, the Company is not aware of any material outstanding claim and litigation against them.
NOTE 18 - 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.
22
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains certain forward-looking statements that involve risks and uncertainties. We use words such as "anticipate," "believe," "expect," "future," "intend," "plan," and similar expressions to identify forward-looking statements. These statements are only predictions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Our actual results could differ materially from those anticipated in these forward-looking statements.
Overview
We conduct our businesses primarily through our 98.75% owned subsidiary, Macao E-Media Development Company Limited, a Macau Company (“MED”), and 50% owned subsidiary, Gold Gold Gold Limited (“3G”), a Hong Kong company. MED has five subsidiaries, each of which is in charge of respective area such as Development & Maintenance, Marketing & Operation, Logistics & Delivery, Payment & Clearance, Emerging Market Business Development.
In this MD&A section, we will primarily discuss the business of MED, as 3G is a joint venture and its financial position and results of operations are not consolidated with our consolidated financial statements. The financial position and results of operations of 3G are summarized in the Notes to our consolidated financial statements.
As a leading mobile platform of ordering and delivery services for restaurants or other merchants, we operate in Macau, and our businesses are built on our platform, Aomi App (the “Platform”). The Platform connects restaurants/merchants (collectively referred to as “Merchants”) with consumers and delivery riders. The Platform is created to serve the needs of these three key constituencies and to become more intelligent and efficient with every customer order. As we grow, we enjoy the benefits of scale and enjoy our competitive advantages, and at the same time we deliver substantial benefits to everyone we serve.
On January 2023, the Company acquired 90% shares of Fresh Life Technology Company Limited (“Fresh Life”) through its subsidiary, Zhuhai Migua Technology Company Limited. The main business of Fresh Life is provision of logistic services in Macau.
On October 9, 2023, the Company acquired 70% shares of Citysearch Technology (HK) Company Limited (“Citysearch”) in Hong Kong. The main business of Citysearch is provision of group dining service platform, which mainly solves the lunch and dinner group dining needs for corporate employees in Hong Kong. As a startup, for the period ended December 31, 2023, Citysearch had a revenue of approximately $27,450, and net loss of approximately $969,632.
On December 22, 2023, the Company established a new wholly-owned subsidiary, Graphite Energy, Inc., which was incorporated in the State of Florida. The purpose of forming this new subsidiary is to enter the business of graphite production and sales, including establishing a production line for graphite refined powder products in Madagascar. Consequently, the Company first needs to ensure the long-term, sufficient and stable supply of graphite ore, which is the most important raw material for the Company’s graphite production line. On January 18, 2024, the Company entered into a Base Agreement for Purchase of Graphite Ore with Madagascar Graphite Limited (the “Supplier”) to ensure the long-term, sufficient and stable supply of graphite ore, which is the most important raw material for the Company’s graphite production line. The Supplier owns approximately 280-square-kilometer graphite mining area in the Tamatave region of Madagascar, with hundreds of millions of tons of the estimated graphite ore reserves and a history of graphite mining for more than a hundred years. On March 22, 2024, this agreement was amended and restated. Under the amended and restated agreement, the Company will not make advance payments to Supplier for the purchase of graphite ore; instead, payments will be made after manufacturing graphite products using the ore as raw material. The agreement term is one year, ending on March 30, 2025. During the term, Supplier agrees to sell and deliver to the Company, and the Company agrees to purchase and accept from Supplier sufficient amount of graphite ore so that the Company can produce up to 100,000 tons of graphite refined powder products with a carbon content of more than 95%. Parties agree to decide whether to renew or reach a new agreement 30 days before the expiration of this agreement.
Due to the uncontrollable variations among different grades of graphite ore, such as volume, weight, carbon content, as well as inaccuracies in testing, to protect each party’s interest and simplify the process of pricing, parties agree that the price for the graphite ore used for the production of refined graphite powder shall be calculated on an output based formula as follows: (i) for each metric ton of refined graphite powder output, the Company shall pay Supplier a fixed price of $200, regardless of how many metric tons of graphite ore used as input; and (ii) This fixed price shall cover all mining and transporting the graphite ore to the warehousing facility at the Company’s production line in Tamatave, Madagascar by Supplier.
Parties agree that purchase price shall be paid to Supplier by the Company’s issuance of its common stock shares, at a price of $0.50 per share. The Company’s share payment shall be made quarterly in accordance with the quantity of the refined graphite powder produced for the quarter. Parties agree the Company’s shares shall be issued to Supplier within 90 days of each quarterly settlement.
23
Results of Operations
For the Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023
The following table shows operating results for the three months ended March 31, 2024 and 2023:
|
| Three Months Ended
March 31,
|
|
|
|
|
|
| 2024
|
| 2023
|
| $ Change
|
| % Change
|
Revenues
|
| $
| 10,404,933
|
|
| $
| 9,217,753
|
|
|
| 1,187,180
|
|
|
| 12.88
| %
|
Cost of revenue
|
|
| 5,908,122
|
|
|
| 5,287,998
|
|
|
| 620,124
|
|
|
| 11.73
| %
|
Gross Profit
|
|
| 4,496,811
|
|
|
| 3,929,755
|
|
|
| 567,056
|
|
|
| 14.43
| %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
| 4,513,213
|
|
|
| 3,265,395
|
|
|
| 1,247,818
|
|
|
| 38.21
| %
|
Net income (loss) from operations
|
|
| (16,402
| )
|
|
| 664,360
|
|
|
| (680,762
| )
|
|
| n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income / (expense)
|
|
| (24,805
| )
|
|
| (8,791
| )
|
|
| 16,014
|
|
|
| 182.16
| %
|
Net income (loss)
|
| $
| (41,207
| )
|
| $
| 655,569
|
|
|
| (696,776
| )
|
|
| n/a
|
|
Sales
For the three months ended March 31, 2024, the Company generated sales of $10,404,933 compared to $9,217,753 for the same period of 2023. The new generated sales were entirely from the newly acquired 98.75% owned subsidiary, MED.
Costs of Goods Sold
For the three months ended March 31, 2024, the Company generated cost of goods sold for $5,908,122 compared to $5,287,998 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 March 31, 2024 and 2023, the Company's selling, general and administrative expenses were $4,513,213 compared to $3,265,395 for the same period of the previous year. The increase is primarily the result of R&D expense and promotion expense from Macao's and Zhuhai's subsidiaries.
Other Income (Expense)
For the three months ended March 31, 2024, the Company had $24,805 of interest expense relating to bank loan interest payable, as compared to $8,791 of interest expense for the same period last year.
Net Income/(Loss)
For the three months ended March 31, 2024, the Company had a net loss of $41,207, or ($0.000) per share, as compared to a net income of $655,569, or $0.002 per share, for the same period of 2023.
Liquidity and Capital Resources
As of March 31, 2024, the Company had cash and cash equivalents of $2,877,496 and a working capital deficit of $5,944,115. For the three months ended March 31, 2024, the Company used net cash of $508,671 from its operating activities primarily from our net loss of $41,207, adjusted net with depreciation and amortization of $47,299, a loss on disposal of subsidiary of $425,588 an increase in account receivables of $810,900, an increase in inventories of $21,003, an increase in prepaid expenses of $565,889, a decrease in deposits of $4,663, an increase in other receivables of $140,158, an increase in accrued expense of $251,333, a decrease in deposit received of $91,361, an increase in other payables of $35,300, an increase in account payable of $397,664. By comparison, net cash used in operating activities was $943,440 for the same period of 2023.
During the three months ended March 31, 2024, the Company provided net cash of $208,112 from its investing activities which comprised with purchase of equipment of $41,613, repayment from related companies of $202,956, repayment from shareholder of $200,551, repayment from joint venture of $24,359, net cash outflow from disposal of subsidiary of $118,105 and loan to joint venture of $60,036. By comparison, net cash provided by investing activities was $172,097 for the same period of 2023.
During the three months ended March 31, 2024, the Company’s financing activities used net cash of $18,615, which was comprised of repayment of bank loans of $18,615. By comparison, net cash used in financing activities was $33,624 for the same period of 2023.
24
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 Macau and Zhuhai subsidiaries, it results on addition lease for office and warehouse approximately 39,800 square feet in Macau and Zhuhai, expiring within year 2023 and 2024 with monthly payment of approximately $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 March 31, 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.
25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
A smaller reporting company is not required to provide the information in this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits:
Exhibit No. Title of Document
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 INS XBRL Instance Document
101SCH XBRL Taxonomy Extension Schema Document
101 CAL XBRL Taxonomy Extension Calculation Linkbase Document
101LAB XBRL Taxonomy Extension Label Linkbase Document
101PRE XBRL Taxonomy Extension Presentation Linkbase Document
101DEF XBRL Taxonomy Extension Definition Linkbase Document.
26
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
May 29, 2024
27
