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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 March 31, 2022 and December 31, 2021.
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.
12
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 generated a net loss of $1,018,322 and an accumulated deficit of $11,287,098 as of March 31, 2022. 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, 2022 and December 31, 2021 is summarized as follows:
Schedule of Property and Equipment
|
|
|
|
|
|
|
|
| March 31, 2022
|
|
| December 31, 2021
|
|
|
|
| (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office furniture and fixtures
|
| $
| 60,447
|
|
| $
| 55,369
|
|
Office equipment
|
|
| 156,891
|
|
|
| 137,118
|
|
Less: accumulated depreciation
|
|
| (125,922
| )
|
|
| (115,481
| )
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
| $
| 91,416
|
|
| $
| 77,006
|
|
Depreciation expense for the three months ended March 31, 2022 and 2021 was $11,851 and $245, respectively.
NOTE 5 – INTANGIBLE ASSETS
Software as of March 31, 2022 and December 31, 2021 is summarized as follows:
|
| March 31,
|
|
| December 31,
|
|
|
| 2022
|
|
| 2021
|
|
Software
|
| $
| 2,027,116
|
|
| $
| 1,940,614
|
|
Less: accumulated amortization
|
|
| (790,604
| )
|
|
| (714,613
| )
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
| $
| 1,236,512
|
|
| $
| 1,226,001
|
|
Amortization expense for the three months ended March 31, 2022 and 2021 was $55,108 and $Nil, respectively.
13
NOTE 6 – GOODWILL
|
|
|
|
|
|
|
|
| March 31,
2022
|
|
| December 31, 2021
|
Goodwill
| $
| 71,664,639
|
|
| $
| 71,664,639
|
Less accumulated impairment losses
|
| -
|
|
|
| -
|
Balance at end of period
| $
| 71,664,639
|
|
| $
| 71,664,639
|
Goodwill has been allocated for impairment testing purposes to the acquisition of the shares of Macao E-Media Development Company Limited by the Company.
The assets were valued using a Fair Market Value basis as defined by The Financial Accounting Standards Board (FASB ASC 820). Liabilities were taken from Macao E-Media Development Company Limited Consolidated Balance Sheet as of September 27, 2021.
NOTE 7 – RIGHT TO USE ASSETS AND LEASE LIABILITY
In January 2020, the Company entered a two-year lease for office space of approximately 770 square feet in Hong Kong, expiring January 10, 2022, with monthly payments of approximately $4,418 per month.
In September 2021, the Company entered the lease agreement for office and supermarket with MED and its subsidiaries in Macao and Zhuhai, with monthly payments of approximately $44,724 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 $1,302,109.
Right to use assets is summarized below:
|
|
|
|
|
|
|
|
| March 31,
2022
|
|
| December 31, 2021
|
Macao and Zhuhai
| $
| 1,204,080
|
|
| $
| 1,175,932
|
Hong Kong
|
| 98,029
|
|
|
| 98,331
|
Subtotal
|
| 1,302,109
|
|
|
| 1,274,263
|
Less: accumulated depreciation
|
| (688,114)
|
|
|
| (687,341)
|
Right to use assets, net
| $
| 613,995
|
|
| $
| 586,922
|
During the three months ended March 31, 2022 and 2021, the Company recorded $136,596 and $12,318 as depreciation on ROU assets; and the Company recorded $12,586 and $933 as financial interest to current period operations.
Lease liability is summarized below:
|
| March 31,
2022
|
| December 31, 2021
|
Macao and Zhuhai
| $
| 527,955
|
| $
| 586,922
|
Hong Kong
|
| 86,040
|
|
| -
|
Total lease liability
|
| 613,995
|
|
| 586,922
|
Less: short term portion
|
| (391,566)
|
|
| (400,009)
|
Long term portion
| $
| 222,429
|
| $
| 186,913
|
Maturity analysis under these lease agreements are as follows:
|
| March 31,
2022
|
| December 31, 2021
|
Period / year ended March 31, 2022 and December 31, 2021
| $
| 655,825
|
| $
| 627,609
|
Less: Present value discount
|
| (41,830)
|
|
| (40,687)
|
Lease liability
| $
| 613,995
|
| $
| 586,922
|
14
Lease expense for the three months ended March 31, 2022 was comprised of the following:
|
|
| |
|
Operating lease expense
|
| $
| 150,302
|
|
Short-term lease expense
|
|
| 11,422
|
|
|
| $
| 161,724
|
|
Lease expense for the three months ended March 31, 2021 was comprised of the following:
|
|
| |
|
Operating lease expense
|
| $
| 13,251
|
|
Short-term lease expense
|
|
| 1,950
|
|
|
| $
| 15,201
|
|
NOTE 8 - LOAN RECEIVABLES
In September 10, 2021, the Company’s subsidiary, Sinoforte Limited entered into a business loan agreement, by and among the joint venture, Gold Gold Gold Limited (“3G”), whereby the Company provide the fund for $1,000,000 to 3G for its business operating use. The loan amount was unsecured, with interest rate 5% per annum and has no fixed terms of repayment.
NOTE 9 - INVENTORIES
The Company purchased gold from the platform under its joint venture, Gold Gold Gold Limited. Inventories for gold as of March 31, 2022 was $522. The Macao subsidiary, Green Supply Chain Management Company Limited who was trading as supermarket and had $368,015 merchandise inventory as of March 31, 2022.
NOTE 10 – BANK LOANS
The bank loans are borrowed by MED and Zhuhai Chengmi Technology Company Limited (“Chengmi”), which are the new subsidiaries during business combinations in September 2021. The banking credit facility from MED dated March 3, 2020 for a maximum principal of $374,672 expiring July 31, 2025 at an interest rate of 4.25%. This loan is secured against the directors of MED and for the use of MED operation due to the outbreak of COVID-19. Another bank loan borrowed by Chengmi with principle of $464,583 and $309,721 and expiring December 2022 and May 2023 respectively, at an interest rate of 4.6% and 4.45% per annum.
NOTE 11 – 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, 2022 and December 31, 2021, 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, 2022, Kelton Capital Group Ltd. owned 31,190,500 shares or 11.8% of the Company’s common stock, and Aspect Group Limited owned 26,000,000 shares, or 9.9% of the Company’s common stock, and Jiang Haitao owned 46,588,236 shares, or 17.7% of the Company’s common stock. Other than Kelton Capital Group Ltd, Aspect Group Ltd, and Jiang Haitao, no person owns 5% or more of the Company’s issued and outstanding shares.
NOTE 12 – LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per common share for the three months ended March 31, 2022 and 2021, respectively:
15
| March 31, 2022
| March 31, 2021
|
|
|
|
|
| (unaudited)
|
|
| (unaudited)
|
|
|
Numerator - basic and diluted
|
|
|
|
|
|
|
|
|
Net loss
|
| $
| (1,018,322)
|
| $
| (38,299)
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding —basic and diluted
|
|
| 263,337,500
|
|
| 114,915,852
|
|
|
Loss per common share — basic and diluted
|
| $
| (0.004
| )
| $
| (0.000
| )
|
|
|
|
|
|
|
|
|
|
|
NOTE 13 - 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, 2022
|
| December 31, 2021
|
|
|
| (unaudited)
|
| (audited)
|
|
Property, plant and equipment, net
|
| $
| 3,392
|
| $
| 3,676
|
|
Other receivables and prepaid
|
|
| 9,127
|
|
| 8,920
|
|
Inventory
|
|
| 7,468,770
|
|
| 4,181,874
|
|
Cash and cash equivalents
|
|
| 932,901
|
|
| 1,379,175
|
|
Total assets
|
|
| 8,414,190
|
|
| 5,573,645
|
|
|
|
|
|
|
|
|
|
Other payable to shareholder
|
|
| (4,604,276
| )
|
| (4,265,052
| )
|
Customer deposit
|
|
| (7,469,379
| )
|
| (4,885,447
| )
|
Total liabilities
|
|
| (12,073,655
| )
|
| (9,150,499
| )
|
|
|
|
|
|
|
|
|
Net liabilities
|
| $
| (3,659,465
| )
| $
| (3,576,854
| )
|
Statement of Operations:
|
| Three months ended
March 31, 2022
|
|
|
| (unaudited)
|
|
Revenue
|
| $
| 4,340,100
|
|
Less: Cost of sales
|
|
| (4,237,321
| )
|
|
|
| 102,779
|
|
Operating expense
|
|
| (143,189
| )
|
Depreciation
|
|
| (273
| )
|
Net loss from operations
|
|
| (40,683
| )
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
Interest (expense) income, net
|
|
| (53,266
| )
|
Net loss
|
| $
| (93,949
| )
|
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Legal proceedings
As of March 31, 2022, the Company is not aware of any material outstanding claim and litigation against them.
16
NOTE 15 - 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
The Company conducts business primarily through its wholly owned subsidiary Sinoforte Ltd., a Hong Kong corporation.
Prior to August 2011, the Company operated primarily as a merchant, buying and selling various type and grades of graphite, such as medium- and high-carbon graphite, high-purity graphite, micro-powder graphite and expandable graphite. As a merchant, the Company acted as a reseller. It purchased graphite products in bulk, primarily from graphite producers, and resold them, either in bulk or in smaller quantities (in either case, without further processing), to various small and mid-sized customers.
In August 2011, the Company started to engage in a business of e-commerce platform. Currently the Company is in the process of developing a website, “Makeliving.com” ("Makeliving"), which provides an e-commerce platform, where registered members can exchange goods and services.
Makeliving will act both as a platform and as a conduit between those (individuals or companies) who desire to acquire goods and services and those (individuals or companies) who desire to offer goods and services. Makeliving plans to charge a certain percentage fee for the transactions. However, no revenues have been generated. The website is now temporarily under maintenance. At the same time, the Company is considering new business models.
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.
The Joint Venture, with the support of blockchain technology, is to provide global trading service of physical gold for global customers. The parties contribute their respective experiences in blockchain technology and marketing. The Company will assist the Joint Venture in exploring the North America and Europe markets, while Cityhill will focus on the Asian markets.
In September 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. As a result of this acquisition, MED becomes a 98.75% owned subsidiary of the Company. MED was founded at Macau in 2011. Its main area of business includes food and grocery order-pickup-delivery services from local restaurants, supermarkets and hotels. For the year ended December 31, 2021, MED generated approximately $10 million of revenue.
MED has four subsidiaries, each of which is in charge of respective area such as Development & Maintenance, Marketing & Operation, Logistics & Delivery, Payment & Clearance, Emerging Market Business Development.
17
Results of Operations
For the Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021
Sales
For the three months ended March 31, 2022, the Company generated sales of $10,130,661 compared to $Nil for the same period of 2021. 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, 2022, the Company generated cost of good sold for $7,358,415 compared to $Nil for the same period of 2021. Currently the Company is attributable to delivery rider costs and purchase of inventory.
Operating expenses
For the three months ended March 31, 2022 and 2021, the Company’s selling, general and administrative expenses were $3,794,019 compared to $35,375 for the same period of the previous year. The increase is primarily the result of new operation generated from Macao’s and Zhuhai’s subsidiaries.
Other Income (Expense)
For the three months ended March 31, 2022, the Company had $9,346 of interest expense relating to bank loan interest payable, as compared to $2,924 of interest expense for the same period last year.
Net Loss
For the three months ended March 31, 2022, the Company had a net loss of $1,018,322, or $(0.004) per share, as compared to a net loss of $38,299, or $(0.000) per share, for the same period of 2021.
Liquidity and Capital Resources
As of March 31, 2022, the Company had cash and cash equivalents of $4,666,521 and a working capital deficit of $3,896,526. For the three months ended March 31, 2022, the Company provided by net cash of $223,203 from its operating activities primarily from our net loss of $1,031,119, adjusted net with depreciation and amortization of $66,959, a loss of disposal of equipment of $6, a decrease in account receivables of $89,843, an increase in inventories of $113,250, a increase in prepaid expenses of $104,008, a decrease in deposits of $4,154, a decrease in other receivables of $13,031, an increase in accrued expense of $606,967, an increase in deposit received of $320,966, a decrease in other payables of $201,099, a increase in account payable of $124,347. By comparison, net cash used in operating activities was $39,566 for the same period of 2021.
During the three months ended March 31, 2022, the Company provided net cash of $6,281 from its investing activities which comprised with purchase of equipment of $26,293, purchase of intangible assets of $79,242, a decrease in amount due from related company of $159,408, an increase in amount due from shareholder of $47,530 and a decrease in amount due to related company of $62. By comparison, net cash provided by investing activities was $1 for the same period of 2021.
During the three months ended March 31, 2022, the Company’s financing activities used net cash of $47,897, which was comprised of repayment of bank loans of $47,897. By comparison, net cash provided by financing activities was $45,641 for the same period of 2021.
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.
18
Contractual Obligations
We lease our office space, approximately 250 square feet, in Jersey City, New Jersey, on a month-by-month basis. For the six-month ended June 30, 2020, the rent was $650 per month. We also have an office in Hong Kong, which is leased on a term of two years ending in January 2022. The space is approximately 770 square feet, and the rent is approximately $4,393 per month. With the acquisition with MED, the Company has the office in Macao and Zhuhai, which are leased on terms of two to three years from 2020 to 2024. The rent is approximately $44,724 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, 2022, 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
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
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Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits:
Exhibit No. Title of Document
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 INS XBRL Instance Document
101SCH XBRL Taxonomy Extension Schema Document
101 CAL XBRL Taxonomy Extension Calculation Linkbase Document
101LAB XBRL Taxonomy Extension Label Linkbase Document
101PRE XBRL Taxonomy Extension Presentation Linkbase Document
101DEF XBRL Taxonomy Extension Definition Linkbase Document.
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 16, 2022
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