10-K: Scientific Energy Inc. Reports Profitable Year After Strategic Shift, Eyes Graphite Market

Scientific Energy, Inc. reports a profitable year in 2023 driven by its Macau food delivery platform, while also expanding into graphite production.

Summary

• Scientific Energy, Inc. reported a net income of $2,087,997 for the year ended December 31, 2023, a significant turnaround from a net loss of $3,766,129 in 2022.
• The company's revenue decreased by $5.2 million to $38.9 million in 2023, compared to $44.1 million in 2022.
• Gross profit increased by $4.7 million to $17.9 million in 2023, up from $13.2 million in 2022.
• The company's primary business is its 98.75% owned subsidiary, Macao E-Media Development Company Limited (MED), a leading food and grocery delivery service in Macau.
• MED's platform generated over 11.7 million transactions, totaling approximately $160.2 million in Gross Merchandise Volume in 2023.
• In 2023, the company adjusted its business strategy to maintain market share, reduce costs, and increase efficiency, leading to profitability.
• The company acquired 90% of Fresh Life Technology Company Limited in January 2023, a logistics service provider in Macau.
• In October 2023, the company acquired 70% of Citysearch Technology (HK) Company Limited, a group dining service platform in Hong Kong, which had a revenue of approximately $27,450 and a net loss of approximately $969,632 for the year ended December 31, 2023.
• The company established Graphite Energy, Inc. in December 2023 to enter the graphite production and sales business, with a focus on establishing a production line in Madagascar.
• A one-year agreement was made with Madagascar Graphite Limited to supply graphite ore, with payments based on refined graphite powder output at a fixed price of $200 per metric ton, payable in company shares at $0.50 per share.

Sentiment

Score: 7

Explanation: The document shows a positive turnaround with the company achieving profitability and diversifying into a new market. However, there are still risks related to liquidity and the new graphite business, which tempers the overall sentiment.

Positives

• The company achieved profitability in 2023 after a strategic shift to focus on core business and cost reduction.
• Gross profit increased significantly, indicating improved operational efficiency.
• The company's food delivery platform in Macau continues to perform well with high transaction volume.
• The company is diversifying its business by entering the graphite market, which could provide new revenue streams.
• The graphite ore supply agreement ensures a stable supply of raw materials for the new graphite business.

Negatives

• Total revenue decreased by $5.2 million in 2023 compared to 2022.
• The newly acquired Citysearch Technology (HK) Company Limited reported a net loss of approximately $969,632 for the year ended December 31, 2023.
• The company has a working capital deficit of $5,992,049 as of December 31, 2023.
• The company does not generate a significant amount of cash flows from operations.

Risks

• The company's ability to continue as a going concern is dependent on obtaining necessary equity financing and achieving profitable operations.
• The company's liquidity assumptions may prove to be incorrect, and it could utilize available financial resources sooner than expected.
• The company may need to reduce operating costs if it is unable to obtain additional funds, which could impair growth prospects.
• The graphite business is new and carries risks associated with establishing a production line and securing a stable supply chain.
• The company faces competition in the food delivery market, which could impact its growth and profitability.

Future Outlook

The company intends to continue to grow its consumer reach, expand service offerings, improve operational efficiency, and deliver excellent customer care. It also plans to develop its graphite production business.

Management Comments

• The company adjusted its business strategy to maintain a stable market share, reduce costs and increase efficiency, and ensure the company's profitability.
• The company reduced or suspended investment in certain exploratory business activities, such as online supermarket and live broadcasting business, and focused on its main business and the business initiatives with good profitability.

Industry Context

The company operates in the mobile food and grocery ordering and delivery market, which has seen significant growth due to increased smartphone penetration. The company is also entering the graphite market, which is driven by the demand for electric vehicle batteries and other industrial applications.

Comparison to Industry Standards

• The company's food delivery business in Macau is a leading platform with approximately 70% market share, which is comparable to other dominant players in similar regional markets.
• The company's gross profit margin of approximately 46% is within the range of other established food delivery platforms.
• The company's entry into the graphite market is a strategic move to diversify its revenue streams, similar to other companies seeking to capitalize on the growing demand for battery materials.
• The company's graphite ore agreement with Madagascar Graphite Limited is similar to other companies securing long-term supply agreements for critical minerals.

Stakeholder Impact

• Shareholders will benefit from the company's return to profitability and diversification into new markets.
• Employees may see job security improve with the company's growth and expansion.
• Customers will continue to benefit from the company's food delivery services and may see new service offerings in the future.
• Suppliers will benefit from the company's growth and expansion, particularly in the graphite market.
• Creditors will be impacted by the company's financial performance and ability to repay debts.

Next Steps

• The company will continue to add new merchants to its platform.
• The company will increase consumer reach through more consumer engagement.
• The company will improve the delivery driver experience.
• The company will expand its service offerings.
• The company will improve its operational efficiency.
• The company will establish a graphite production line in Madagascar.

Key Dates

Keywords

food delivery, graphite, Macau, e-commerce, logistics, joint venture, profitability, cost reduction, market share, acquisitions