NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
NOTE 1 ORGANIZATION AND PRINCIPAL ACTIVITIES
Scientific Energy, Inc., (the "Company") was incorporated under the laws of the State of Utah on May 30, 2001. Prior to August 2011, the Company was principally devoted to the buying and selling of various types and grades of graphite, such as medium- and high-carbon graphite, high-purity graphite, micro-powder graphite and expandable graphite. In August 2011, the Company decided to engage in a business of e-commerce platform. Currently the Company is in the process of developing a website, which provides an e-commerce platform, where registered members can exchange goods and services.
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 JVCs 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 JVCs 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.
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 Company has not generated significant revenues since 2011 and is unlikely to generate significant earnings in the immediate or foreseeable future. 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, Makeliving, Ltd., PDI and Sinoforte.
All significant intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition
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 managements 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 exploring web based e-commerce to bring buyers and sellers together recognizing revenue as commissions 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 in China. 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 Companys 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 Companys financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. Generally, the Companys 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 December 31, 2020, and December 31, 2019, the Company maintained Nil and $51,372 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.
The exchange rates used to translate amounts in HKD into US Dollars for the purposes of preparing the consolidated financial statements were as follows:
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|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Exchange rate on balance sheet dates
|
|
|
|
|
USD : HKD exchange rate
|
|
7.7536
|
|
7.7889
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020
|
|
Year Ended December 31, 2019
|
Average exchange rate for the period
|
|
|
|
|
USD : HKD exchange rate
|
|
7.7561
|
|
7.8350
|
Property, plant and equipment
|
|
|
|
The estimated useful lives of property, plant and equipment are as follows:
|
|
|
|
|
|
|
|
Office equipment
|
|
3 years
|
|
Furniture and fixtures
|
|
3 years
|
|
Vehicles
|
|
4 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.
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:
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Level 1
|
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
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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 December 31, 2020 and 2019.
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 Companys investment in joint venture is accounted for using the equity method.
Lease liabilities
In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the package of practical expedients, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. In determining the length of the lease term to its long-term lease, the Company determined it did not have an option to extend either lease.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, DebtDebt with Conversion and Other Options (Subtopic 470-20) and Derivatives and HedgingContracts in Entitys Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entitys Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate that is expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The Company did not modify any material contracts due to reference rate reform during fiscal 2020. The Company will continue to evaluate the impact this guidance will have on financial statements for all future transactions affected by reference rate reform during the time permitted.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The FASB issued this update as part of its initiative to reduce complexity in accounting standards. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also improve consistent application of other areas by clarifying and amending existing guidance. ASU 2019-12 is effective for the Company in fiscal 2022 and early adoption is permitted. Certain amendments of this ASU may be adopted on a retrospective basis, modified retrospective basis or prospective basis. The Company is currently evaluating the impact this guidance will have on its financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments - Credit Losses. The ASU revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. The ASU affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In May 2019, the FASB issued ASU No. 2019-05, Targeted Transition Relief, which amends ASC 326. This ASU provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. The Company is currently evaluating the impact this guidance will have on its financial statements. The adoption of this standard did not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans ("ASU 2018-14"), which updates the standard to remove disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. The Company is currently evaluating the impact of adoption of this new standard and does not believe that the adoption of this ASU will have a significant impact on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU 2018-11, Leases (Topic 842): Targeted Improvements, which addressed implementation issues related to the new lease standard. These and certain other lease-related ASUs have generally been codified in ASC 842, Leases (ASC 842). ASC 842 supersedes the lease accounting requirements in ASC 840, Leases (ASC 840). ASC 842 establishes a right-of-use model that requires a lessee to record a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases. Under ASC 842, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The standard also requires disclosures around the amount, timing and uncertainty of cash flows arising from leases. The Company adopted the new standard since January 1, 2019.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Companys consolidated financial statements upon adoption.
NOTE 3 GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company has generated a net loss of $461,519 and an accumulated deficit of $9,301,091 as of December 31, 2020. 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 Companys 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 Companys 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
Furniture and equipment as of December 31, 2020 and 2019 is summarized as follows:
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|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Office furniture and fixtures
|
|
$
|
679
|
|
|
$
|
678
|
|
Office equipment
|
|
|
9,968
|
|
|
|
9,952
|
|
Vehicles
|
|
|
165,267
|
|
|
|
164,519
|
|
Less: accumulated depreciation
|
|
|
(175,060
|
)
|
|
|
(173,315
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
854
|
|
|
$
|
1,834
|
|
Depreciation expense for the years ended December 31, 2020 and 2019 was $980 and $775, respectively.
NOTE 5 RIGHT TO USE ASSETS AND LEASE LIABILITY
Effective June 1, 2018, the Company entered into a two-year lease for approximately 250 square feet in New York City, New York, expiring May 31, 2020 with monthly payments of $2,800 per month. In addition, the Company entered into a two-year lease for office space of approximately 770 square feet in Hong Kong, expiring January 10, 2022, with monthly payments of approximately $4,418 per month.
At lease commencement dates, the Company estimated the lease liability and the right of use assets at present value using the Companys estimated incremental borrowing rate of 8% and determined the initial present value, at inception, of $160,653. On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right to use assets (net) of $95,111 and lease liability of $95,111.
Right to use assets is summarized below:
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|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
New York
|
$
|
62,322
|
|
|
$
|
62,322
|
|
Hong Kong
|
|
98,331
|
|
|
|
97,918
|
|
Subtotal
|
|
160,653
|
|
|
|
160,240
|
|
Less accumulated depreciation
|
|
(109,867)
|
|
|
|
(146,516
|
)
|
Right to use assets, net
|
$
|
50,786
|
|
|
$
|
13,724
|
|
During the year ended December 31, 2020 and 2019, the Company recorded $84,926 and $81,066 as lease expense to current period operations.
Lease liability is summarized below:
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|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
New York
|
$
|
-
|
|
$
|
13,724
|
|
Hong Kong
|
|
50,786
|
|
|
-
|
|
Total lease liability
|
|
50,786
|
|
|
13,724
|
|
Less: short term portion
|
|
(50,786)
|
|
|
(13,724
|
)
|
Long term portion
|
$
|
-
|
|
$
|
-
|
|
Maturity analysis under these lease agreements are as follows:
|
|
|
|
|
|
|
|
Year ended December 31, 2020
|
$
|
53,014
|
|
|
$
|
14,000
|
|
Less: Present value discount
|
|
(2,228)
|
|
|
|
(276
|
)
|
Lease liability
|
$
|
50,786
|
|
|
$
|
13,724
|
|
Lease expense for the year ended December 31, 2020 was comprised of the following:
|
|
|
|
|
Operating lease expense
|
|
$
|
67,014
|
|
Short-term lease expense
|
|
|
23,272
|
|
|
|
$
|
90,286
|
|
Lease expense for the year ended December 31, 2019 was comprised of the following:
|
|
|
|
|
Operating lease expense
|
|
$
|
65,457
|
|
Short-term lease expense
|
|
|
15,609
|
|
|
|
$
|
81,066
|
|
NOTE 6 NOTE PAYABLE
In May 2018, the Company issued an unsecured note payable for $35,000 bearing interest at 5.0% per annum, payable monthly and due on July 1, 2019. The Company entered into an Extension Agreement in order to extend the due date of the note payable for all outstanding principal and accrued and unpaid interest due to November 18, 2020.
In November 2018, the Company issued an unsecured note payable for $65,000 bearing interest at 5.0% per annum, payable monthly and due on November 18, 2020.
In July 2019, the Company issued an unsecured note payable for $123,000 bearing interest at 5.0% per annum, payable monthly and due on July 9, 2021.
In November 2020, upon maturity of the May 2018 and November 2018 unsecured notes in aggregate of $100,000, the Company issued an unsecured note payable of $110,936 as payment of the maturing notes payable and accrued interest of $10,936. The note payable bears interest of 5% and is due on December 31, 2022.
The above accrued interests are included in accrued expenses and payable on the maturity date.
NOTE 7 STOCK SUBCRIPTION PAYABLES
During the year ended December 31, 2020 and 2019, the Company received deposits of $364,856 (HK$2,843,558) and $329,683 (HK$2,586,422) respectively, from non-related parties with intentions to purchase the Companys common stock. However, the transactions have not yet completed and therefore has been classified outside of equity for financial statement presentation. The deposits received are non-interest bearing and due on demand, if the transaction does not consummate.
NOTE 8 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 December 31, 2020, and 2019, there were 114,915,852 shares of the Companys common stock issued and outstanding, and none of the preferred shares were issued and outstanding.
As of December 31, 2020, Kelton Capital Group Ltd. owned 31,190,500 shares or 27.2% of the Companys common stock, and Aspect Group Limited owned 20,000,000 shares, or 17.4% of the Companys common stock. Other than Kelton Capital Group Ltd and Aspect Group Ltd, no person owns 5% or more of the Companys issued and outstanding shares.
NOTE 9 LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per common share for the year ended December 31, 2020 and 2019, respectively:
Schedule of Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2020
|
|
2019
|
|
|
Numerator - basic and diluted
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(461,519)
|
|
$
|
(544,313)
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding basic and diluted
|
|
|
114,915,852
|
|
|
114,915,852
|
|
|
Loss per common share basic and diluted
|
|
$
|
(0.004)
|
|
$
|
(0.005)
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10 - INCOME TAXES
The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (ASC 740-10) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.
For the year ended December 31, 2020, the Company's realized net taxable income which offset existing deferred tax assets relating to net operating losses, was offset further (100%) by the valuation allowance. Other temporary differences are expected to be immaterial. Therefore there were no expected income taxes, either current or deferred, reflected in the income statement.
At December 31, 2020, the Company has available for U.S. federal income tax purposes a net operating loss carryforward of approximately $5,720,000, expiring within 20 years, that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized.
Due to possible significant changes in the Company's ownership, the future use of its existing net operating losses may be limited. Components of deferred tax assets as of December 31, 2020 are as follows. All or a portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits.
The Company and its subsidiaries file separate income tax returns.
The United States of America
Scientific Energy, Inc. is incorporated in the State of Utah in the U.S., and is subject to a gradual U.S. federal corporate income tax of 21%. The State of Utah does not impose any corporate state income tax. As of December 31, 2020, future net operation losses of approximately $0.10 million are available to offset future operating income through 2040.
British Virgin Islands
PDI Global Limited and Makeliving Limited are incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, PDI Global Limited and Makeliving Limited are not subjected to tax on income or capital gains.
Hong Kong
Sinoforte Limited is incorporated in Hong Kong and Hong Kongs profits tax rate is 8.25% for the first HK$2 million of profits of qualifying corporations, and profits above HK$2 million will be taxed at 16.5%. Sinoforte Limited did not earn any income that was derived in Hong Kong for the years ended December 31, 2020 and 2019, and therefore, Sinoforte Limited was not subjected to Hong Kong profits tax.
At December 31, 2020 and 2019, the significant components of the deferred tax (assets) liabilities are summarized below:
Schedule of Income Taxes
|
|
|
|
|
|
|
Deferred Tax Assets:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
$
|
(461,519)
|
|
$
|
(531,474)
|
Inventory obsolescence
|
|
-
|
|
|
-
|
|
|
|
|
|
|
Total deferred tax assets
|
|
(461,519)
|
|
|
(531,474)
|
Valuation allowance
|
|
461,519
|
|
|
531,474
|
Net deferred tax assets
|
$
|
-
|
|
$
|
-
|
The Company is subject to income tax holidays with respect to its Asian operations, and accordingly has recognized no provision for foreign income taxes.
|
|
|
|
|
|
Rate Reconciliation:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Book losses (worldwide) at federal statutory rate (21%)
|
$
|
25,772
|
|
$
|
25,995
|
Hong Kong Profit Tax rate (8.25%)
|
|
27,951
|
|
|
33,634
|
Change in valuation allowance
|
|
(53,723)
|
|
|
(59,629)
|
Net expense (benefit)
|
$
|
-
|
|
$
|
-
|
The net deferred tax asset generated by the U.S. loss carry-forward has been fully reserved.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31, 2020 and 2019, the Company recognized no interest and penalties. The Company had no accruals for interest and penalties at December 31, 2020 and 2019. Tax years from 2015 through 2020 are open to examination by the taxing authorities.
NOTE 11 - 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. The Company shared the operating loss from JV of $12,839 during 2019.
Summarized financial information for joint venture is as follows:
|
|
|
|
|
|
|
|
Balance Sheets:
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Property, plant and equipment, net
|
|
$
|
4,797
|
|
$
|
-
|
|
Account receivables
|
|
|
-
|
|
|
406,412
|
|
Other receivables and prepaid
|
|
|
8,938
|
|
|
-
|
|
Inventory
|
|
|
496,015
|
|
|
259,051
|
|
Cash and cash equivalents
|
|
|
402,880
|
|
|
957,207
|
|
Total assets
|
|
|
912,630
|
|
|
1,622,670
|
|
|
|
|
|
|
|
|
|
Other payable
|
|
|
(3,286,343
|
)
|
|
(1,370,019
|
)
|
Customer deposits and other
|
|
|
(627,966
|
)
|
|
(2,169,378
|
)
|
Total liabilities
|
|
|
(3,914,309
|
)
|
|
(3,539,397
|
)
|
|
|
|
|
|
|
|
|
Net liabilities
|
|
$
|
(3,001,679
|
)
|
$
|
(1,916,727
|
)
|
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenue
|
$
|
430,423
|
|
|
$
|
-
|
|
Cost of sale
|
|
(314,009)
|
|
|
|
-
|
|
Gross profit
|
|
116,414
|
|
|
|
-
|
|
Operating expense
|
|
(1,069,664
|
)
|
|
|
(1,933,051
|
)
|
Net loss from operations
|
|
(953,250)
|
|
|
|
(1,933,051
|
)
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest (expense) income, net
|
|
(122,638)
|
|
|
|
2,089
|
|
Net loss
|
$
|
(1,075,888
|
)
|
|
$
|
(1,930,962
|
)
|
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Capital commitment
As of December 31, 2020, and 2019, no capital commitment was expected.
Legal Proceeding
As of December 31, 2020, the Company is not aware of any material outstanding claim and litigation against them.
NOTE 13 - SUBSEQUENT EVENTS
In accordance with ASC 855, Subsequent Events, the Company has evaluated subsequent events through the date of filing. The Company acquired an entire Hong Kong company on February 8, 2021 and disposed of PDI on March 24, 2021. No other material subsequent events were noted.