Executive Summary / Key Takeaways

• Scientific Energy, Inc. (SCGY) operates primarily through two distinct segments: a leading food and grocery delivery platform in Macau (Aomi App) and a newly established global graphite trading business.
• The company achieved significant revenue growth in 2024, reaching $68.63 million, a 76% increase year-over-year, driven by the launch of the graphite segment ($24.77 million revenue) and continued performance in food delivery ($43.52 million revenue).
• SCGY reported net income attributable to the company of $69,847 in 2024, a substantial improvement from a $32.74 million net loss in 2023, largely due to a significant decrease in goodwill impairment charges.
• Despite operational improvements and revenue growth, the company faces substantial doubt about its ability to continue as a going concern, highlighted by a working capital deficit of $7.29 million as of December 31, 2024, and an ongoing need for external financing.
• Key risks include intense competition in both segments, significant regulatory and political uncertainties related to operating in Macau under potential PRC influence, reliance on third parties for the graphite supply chain, and the need to raise additional capital.

A Tale of Two Markets: SCGY's Diversified Ambition

Scientific Energy, Inc. (SCGY) presents a complex investment narrative, operating as a holding company with its core activities spanning two vastly different markets: the localized, consumer-facing world of food and grocery delivery in Macau and the global, industrial realm of graphite trading. This dual focus is a relatively recent development, shaped by a history of varied business endeavors that ultimately led to the pivotal 2021 acquisition of Macao E-Media Development Company Limited (MED) and the late 2023 establishment of Graphite Energy, Inc. (GEI). This strategic pivot reflects an ambition to capture opportunities in distinct, potentially high-growth sectors, but also introduces unique operational and competitive dynamics that investors must carefully consider.

The foundation of SCGY's current business was laid with the acquisition of MED, which operates the Aomi App, a dominant force in Macau's food and grocery delivery market, holding approximately 50% market share following recent competitor consolidation. This segment leverages a mobile platform designed to connect merchants, consumers, and delivery riders, aiming for efficiency and scale within the densely populated Macau region. Complementing this, the launch of GEI in Florida signals a move into the critical minerals space, positioning SCGY as an intermediary in the global supply chain for natural flake graphite, a key component in rapidly growing markets like electric vehicle batteries. This diversification, while promising revenue streams from disparate sources, ties the company's fate to the specific market conditions, competitive pressures, and regulatory environments of both Macau and the global graphite industry.

Operational Footprint and Technological Backbone

SCGY's operational structure is centered around its subsidiaries. In Macau, MED's Aomi App is the core asset, facilitating over 10 million transactions and generating MOP 1,135.53 million (approximately $141.40 million) in Gross Merchandise Volume in 2024. The platform offers a range of services beyond simple delivery, including flash sales, in-store promotions, and group dining services in Hong Kong, aiming to deepen user engagement and merchant value. The technology behind the Aomi App focuses on providing an intuitive interface for customers, efficient order transmission to merchants, and real-time tracking for deliveries, supported by third-party payment integrations (WeChat Pay, Alipay, etc.) and infrastructure (AliCloud Hong Kong). While specific quantifiable metrics on the platform's technological edge over competitors are not detailed, the emphasis is on enhancing the end-to-end experience for users and streamlining operations for merchants and delivery drivers. Cybersecurity measures, such as the "Aomi APP Production Environment Anomaly Handling Guideline" and regular penetration testing with AliCloud, are in place to protect the platform.

The graphite segment operates differently. GEI functions primarily as a trading company, relying on a supply agreement with Madagascar Graphite Limited (MGL) for natural flake graphite ore and outsourcing processing and manufacturing to third-party partners. This model leverages SCGY's stated "technical expertise" in identifying and sourcing high-quality graphite and connecting it with end-use customers requiring tailored specifications. The agreement with MGL secures supply for up to 100,000 tons of refined graphite powder (>95% carbon content), with payment structured in company stock at $0.50 per share, aligning supplier incentives with SCGY's equity performance. While SCGY does not directly engage in the technological R&D of graphite processing, its role as an intermediary requires expertise in product quality assessment and supply chain management in a market increasingly focused on high-purity materials for advanced applications. The strategic reliance on third parties for manufacturing and logistics introduces dependencies but allows GEI to focus on sales and market connections.

Competitive Arena: Niche Dominance Meets Global Giants

SCGY operates within competitive landscapes that vary significantly by segment. In Macau's food delivery market, the Aomi App holds a strong position, but faces intense competition. The recent merger of rivals MFood and Flash Bee has consolidated the competitive field, resulting in SCGY now holding approximately 50% of the local market share. This strategic alliance among competitors enhances their negotiation power and ability to reduce operational costs, posing a direct challenge to SCGY's market dominance and potentially pressuring margins or requiring increased investment in marketing and service to maintain its position.

Globally, the graphite trading business faces competition from both synthetic graphite producers and other natural graphite suppliers worldwide, including major players in China, Mozambique, and Brazil, as well as other mining projects within Madagascar. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, the market is characterized by competition based on price, quality, reliability, and customer service. China's recent export restrictions on natural graphite could present an opportunity for non-Chinese suppliers like those SCGY sources from, potentially shifting market dynamics in its favor. However, reliance on third parties for processing and logistics means SCGY's competitive edge is tied to the capabilities and efficiency of its partners, contrasting with vertically integrated competitors who control more of the value chain. Comparing SCGY's TTM margins (Gross 35.31%, Operating 5.02%, Net 6.19%) to major e-commerce/delivery players like Alibaba (BABA) (Gross ~38%, Operating ~12%, Net ~9%), JD.com (JD) (Gross ~10%, Operating ~3%, Net ~4%), Meituan (3690) (Gross ~38%, Operating ~11%, Net ~11%), and Pinduoduo (PDD) (Gross ~61%, Operating ~28%, Net ~29%) highlights that while SCGY's gross margins are competitive with some, its operating and net margins generally lag behind the larger, more established players, suggesting potential inefficiencies in its cost structure or pricing power relative to scale.

Financial Performance and Liquidity Challenges

SCGY's financial results for the year ended December 31, 2024, show a significant turnaround in reported profitability, moving from a substantial net loss in 2023 to a modest net income. Total revenue surged by 76% to $68.63 million, primarily fueled by the successful launch of the graphite trading segment, which contributed $24.77 million (approximately 36% of total revenue) in its first year of operation. The core food delivery business also saw revenue growth, increasing to $43.52 million (approximately 64% of total revenue). While cost of revenue increased significantly due to the new graphite business and delivery costs, the company's operating expenses saw a dramatic 57% reduction, largely attributable to a decrease in goodwill impairment charges compared to the prior year. This led to a net income attributable to SCGY of $69,847 in 2024, a marked improvement from the $32.74 million net loss in 2023.

Despite this improvement in reported net income, the company's liquidity position remains constrained. As of December 31, 2024, SCGY held $4.91 million in cash and cash equivalents but faced a working capital deficit of $7.29 million. While operating cash flow turned positive in 2024, providing $1.49 million compared to using $106,143 in 2023, the company explicitly states it does not generate a significant amount of cash flows from operations and requires continuous financial support from shareholders. Management believes existing resources are sufficient for the next twelve months, but acknowledges the potential for these assumptions to be incorrect. The need to raise additional capital to fund ongoing operations and future growth initiatives is a critical factor, and failure to secure such funding on favorable terms could severely impact the business. A significant portion of the company's cash is held in Macau, introducing potential risks related to future restrictions on cross-border fund transfers by the PRC government.

Outlook, Risks, and the Path Forward

SCGY's strategic outlook centers on expanding its two core businesses. For food delivery, plans include increasing merchant and consumer adoption, enhancing the delivery driver experience, broadening service offerings towards a full-category e-commerce model, and improving operational efficiency through technology. In graphite sales, the focus is on maintaining product quality, expanding distribution channels (including leveraging third-party distributors and marketing partnerships), and strengthening relationships with supply chain partners. While these strategies outline a path for growth, the company has not provided specific quantitative guidance figures or targets for future revenue or profitability.

The investment thesis is significantly tempered by a range of substantial risks. Foremost is the going concern risk, explicitly noted in the financial statements, underscoring the precarious financial position and dependence on future capital raises. Operating primarily in Macau exposes SCGY to significant legal, regulatory, and political uncertainties stemming from the potential for increased oversight and intervention by the PRC government, which could impact operations, capital transfers, and the ability to offer securities. The risk of delisting under the HFCAA due to potential future PCAOB inspection limitations on its Hong Kong-based auditor also looms. Competition in both segments is intense and evolving, particularly the consolidated force in Macau food delivery and the global dynamics of the graphite market. Reliance on third parties for critical aspects of the graphite supply chain introduces risks related to supply quality, quantity, cost, and compliance. Furthermore, the company has identified a material weakness in its internal control over financial reporting related to insufficient skilled accounting personnel, which could impact the reliability of financial reporting. Geopolitical instability and broader macroeconomic downturns could also negatively affect demand and operational costs.

Conclusion

Scientific Energy, Inc. presents a compelling, albeit high-risk, investment proposition centered on its dual-segment strategy in Macau food delivery and global graphite trading. The company demonstrated notable revenue growth and a return to reported profitability in 2024, driven by the successful launch of its graphite business and continued performance in its core Macau operations. Its technological platform in food delivery and its strategic positioning as an intermediary in the graphite supply chain represent key operational strengths. However, the significant financial challenges, including a working capital deficit and the explicit going concern warning, coupled with substantial regulatory, political, and competitive risks, highlight the precarious nature of its current position. The ability to successfully raise additional capital, navigate the complex regulatory landscape in Macau and the PRC, effectively compete against larger, more established players, and mitigate supply chain dependencies in the graphite market will be critical determinants of SCGY's future viability and growth prospects. Investors should closely monitor the company's progress in securing financing, addressing internal control weaknesses, and executing its growth strategies in the face of these considerable headwinds.