10QSB 1 scfe10q93007.txt 10QSB, SEPTEMBER 30, 2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2007 [ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission file number: 000-50559 _______________________________________________ SCIENTIFIC ENERGY, INC. ----------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Utah 87-0680657 ----------------------------------------------------------------------------- State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 27 Weldon Street, Jersey City, New Jersey 07306 ----------------------------------------------------------------------------- (Address of principal executive offices) (201) 985-8100 ----------------------------------------------------------------------------- (Issuer's telephone number) N/A ----------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the exchange Act.) Yes [ ] No [ X ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 4,915,855 shares of common stock, par value $0.01, as of November 14, 2007. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] SCIENTIFIC ENERGY, INC. Table of Contents Part I. Financial Information Item1. Financial Statements Balance Sheets........................................................ 3 Statements of Operations (Unaudited).................................. 4 Statements of Cash Flows (Unaudited).................................. 5 Notes to Unaudited Financial Statements............................... 6-9 Item 2. Management's Discussion and Analysis or Plan of Operation........ 10-12 Item 3. Controls and Procedures.......................................... 13 Part II. Other Information Item 1. Legal Proceedings............................................... 13 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 13 Item 3. Defaults Upon Senior Securities................................. 13 Item 4. Submission of Matters to a Vote of Security Holders............. 13 Item 5. Other Information............................................... 13 Item 6. Exhibits and Reports on Form 8-K................................ 13 Signatures............................................................... 14 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements SCIENTIFIC ENERGY, INC. (A Development Stage Company) Balance Sheets
September 30, December 31, ---------------- --------------- 2007 2006 ---------------- --------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents............................ $ 57,321 $ 369,365 --------------- -------------- Total Current Assets.......................... 57,321 369,365 Property, Plant, & Equipment: Furniture and fixtures............................... 313 152 Office equipment..................................... 1,222 1,222 Heavy equipment...................................... 230,700 - Machinery............................................ 13,100 - Vehicles............................................. 16,000 - Tug and barge........................................ 40,200 - -------------- -------------- Total Property, Plant, & Equipment............ 301,535 1,374 Less: accumulated depreciation................ (18,601) (156) -------------- -------------- Net Fixed Assets.............................. 282,934 1,218 Total Assets......................................... $ 340,255 $ 370,583 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable...................................... $ 116 $ 57 Salary payable........................................ 8,000 - -------------- ------------ Total Current Liabilities..................... 8,116 57 Stockholders' Equity: Preferred stock: par value $0.01; 25,000,000 shares authorized; none issued and outstanding at September 30, 2007 and December 31, 2006................................... - - Common stock: par value $0.01; 100,000,000 shares authorized; 4,915,855 shares issued and outstanding at September 30, 2007 and December 31, 2006.............................. 49,159 49,159 Additional paid-in capital............................. 1,234,030 1,234,030 Deficit accumulated during the development stage....... (951,050) (912,663) -------------- ------------- Total stockholders' equity..................... 332,139 370,526 Total Liabilities and Stockholders' Equity............. $ 340,255 $ 370,583 ============== ============== See accompanying notes to unaudited financial statements
SCIENTIFIC ENERGY, INC. (A Development Stage Company) Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended Period From September 30, September 30, May 30, 2002 ----------------------- ------------------- (inception) to 2007 2006 2007 2006 Sept. 30, 2007 ---------- ----------- --------- --------- --------------- Service Revenue....................... $ 73,635 $ - $ 124,087 $ - $ 124,087 Cost of Goods Sold.................... 73,533 - 123,712 - 123,712 ---------- ----------- ---------- --------- ------------- Gross Profit.......................... 102 - 375 - 375 Expenses: Research and development.............. - - - - 68,090 General and administrative............ 17,218 10,159 38,762 30,099 612,588 --------- ----------- --------- -------- ------------ Total expenses................... 17,218 10,159 38,762 30,099 680,678 Loss from operations.................. (17,116) (10,159) (38,387) (30,099) (680,303) ---------- ----------- --------- ---------- ------------- Other income (expense): Interest expense....................... - - - (100) (20,207) Write-down of technology and royalties. - - - - (250,040) ---------- ----------- ---------- ---------- ------------- Total other expense............... - - - (100) (270,247) Net loss before taxes.................. (17,116) (10,159) (38,387) (30,199) (950,550) Income tax expense..................... - - - - (500) ------------ ---------- ---------- --------- ----------- Net loss............................... $ (17,116) $ (10,159) $ (38,387) $ (30,199) $ (951,050) ============ ========== =========== ========== =========== Basic and diluted loss per share....... $ (0.003) $ (0.002) $ (0.008) $ (0.011) ============ ========== =========== ========= Weighted average common shares outstanding 4,915,855 4,915,855 4,915,855 2,835,262 ============ =========== ============ ========= See accompanying notes to unaudited financial statements
SCIENTIFIC ENERGY, INC. (A Development Stage Company) Statements of Cash Flows (Unaudited)
Period From May 30, 2001 Nine Months Ended September 30, (Inception) to 2007 2006 Sept. 30, 2007 --------------- -------------- --------------- Cash Flows from Operating Activities: Net loss..................................... $ (38,387) $ (30,199) $ (951,050) Adjustments to reconcile net income to net cash used in operating activities: Depreciation expense........................ 18,445 89 18,601 Write-down of technology and royalties...... - - 250,040 Stock issued for expenses................... - - 31,200 Changes in operating assets and liabilities: Increase (decrease) in accounts payable..... 59 (1,223) 116 Decrease in income tax payable.............. - (100) - Increase in salary payable.................. 8,000 - 8,000 -------------- --------------- ------------ Net cash used in operating activities (11,883) (31,433) (643,093) Cash Flows from Investing Activities: Purchase of property, plant and equipment... (300,161) (1,374) (301,535) --------------- --------------- ------------ Net cash used in investing activities (300,161) (1,374) (301,535) Cash Flows from Financing Activities: Principal payments on shareholder loans..... - (3,720) (39,915) Proceeds from shareholder loans............. - - 630,841 Issuance of common stock.................... - 400,000 400,000 Contributed capital......................... - 11,023 11,023 -------------- --------------- ------------ Net cash provided by financing activities - 407,303 1,001,949 Increase (decrease) in cash and cash equivalents (312,044) 374,496 57,321 Cash and cash equivalents, beginning of period 369,365 543 - -------------- -------------- ----------- Cash and cash equivalents, end of period...... $ 57,321 $ 375,039 $ 57,321 ============== =============== =========== Supplemental disclosure of cash flow information: Interest paid in cash...................... $ - $ - $ 6,620 ============= ============== ========== Income taxes paid in cash.................. $ - $ 100 $ 400 ============= ============== ========== Supplemental Disclosure of non-cash investing and financing activities: Common stock exchanged for technology....... $ - $ - $ 250,040 ============ ============= ========== Note payable converted to common stock...... $ - $ - $ 590,926 ============ ============= ========== Contributed capital by shareholders for expenses $ - $ - $ 31,200 ============= ============= ========== See accompanying notes to unaudited financial statements
SCIENTIFIC ENERGY, INC. (A Development Stage Company) NOTES TO UNAUDITED FINANCIAL STATEMENTS September 30, 2007 Note 1. Nature of Operations and Basis of Presentation Scientific Energy, Inc. (the "Company") was incorporated under the laws of the State of Utah on May 30, 2001. The business plan of the Company is to acquire energy - related technologies, equipment and crude oil or natural gas fields. As of September 30, 2007, the Company was in the development stage. Note 2. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10?QSB and Item 310(b) of Regulation S?B of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company's results of operations and financial position for the periods presented. The results of operations for the nine months ended September 30, 2007 are not necessarily indicative of the results of operations to be expected for the year ended December 31, 2007. The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto of Scientific Energy, Inc. included in the Company's Annual Report on Form 10?KSB for the fiscal year ended December 31, 2006. Note 3. Summary of Significant Accounting Policies Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents includes cash on hand and demand deposits held by banks. Revenue Recognition The Company derives its revenues from providing drilling services. Revenues consists of fees received from services rendered under the Company's drilling service agreement (see Note 8) that are provided using the Company's assets. Revenues are recognized in accordance with SEC Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104"). The Company recognizes revenues when there is persuasive evidence of an arrangement, the sales price is determinable, and collection of the resulting receivable is reasonably assured. Concentration of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. Use of Estimates The preparation of financial statements in conformity with the accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Actual results could vary from those estimates, and those variances might be significant. Property, Plant, and Equipment Property, plant, and equipment are carried at cost less accumulated depreciation, which is computed using the straight-line method over the useful lives of the assets. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Property and equipment are depreciated over their estimated useful lives as follows: Heavy equipment 7 years Machinery 7 years Tug and barge 7 years Vehicles 5 years Computer equipment 5 years Furniture and fixtures 7 years Depreciation expense for the nine months ended September 30, 2007 and 2006 was $18,445 and $89, respectively. Loss per Share Loss per common stock share is computed pursuant to the provisions of SFAS No. 128, "Earnings Per Share" (SFAS 128). Under SFAS 128, basic loss per common stock share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common stock shares outstanding during the period, excluding unvested restricted common stock. Diluted loss per common stock share reflects the additional dilution for all potentially dilutive securities such as unvested restricted common stock and convertible preferred stock. Note 4 - Principal Stockholder As of September 30, 2007, Kelton Capital Group Ltd., controlled by Stanley Chan, our president and CEO, owned 2,390,500 shares, or 48.6%, of our common stock. Other than Stanley Chan, no persons own 5% or more of the Company's issued and outstanding shares. Note 5- Capital Stock The Company is authorized to issue 100,000,000 shares of common stock, $0.01 par value, and 25,000,000 shares of preferred stock, $0.01 par value. As of September 30, 2007, there were 4,915,855 shares of the Company's common stock issued and outstanding, and none of the preferred shares were issued and outstanding. On May 23, 2006, the Company entered into a Stock Purchase Agreement with Kelton Capital Group Ltd., the controlling shareholder of the Company, and each of ten individual investors in a private placement. Pursuant to the Agreement, the Company sold and investors purchased an aggregate of 4,000,000 shares of the Company's common stock for an aggregate consideration of $400,000 in cash. On January 25, 2007, the Company amended its Articles of Incorporation to affect a reverse stock split of the Company's common stock in which every ten (10) outstanding shares would be combined into one (1) share. All share transactions disclosed in these financial statements give retroactive effect to this 1:10 reverse split. Note 6 - Additional Paid-In Capital In connection with the change in control of the Company, on May 31, 2006, the selling shareholders paid off all liabilities (Accounts Payable, Note Payable- Shareholder) of the Company by using their personal funds in an aggregate amount of $11,023, which was recorded as additional paid-in capital. Note 7 - Transactions with Related Parties On April 13, 2006, there was a change in control of the Company effected pursuant to a Share Purchase Agreement by and among Todd Crosland, Jana Meyer, Mark Clawson and Dale Gledhill (collectively the "Sellers"), and Kelton Capital Group Limited (the "Buyer"). Each of the Sellers was a director of the Company. Under the Share Purchase Agreement, the Buyer acquired from the Sellers an aggregate of 790,500 shares of the Company's issued and outstanding common stock, representing approximately 86.3% of the Company's outstanding shares at that time, for the aggregate cash purchase price of $539,929. On May 23, 2006, the Company entered into a stock purchase agreement with Kelton Capital Group Ltd., a company controlled by Stanley Chan, our president and CEO. Under the agreement, Kelton purchased 4,000,000 shares of the Company's common stock at a price of $0.10 per share. Note 8 - Acquisition of Assets On April 21, 2007, the Company entered into an Asset Purchase Agreement with PT Prima Jasa Energy, an Indonesian crude oil drilling and service corporation ("PJE"), for the acquisition of certain of PJE's assets, including certain heavy drilling equipment, facilities and contract rights associated with its crude oil drilling and service business. The purchase price for the assets is approximately $300,000. The transactions were closed April 30, 2007. On April 21, 2007, the Company also entered into a long-term Drilling Services Agreement with PJE, pursuant to which PJE will provide crude oil drilling and services to the Company as an independent contractor. Under this contract PJE will utilize the equipment and other assets purchased by the Company under the Asset Purchase Agreement to provide drilling services under the operating contract rights the Company acquired from PJE under the Asset Purchase Agreement. Under the contract PJE will also search for and develop new clients on behalf of the Company, will maintain the equipment purchased, and will collect accounts receivable under the operating contract rights on behalf of the Company. The Services Agreement commenced on May 1, 2007. Note 9 - Subsequent Event On October 29, 2007, the Company entered into an Asset Purchase Agreement with Bermon Capital Holdings Limited, a Hong Kong corporation, for the sale of the Company's certain assets for $400,000. The assets sold include certain heavy drilling equipment, facilities and associated contract rights, which the Company purchased in April 2007 for $300,000 from PT Prima Jasa Energy, an Indonesian crude oil drilling and service company (Please see Note 8 above). ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 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 are a development stage company that has not engaged in material operations nor realized consistent revenues for several years prior to May 2007. In April 2006, Kelton Capital Group Ltd. acquired a majority of the Company's issued and outstanding common stock from four majority shareholders of the Company. Prior to the share acquisition, the Company was to develop and manufacture various energy generation devices and energy efficient mechanisms for use in currently available products. The current business plan of the Company is to acquire energy related technologies, equipment and crude oil or natural gas fields. On April 21, 2007, the Company entered into an Asset Purchase Agreement with PT Prima Jasa Energy, an Indonesian crude oil drilling and service corporation ("PJE"), for the acquisition of certain of PJE's assets, including certain heavy drilling equipment, facilities and contract rights associated with its crude oil drilling and service business. The purchase price for the assets is approximately $300,000. The transactions were closed April 30, 2007. On April 21, 2007, the Company also entered into a long-term Drilling Services Agreement with PJE, pursuant to which PJE will provide crude oil drilling and services to the Company. The Services Agreement commenced on May 1, 2007. Under the agreement, PJE agrees to provide to, or procure the provision to the Company, by utilizing the equipment and other assets the Company purchased from PJE, of the following services: (1) Drilling services under the operating contract rights the Company acquired from PJE under the Purchase Agreement; (2) Searching for and development of new clients on behalf of the Company; (3) Maintenance of the heavy equipment, tug and barge, and other assets the Company purchased from PJE under the Asset Purchase Agreement; and (4) Collection of accounts receivable under the operating contract rights on behalf of the Company. For the three and nine months ended September 30, 2007, the Company's revenue from drilling services was $73,636 and $124,087, respectively. On October 29, 2007, the Company entered into an Asset Purchase Agreement with Bermon Capital Holdings Limited, a Hong Kong corporation, for the sale of the Company's certain assets for $400,000. The assets sold include all the heavy drilling equipment, facilities and associated contract rights which the Company purchased in April 2007 for $300,000 from PJE. Results of Operations For the three months ended September 30, 2007 and 2006: Service Revenue For the three months ended September 30, 2007, the Company's revenue was $73,635, which was generated from the service fees it earns when oil companies, all of which are in the Republic of Indonesia, engage PJE to provide drilling services to customers. For the three months ended September 30, 2006, the Company had not conducted any active operations, and therefore, no revenue had been generated during this period. Cost of Sales Cost of sales consists of costs the Company paid to PJE under the service agreement for the service it provided, which included the following two items: (i) 10% of the collected service revenues which PJE collected on behalf of the Company from clients, and (ii) reimbursement of PJE's operating costs for the services PJE provided to the Company, plus depreciation expense for heavy equipment, machinery, and tug and barge. For the three months ended September 30, 2007, the cost of sales of the Company was $73,533, which was approximately 99.9% of the sales. For the three months ended September 30, 2006, the Company did not conduct any operations, and therefore, no cost of sales was incurred for this period. Operating Expenses For the three months ended September 30, 2007, the Company's general and administrative expenses were $17,218 as compared to $10,159 for the same period of the prior year. The largest expense items were salary expense ($12,000, or 69.7%), accounting and other professional fees ($3,000, or 17.4%), and office rent ($1,440, or 8.4%). Net Loss For the three months ended September 30, 2007, the Company had a net loss of $17,116, or $0.003 per share, as compared to a net loss of $10,159, or $0.002 per share, for the same period of the prior year. For the nine months ended September 30, 2007 and 2006: Service Revenue For the nine months ended September 30, 2007, the Company's revenue was $124,087, which was generated from the service fees it earns when oil companies, all of which are in the Republic of Indonesia, engage PJE to provide drilling services to customers. For the nine months ended September 30, 2006, the Company had not conducted any active operations, and therefore, no revenue had been generated during this period. Cost of Sales For the nine months ended September 30, 2007, the cost of sales of the Company was $123,712, which was approximately 99.7% of the sales. For the same period of the previous year, the Company had not conducted any operations, and therefore, no cost of sales was incurred for the period. Operating Expenses For the nine months ended September 30, 2007, the Company's general and administrative expenses were $38,763 as compared to $30,099 for the same period of the prior year. The largest expenses items were salary expense ($20,000, or 51.6%), accounting and other professional fees ($8,925, or 23.0%), office rent ($4,320, or 11.1%), and other general and administrative expenses ($5,518, or 14.2%). Net Loss For the nine months ended September 30, 2007, the Company had a net loss of $38,387, or $0.008 per share, as compared to a net loss of $30,199, or $0.011 per share, for the same period of the prior year. Liquidity and Capital Resources Since inception, the Company has been funded its operations primarily by equity capital and short-term loans from its directors and officers. On May 23, 2006, the Company entered into a stock purchase agreement with Kelton Capital Group Ltd., the controlling shareholder of the Company, and nine individual investors in a private placement. Pursuant to the agreement, the Company issued an aggregate of 4,000,000 shares of its common stock for an aggregate consideration of $400,000 in cash. As of September 30, 2007, the Company had cash and cash equivalents of $57,321. For the nine months ended September 30, 2007, the Company's operating activities used net cash of $11,883, primarily due to net loss of $38,387, and offset by an increase of $18,445 in depreciation expenses, an increase of $8,000 in salary payable, and an increase of $59 in accounts payable. For the nine months ended September 30, 2007, the Company's investing activities used cash of $300,161, primarily for the purchase of equipment, machinery and tug and barge. During the nine month ended September 30, 2007, the Company had no financing activities. A key component of the Company's business strategy is to selectively acquire energy related assets, technologies, equipment, contract rights, or oilfields. To finance any acquisitions, it may be necessary for the Company to raise additional funds through public or private financings. Additional funds may not be available on terms that are favorable to us, and, in the case of equity financings, would result in dilution to our stockholders. We have no immediate means for obtaining additional financing. There can be no assurance that such additional financing, when and if necessary, will be available to us on acceptable terms, or at all. Off-Balance Sheet Arrangements None. ITEM 3. CONTROLS AND PROCEDURES (a) Disclosure controls and procedures. An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation of our disclosure controls and procedures as described above, our CEO and CFO have concluded that as of September 30, 2007 our disclosure controls and procedures were effective. (b) Internal controls over financial reporting. During the fiscal quarter ended September 30, 2007, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit No. Title of Document ---------- ------------------------------------------------------------------- 31 Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. On July 17, 2007, the Company filed a Current Report on Form 8-K under Items 1.01, 2.01, 5.06 and 9.01 to report that the Company has ceased being a shell company as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. On October 30, 2007, the Company filed a Current Report on Form 8-K under Items 1.01 to report the sale of the Company's certain assets and associated contract rights which the Company purchased in April 2007 from PT Prima Jasa Energy, an Indonesian crude oil drilling and service company. 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. Date: November 14, 2007 By: /s/ Stanley Chan -------------------------------------- Stanley Chan President and Chief Executive Officer