SCIENTIFIC ENERGY, INC - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-50559

SCIENTIFIC ENERGY, INC.

(Exact name of registrant as specified in its charter)

Utah                                                                   87-0680657

(State or other jurisdiction of incorporation or organization         (I.R.S. Employer Identification No.)

27 Weldon Street, Jersey City, New Jersey             07306

(Address of principal executive offices)                  (Zip Code)

(852) 2530-2089

(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   [X ]    No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes [   ]     No    [X]

Securities registered pursuant to Section 12(b) of the Act:  None.

Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 114,915,852 shares of common stock, par value $0.01, as of August 12, 2020.

TABLE OF CONTENTS

Item 1.    Financial Statements

SCIENTIFIC ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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 JVC’s 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 JVC’s 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 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

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. and PDI.  PDI, in turn, is the 100% owner and consolidates Sinoforte Limited.

All significant intercompany transactions and balances have been eliminated in consolidation.

Interim Financial Statements

The following (a) condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and (b) the unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of results that may be expected for the year ending December 31, 2020. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on May 14, 2020.

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 management’s 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 Company’s 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 Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable.  Generally, the Company’s 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 June 30, 2020, and December 31, 2019, the Company maintained $44,734 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:

Property, plant and equipment

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:

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 June 30, 2020 and December 31, 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 Company’s investment in joint venture is accounted for using the equity method.

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 $264,583 and an accumulated deficit of $9,104,155 as of June 30, 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 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 June 30, 2020 and December 31, 2019 is summarized as follows:

Schedule of Property and Equipment

Depreciation expense for the three and six months ended June 30, 2020 was $245 and $490; and for the three and six months ended June 30, 2019 was $152 and $285, 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.  Effective June 1, 2020, the lease was converted to a month-to-month at the same rate.  In addition, the Company entered into a two-year lease for office space of approximately 770 square feet in Hong Kong, expiring January 10, 2020, with monthly payments of approximately $4,371 per month. The Company has an option to extend the leases for an additional (option) terms.

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.  At lease commencement dates, 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 $159,616.  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:

During the six months ended June 30, 2020 and 2019, the Company recorded $44,510 and $36,612 as lease expense to current period operations.

Lease liability is summarized below:

Maturity analysis under these lease agreements are as follows:

Lease expense for the three months ended June 30, 2020 was comprised of the following:

Lease expense for the six months ended June 30, 2020 was comprised of the following:

Lease expense for the three months ended June 30, 2019 was comprised of the following:

Lease expense for the six months ended June 30, 2019 was comprised of the following:

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.  

The above accrued interests are included in accrued expenses and payable on the maturity date.

NOTE 7 – STOCK SUBCRIPTION PAYABLES

During the six months ended June 30, 2020, the Company received deposits of $256,708 (HK$2,000,000), net with return of $31,852 from non-related parties with intentions to purchase the Company’s common stock.  However, the transactions have not yet completed and therefore have 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 June 30, 2020, and December 31, 2020, there were 114,915,852 shares of the Company’s common stock issued and outstanding, and none of the preferred shares were issued and outstanding.

As of June 30, 2020, Kelton Capital Group Ltd. owned 31,190,500 shares or 27.2% of the Company’s common stock, and Aspect Group Limited owned 20,000,000 shares, or 17.4% of the Company’s common stock. Other than Kelton Capital Group Ltd and Aspect Group Ltd, no person owns 5% or more of the Company’s 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 three and six months ended June 30, 2020 and 2019, respectively:

NOTE 10 - 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:

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Legal proceedings

As of June 30, 2020, the Company is not aware of any material outstanding claim and litigation against them.

NOTE 12 - 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 Venture Joint, 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.

Results of Operations

For the Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

Sales

For the three months ended June 30, 2020 and 2019, the Company generated no sales.  

Operating expenses

For the three months ended June 30, 2020 and 2019, the Company’s selling, general and administrative expenses were $138,121 compared to $143,965 for the same period of the previous year.  The decrease is primarily the result of lower wages paid and other costs relating to business development.

Other Income (Expense)

For the three months ended June 30, 2020, the Company had $2,785 of interest expense relating to notes payable, as compared to $1,228 of interest expense for the same period last year.

Net Loss

For the three months ended June 30, 2020, we had a net loss of $141,151, or $(0.001) per share, as compared to a net loss of $145,345, or $(0.001) per share, for the same period of 2019.

For the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Sales

For the six months ended June 30, 2020 and 2019, the Company generated no sales.  

Operating expenses

For the six months ended June 30, 2020 and 2019, the Company’s selling, general and administrative expenses were $258,523 compared to $275,140 for the same period of the previous year.  The decrease is primarily the result of lower wages paid and other costs relating to business development.

Other Income (Expense)

For the six months ended June 30, 2020, the Company had $5,570 of interest expense relating to notes payable, as compared to $2,472 of interest expense for the same period last year.

Net Loss

For the six months ended June 30, 2020, we had a net loss of $264,583, or $(0.002) per share, as compared to a net loss of $277,897, or $(0.002) per share, for the same period of 2019.

Liquidity and Capital Resources

As of June 30, 2020, the Company had cash and cash equivalents of $58,459 and a working capital deficit of $2,284,168.  For the six months ended June 30, 2020, the Company used net cash of $251,987 from its operating activities primarily from our net loss of $264,583, adjusted depreciation of $490 for our increase in prepaid expenses of $200 and our increase in deposits paid of $73 and our increase in accrued expenses of $12,379.  By comparison, net cash used by operating activities was $272,501 for the same period of 2019.

During the six months ended June 30, 2020 and 2019, we did not have any investing activities.

During the six months ended June 30, 2020, financing activities was comprised of stock subscription deposit (net) of $224,856 as compared to $218,599 financing activities for the same period last year.

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.

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.

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 June 30, 2020, 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

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

August 12, 2020