AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 2004
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SCIENTIFIC ENERGY, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
UTAH 9999 87-0680657
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)IDENTIFICATION NUMBER)
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630 NORTH 400 WEST SALT LAKE CITY, UTAH 84103
(Address of principal place of business or intended principal
place of business)
Todd Crosland
Scientific Energy, Inc.
630 NORTH 400 WEST
SALT LAKE CITY, UTAH 84103
(801) 359-2410
(Name, address and telephone number of agent for service)
Copy to:
Leonard E. Neilson, Esq.
Leonard E. Neilson, P.C.
8160 South Highland Drive, Suite 209
Sandy, Utah 84093
Approximate date of proposed sale to the public: As promptly as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check he following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [ ]
(1) The shares included herein are being distributed to the stockholders of Electronic Game Card, Inc. No consideration will be received by Scientific Energy, Inc. in consideration for such distribution and there is no market for the shares being distributed. Accordingly, for purposes of calculating the registration fee, the Registrant has used $0.10 per share as the current estimated fair value of the shares being distributed.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION DATED JUNE 2, 2004
PROSPECTUS
SCIENTIFIC ENERGY, INC.
SPIN-OFF OF 1,125,220 SHARES OF COMMON STOCK
This prospectus relates to the distribution to stockholders of Electronic Game Card, Inc. by the spin- off of 1,125,220 shares of Scientific Energy, Inc. common stock owned by Electronic Game Card. Scientific Energy is not selling any shares of common stock pursuant to this prospectus and therefore we will not receive any proceeds from this offering. All costs associated with the registration statement, of which this prospectus is a part, will be borne by Scientific Energy, which is currently a wholly-owned subsidiary of Electronic Game Card. After the distribution, we will be an independent, public company.
Holders of Electronic Game Card common stock as of November 19, 2003, other than its affiliates, will receive one share of Scientific Energy common stock for every one share of Electronic Game Card common stock that they hold. Following the distribution, 100% of the outstanding Scientific Energy common stock will be held by non-affiliates of Electronic Game Card.
You will be required to pay income tax on the value of the shares of Scientific Energy common stock received by you in connection with this distribution.
Currently, no public market exists for Scientific Energy common stock. We can provide no assurance that a public market for our securities will develop and ownership of our securities is likely to be an illiquid investment.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June __, 2004
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY........................................................................... 3
RISK FACTORS................................................................................. 6
USE OF PROCEEDS.............................................................................. 10
DILUTION..................................................................................... 10
CAPITALIZATION............................................................................... 11
DETERMINATION OF PRICE....................................................................... 11
CERTAIN MARKET INFORMATION AND MARKET RISKS.................................................. 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS................................... 12
BUSINESS..................................................................................... 15
MANAGEMENT................................................................................... 18
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................. 20
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS................................................. 20
DESCRIPTION OF COMMON STOCK................................................................. 21
THE SPIN-OFF................................................................................. 21
LEGAL MATTERS................................................................................ 24
EXPERTS...................................................................................... 24
WHERE YOU CAN FIND MORE INFORMATION.......................................................... 24
FINANCIAL STATEMENTS......................................................................... F-1 TO F-23
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You should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with different information. This prospectus is not an offer to sell, nor is it seeking an offer to buy, theses securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.
All references in this prospectus to "we," "us" and "our" refer to Scientific Energy, Inc., unless indicated otherwise.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL _______________, 2004, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS, BUT DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. THIS PROSPECTUS INCLUDES SPECIFIC TERMS OF THE OFFERING, INFORMATION ABOUT OUR BUSINESS AND FINANCIAL DATA. WE ENCOURAGE YOU TO READ THIS PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE "RISK FACTORS" SECTION, FINANCIAL STATEMENTS AND NOTES THERETO, BEFORE MAKING AN INVESTMENT DECISION.
WHAT WE DO
Scientific Energy, Inc., a Utah corporation, is a wholly-owed subsidiary of Electronic Game Card, Inc., a Nevada corporation formerly known as Scientific Energy, Inc. prior to the execution of a share exchange agreement in November 2003. In connection with the share exchange agreement, our parent changed its name to Electronic Game Card, Inc. and effected a reverse stock split of its issued and outstanding shares of common stock on a one share for 100 shares basis, effective November 18, 2003. As a condition of the reverse split, all fractional shares resulting from the split were rounded up to the next whole share, with the provision that no individual shareholder's holdings would be reduced below 100 shares as a result of the split.
The share exchange agreement also provides that the shares of Scientific Energy common stock, 100% owned by our parent Electronic Game Card, would be distributed to those stockholders of Electronic Game Card immediately preceding the closing of the agreement on November 19, 2002. Accordingly, each such stockholder of Electronic Game Card will receive one share of our common stock for each share of Electronic Game Card common stock owned, adjusted for the reverse stock split. In order to facilitate the spin-off of our shares we have filed with the SEC a registration statement, of which this prospectus is a part.
Scientific Energy owns certain technology, patents and intellectual property related to the development of small electricity generation devices to be incorporated into existing portable electronic devices including portable laptop computers, handheld devices, cellular phones, and other electronic devices. We intend to focus on technology related to the energy efficient pump field and the energy generation, long-life battery field. If fully developed, our technology will assist both industrial concerns and consumers in a variety of applications to markedly reduce energy consumption.
In November of 2003, we entered into a licensing agreement with Grandway USA, Inc. whereby Grandway will assume development of our patents and technology. If and when Grandway is able to manufacture and perfect the technologies covered by the licensing agreement, Grandway will use its marketing network to bring our technologies to market. We will receive a royalty fee in connection with any sales of products developed from our technologies.
ABOUT US
Our principal executive offices are located at 630 North 400 West Salt Lake City, Utah 84103, telephone number (801) 359-2410.
SUMMARY OF THE SPIN-OFF
DISTRIBUTING COMPANY........................ Electronic Game Card, Inc., a Nevada corporation engaged in
the development, marketing, sale and distribution of recreational
electronic software, primarily targeted towards lottery and sales
promotion markets through its Great Britain subsidiary.
DISTRIBUTED COMPANY......................... Scientific Energy, Inc., a Utah corporation engaged in the
development of certain technologies, patents and
intellectual property related to the development of
small electricity generation devices.
DISTRIBUTION RATIO.......................... One share of Scientific Energy common stock will be issued for
each share of Electronic Game Card common
stock you own as of November 19, 2003.
RECORD DATE................................. November 19, 2003
DISTRIBUTION DATE........................... June __, 2004
DISTRIBUTION AGENT.......................... Interstate Transfer Company, 6084 South 900 East, Suite 101,
Salt Lake City, Utah 84121, telephone number (801) 281-9746.
TRANSFER AGENT AND REGISTRAR................ Interstate Transfer Company
SECURITIES TO DISTRIBUTED .................. 1,125,220shares of our common stock
COMMON STOCK OUTSTANDING AFTER OFFERING..... 1,125,220 shares
TRADING MARKET ............................. None presently, although following the completion of the spin-
off we anticipate making an application to have our common
stock included on the OTC Bulletin Board.
DIVIDEND POLICY............................. We have never paid dividends on our common stock and do not
anticipate paying dividends in the foreseeable future.
USE OF PROCEEDS............................. We will not receive any proceeds from the spin-off of shares.
RISK FACTORS................................ The distribution and ownership of our common stock involves a
high degree of risk. You should review carefully and consider
all information contained in this prospectus, particularly the
items set forth under "Risk Factors" beginning on page 6.
FEDERAL INCOME TAX CONSEQUENCES............. Neither we nor Electronic Game Card intend for the spin-off to
be tax-free for U.S. federal income tax purposes and you will be
required to pay income tax on the value of your shares of our
common stock received as a dividend. We advise that you
consult your own tax advisor as to the specific tax consequences
of the spin-off.
OUR RELATIONSHIP WITH ELECTRONIC GAME
CARD AFTER THE SPIN-OFF..................... Following the spin-off, we intend to act as an independent,
public company and do not anticipate any continuing relationship
with Electronic Game Card.
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SUMMARY FINANCIAL INFORMATION
The following information was taken from our financial statements for the three months ended March 31, 2004 and 2003 (unaudited) and the fiscal years ended December 31, 2003 and 2002 appearing elsewhere in this prospectus. This information should be read in conjunction with such financial statements and the notes thereto. In management's opinion all adjustments, consisting of normal recurring items, considered necessary for a fair presentation have been included.
STATEMENTS OF OPERATIONS DATA
Three Months Years Ended
Ended March 31, Ended December 31,
---------------------------- -------------------------------
2004 2003 2003 2002
---- ---- ---- ----
(Unaudited) (Unaudited)
Revenues: $ - $ - $ - $ -
------------ ------------ ------------ ------------
Expenses:
Research & development - - 138 13,116
General & administrative 4,297 1,918 5,157 252,553
Loss from operations (4,297) (1,918) (5,295) (265,669)
------------ ------------ ------------ ------------
Other income (expense)
Interest, net (11) (1,160) (1,984) (10,890)
Write-down of technology and royalties - - - (295,750)
------------ ------------ ------------ ------------
Net loss before taxes (4,308) (3,078) (7,279) (572,309)
------------ ------------ ------------ ------------
Income tax expense - - 100 100
------------ ------------ ------------ ------------
Net loss $ (4,308) $ (3,078) $ (7,379) $ (572,409)
============ ============ =========== ============
Basic & diluted loss per share $ - $ - $ - $ (.03)
------------ ------------ ------------ ------------
Average outstanding common
shares (stated in 1000's) 20,000 20,000 20,000 20,000
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BALANCE SHEET DATA
March 31, 2004 December 31, 2003,
(Unaudited)
Assets
Current assets
Cash & cash equivalents $ 40 $ 40
------------- --------------
Total current assets 40 40
------------- --------------
Other assets
Intangibles 50,000 50,000
------------- --------------
Total assets $ 50,040 $ 50,040
============= ==============
Liabilities and stockholders equity
Current Liabilities
Accounts payable $ 9,892 $ 5,595
Income taxes payable 100 100
Notes payable - shareholder 1,101 1,090
------------- ---------------
Total liabilities 11,093 6,785
------------- ---------------
Stockholders' equity
Common stock 200,000 200,000
Paid-in capital 591,816 591,816
Deficit accumulated during development stage (752.869) (748,561)
------------ -------------
Total stockholders' equity 38,947 43,255
------------ -------------
Total liabilities and stockholders' equity$ 50,040 $ 50,040
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RISK FACTORS
OWNERSHIP OF OUR COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS, TOGETHER WITH ALL OTHER INFORMATION INCLUDED IN THIS PROSPECTUS. PLEASE KEEP THESE RISKS IN MIND WHEN READING THIS PROSPECTUS, INCLUDING ANY FORWARD-LOOKING STATEMENTS APPEARING HEREIN. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER MATERIALLY. AS A RESULT, THE TRADING PRICE OF OUR COMMON STOCK, IF A TRADING MARKET DEVELOPS, MAY DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATING TO OUR BUSINESS
OUR EXTREMELY LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND PROSPECTS.
We commenced our current business operations in June 2001 and have conducted only minimal research and development activities since that time. As a result of our brief history, we have only limited financial data and business information for you to evaluate our business strategies, past performance and an investment in our common stock. Thus, you may not have adequate information with which to make an informed investment decision.
WE HAVE MINIMAL ASSETS AND NO IMMEDIATE SOURCE OF REVENUE.
We currently have only minimal assets and have no immediate identified source of revenues. It is unlikely that we will receive any revenues until we complete development of one or more of our technologies into a marketable product. There can be no assurance that we will be successful in development of our technologies into products that can be successfully marketed on a profitable basis. We expect to continue to incur significant expenses in connection with:
* funding for research and development;
* costs of future sales and marketing efforts;
* increased general and administrative expenses; and
* additional non-cash charges relating to amortization of intangibles
and other deferred expenses.
Accordingly, we will need to generate significant revenues to achieve and sustain profitability. If we do achieve profitability, we may be unable to sustain profitability on a quarterly or annual basis.
THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN DUE TO WORKING CAPITAL SHORTAGES, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING.
We are a development stage company, have had no revenues, and have no operations from which revenue will be generated in the near future. For fiscal years ended December 31, 2003 and 2002, we incurred net losses of $7,379 and $572,409, respectively, and a net loss of $4,308 for the three months ended March 31, 2004. Accordingly, the independent auditor's report accompanying our audited financial statements as of December 31, 2003, raises doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to obtain adequate capital to cover our operating costs, we may be forced to cease operations.
ADDITIONAL REQUIRED CAPITAL MAY NOT BE AVAILABLE AT ATTRACTIVE TERMS WHICH
WOULD HAVE A MATERIAL NEGATIVE EFFECT ON OUR OPERATING RESULTS.
We will need additional funds in order to continue development of our technologies and to continue operations. During the past two fiscal years ended December 31, 2003 we have recorded an accumulative loss of approximately $580,000. We presently have no revenues from any source and are completely dependent on the infusion of capital from our directors and executive officers and from external sources to be able to continue our business. Currently, our recurring annual expenses are approximately $50,000 plus general and administrative expenses, for an approximate total of $100,000 per annum. We expect that our general, administrative and other operating expenses will increase substantially as we accelerate our efforts to develop our technologies, satisfy increased reporting and stockholder communications obligations under the securities laws, and seek needed additional capital required for our business activities.
We cannot give any assurance that we will be able to obtain necessary funds required to continue operations, or that such funds will be available on terms favorable to us. If we borrow funds we will have to pay interest and may also have to agree to restrictions that limit our operating flexibility. In addition, our cash requirements may vary materially from those now anticipated by management. These changes may be due to the results of testing, potential changes in capital and debt markets, terms on which financing can be obtained, competitive technologies, future research and development, issues related to patent or other proprietary protection, regulatory approvals, and other factors. If adequate funds are not available, we may be required to delay, reduce the scope of, or cancel the proposed development of certain technologies or all of the technologies.
DEVELOPMENT OF OUR TECHNOLOGIES IS LIKELY SUBJECT US TO SUBSTANTIAL
ENVIRONMENTAL REGULATION WHICH COULD INCREASE OUR NEED FOR CASH.
Our business may become subject to numerous laws and regulations concerning the storage, use and discharge of materials into the environment, remediation of environmental impacts, and other matters relating to environmental protection. These laws and regulations may, in the future, impose costs on our operations that make it difficult or impossible to operate in a cost-effective manner. Further, although we intend to comply with all applicable laws and regulations, we might be found in violation of one or more of these laws and regulations, which could result in the imposition of sanctions including the loss of certain permits or licenses, civil sanctions or criminal penalties. It is possible that state and federal environmental laws and regulations will become more stringent in the future, which might increase our projected development and/or operating costs.
WE ARE REQUIRED TO SATISFY CERTAIN SAFETY AND HEALTH REGULATIONS WHICH
COULD REQUIRE ADDITIONAL FUNDS.
We are required to conduct our operations in accordance with various laws and regulations concerning occupational safety and health. Currently and until we begin to develop products, we do not foresee expending material amounts to comply with these occupational safety and health laws and regulations. However, because such laws and regulations are frequently changed and amended, we are unable to predict the future effect of these laws and regulations.
OUR RESEARCH AND DEVELOPMENT EFFORTS MAY NOT RESULT IN COMMERCIALLY VIABLE
PRODUCTS WHICH COULD NEGATIVELY EFFECT OUR BUSINESS AND STOCK VALUE.
Our technologies are in the development stage. Further research and development efforts will be required to develop these technologies to the point where they can be incorporated into commercially viable or salable products. We cannot assure prospective investors that we will be able to accomplish planned development of our technologies in a timely manner. We may not succeed in developing commercially viable products from our technologies, which will severely limit our ability to generate revenues and continue as a viable business. This would negatively effect our stock price, should a market develop for our shares.
WE MAY NOT BE ABLE TO DEVELOP A MARKET FOR OUR TECHNOLOGY, WHICH COULD
CAUSE OUR BUSINESS TO FAIL.
The demand and price for our technology and related products will be based upon the existence of markets for such technology and products and for products of other businesses that may use our technology. The extent to which we may gain a share of our intended markets will depend, in part, upon the cost effectiveness and performance of our technology and products when compared to alternative technologies, which may be conventional or heretofore unknown. If the technology or products of other companies provide more cost-effective alternatives or otherwise outperform our technology or products, the demand for our technology or products will be adversely affected. Our success will be dependent upon market acceptance of our technology and related products. Failure of our technology to achieve and maintain meaningful levels of market acceptance would materially and adversely affect our business, financial condition, results of operations and market penetration. This would likely cause our business to fail.
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS AND WE MAY INFRINGE THE PROPRIETARY RIGHTS OF OTHERS. OUR INABILITY TO PROTECT OUR RIGHTS COULD IMPAIR OUR BUSINESS AND CAUSE US TO INCUR SUBSTANTIAL EXPENSE TO ENFORCE OUR RIGHTS.
Proprietary rights are critically important to us. We obtained rights to certain intellectual assets in various forms and stages of development from a group of individuals. To date, we have not been granted and do not hold any patents on technology on which we intend to focus our development efforts. Patent applications were made for certain proprietary technologies and the initial disclosure documentation has been prepared for all of the acquired technology. Those disclosure documents have not all resulted in patent applications and we cannot assure that any patent will be granted. We also will rely on unpatented trade secrets, confidentiality agreements and know- how to protect the various technologies. If our patent applications are denied or if we have insufficient resources, we
will be forced to rely to a greater degree on trade secrets, confidentiality agreements and know-how and our ability to protect our intellectual property will be reduced to some degree.
If we ultimately receive patents, we will seek to defend those patents and to protect our other proprietary rights. However, our actions may be inadequate to protect our patents and other proprietary rights from infringement by others, or to prevent others from claiming infringement of their patents and other proprietary rights. Policing unauthorized use of our technology is difficult and some foreign laws do not provide the same level of protection as U.S. laws. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or patents that we may obtain, or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and have a material adverse effect on our future operating results.
FUTURE OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND CAUSE THE VALUE OF OUR STOCK TO BE VOLATILE, WHICH COULD CAUSE THE VALUE OF YOUR INVESTMENT IN OUR COMPANY TO DECLINE.
Our future quarterly and annual operating results are likely to fluctuate significantly due to a variety of factors, many of which are outside our control. If operating results do not meet the expectations of investors and securities analysts, the trading price of our common stock, should a public trading market develop, could significantly decline, which may cause the value of an investment in our company to decline. Some of the factors that could affect our quarterly or annual operating results or impact the market price of our common stock include:
* given the nature of the markets in which we participate, we may not be able to reliably predict future revenue and profitability;
* our ability to develop, market and support our current technology and any new products that may supplement or enhance our products we may develop;
* our ability to retain key management, technical, sales and marketing personnel; and
* our ability to obtain sufficient raw materials and supplies to develop and or market our technologies.
Due to these and other factors, quarterly and annual revenues, expenses and results of operations could vary significantly and period-to-period comparisons should not be relied upon as indications of future performance. These fluctuations could cause the value of our stock to be volatile.
WE ARE HEAVILY DEPENDENT ON OUR EXECUTIVE OFFICERS AND THEIR LOSS COULD
SEVERELY DAMAGE OUR BUSINESS.
Our future success depends on the continued contributions of our executive officers, particularly Todd B. Crosland, our President and Chief Financial Officer. Mr. Crosland is central to our development and growth and he has been chiefly responsible for developing all of our relationships with our other executives, directors, employees and external entities. We currently do not have keyman life insurance on any of our executives. Even if we continue to rely on employees for various engineering, design and other specialized services, we will need to recruit and retain additional personnel, including technical advisors and management, and develop additional management expertise. Our inability to acquire such services or to develop such expertise could have a material adverse effect on our operations.
Our officers, directors and affiliates may be subject to potential conflicts of interest. Certain officers and directors will be subject to competing demands for their time and resources as they divide their attention and resources between our business and their other business and investment interests. There can be no assurance that any of the foregoing or other conflicts of interest will be resolved in favor of our stockholders or us. We have adopted no policies respecting the resolution of actual or potential conflicts of interest.
MANAGEMENT WILL DEVOTE ONLY MINIMAL TIME OUR BUSINESS.
Presently, our three directors have other full time obligations and will devote only such time to the business or our company as necessary to maintain our viability. Thus, because of their other time commitments, management anticipates that they will devote only a minimal amount of time to our company, at least until such time as business warrants devoting more time.
RISKS RELATING TO OWNERSHIP OF OUR COMMON STOCK
EFFECTIVE VOTING CONTROL WILL BE HELD BY DIRECTORS WHO WILL HAVE THE ABILITY TO CONTROL FUTURE ELECTION OF DIRECTORS AND THE AFFAIRS OF OUR COMPANY.
Presently, Electronic Game Card owns 100% of our common stock. If we successfully complete the proposed spin-off of those shares to the shareholders of Electronic Game Card, we expect that our current directors will own in the aggregate approximately 81.7% of our outstanding voting securities. No other single shareholder will own in excess of 10%. Accordingly, the current directors will have the ability to elect all of our directors, who in turn elect all executive officers, and to control our business and other affairs without regard to the votes of other shareholders.
NO MARKET FOR OUR COMMON STOCK.
We anticipate that following the spin-off of our shares to the Electronic Game Card shareholders we will apply for listing of our common stock on the OTC Bulletin Board. However, there is currently no market for our shares and there can be no assurance that any such market will ever develop or be maintained. Any trading market that may develop in the future will most likely be very volatile, and numerous factors beyond our control may have a significant effect on the market. Only companies that report their current financial information to the SEC may have their securities included on the OTC Bulletin Board. Therefore, only upon the effective date of this registration statement may we apply to have our securities quoted on the OTC Bulletin Board. In the event that we lose this status as a "reporting issuer," any future quotation of our shares on the OTC Bulletin Board may be jeopardized.
ELECTRONIC GAME CARD STOCKHOLDERS MAY WANT TO SELL THEIR SCIENTIFIC ENERGY SHARES AFTER THEY ARE RECEIVED IN THE SPIN-OFF AND THIS COULD ADVERSELY AFFECT THE MARKET FOR OUR SECURITIES.
Electronic Game Card will distribute 1,125,220 shares of our common stock to its stockholders in the spin-off distribution. Because Electronic Game Card has decided to divest itself of its ownership of our shares, the stockholders of Electronic Game Card may not be interested in retaining their investment in our shares. Because Electronic Game Card stockholders will receive registered shares in the spin-off, they will generally be free to resell their Scientific Energy shares immediately upon receipt, given a market for our shares develops. If any number of Electronic Game Card shareholders offer their shares of Scientific Energy for sale, the market for our securities could be adversely affected.
THE SO CALLED "PENNY STOCK RULE" COULD MAKE IT CUMBERSOME FOR BROKERS AND DEALERS TO TRADE IN OUR COMMON STOCK, MAKING THE MARKET FOR OUR COMMON STOCK LESS LIQUID WHICH COULD HAVE A NEGATIVE EFFECT ON THE PRICE OF OUR STOCK .
In the event our anticipated spin-off of shares is successful and we are ultimately accepted for trading in the over-the-counter market, trading of our common stock may be subject to certain provisions of the Securities Exchange Act of 1934, commonly referred to as the "penny stock" rule. A penny stock is generally defined to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. If our stock is deemed to be a penny stock, trading will be subject to additional sales practice requirements on broker-dealers. These may require a broker-dealer to:
* make a special suitability determination for purchasers of our shares;
* receive the purchaser's written consent to the transaction prior to the purchase; and
* deliver to a prospective purchaser of our shares prior to the first transaction, a risk disclosure document relating to the penny stock market.
Consequently, penny stock rules may restrict the ability of broker-dealers to trade and/or maintain a market in our common stock. Also, prospective investors may not want to get involved with the additional administrative requirements, which may have a material adverse effect on the trading of our shares.
WE HAVE NEVER PAID A DIVIDEND AND DO NOT INTEND TO DO SO IN THE IMMEDIATE
FUTURE.
We have never paid cash dividends and have no plans to do so in the foreseeable future. Our future policy will be determined by our board of directors and will depend upon a number of factors, including our financial condition and performance, our cash needs and expansion plans, income tax consequences, and the restrictions that applicable laws and our credit arrangements may impose.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
This prospectus, including the sections entitled "Summary," "Risk Factors," "Management's Discussion and Analysis or Plan of Operations" and "Business," contains forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks and uncertainties. These factors may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These risks and other factors include those listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "will" "should," "expects," "intends," "plans," anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology.
You should be aware that a variety of factors could cause actual results to differ materially from the anticipated results or other matters expressed in forward-looking statements. These risks and uncertainties, many of which are beyond our control, include:
* Our ability to create a workable, commercially viable product;
* Our ability to protect what we perceive to be our intellectual
property assets;
* Our ability to attract and retain certain retail and business
customers;
* The anticipated benefits and risks associated with our business
strategy;
* Volatility of the stock market, particularly within the technology
sector;
* Our future operating ability and the future value of our common stock;
* The anticipated size or trends of the market segments in which we
compete and the anticipated competition in those markets;
* Potential government regulation;
* Our future capital requirements and our ability to satisfy our needs;
and
* general economic conditions.
You are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results may differ materially from those included within the forward-looking statements as a result of various factors. Cautionary statements in the risk factors section and elsewhere in this prospectus identify important risks and uncertainties affecting our future, which could cause actual results to differ materially from the forward-looking statements made in this prospectus.
Neither we nor any other person assumes responsibility for the accurateness or the completeness of the forward looking statements. We are under no duty to update any of the forward- looking statements after the date of this report to conform such statements to actual results or to changes in our expectations.
USE OF PROCEEDS
We will receive no proceeds from the distribution of our shares from the spin-off.
DILUTION
As of March 31, 2004, Scientific Energy had outstanding 20 million shares of its $0.01 par value common stock (1,125,220 as adjusted for reverse stock split), with an unaudited net book value as reflected on the Scientific Energy balance sheet at March 31, 2004 of $38,947, or $0.03 per share. Net book value per share represents the amount of our total assets less liabilities, divided by the number of shares of our common stock outstanding. The spin-off transaction represents a distribution of shares that are already outstanding and will have no effect on the net tangible book value of Scientific Energy.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2004 on an actual basis. You should read this table together with the financial statements and accompanying notes that we include later in this prospectus.
March 31, 2004
(Unaudited)
Stockholders' equity (deficit)
Common stock: 20,000,000 shares authorized of $0.01 par value,
20,000,000 shares issued and outstanding.............................. 200,000
Paid-in capital............................................................ 591,816
Deficit accumulated during development state............................... (752,869)
Total stockholders' equity ........................................... $ 38,947
Total capitalization.................................................. $ 50,040
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DETERMINATION OF PRICE
The distribution described in this prospectus is a spin-off dividend distribution of Scientific Energy common stock owned by Electronic Game Card. Prior to the distribution date, we will effect a reverse stock split of our common stock to reduce the number of shares outstanding to 1,125,220. Electronic Game Card will then distribute the 1,125,220 shares that it owns to its shareholders within thirty days after the date of the prospectus. No new shares are being sold in this distribution and no offering price has been established for our common stock. Upon completion of the distribution, we will apply to have our shares quoted on the OTC Bulletin Board. We can provide no assurances of the price at which our shares will trade if a market for does develop, nor can we provide any assurances that a market will develop.
For purposes of calculating the registration fee for the Scientific Energy common stock included in this prospectus, we have used an estimated price of $0.10 per share. This is an arbitrary price and we can offer no assurances that the $0.10 price bears any relation to value of the shares as of the date of this prospectus.
CERTAIN MARKET INFORMATION AND MARKET RISKS
There is not presently, nor has there ever been, a public trading market for our common stock. It is anticipated that following the proposed spin-off of our shares by Electronic Game Care, we will make an application to the NASD to have our shares quoted on the OTC Bulletin Board. Our application to the NASD will consist of current corporate information, financial statements and other documents as required by Rule 15c2-11 of the Securities Exchange Act of 1934.
Inclusion on the OTC Bulletin Board permits price quotations for our shares to be published by that service. Although we intend to submit an application to the OTC Bulletin Board subsequent to the filing of this registration statement, we do not anticipate our shares to immediately be traded in the public market. Also, secondary trading of our shares may be subject to certain state imposed restrictions. Except for the application to the OTC Bulletin Board, there are no plans, proposals, arrangements or understandings with any person concerning the development of a trading market in any of our securities. There can be no assurance that our shares will be accepted for trading on the OTC Bulletin Board or any other recognized trading market. Also, there can be no assurance that a public trading market will develop following the spin-off or at any other time in the future or, that if such a market does develop, that it can be sustained.
Without an active public trading market, you may not be able to liquidate the shares you received in the spin-off. If a market does develop, the price for our securities may be highly volatile and may bear no relationship to our actual financial condition or results of operations. Factors we discuss in this prospectus, including the many risks associated with an investment in our securities, may have a significant impact on the market price of our common stock.
The ability of individual shareholders to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer's securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Presently, we have no plans to register our securities in any particular state.
It is unlikely that our securities will be listed on any national or regional exchange or on The Nasdaq Stock Market. Therefore our shares most likely will be subject to the provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for broker-dealer transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The SEC generally defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the SEC; authorized for quotation on The Nasdaq Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the issuer's net tangible assets; or exempted from the definition by the SEC. Broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse), are subject to additional sales practice requirements.
For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent to clients disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade and/or maintain a market in our common stock and may affect the ability of shareholders to sell their shares. These requirements may be considered cumbersome by broker-dealers and could impact the willingness of a particular broker-dealer to make a market in our shares, or they could affect the value at which our shares trade. Classification of the shares as penny stocks increases the risk of an investment in our shares.
As of the date hereof, there is one holder of our common stock, Electronic Game Card. According to the shareholder list of November 19, 2003, the date of record for shareholders of Electronic Game Card to receive shares of our common stock in the spin-off, following the distribution of our shares there will be approximately 280 holders of record of our common stock. This number does not take into consideration shareholders whose shares are held by broker-dealers, financial institutions or nominees.
DIVIDEND POLICY
We have never declared or paid cash dividends or made distributions in the past and do not anticipate paying cash dividends or making distributions in the foreseeable future. We currently intend to retain and invest future earnings to finance operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION REGARDING OUR FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
We are considered a development stage company with minimal assets or capital and with no current revenues. It is anticipated that we will require only nominal capital to maintain our corporate viability and necessary funds will most likely be provided by our officers and directors in the immediate future. However, unless we are able to facilitate an adequate financing in the near future to advance our business plan, there is substantial doubt about our ability to continue as a going concern.
In the opinion of management, inflation has not and will not have a material effect on our operations until such time as we successfully complete development of our technologies and resulting products. At that time, management will evaluate the possible effects of inflation on our business and operations.
PLAN OF OPERATION
We have entered into a licensing agreement with Grandway USA, Inc. whereby Grandway will assume the development of our patents and technology. Under terms of the agreement, Grandway will use its best efforts to complete the development of our technologies. If Grandway is successful in developing our technologies, it will use its advertising, marketing and distribution networks to bring our technologies and products to the market. We will
be entitled to a licensing fee of 15% of total sales generated from the sale of our technologies or products derived therefrom by Grandway.
We do not anticipate incurring any marketing or advertising expenses until a commercially viable product has been produced through our agreement with Grandway. We presently intend to focus on building workable prototypes that can be tested and verified by independent third parties in two of the general fields in which we own technology, the energy efficient pump and the energy generation, long-life battery. The initial target market for the energy generation technologies will be the energy cell requirements of portable laptop computers. The energy conservation mechanism technologies will be marketed towards products and mechanisms that employ pumps, such as oil pumps, water pumps and compressors.
Presently, we do not anticipate any significant expenditures on equipment or physical facilities during 2004. Most of our expenditures will be related to the research and development of our technology. We anticipate that we could spend up to $50,000 during 2004 for research and development. Management estimates that our general and administrative expenses for 2004 will be approximately $50,000. We to develop independently testable prototypes that may lead to licensing our technology or establishing marketing agreements. We do not presently anticipate becoming a manufacturer of products developed from our technology.
LINE OF CREDIT
On January 1, 2004, our President, Todd B. Crosland, provided to us an unsecured line of credit for up to $250,000. The credit line carries interest at the prevailing prime rate. As of the date hereof, we owe $5,000 against this line of credit.
NET OPERATING LOSS
We have accumulated approximately $749,000 of net operating loss carryforwards as of December 31, 2003, which may be offset against taxable income and income taxes in future years. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. The carry-forwards expire in the year 2023. In the event of certain changes in control, there will be an annual limitation on the amount of net operating loss carryforwards which can be used. No tax benefit has been reported in the financial statements for the year ended December 31, 2003 because there is a 50% or greater chance that the carryforward will not be used. Accordingly, the potential tax benefit of the loss carryforward is offset by a valuation allowance of the same amount.
RECENT ACCOUNTING PRONOUNCEMENTS
On August 16, 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards (SFAS) SFAS No. 143, Accounting for Asset Retirement Obligations," which is effective for fiscal years beginning after June 15, 2002. It requires that obligations associated with the retirement of a tangible long-lived asset be recorded as a liability when those obligations are incurred, with the amount of the liability initially measured at fair value. Upon initially recognizing an accrued retirement obligation, an entity must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Although management has not completed the process of determining the effect of this new accounting pronouncement, it currently expects that the effect of SFAS No. 143 on the consolidated financial statements, when it becomes effective, will not be significant.
In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Although SFAS 144 supersedes SFAS 121, it retains many of the fundamental provisions of SFAS 121. SFAS 144 also supersedes the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting-the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in APB 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of, by sale, abandonment, or in a distribution to owners, or is classified as held for sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. Management believes the adoption of SFAS 144 will not have a significant effect on our consolidated financial statements.
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections" (SFAS 145). SFAS 145 will require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary Items as previously required under Statement of Financial Accounting Standards No. 4 (SFAS 4). Extraordinary treatment will be required for certain extinguishments as provided in APB Opinion No. 30. SFAS 145 also amends Statement of Financial Accounting Standards No. 13 to require certain modifications to capital leases be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). SFAS 145 is effective for financial statements issued after May 15, 2002, and with respect to the impact of the reporting requirements of changes made to SFAS 4 for fiscal years beginning after May 15, 2002. The adoption of the applicable provisions of SFAS 145 did not have an effect on our financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with a disposal activity covered by SFAS 144. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with earlier application encouraged. Management is currently reviewing SFAS 146.
In October 2002, the FASB issued Statement No. 147 "Acquisitions of Certain Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9" (SFAS 147). SFAS 147 removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with FASB Statements No. 141, BUSINESS COMBINATIONS, and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Thus, the requirement in paragraph 5 of Statement 72 to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions within the scope of this Statement. In addition, this Statement amends FASB Statement No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other long-lived assets that are held and used. SFAS 147 is effective October 1, 2002. Management does not expect that the adoption of SFAS 147 will have a material effect on our consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure"(SFAS 148"). SFAS 148 amends SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for fiscal years beginning after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. Management is currently evaluating the effect that the adoption of SFAS 148 will have on our results of operations and financial condition.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), CONSOLIDATION OF VARIABLE INTEREST ENTITIES, which addresses the consolidation of business enterprises (variable interest entities), to which the usual condition of consolidation, a controlling financial interest, does not apply. FIN 46 requires an entity to assess its business relationships to determine if they are variable interest entities. As defined in FIN 46, variable interests are contractual, ownership or other interests in an entity that change with changes in the entity's net asset value. Variable interests in an entity may arise from financial instruments, service contracts, guarantees, leases or other arrangements with the variable interest entity. An entity that will absorb a majority of the variable interest entity's expected losses or expected residual returns, as defined in FIN 46, is considered the primary beneficiary of the variable interest entity. The primary beneficiary must include the variable interest entity's assets, liabilities and results of operations in its consolidated financial statements. FIN 46 is immediately effective for all variable interest entities created after January 31, 2003. For variable interest entities created prior to this date, the provisions of FIN 46 were originally required to be applied no later than our first quarter of Fiscal 2004. On October 8, 2003, the FASB issued FASB Staff Position (FSP) FIN 46-6, EFFECTIVE DATE OF FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES. The FSP provides a limited deferral (until the end of our second quarter of 2004) of the effective date of FIN 46 for certain interests of a public entity in a variable interest entity or a potential variable interest entity. We will continue to evaluate FIN 46, but due to the complex nature of the analysis required by FIN 46, we have not determined the impact on our consolidated results of operations or financial position.
In April 2003, the FASB issued SFAS No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. We adopted this standard for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on our consolidated results of operations or financial position.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. This Statement requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as liabilities. We adopted this standard for financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150 did not have a material impact on our consolidated results of operations or financial position.
BUSINESS
BUSINESS DEVELOPMENT
HISTORY
Scientific Energy was incorporated under the laws of the State of Utah on May 30, 2001, for the specific purpose of entering into an agreement and plan of reorganization dated June 6, 2001 with Quazon, Corp, a Nevada corporation. Upon inception, we issued 20 million shares of our common stock to two persons, Todd B. Crosland (8 million shares) and Hans Roes (12 million shares), in exchange for certain technology. Under the terms of the agreement, Messrs. Crosland and Roes exchanged their 20 million shares of Scientific Energy common stock for 20 million shares of Quazon common stock. Contemporaneous with the acquisition and under separate agreements, Messrs. Crosland and Roes, together with certain other associated investors, purchased an aggregate of 3,058,820 shares of Quazon common stock from existing Quazon shareholders. As a result of the transaction, we became the wholly owned subsidiary of Quazon. In July 2001, Quazon changed its corporate name to Scientific Energy, Inc., which entity will be referred to herein as Scientific Energy (NV).
Prior to the transaction with Quazon, we acquired various intellectual property assets in various forms and stages of development from a group of individuals, Otis H. Sanders, Daryl Conley, David Sanders, Paul Thomas, and their company, American Eagle Research. We also acquired any and all inventions, any United States disclosure documents, patent applications and patents created or owned by the aforementioned group of individuals and their company. In consideration for the property and other assets, we entered into royalty and employment agreements with the individuals.
The technology acquired encompassed, but was not limited to, the intellectual property related to the following:
1. Electroluminescence Power Cell (for Lap-Top Computer)
2. Solenoid Pump
3. Solar Powered Fishing Tackle Box
4. Flasher Beacon
5. Electroluminescence Power Cell (for Portable T.V.)
6. Rapid-Hot Water Heater (120 volt)
7. Rapid-Hot Water Heater (12 volt)
8. Hydraulic Solenoid Solar-Powered Pump
9. Solar Powered Camping Lights
10. Solar Powered Survival Lantern With ELT
11. Solar Powered Lantern With Flashing Strobe
12. Solar Powered Barricade Light
13. Turbine Generator
14. Hydrogen Powered Generator System
15. Speedy Sputter with Solenoid Drive
16. Solenoid Pump for Diesel Motors
17. Flexible Socket Extension
18. Spring Loaded Magnetic Socket-wrench
The intellectual properties acquired regarding the respective technologies only encompass those technologies or parts of the technologies created by the aforementioned individuals and their company. The acquired technology may encompass trade secrets, disclosure documents, patent applications (for design or process) or patents (for design
or process). We have no assurance that all or any part of the technologies we have acquired are unique, or if any facet of the respective technologies or all or any part of the technologies themselves can be protected if challenged, or that any patents will be issued with respect thereto.
During 2002, we terminated our royalty and employment agreements with the aforementioned individuals and ceased all research and development efforts regarding this technology.
On November 19, 2003, our parent, Scientific Energy (NV), entered into a share exchange agreement with Electronic Game Card, Inc., a Delaware corporation having a principal place of business in New York City, New York. In anticipation of the share exchange, Scientific Energy (NV) effected a reverse stock split of its issued and outstanding shares of common stock on a one share for 100 shares basis, effective November 18, 2003. As a condition of the reverse split, all fractional shares resulting from the split were rounded up to the next whole share, with the provision that no individual shareholder's holdings would be reduced below 100 shares as a result of the split.
Under the terms of the agreement, Scientific Energy (NV) issued a majority of its common shares to the shareholders of Electronic Game Card, Inc., which became a wholly owned operating subsidiary of Scientific Energy (NV) and the Delaware entity changed its name to Electronic Game Card Marketing, Inc. It is the intent of Scientific Energy (NV) that Electronic Game Card Marketing will, for the immediate future, conduct most of its business activities through its British subsidiary Electronic Game Card, Ltd. As a further term of the exchange agreement, John Bentley, Lee Cole and Linden Boyne were elected as new directors of Scientific Energy (NV), which changed its corporate name to Electronic Game Card, Inc.
We are filling the registration statement, of which this prospectus is a part, in order to facilitate the distribution (spin-off) of the 100% interest in our common stock to the shareholders of our parent company, Scientific Energy (NV), hereinafter referred to as Electronic Game Card. Presently, 20 million shares, or 100% of our common stock is owned by Electronic Game Card. Prior to the distribution date, we will effect a reverse stock split of our common stock to reduce the number of shares outstanding to 1,125,220. Under the terms of the proposed spin-off, each shareholder of Electronic Game Card immediately prior to the closing of the exchange agreement on November 19, 2003, will be entitled to receive one share of Scientific Energy common stock for each share of Electronic Game Card owned. Prior to the closing of the exchange agreement, there were approximately 1,125,220 shares of Electronic Game Card common stock outstanding. Accordingly, following the spin-off, there will be 1,125,220 shares of Scientific Energy common stock outstanding.
Following the effectiveness of this registration statement, we will become a reporting company under the Securities Exchange Act of 1934, as amended. This will make information concerning our company more readily available to the public. We expect to conclude the spin-off immediately following the effectiveness of this registration statement.
As a result of filing this registration statement, we are obligated to file
with the SEC certain interim and periodic reports including an annual report
containing audited financial statements. We anticipate that we will continue to
file such reports, notwithstanding the fact that, in the future, we may not
otherwise be required to file such reports based on the criteria set forth under
Section 12(g) of the Exchange Act.
Our principal executive offices are located at 630 North 400 West Salt Lake City, Utah 84103 and our telephone number is (801) 359-2410.
CURRENT BUSINESS ACTIVITIES
In November of 2003, we entered into a licensing agreement with Grandway USA, Inc. Under terms of the licensing agreement, Grandway will assume the development of Scientific Energy patents and technology. In addition, if and when Grandway is able to manufacture and perfect the technologies covered by the licensing agreement, Grandway will use its marketing network to bring Scientific Energy technologies to market. Scientific Energy will receive a royalty fee of 15% in connection with any sales of products developed from Scientific Energy technologies.
We have not begun any marketing or advertising efforts to date, nor do we anticipate incurring marketing or advertising expenses until a commercially viable product has been produced. If we are able to create a workable product, we will focus our marketing efforts on the then currently available market opportunities.
We presently intend to focus on building workable prototypes that can be tested and verified by independent third parties in two of the general fields in which we own technology. The energy conservation mechanism (the energy efficient pump field) and the energy generation, long-life battery field are the two areas in which we intend to expend our greatest resources and efforts. We believe that existing consumer applications requiring portable energy sources provide sufficient potential demand for our envisioned products to justify the significant research and development expenditure. We envision our initial target market for the energy generation technologies will be the energy cell requirements of portable laptop computers. The energy conservation mechanism technologies will be marketed towards products and mechanisms that employ pumps, such as oil pumps, water pumps and compressors.
Management is aware that the markets we wish to penetrate are dominated by significantly larger companies with substantially greater resources, financial and otherwise. It is our intent to develop independently testable prototypes that may lead to licensing our technology or establishing marketing agreements. We do not presently anticipate becoming a manufacturer of products developed from our technology.
RESEARCH AND DEVELOPMENT
We have committed the vast majority of our current efforts and resources to the research and development effort regarding our technologies. New research and development activities will be carried out by our licensing partner, Grandway USA. During fiscal years 2003 and 2002, we have expended $138 and $13,116, respectively, on research and development. We anticipate that these expenditures will increase significantly in 2004.
PRODUCTS, MARKETS AND DISTRIBUTION OF PRODUCTS
Management's current plan is to use the marketing efforts of Grandway to provide us with distribution channels for our products and assist us in design, development and manufacture of new products. We believe, if sufficiently developed and tested, our proprietary technology makes us an attractive partner for companies currently in the business of developing and selling, batteries, other energy cell technology or energy conservation mechanisms. If our licensing partner, Grandway, is able to develop workable prototypes for our technologies, we believe there is considerable potential for marketing and distribution.
COMPETITION WITHIN OUR PROPOSED INDUSTRY
Those companies that we will be dependent on to bring our concepts and technologies to market will likely be the same companies that will be our primary competitors. The markets for the products we intend to develop are highly competitive. For example, the energy generation devices we intend to develop will compete directly with large firms that make batteries such as, Duracell, Energizer and Rayovac. These companies have a dominant position in the battery market and have financial and other resources that far outweigh ours. These dominant companies have advantages in negotiating with retailers and have greater appeal to end-use consumers because of their products and brand-names. We will also compete with many lesser known products and companies that will have significantly greater resources than ours. The technology that we intend to develop regarding energy conservation mechanisms, specifically various pump technologies, will face similar barriers to entry into the marketplace and will not have any advantages as far as development, competition, or marketability over other energy generation devices. Marketing of our prospective products will be focused around performance of the products, pricing, promotion and distribution strategies. We will have no competitive advantage in any of these fields and we may never achieve a necessary product development or brand-name status to enable us to effectively compete or render marketable or economically viable products.
Those fields in which we intend to compete are also highly regulated by government rules and regulations. Development and testing of our products could be regulated by environmental laws, of which we are not presently aware. Larger, more established companies are better able to deal with and incur the costs associated with remaining in compliance with those rules and regulations. The business strategy that we have determined to be the most viable is for us to develop a workable prototype from any of our current projects and then, at that point, seek a merger partner or be acquired by a company that has similar existing products. It is possible that partner or prospective acquiring company we hope to fulfill this strategy may not exist and, if it does exist, it may not be interested in our technologies. There is no assurance that in the event we are able to develop marketable products, that a larger, more established company will not just use our technology without our consent. We have no assurance that we will be able to protect our intellectual properties. We rely exclusively on laws regarding trade secrets, confidentiality agreements and other such protections for our intellectual properties.
EMPLOYEES
During 2002, we terminated employment agreements and royalty agreements with all four of our research and development employees. The employees were the sole researchers and developers of our various technologies and we had been dependent on their technical expertise and know-how.
As of the date hereof, we do not have any employees and has no plans for retaining employees until such time as business warrants the expense. Future development of our technology will be the responsibility of our licensing partner, Grandway.
FACILITIES
All of our business activities are presently being conducted by corporate officers from their personal business offices. Currently, there are no outstanding debts owed for the use of these facilities and there are no commitments for future use of the facilities. Although we have no written agreement and currently pay no rent for the use of our facilities, it is contemplated that at such future time as business warrants, we will secure commercial office space from which to conduct business. We have no current plans to secure such commercial office space.
LEGAL PROCEEDINGS
There are presently no material pending legal proceedings to which we are a party or to which any of our property is subject and, to the best of our knowledge, no such actions against us are contemplated or threatened.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are as follows:
NAME AGE POSITION
---- --- --------
Todd B. Crosland 43 President, CFO and Director
Jana Meyer 53 Secretary/Treasurer and Director
Mark Clawson 36 Director
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All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. We have not compensated directors for service on the board of directors or any committee thereof, but directors are entitled to be reimbursed for expenses incurred for attendance at meetings of the board and any committee of the board. However, due to our lack of funds, the directors will defer their expenses and any compensation until such time as we business warrants such expenses. As of the date hereof, no director has accrued any expenses or compensation. Officers are appointed annually by the board and each executive officer serves at the discretion of the board. We do not have any standing committees.
No director, officer, affiliate or promoter of Scientific Energy has, within the past five years, filed any bankruptcy petition, been convicted in or been the subject of any pending criminal proceedings, or is any such person the subject or any order, judgment, or decree involving the violation of any state or federal securities laws.
All of our present directors have other full-time employment or sources of income and will routinely devote only such time to our business as necessary. It is estimated that each director will devote less than ten hours per month to our business activities.
Currently, there is no arrangement, agreement or understanding between management and non-management shareholders under which non-management shareholders may directly or indirectly participate in or influence the management of our affairs. Present management openly accepts and appreciates any input or suggestions from shareholders. However, the board is elected by the shareholders and the shareholders have the ultimate say in who represents them on the board. There are no agreements or understandings for any officer or director to resign at the request of another person and none of the current offers or directors are acting on behalf of, or will act at the direction of any other person.
The business experience of each of the persons listed above during the past five years is as follows:
TODD B. CROSLAND is a co-founder of our company and has served as a director, Chairman of the Board, Chief Executive Officer and President since inception in May 2001. Previously, Mr. Crosland was co-founder and Executive Vice-President of Operations, Vice President of Finance, and a director of Surgical Technologies, Inc., a manufacturer and marketer of pre-packaged sterile surgical products from 1989 through 1996. Since 1996, Mr. Crosland has been Chairman of the Board and President of Rex Industries, Inc., a specialty metals fabrication business acquired from Surgical Technologies, and of TBC, LC, a real estate investment company since 1992. Mr. Crosland holds a B.A. degree in business finance from the University of Utah.
JANA MEYER has served as Secretary/Treasurer and a director of Scientific Energy since its reorganization in 2001. Previously, Mrs. Meyer was Secretary of Surgical Technologies, Inc., a manufacturer and marketer of pre- packaged sterile surgical products from 1989 through 1995. Mrs. Meyer is also currently an executive employee and controller of Rex Industries, Inc. and has been since 1996.
MARK CLAWSON became a director of Scientific Energy in 2001. Since June 1999, Mr. Clawson has been Chairman and President of Rubicon Venture Partners, Inc., a holding company with investments in the equipment rental industry. From October 1994 to February 1999, Mr. Clawson was a corporate and securities attorney with Wilson, Sonsini, Goodrich & Rosati, in Palo Alto, California. Mr. Clawson received a B.A. degree in English from Brigham Young University, a J.D. degree from Duke University, and M.A. and Ph.D. in legal History from Stanford University. Todd Crosland and Mark Clawson are brothers-in-law.
DIRECTOR COMPENSATION
Presently, we do not provide monetary compensation to directors for serving on our board of directors. We do not have a bonus, profit sharing, or deferred compensation plan for the benefit of employees, officers or directors. We have not paid any salaries or other compensation to our officers, directors or employees for the years ended December 31, 2003 and 2002. However, during the year ended December 31, 2002, our parent company issued 13,200,000 (132,000 post-split) shares of common stock to officers and directors in exchange for services and conversion of debt valued at $210,000. Our by-laws authorize the board of directors to fix the compensation of directors, to establish a set salary for each director and to reimburse the director's expenses for attending each meeting of the board. As of the date hereof, no salaries or other compensation have been paid to any member of the board, individually or as a group.
Also, we do not have employment agreements with any of our officers, directors or any other persons and no such agreements are anticipated in the immediate future. It is intended that directors will defer any compensation until such time as business conditions warrant such expenses. As of the date hereof, no person has accrued any compensation.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION ON LIABILITY
As permitted by the provisions of Utah law, we have the power to indemnify an individual made a party to a proceeding because they are or were a director of our company, against liability incurred in the proceeding, provided such individual acted in good faith and in a manner reasonably believed to be in, or not opposed to, our best interest and, in a criminal proceeding, they had no reasonable cause to believe their conduct was unlawful. Indemnification under this provision is limited to reasonable expenses incurred in connection with the proceeding. We must indemnify a director or officer who is successful, on the merits of otherwise, in the defense of any proceeding or in defense of any claim, issue, or matter in the proceeding, to which they are a party to because they are or were a director or officer of our company, against reasonable expenses incurred by them in connection with the proceeding or claim with respect to which they have been successful. Our Articles of Incorporation empower the board of directors to indemnify our officers, directors, agents, or employees against any loss or damage sustained when acting in good faith in the performance of their corporate duties.
We may pay for or reimburse reasonable expenses incurred by a director, officer employee, fiduciary or agent of ours who is a party to a proceeding in advance of final disposition of the proceeding, PROVIDED the individual furnishes us with a written affirmation that their conduct was in good faith and in a manner reasonably believed to be in, or not opposed to, our best interest, and undertake to repay the advance if it is ultimately determined that they did not meet such standard of conduct.
Also pursuant to Utah law, a corporation may set forth in its articles of incorporation, by-laws or by resolution, a provision eliminating or limiting in certain circumstances, liability of a director to the corporation or its shareholders for monetary damages for any action taken or any failure to take action as a director. This provision does not eliminate or limit the liability of a director
(i) for the amount of a financial benefit received by a director to which
they are not entitled;
(ii) an intentional infliction of harm on the corporation or its
shareholders;
(iii)for liability for a violation relating to the distributions made in
violation of Utah law; and
(iv) an intentional violation of criminal law.
Our by-laws provide for such indemnification. A corporation may not eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. Utah law also permits a corporation to purchase and maintain liability insurance on behalf of its directors, officers, employees, fiduciaries or agents. We currently do not maintain directors' and officers' insurance.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Presently, 100% of our common stock is owned by our parent company, Electronic Game Card. Based on the proposed spin-off of our shares by Electronic Game Card, each shareholder of Electronic Game Card immediately prior to the closing of the exchange agreement on November 19, 2003, will be entitled to receive one share of Scientific Energy common stock for each share of Electronic Game Card owned. Accordingly, following the spin- off, we will have approximately 1,125,220 shares of common stock outstanding. The following table sets forth information, to the best of our knowledge, with respect to each person known by us that will own beneficially more than 5% of the outstanding common stock following completion of the proposed spin-off, as well as each director and all directors and officers as a group.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1) -------------------- -------------------- ----------- Todd Crosland * 855,095 76.0 % 630 North 400 West Salt Lake City, Utah 84103 Jana Meyer * 40,200 3.6 % 630 North 400 West Salt Lake City, Utah 84103 Mark Clawson * 24,000 2.1 % 630 North 400 West Salt Lake City, Utah 84103 David Rumbold 65,648 5.8 % 1200 West Olive Wyoming, IL 61491 All directors and officers 919,295 81.7 % a group (3 persons) |
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, we have been advised that each person above will have sole voting power over the shares indicated above.
(1) Based upon 1,125,220 shares of common stock to be outstanding following the spin-off.
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We have not had any material transactions during the past two fiscal years with any officer, director, nominee for election as director, or any shareholder owning greater than five percent (5%) of our outstanding shares, nor any member of the above referenced individuals' immediate family except as set forth below.
On August 15, 2001, Todd B. Crosland, our President, extended to us an unsecured line of credit for up to $350,000. The credit line carries interest at the existing prime rate. As of December 31, 2003 and 2002 the Company owed $1,090 and $22,037, respectively, against this line of credit and is reported along with accrued interest in the accompanying financial statements as a Note Payable Shareholder. On December 5, 2003, $31,344 of the note was converted into 552,000 shares of Electronic Game Card common in connection with the share exchange agreement.
On January 1, 2004, Mr. Crosland, provided to us a new unsecured line of credit for up to $250,000. The credit line carries interest at the prevailing prime rate. As of the date hereof, we owe $5,000 against this line of credit.
DESCRIPTION OF COMMON STOCK
COMMON STOCK
We are authorized to issue 20 million shares of common stock, par value $0.01 per share, of which 20 million shares are issued and outstanding as of the date hereof, all of which are owned by our parent, Electronic Game Card. Prior to the distribution date, we will effect a reverse split of our outstanding common stock in order to reduce the outstanding shares to 1,125,220.
All shares of common stock have equal rights and privileges with respect to voting, liquidation and dividend rights. Each share of common stock entitles the holder thereof to
(i) one non-cumulative vote for each share held of record on all matters
submitted to a vote of the stockholders;
(ii) to participate equally and to receive any and all such dividends as
may be declared by the board of directors out of funds legally
available therefor; and
(iii)to participate pro rata in any distribution of assets available for
distribution upon liquidation.
Shareholders have no preemptive rights to acquire additional shares of common stock or any other securities. Common shares are not subject to redemption and carry no subscription or conversion rights. All outstanding shares of common stock are fully paid and non-assessable.
AMENDMENT OF ARTICLES OF INCORPORATION
Any amendment to our articles of incorporation must first be approved by a majority of the board of directors and, thereafter, by a majority of the total votes eligible to be cast by holders of our voting stock with respect to such amendment. Approval by shareholders may be by written consent in lieu of shareholders' meeting.
BY-LAW PROVISIONS
Our By-Laws provide that a special meeting of stockholders may be called by the board of directors or by holders of a majority of our outstanding shares. Further, only those matters included in the notice of the special meeting may be considered or acted upon at that special meeting, unless otherwise provided by law. In addition, our By-Laws include advance notice and informational requirements and time limitations on any director nomination or any new proposal which a stock holder wishes to make at an annual meeting of stockholders.
TRANSFER AGENT
We are presently acting as our own transfer agent. It is anticipated that in connection with and following the proposed spin-off of our shares, we will engage as our transfer agent Interstate Transfer Company, 6084 South 900 East, Suite 101, Salt Lake City, Utah 84121, telephone number (801) 281-9746.
THE SPIN-OFF
INTRODUCTION
In connection with the share exchange agreement entered into by our parent company in November 2003, it was agreed that 100% of the shares of our company owned by our parent, Electronic Game Card, would be distributed to those stockholders of record of Electronic Game Card immediately preceding the closing of the agreement on November 19, 2002. Accordingly, Electronic Game Card will distribute to its stockholders of record an aggregate of 1,125,220 shares of Scientific Energy common stock on the basis of one share of our common stock for each share of Electronic Game Card common stock owned, adjusted for the reverse stock split effected on November 18, 2003. As of the record date, Electronic Game Card had approximately 262 stockholders, which will be the same number of stockholders we will have following the spin-off.
PLAN OF DISTRIBUTION
This prospectus describes the spin-off distribution of the 1,125,220 shares of Scientific Energy common stock currently owned by Electronic Game Card. We currently anticipate that the distribution will be effected near the
effective date of the registration statement, of which this prospectus is a part. We are currently a wholly-owned subsidiary of Electronic Game Card. As a result of the distribution, 100% of the outstanding Scientific Energy shares will be distributed to Electronic Game Card stockholders of record on November 19, 2003. Immediately following the distribution, Electronic Game Card and its subsidiaries will not own any Scientific Shares and we will be an independent, public company.
Within 30 days following the effectiveness of our registration statement, Electronic Game Card will deliver 1,125,220 shares of Scientific Energy common stock to Fidelity Transfer Co., the distribution agent. Fidelity will then distribute share certificates to Electronic Game Card stockholders, together with a copy of this prospectus, within thirty days thereafter.
REASONS FOR THE DISTRIBUTION
The board of directors and management of Electronic Game Card believe that the spin-off is in the best interests of Electronic Game Card, Scientific Energy and Electronic Game Card stockholders. Electronic Game Card believes that the spin-off will enhance value for its stockholders and give Scientific Energy the financial and operational flexibility to take advantage of potential growth opportunities as an independent, public company.
Our management believes that the spin-off will enhance our ability to focus on strategic initiatives, prospective funding for development of our technologies, and future business opportunities. In addition, as an independent entity, our management will be able to focus solely on the operation of Scientific Energy and will provide us with greater access to capital by allowing the financial community to focus solely on us, and allow the investment community to measure our performance relative to our peers. Further, because our business is distinctly different from that of Electronic Game Card and its newly acquired subsidiaries, becoming separate entities will enhance the business prospects of each respective company and which will ultimately result in a benefit to the stockholders.
RESULTS OF THE DISTRIBUTION
After the spin-off, we will be a separate, independent public company continuing the development of our technologies. Immediately after the spin-off, we expect to have approximately 262 holders of record of Scientific Energy shares, and 1,125,220 Scientific Energy shares outstanding, regardless of the number of stockholders of record and outstanding Electronic Game Card shares subsequent to the record date for the spin-off. The spin-off will not affect the number of outstanding Electronic Game Card shares or any rights of its stockholders.
LISTING AND TRADING OF THE SCIENTIFIC ENERGY SHARES
There is currently no public market for our shares. Upon completion of this distribution, our shares will not qualify for trading on any national or regional stock exchange or on the Nasdaq Stock Market. We will attempt to have one or more broker-dealers agree to serve as market makers and quote our shares on the OTC Bulletin Board. However, we have no present arrangement or agreement with any broker-dealer to serve as market maker for our common shares, and we can offer no assurances that any market for our common shares will develop. Even if a market develops for our shares, we can offer no assurances that the market will be active, or that it will afford our shareholders an avenue for selling their shares. Many factors will influence the market price of our common shares, including the depth and liquidity of the market which develops, investor perception of our business, general market conditions, and our growth prospects.
Neither Scientific Energy or Electronic Game Card makes any recommendations on the purchase, retention or sale of Electronic Game Card shares or Scientific Energy shares. You should consult with your own financial advisors, such as your stockbroker, bank or tax advisor. If you do decide to purchase or sell any Electronic Game Card or Scientific Energy shares, you should make certain your stockbroker, bank or other nominee understands whether you want to purchase or sell Electronic Game Card shares or Scientific Energy shares, or both.
Although there is not currently a public market for Scientific Energy shares, we anticipate that our shares will eventually trade on the OTC Bulletin Board. Scientific Energy shares distributed to Electronic Game Card stockholders will be freely transferable, except for (i) shares received by persons who may be deemed to be affiliates of Scientific Energy under the Securities Act of 1933, and (ii) shares received by persons who hold restricted shares of Electronic Game Card common stock. Persons who may be deemed to be affiliates of Scientific Energy after the spin-off generally include individuals or entities that control, are controlled by, or are under common control with Scientific Energy and may include certain directors, officers and significant stockholders of Scientific Energy. Persons who are affiliates of Scientific Energy will be permitted to sell their shares only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities
Act, such as the exemptions afforded by Section 4(1) of the Securities Act and the provisions of Rule 144 thereunder.
There can be no assurance as to whether the Scientific Energy shares will be actively traded or as to the price at which the shares will trade. Some Electronic Game Card stockholders who receive Scientific Energy shares may decide that they do not want shares in a company consisting of the research and development of not yet proven technologies, and may sell their Scientific Energy shares following the spin-off. This may delay the development of an orderly trading market in Scientific Energy shares for a period of time following the spin-off. Until the Scientific Energy shares are fully distributed and an orderly market develops, the prices at which Scientific Energy shares trade may fluctuate significantly and may be lower than the price that would be expected for a fully distributed issue. Prices for our shares will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for the shares, our results of operations, what investors think of our research and development business, changes in economic conditions in the battery industry, and general economic and market conditions.
Following the spin-off, Electronic Game Card expects that its common stock will continue to be listed and traded on the OTC Bulletin Board under the symbol "EGMI." As a result of the spin-off, the trading price of Electronic Game Card common stock immediately following the distribution of Scientific Energy shares may be lower than the trading price of Electronic Game Card shares immediately prior to the distribution. Following the distribution, Electronic Game Card's assets will consists of those held by its other subsidiaries that are engaged in supplying innovative gaming devices to the lottery and promotional industry worldwide. These retained businesses represent approximately 3% of Electronic Game Card's consolidated assets and less than 1% of its consolidated revenues as of and for the year ended December 31, 2003. Further, the combined trading prices of Electronic Game Card shares and Scientific Energy shares after the spin-off may be less than the trading price of Electronic Game Card shares immediately prior to the spin-off.
Even though Electronic Game Card is currently a publicly held company, there can be no assurance as to whether an active trading market for its shares will be maintained after the spin-off or as to the prices at which its shares will trade. Electronic Game Card stockholders may sell their shares following the spin-off. These and other factors may delay or hinder the return to an orderly trading market in Electronic Game Card shares following the spin-off. Whether an active trading market for Electronic Game Card shares will be maintained after the spin-off and the price for its shares will be determined in the marketplace and may be influenced by many factors, including
o the depth and liquidity of the market for its shares,
o its results of operations,
o what investors think of its business and its industries,
o changes in economic conditions in its industries, and
o general economic and market conditions.
In addition, the stock market often experiences significant price fluctuations that are unrelated to the operating performance of the specific companies whose stock is traded. Market fluctuations could have a material adverse impact on the trading price of Scientific Energy shares and/or Electronic Game Card shares.
FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
We have not requested and do not intend to request a ruling from the Internal Revenue Service or an opinion of tax counsel that the distribution will qualify as a tax free spin-off for U.S. federal income tax purposes. We believe the spin-off does not qualify as a tax-free distribution under the U.S. federal tax laws. Each Electronic Game Card stockholder who receives Scientific Energy shares in the spin-off will generally be treated as receiving a taxable distribution in an amount equal to the fair market value of such shares on the distribution date. Each stockholder's individual circumstances may affect the tax consequences of the spin-off to such stockholder. Stockholders who are not citizens or residents of the United States, are corporations, or who are otherwise subject to special treatment under applicable tax codes, may have other consequences as a result of the spin-off. We strongly urge all stockholder to consult with their own tax, financial, or investment adviser or legal counsel experienced in these matters.
REASONS FOR FURNISHING THIS PROSPECTUS
This Prospectus is being furnished solely to provide information to Electronic Game Card stockholders who will receive Scientific Energy shares in the spin-off. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any securities of Electronic game Card or Scientific Energy. Neither Electronic Game Card or Scientific Energy will update the information contained herein except in the normal course of their
respective public disclosure practices. However, this prospectus will be amended if there is any material change in the terms of the spin-off.
RELATIONSHIP BETWEEN ELECTRONIC GAME CARD AND SCIENTIFIC ENERGY AFTER THE SPIN-OFF
Following the spin-off, we will be an independent company and Electronic Game Card will have no stock ownership or interest in us. We intend to act as an independent, public company and do not anticipate any continuing relationship with Electronic Game Card.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by Leonard E. Neilson, P.C., Attorney at Law.
EXPERTS
Our financial statements for the fiscal years ended December 31, 2003 and 2002, have been examined to the extent indicated in their reports by Robison, Hill and Co., independent certified public accountants, given on the authority of said firm as experts in auditing and accounting. The auditors' report contains an explanatory paragraph relating to our ability to continue as a going concern which is further explained in note 1 to the financial statements. We have prepared the unaudited financial statements for the period ended March 31, 2004.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC for the stock offered by this prospectus. This prospectus does not include all of the information contained in the registration statement. You should refer to the registration statement for additional information about us, our common stock and this offering, including the full texts of the exhibits, some of which have been summarized in this prospectus.
We are subject to certain reporting requirements of the Securities Exchange Act of 1934 and, in accordance with that Act, we will file reports, and other information with the SEC. We intend to furnish our stockholders with annual reports containing financial statements audited by independent accountants, quarterly reports containing unaudited financial statements for the first three quarters of each fiscal year, and other periodic reports as we may deem appropriate or as we may be required by law.
You may inspect and copy our registration statement, reports and other information at the SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains our registration statement, reports and other information that was filed electronically. The address of the SEC's Internet site is "http://www.sec.gov."
SCIENTIFIC ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
-:-
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 2003 AND 2002
CONTENTS
Page
Independent Auditor's Report...............................................................................F - 3
Balance Sheet
December 31, 2003 and 2002...............................................................................F - 4
Statement of Operations for the
Two Years Ended December 31, 2003 and December 31, 2002...................................................F - 5
Statement of Stockholders' Equity for the
Period From May 30, 2001 (Inception) to December 31, 2003................................................F - 6
Statement of Cash Flows for the
Two Years Ended December 31, 2003 and December 31, 2002...................................................F - 7
Notes to Consolidated Financial Statements.................................................................F - 9
|
INDEPENDENT AUDITOR'S REPORT
Scientific Energy, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Scientific Energy, Inc. (a development stage company) as of December 31, 2003 and 2002, and the related statement of operations and cash flows for the two years ended December 31, 2003 and 2002, and the statement of stockholders' equity for the period May 30, 2001 (Inception) to December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Scientific Energy, Inc. (a development stage company) as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the two years ended December 31, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Respectfully submitted
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
January 14, 2004
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SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
BALANCE SHEET
December 31,
---------------------------------------
2003 2002
------------------ ------------------
ASSETS
Current Assets:
Cash & Cash Equivalents $ 40 $ -
------------------ ------------------
Total Current Assets 40 -
------------------ ------------------
Other Assets:
Intangibles 50,000 50,000
------------------ ------------------
Total Assets $ 50,040 $ 50,000
================== ==================
LIABILITIES
Current Liabilities:
Accounts Payable $ 5,595 $ 7,906
Overdraft - 212
Income Taxes Payable 100 100
Accrued Payroll Liabilities - 455
Note Payable - Shareholder 1,090 22,037
Due to Parent Company - 510,432
------------------ ------------------
Total Liabilities 6,785 541,142
------------------ ------------------
STOCKHOLDERS' EQUITY
Preferred Stock, Par value $.01,
Authorized 5,000,000 shares,
No shares issued at December 31, 2003 and 2002 - -
Common Stock, Par value $.01,
Authorized 20,000,000 shares,
Issued 20,000,000 shares at December 31, 2003 and 2002 200,000 200,000
Paid-In Capital 591,816 50,040
Deficit Accumulated During the Development Stage (748,561) (741,182)
------------------ ------------------
Total Stockholders' Equity 43,255 (491,142)
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 50,040 $ 50,000
================== ==================
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The accompanying notes are an integral part of these financial statements.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Cumulative
Since
May 30,
2001
For the Year Ended Inception of
December 31, Development
2003 2002 Stage
----------------- ------------------ ------------------
Revenues: $ - $ - $ -
----------------- ------------------ ------------------
Expenses:
Research & Development 138 13,116 68,090
General & Administrative 5,157 252,553 367,815
----------------- ------------------ ------------------
Loss from Operations (5,295) (265,669) (435,905)
Other Income (Expense)
Interest, Net (1,984) (10,890) (16,706)
Write-down of Technology
and Royalties - (295,750) (295,750)
----------------- ------------------ ------------------
Net Loss Before Taxes (7,279) (572,309) (748,361)
Income Tax Expense 100 100 200
----------------- ------------------ ------------------
Net Loss $ (7,379) $ (572,409) $ (748,561)
================= ================== ==================
Basic & Diluted Loss Per Share $ - $ (0.03)
================= ==================
Weighted Average Shares 20,000,000 20,000,000
================= ==================
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The accompanying notes are an integral part of these financial statements.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD MAY 30, 2001 (INCEPTION) TO DECEMBER 31, 2003
Deficit
Accumulated
Since
May 30,2001
Inception of
Common Stock Paid-In Development
Shares Par Value Capital Stage
----------------- ----------------- --------------- -----------------
Balance at May 30, 2001 (Inception) - $ - $ - $ -
May 30, 2001, Issued Common
Stock for Technology 20,000,000 200,000 50,040 -
Net Loss - - - (168,773)
----------------- ------------------ ---------------- -----------------
Balance at December 31, 2001 20,000,000 200,000 50,040 (168,773)
Net Loss - - - (572,409)
----------------- ------------------ ---------------- -----------------
Balance at December 31, 2002 20,000,000 200,000 50,040 (741,182)
December 5, 2003, Spin off from
Parent Company - - 541,776 -
Net Loss - - - (7,379)
----------------- ------------------ ---------------- -----------------
Balance at December 31, 2003 20,000,000 $ 200,000 $ 591,816 $ (748,561)
================= ================== ================ =================
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The accompanying notes are an integral part of these financial statements.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
since
May 30,
2001
For the Year Ended Inception of
December 31, Development
2003 2002 Stage
------------------ ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (7,379)$ (572,409)$ (748,561)
Adjustments to Reconcile Net Loss to Net
Cash Used in Operating Activities:
Write-down of Technology and Royalties - 295,751 295,751
Stock Issued for Expenses - 210,000 210,000
Change in operating assets and liabilities:
(Increase) Decrease in Prepaid Expenses - (31,445) (95,751)
Increase (Decrease) in Accounts Payable (2,311) (23,787) 5,595
Increase (Decrease) in Income Tax Payable - 100 100
Increase (Decrease) in Bank Overdraft (212) 212 -
Increase (Decrease) in Accrued Expenses (455) 3,630 7,260
------------------ ------------------ ------------------
Net Cash Used in operating activities (10,357) (117,948) (325,606)
------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash provided by investing activities - - -
------------------ ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash acquired in Merger - - 432
Payment on Shareholder Loan (34,595) (1,600) (36,195)
Note Payable Shareholder 44,992 119,538 361,409
------------------ ------------------ ------------------
Net Cash Provided by Financing Activities 10,397 117,938 325,646
------------------ ------------------ ------------------
Net (Decrease) Increase in
Cash and Cash Equivalents 40 (10) 40
Cash and Cash Equivalents
at Beginning of Period - 10 -
------------------ ------------------ ------------------
Cash and Cash Equivalents
at End of Period $ 40 $ $ - 40
================== ================== ==================
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SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
since
May 30,
2001
For the Year Ended Inception of
December 31, Development
2003 2002 Stage
------------------ ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,085 $ 5,729 $ 6,620
Income taxes $ 100 $ 100 $ 200
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES: None
Common Stock Exchanged for Technology $ - $ - $ 250,040
Note Payable Converted to Common Stock $ - $ 300,000 $ 300,000
Note Payable Converted to Parent Company
Stock $ 31,344 $ - $ 31,344
|
The accompanying notes are an integral part of these financial statements.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Scientific Energy, Inc. (a development stage company) is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
Nature of Operations and Going Concern
The accompanying financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations.
Several conditions and events cast doubt about the Company's ability to continue as a "going concern". The Company has incurred net losses of approximately $748,561 for the period from May 30, 2001 (inception) to December 31, 2003, has a liquidity problem, and requires additional financing in order to finance its business activities on an ongoing basis. The Company is actively pursuing alternative financing and has had discussions with various third parties, although no firm commitments have been obtained. In the interim, shareholders of the Company have committed to meeting its minimal operating expenses.
The Company's future capital requirements will depend on numerous factors including, but not limited to, continued progress in developing its products, and market penetration and profitable operations from its small electricity generation devices to be incorporated into existing portable electronic devices including portable laptop computers, handheld devices, cellular phones, and a variety of other electronic devices.
These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a "going concern". While management believes that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity of the "going concern" assumption used in preparing these financial statements, there can be no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported expenses, and the balance sheet classifications used.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Organization and Basis of Presentation
The Company was originally incorporated under the laws of the State of Utah on May 30, 2001, under the name of Scientific Energy, Inc. As of December 31, 2003, the Company is in the development stage and has not begun planned principal operations.
Wholly Owned Subsidiary of Parent Company
On June 6, 2001, Scientific Energy, Inc (Utah) and Scientific Energy, Inc. (A Nevada Corporation) entered into an agreement and plan of reorganization. Pursuant to the agreement, Scientific Energy, Inc. (Utah) acquired 20,000,000 shares of Scientific Energy's (Nevada) shares in exchange for 100% of the issued and outstanding shares of Scientific Energy (Utah). On December 5, 2003, the Company entered into an agreement wherein the Company would receive 100% of its shares back from Scientific Energy (Nevada). As a result, the Company would no longer be a wholly owned subsidiary of Scientific Energy (Nevada). As of the date of this report, the transaction has not been completed.
Nature of Business
The Company plans to develop small electricity generation devices to be incorporated into existing portable electronic devices including portable laptop computers, handheld devices, cellular phones, and a variety of other electronic devices. In addition, the Company is developing technology that will assist both industrial concerns and consumers in a variety of applications to significantly reduce energy consumption.
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.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles required 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Loss per Share
Basic loss per share has been computed by dividing the loss for the year applicable to the common stockholders by the weighted average number of common shares outstanding during the years. There were no common equivalent shares outstanding at December 31, 2003 and 2002.
Reclassification
Certain reclassifications have been made in the 2002 financial statements to conform with the December 31, 2003 presentation.
NOTE 2 - INCOME TAXES
As of December 31, 2003, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $749,000 that may be offset against future taxable income through 2021. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carry-forwards will expire unused. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance of the same amount.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3 - DEVELOPMENT STAGE COMPANY
The Company has not begun principal operations and as is common with a development stage company, the Company has had recurring losses during its development stage. The Company's financial statements are prepared using 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. However, the Company does not have significant cash or other material assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. In the interim, shareholders of the Company have committed to meeting its minimal operating expenses.
NOTE 4 - COMMITMENTS & CONTINGENCIES
As of December 31, 2002 all activities of the Company have been conducted by corporate officers from their separate business offices. Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities.
On November 15, 2003, the Company entered into an agreement with Grandway USA, Inc. to complete the patent process on and market certain inventions when created by Scientific Energy, Inc. Upon completion, production and commercialization of various inventions, Scientific Energy has agreed to license and convey to Grandway all rights, title and interest in the various inventions, together with all trademarks, patents and all powers and privileges relating and any and all modifications, improvements, enhancements, variations, alterations. In addition Scientific Energy agrees to license and convey all rights, title and interest in all existing and future marketing rights, lists of customers, accounts and sales leads, manufacturing processes, drawings, and expertise in connection with said inventions. In exchange, Grandway will pay a royalty of 15% of net sales for each unit of the inventions sold by Grandway.
NOTE 5- INTANGIBLE ASSETS
On May 30, 2001, Scientific Energy, Inc. (Utah) acquired intangible assets including technology, trade secrets, and patent applications for design and process and potential patents on either design or process on their technology of $250,040. The Company became the owner of the technology pursuant to the reorganization entered into between the Company and Scientific Energy, Inc. (Utah). This technology consists of energy cell technology that is believed to provide a reliable energy source that can be used in portable electronic devices and will increase the life of existing batteries significantly.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5- INTANGIBLE ASSETS (Continued)
During the first quarter of 2002, management reviewed the reasonableness of the value of their technology, and decided that in the absence of research and development efforts the value of the technology was only $50,000 at that time. Thus, the intangible assets were written-down $200,000.
NOTE 6 - LINE OF CREDIT / NOTE PAYABLE - SHAREHOLDER
On August 15, 2001, the president of the Company has given the Company an unsecured line of credit for up to $350,000. The Line carries interest at Prime. As of December 31, 2003 and 2002 the Company owes $1,090 and $22,037 against this line of credit and has been reported along with accrued interest in the accompanying financial statements as "Note Payable Shareholder." On December 5, 2003, $31,344 of the note was converted into the Parent Company's stock in connection with the Share Exchange described in Note 8.
NOTE 7- COMMON STOCK TRANSACTIONS
On May 30, 2001, 20,000,000 shares of stock were issued in exchange for intangible assets including technology, trade secrets, and patent applications for design and process and potential patents.
NOTE 8 - SEPARATION OFF FROM PARENT COMPANY
On December 5, 2003, the Company entered into an agreement with Scientific Energy, Inc. (Nevada), that upon completion, 100% (20,000,000 shares) of the Company's shares would be returned to the Company, and the Company would cease to be a wholly owned subsidiary of Scientific Energy (Nevada). In addition, the 20,000,000 shares will be subject to an 18.12 to 1 reverse split, and 1,104,000 shares will be issued to the shareholders of Scientific Energy (Nevada), on record, prior to the December 5, 2003 closing of the share exchange agreement. As of the date of this report, the transaction has not been completed.
SCIENTIFIC ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
-:-
FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
BALANCE SHEET
(Unaudited)
March 31, December 31,
2004 2003
------------------ ------------------
ASSETS
Current Assets:
Cash & Cash Equivalents $ 40 $ 40
------------------ ------------------
Total Current Assets 40 40
------------------ ------------------
Other Assets:
Intangibles 50,000 50,000
------------------ ------------------
Total Assets $ 50,040 $ 50,040
================== ==================
LIABILITIES
Current Liabilities:
Accounts Payable $ 9,892 $ 5,595
Income Taxes Payable 100 100
Note Payable - Shareholder 1,101 1,090
------------------ ------------------
Total Liabilities 11,093 6,785
------------------ ------------------
STOCKHOLDERS' EQUITY
Preferred Stock, Par value $.01,
Authorized 5,000,000 shares,
No shares issued at March 31, 2004 and December 31, 2003 - -
Common Stock, Par value $.01,
Authorized 20,000,000 shares,
Issued 20,000,000 shares at March 31, 2004 and
December 31, 2003 200,000 200,000
Paid-In Capital 591,816 591,816
Deficit Accumulated During the Development Stage (752,869) (748,561)
------------------ ------------------
Total Stockholders' Equity 38,947 43,255
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 50,040 $ 50,040
================== ==================
|
The accompanying notes are an integral part of these financial statements.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
(Unaudited)
Cumulative
Since
May 30,
2001
For the Three Months Ended Inception of
March 31, Development
2004 2003 Stage
----------------- ------------------ ------------------
Revenues: $ - $ - $ -
----------------- ------------------ ------------------
Expenses:
Research & Development - - 68,090
General & Administrative 4,297 1,918 372,112
----------------- ------------------ ------------------
Loss from Operations (4,297) (1,918) (440,202)
Other Income (Expense)
Interest, Net (11) (1,160) (16,717)
Write-down of Technology
and Royalties - - (295,750)
----------------- ------------------ ------------------
Net Loss Before Taxes (4,308) (3,078) (752,669)
Income Tax Expense - - 200
----------------- ------------------ ------------------
Net Loss $ (4,308) $ (3,078) $ (752,869)
================= ================== ==================
Basic & Diluted Loss Per Share $ $- -
================= ==================
Weighted Average Shares 20,000,000 20,000,000
================= ==================
|
The accompanying notes are an integral part of these financial statements.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
since
May 30,
2001
For the Three Months Ended Inception of
March 31, Development
2004 2003 Stage
------------------ ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (4,308)$ (3,078)$ (752,869)
Adjustments to Reconcile Net Loss to Net
Cash Used in Operating Activities:
Write-down of Technology and Royalties - - 295,751
Stock Issued for Expenses - - 210,000
Change in operating assets and liabilities:
(Increase) Decrease in Prepaid Expenses - (5) (95,751)
Increase (Decrease) in Accounts Payable 4,297 (2,908) 9,892
Increase (Decrease) in Income Tax Payable - - 100
Increase (Decrease) in Bank Overdraft - 19,915 -
Increase (Decrease) in Accrued Expenses 11 (362) 7,271
------------------ ------------------ ------------------
Net Cash Used in operating activities - 13,562 (325,606)
------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash provided by investing activities - - -
------------------ ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash acquired in Merger - - 432
Payment on Shareholder Loan - (33,000) (36,195)
Note Payable Shareholder - 19,438 361,409
------------------ ------------------ ------------------
Net Cash Provided by Financing Activities - (13,562) 325,646
------------------ ------------------ ------------------
Net (Decrease) Increase in
Cash and Cash Equivalents - - 40
Cash and Cash Equivalents
at Beginning of Period 40 - -
------------------ ------------------ ------------------
Cash and Cash Equivalents
at End of Period $ 40 $ $- 40
================== ================== ==================
|
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
since
May 30,
2001
For the Three Months Ended Inception of
March 31, Development
2004 2003 Stage
------------------ ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ 1,085 $ 6,620
Income taxes $ - $ $ 200
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Common Stock Exchanged for Technology $ - $ - $ 250,040
Note Payable Converted to Common Stock $ - $ 300,000 $ 300,000
Note Payable Converted to Parent Company
Stock $ - $ - $ 31,344
|
The accompanying notes are an integral part of these financial statements.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Scientific Energy, Inc. (a development stage company) is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
Interim Reporting
The unaudited financial statements as of March 31, 2004, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of operations for the three months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years.
Nature of Operations and Going Concern
The accompanying financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations.
Several conditions and events cast doubt about the Company's ability to continue as a "going concern". The Company has incurred net losses of approximately $753,000 for the period from May 30, 2001 (inception) to March 31, 2004, has a liquidity problem, and requires additional financing in order to finance its business activities on an ongoing basis. The Company is actively pursuing alternative financing and has had discussions with various third parties, although no firm commitments have been obtained. In the interim, shareholders of the Company have committed to meeting its minimal operating expenses.
The Company's future capital requirements will depend on numerous factors including, but not limited to, continued progress in developing its products, and market penetration and profitable operations from its small electricity generation devices to be incorporated into existing portable electronic devices including portable laptop computers, handheld devices, cellular phones, and a variety of other electronic devices.
These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a "going concern". While management believes that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity of the "going concern" assumption used in preparing these financial statements, there can be no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported expenses, and the balance sheet classifications used.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Organization and Basis of Presentation
The Company was originally incorporated under the laws of the State of Utah on May 30, 2001, under the name of Scientific Energy, Inc. As of March 31, 2004, the Company is in the development stage and has not begun planned principal operations.
Wholly Owned Subsidiary of Parent Company
On June 6, 2001, Scientific Energy, Inc. (Utah) and Scientific Energy, Inc. (A Nevada Corporation) entered into an agreement and plan of reorganization. Pursuant to the agreement, Scientific Energy, Inc. (Utah) acquired 20,000,000 shares of Scientific Energy's (Nevada) shares in exchange for 100% of the issued and outstanding shares of Scientific Energy (Utah). On December 5, 2003, the Company entered into an agreement wherein the Company would receive 100% of its shares back from Scientific Energy (Nevada). As a result, the Company would no longer be a wholly owned subsidiary of Scientific Energy (Nevada).
Nature of Business
The Company plans to develop small electricity generation devices to be incorporated into existing portable electronic devices including portable laptop computers, handheld devices, cellular phones, and a variety of other electronic devices. In addition, the Company is developing technology that will assist both industrial concerns and consumers in a variety of applications to significantly reduce energy consumption.
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.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles required 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Loss per Share
Basic loss per share has been computed by dividing the loss for the year applicable to the common stockholders by the weighted average number of common shares outstanding during the years. There were no common equivalent shares outstanding at March 31, 2004 and 2003.
Reclassification
Certain reclassifications have been made in the 2003 financial statements to conform with the March 31, 2004 presentation.
NOTE 2 - INCOME TAXES
As of December 31, 2003, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $749,000 that may be offset against future taxable income through 2021. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carry-forwards will expire unused. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance of the same amount.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3 - DEVELOPMENT STAGE COMPANY
The Company has not begun principal operations and as is common with a development stage company, the Company has had recurring losses during its development stage. The Company's financial statements are prepared using 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. However, the Company does not have significant cash or other material assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. In the interim, shareholders of the Company have committed to meeting its minimal operating expenses.
NOTE 4 - COMMITMENTS & CONTINGENCIES
As of March 31, 2004, all activities of the Company have been conducted by corporate officers from their separate business offices. Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities.
On November 15, 2003, the Company entered into an agreement with Grandway USA, Inc. to complete the patent process on and market certain inventions when created by Scientific Energy, Inc. Upon completion, production and commercialization of various inventions, Scientific Energy has agreed to license and convey to Grandway all rights, title and interest in the various inventions, together with all trademarks, patents and all powers and privileges relating and any and all modifications, improvements, enhancements, variations, alterations. In addition Scientific Energy agrees to license and convey all rights, title and interest in all existing and future marketing rights, lists of customers, accounts and sales leads, manufacturing processes, drawings, and expertise in connection with said inventions. In exchange, Grandway will pay a royalty of 15% of net sales for each unit of the inventions sold by Grandway.
NOTE 5- INTANGIBLE ASSETS
On May 30, 2001, Scientific Energy, Inc. (Utah) acquired intangible assets including technology, trade secrets, and patent applications for design and process and potential patents on either design or process on their technology of $250,040. The Company became the owner of the technology pursuant to the reorganization entered into between the Company and Scientific Energy, Inc. (Utah). This technology consists of energy cell technology that is believed to provide a reliable energy source that can be used in portable electronic devices and will increase the life of existing batteries significantly.
SCIENTIFIC ENERGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5- INTANGIBLE ASSETS (Continued)
During the first quarter of 2002, management reviewed the reasonableness of the value of their technology, and decided that in the absence of research and development efforts the value of the technology was only $50,000 at that time. Thus, the intangible assets were written-down $200,000.
NOTE 6 - LINE OF CREDIT / NOTE PAYABLE - SHAREHOLDER
On August 15, 2001, the president of the Company has given the Company an unsecured line of credit for up to $350,000. The Line carries interest at Prime. As of March 31, 2004 and December 31, 2003, the Company owes $1,101 and $1,090 against this line of credit and has been reported along with accrued interest in the accompanying financial statements as "Note Payable Shareholder."
NOTE 7- COMMON STOCK TRANSACTIONS
On May 30, 2001, 20,000,000 shares of stock were issued in exchange for intangible assets including technology, trade secrets, and patent applications for design and process and potential patents.
NOTE 8 - SEPARATION OFF FROM PARENT COMPANY
On December 5, 2003, the Company entered into an agreement with Electronic Game Card, Inc. (Formerly Scientific Energy, Inc.), that upon completion, 100% (20,000,000 shares) of the Company's shares would be returned to the Company, and the Company would cease to be a wholly owned subsidiary of Scientific Energy (Nevada). In addition, the 20,000,000 shares will be subject to an 18.12 to 1 reverse split, and 1,104,000 shares will be issued to the shareholders of Scientific Energy (Nevada), on record, prior to the December 5, 2003 closing of the share exchange agreement. As of the date of this report, the transaction has not been completed.
SCIENTIFIC ENERGY, INC.
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the provisions of Utah law, we have the power to indemnify an individual made a party to a proceeding because they are or were a director of our company, against liability incurred in the proceeding, provided such individual acted in good faith and in a manner reasonably believed to be in, or not opposed to, our best interest and, in a criminal proceeding, they had no reasonable cause to believe their conduct was unlawful. Indemnification under this provision is limited to reasonable expenses incurred in connection with the proceeding. We must indemnify a director or officer who is successful, on the merits of otherwise, in the defense of any proceeding or in defense of any claim, issue, or matter in the proceeding, to which they are a party to because they are or were a director or officer of our company, against reasonable expenses incurred by them in connection with the proceeding or claim with respect to which they have been successful. Our Articles of Incorporation empower the board of directors to indemnify our officers, directors, agents, or employees against any loss or damage sustained when acting in good faith in the performance of their corporate duties.
We may pay for or reimburse reasonable expenses incurred by a director, officer employee, fiduciary or agent of ours who is a party to a proceeding in advance of final disposition of the proceeding, PROVIDED the individual furnishes us with a written affirmation that their conduct was in good faith and in a manner reasonably believed to be in, or not opposed to, our best interest, and undertake to repay the advance if it is ultimately determined that they did not meet such standard of conduct.
Also pursuant to Utah law, a corporation may set forth in its articles of incorporation, by-laws or by resolution, a provision eliminating or limiting in certain circumstances, liability of a director to the corporation or its shareholders for monetary damages for any action taken or any failure to take action as a director. This provision does not eliminate or limit the liability of a director (i) for the amount of a financial benefit received by a director to which they are not entitled; (ii) an intentional infliction of harm on the corporation or its shareholders; (iii) for liability for a violation relating to the distributions made in violation of Utah law; and (iv) an intentional violation of criminal law. Our by-laws provide for such indemnification. A corporation may not eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. Utah law also permits a corporation to purchase and maintain liability insurance on behalf of its directors, officers, employees, fiduciaries or agents. We currently do not maintain directors' and officers' insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Filing fee under the Securities Act of 1933........................... $ 100
Accountants' fees and expenses........................................ 2,500
Legal fees and related expenses....................................... 7,500
Printing and filing charges........................................... 2,500
Transfer agent and registrar fees and expenses........................ 1,500
Miscellaneous......................................................... 1,000
------------
Total.................................................... $ 15,100
===========
|
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Scientific Energy was incorporated on May 30, 2001, in connection with reorganization with Quazon, Corp, presently our parent company and now known as Electronic Game Card, Inc. A total of 20 million shares of Scientific Energy common stock were issued to two persons, Todd B. Crosland (8 million shares) and Hans Roes (12 million shares), in exchange for certain technology. Under the terms of the reorganization agreement, Messrs. Crosland and Roes exchanged their 20 million shares of Scientific Energy common stock for 20 million shares of Quazon common stock and Scientific Energy became the wholly owned subsidiary of Quazon (Electronic Game Card).
The20 million shares were initially issued in reliance on the Section 4(2) exemption from registration under the Securities Act of 1933. The issuances were made to affiliates of Scientific Energy in private transactions without means of any public solicitation. The shares are considered restricted securities and are marked with a legend restricting further transfer unless the shares are first registered or qualify for an exemption. The 20 million shares will be reverse split to 1,125,220 shares are the subject shares being distributed to Electronic Game Card shareholders pursuant to the spin-off.
ITEM 27. EXHIBITS
(a) The following exhibits are filed with this Registration Statement:
EXHIBIT NO. EXHIBIT NAME
3.1 Articles of Incorporation
3.2 By-Laws
4.1 Instrument defining rights of holders (See Exhibit No. 3.1, Articles
of Incorporation)
5.1 Opinion of Leonard E. Neilson, Attorney at Law, regarding legality of
securities being registered
10.1 License Agreement with Grandway USA, Inc.
23.1 Consent of Robison, Hill and Co., Certified Public Accountants
23.2 Consent of Leonard E. Neilson, Attorney at Law (included as part of
Exhibit 5.1)
(b) Financial Statement Schedules for Registrant.
Schedules other than those listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or notes therein.
ITEM 28. UNDERTAKINGS
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or together represent a fundamental change in the information in the registration statement; and notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities as at that time to be the initial bona fide offering.
(3) File a post effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(c) If the issuer relies on Rule 430A under the Securities Act, the small business issuer will:
(1) For determining any liability under the Securities Act treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part of this registration statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, that each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements of filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of Salt Lake City, State of Utah, on this 2nd day of June 2004.
SCIENTIFIC ENERGY, INC.
(REGISTRANT)
By: /S/ TODD B. CROSLAND ------------------------------------- Todd B. Crosland President and Chief Executive Officer |
In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities and on the dates indicated.
By: /S/ TODD B. CROSLAND ------------------------------------- Todd B. Crosland President and Chief Executive Officer and Director Date: June 2, 2004 By: /S/ JANA MEYER ------------------------------------- Jana Meyer Secretary/Treasurer and Director Date: June 2, 2004 By: /S/ MARK CLAWSON ------------------------------------- Mark Clawson Director Date: June 2, 2004 |
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
SCIENTIFIC ENERGY, INC.
The undersigned incorporator, desiring to form a corporation under the laws and constitution of the state of Utah, does hereby sign and deliver, in duplicate, to the Division of Corporations and Commercial Code of the state of Utah, these Articles of Incorporation for Scientific Energy, Inc. (hereinafter referred to as the "Corporation"):
ARTICLE I
NAME
The name of the Corporation shall be Scientific Energy, Inc.
ARTICLE II
PURPOSE
The Corporation is organized for the following purposes:
(a) to research, develop, manufacture, market, and sell power-generating products and other devices of any kind or nature; and
(b) to engage in any lawful purpose or purposes for which a corporation may be organized under the Utah Revised Business Corporation Act, as amended.
ARTICLE III
AUTHORIZED SHARES
The Corporation shall have the authority to issue 25,000,000 shares, consisting of 20,000,000 shares of common stock, par value of $0.01, and 5,000,000 shares of preferred stock, par value of $0.01. The common stock, in the absence of a designation of a separate series by the board of directors as hereinafter provided, shall have unlimited voting rights and is entitled to receive the net assets of the Corporation upon dissolution. The board of directors of this Corporation is hereby expressly granted authority, without stockholder action, and within the limits set forth in the Utah Revised Business Corporation Act, to:
(a) designate, in whole or in part, the preferences, limitations, and relative rights of any class of shares before the issuance of any shares of that class;
(b) create one or more series within a class of shares, fix the number of shares of each such series, and designate, in whole or part, the preferences, limitations, and relative rights of the series, all before the issuance of any shares of that series;
(c) alter or revoke the preferences, limitations, and relative rights granted to or imposed upon any wholly unissued class of shares or any wholly unissued series of any class of shares; or
(d) increase or decrease the number of shares constituting any series, the number of shares of which was originally fixed by the board of directors, either before or after the issuance of shares of the series; provided that, the number may not be decreased below the number of shares of the series then outstanding, or increased above the total number of authorized shares of the applicable class of shares available for designation as a part of the series.
The allocation between the classes, or among the series of each class, of unlimited voting rights and the right to receive the net assets of the Corporation upon dissolution, shall be as designated by the board of directors. Shares of any class of stock may be issued, without stockholder action, from time to time in one or more series as may from time to time be determined by the board of directors.
ARTICLE IV
CONTROL SHARE ACQUISITION
The provisions of the Control Share Acquisitions Act, section 61-6-1 et. seq., of the Utah Revised Code, shall not be applicable to control share acquisition of the securities of the Corporation. This election is made in accordance with the provisions of section 61-6-1 of the Utah Revised Code.
ARTICLE V
LIMITATION ON LIABILITY
To the fullest extent permitted by the Utah Revised Business Corporation Act or any other applicable law as now in effect or as it may hereafter be amended, a director of the Corporation shall have no personal liability to the Corporation or its stockholders for monetary damages for any action taken or any failure to take any action as a director.
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS, AND OTHERS
To the fullest extent permitted by the Utah Revised Business Corporation Act or any other applicable law as now in effect or as it may hereafter be amended, the Corporation shall indemnify directors as set forth in the bylaws. The Corporation may indemnify officers, employees, fiduciaries, and agents to the extent provided for in the bylaws or authorized by the board of directors.
ARTICLE VII
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office and the name of the registered agent at that address in the state of Utah is:
Todd B. Crosland 630 North 400 West Salt Lake City, Utah 84103
Either the registered office or the registered agent may be changed in the manner provided for by law.
ARTICLE VIII
INCORPORATOR
The name and address of the incorporator signing these Articles of Incorporation is as follows:
Todd B. Crosland 630 North 400 West Salt Lake City, Utah 84103
The undersigned affirms and acknowledges, under penalties of perjury, that the foregoing instrument is my act and deed and that the facts stated herein are true.
DATED this ____ day of May, 2001.
Todd B. Crosland, Incorporator
The undersigned hereby accepts and acknowledges appointment as registered agent of
Todd B. Crosland, Registered Agent
Exhibit 3.2
BYLAWS
OF
SCIENTIFIC ENERGY, INC.
A UTAH CORPORATION
TABLE OF CONTENTS
ARTICLE PAGE
ARTICLE I. OFFICES...............................................................................................1
Section 1.1 Business Office..............................................................................1
Section 1.2 Registered Office............................................................................1
ARTICLE II. SHAREHOLDERS.........................................................................................1
Section 2.1 Annual Shareholder Meeting...................................................................1
Section 2.2 Special Shareholder Meetings.................................................................1
Section 2.3 Place of Shareholder Meetings................................................................2
Section 2.4 Notice of Shareholder Meetings...............................................................2
Section 2.5 Meetings by Telecommunications...............................................................3
Section 2.6 Fixing of Record Date........................................................................3
Section 2.7 Shareholder List.............................................................................4
Section 2.8 Shareholder Quorum and Voting Requirements...................................................4
Section 2.9 Increasing Either Quorum or Voting Requirements..............................................4
Section 2.10 Proxies.....................................................................................5
Section 2.11 Voting of Shares............................................................................5
Section 2.12 Corporation's Acceptance of Votes...........................................................5
Section 2.13 Inspectors of Election......................................................................6
Section 2.14 Shareholder Action Without Meeting..........................................................6
Section 2.15 Election of Directors; Vote Required........................................................7
Section 2.16 Business at Annual Meeting..................................................................7
Section 2.17 Conduct of Meeting..........................................................................7
Section 2.18 Shareholder's Rights to Inspect Corporate Records...........................................8
Section 2.19 Financial Statements Shall be Furnished to the Shareholders.................................9
Section 2.20 Dissenters' Rights..........................................................................9
ARTICLE III. BOARD OF DIRECTORS..................................................................................9
Section 3.1 General Powers...............................................................................9
Section 3.2 Number, Tenure, and Qualification of Directors...............................................9
Section 3.3 Regular Meetings of the Board of Directors...................................................9
Section 3.4 Special Meetings of the Board of Directors..................................................10
Section 3.5 Notice of, and Waiver of Notice for, Special Director Meetings..............................10
Section 3.6 Director Quorum.............................................................................10
Section 3.7 Directors, Manner of Acting.................................................................10
Section 3.8 Establishing a "Supermajority" Quorum or Voting Requirement for the Board of Directors........
11
Section 3.9 Director Action Without a Meeting...........................................................11
Section 3.10 Removal of Directors.......................................................................11
Section 3.11 Board of Director Vacancies................................................................11
Section 3.12 Director Compensation......................................................................12
Section 3.13 Director Committees........................................................................12
ARTICLE IV. OFFICERS............................................................................................13
Section 4.1 Number of Officers..........................................................................13
Section 4.2 Appointment and Term of Office..............................................................13
Section 4.3 Removal of Officers.........................................................................13
Section 4.4 President...................................................................................14
Section 4.5 Vice-Presidents.............................................................................14
Section 4.6 Secretary...................................................................................14
Section 4.7 Treasurer...................................................................................14
Section 4.8 Assistant Secretaries and Assistant Treasurers..............................................15
Section 4.9 Salaries....................................................................................15
ARTICLE V. INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS, AND EMPLOYEES........................................15
Section 5.1 Indemnification of Directors................................................................15
Section 5.2 Advance Expenses for Directors..............................................................15
Section 5.3 Indemnification of Officers, Agents, and Employees Who are not Directors....................15
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER..........................................................16
Section 6.1 Certificates for Shares.....................................................................16
Section 6.2 Shares Without Certificates.................................................................16
Section 6.3 Registration of the Transfer of Shares......................................................17
Section 6.4 Restrictions on Transfer of Shares Permitted................................................17
Section 6.5 Acquisition of Shares.......................................................................18
ARTICLE VII. DISTRIBUTIONS......................................................................................18
ARTICLE VIII. CORPORATE SEAL....................................................................................18
ARTICLE IX. DIRECTORS CONFLICTING INTEREST TRANSACTIONS.........................................................18
ARTICLE X. AMENDMENTS...........................................................................................19
ARTICLE XI. FISCAL YEAR.........................................................................................19
CERTIFICATE OF SECRETARY.........................................................................................19
|
BYLAWS OF
SCIENTIFIC ENERGY, INC.
ARTICLE I. OFFICES
Section 1.1 Business Office.
The principal office of the corporation shall be located at any place either within or outside the state of Utah as designated in the corporation's most current annual report filed with the Utah Division of Corporations and Commercial Code. The corporation may have such other offices, either within or without the state of Utah, as the board of directors may designate or as the business of the corporation may require from time to time. The corporation shall maintain at its principal office a copy of certain records, as specified in section 2.18 of Article II.
Section 1.2 Registered Office.
The registered office of the corporation, required by section 16-10a-501 of the Utah Revised Business Corporation Act (the "Act") or any section of like tenor as from time to time amended shall be located within Utah and may be, but need not be, identical with the principal office (if located within Utah). The address of the registered office may be changed from time to time.
ARTICLE II. SHAREHOLDERS
Section 2.1 Annual Shareholder Meeting.
The annual meeting of the shareholders shall be held within 150 days of the close of the corporation's fiscal year, at a time and date as is determined by the corporation's board of directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the state of Utah, such meeting shall be held on the next succeeding business day.
If the election of directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any subsequent continuation after adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as convenient. The failure to hold an annual or special meeting does not affect the validity of any corporate action or work a forfeiture or dissolution of the corporation.
Section 2.2 Special Shareholder Meetings.
Special meetings of the shareholders, for any purpose or purposes described in the meeting notice, may be called by the president or by the board of directors and shall be called by the president at the request of the holders of not less than one- tenth of all outstanding votes of the corporation entitled to be cast on any issue at the meeting.
Section 2.3 Place of Shareholder Meetings.
The board of directors may designate any place, either within or without the state of Utah, as the place of meeting for any annual or any special meeting of the shareholders, unless by written consents, which may be in the form of waivers of notice or otherwise, a majority of shareholders entitled to vote at the meeting may designate a different place, either within or without the state of Utah, as the place for the holding of such meeting. If no designation is made by either the directors or majority action of the voting shareholders, the place of meeting shall be the principal office of the corporation.
Section 2.4 Notice of Shareholder Meetings.
(a) Required Notice. Written notice stating the place, day, and time of any annual or special shareholder meeting shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either in person, by any form of electronic communication, by mail, by private carrier, or by any other manner provided for in the Act, by or at the direction of the president, the board of directors, or other persons calling the meeting, to each shareholder of record, entitled to vote at such meeting and to any other shareholder entitled by the Act or the articles of incorporation to receive notice of the meeting. Notice shall be deemed to be effective at the earlier of: (1) when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid; (2) on the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; (3) when received; or (4) five days after deposit in the United States mail, if mailed postpaid and correctly addressed to an address other than that shown in the corporation's current record of shareholders.
(b) Adjourned Meeting. If any shareholder meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, and place, if the new date, time, and place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is, or must be fixed (see section 2.5 of this Article II) or if the adjournment is for more than 30 days, then notice must be given pursuant to the requirements of paragraph (a) of this section 2.4, to those persons who are shareholders as of the new record date.
(c) Waiver of Notice. The shareholder may waive notice of the meeting (or any notice required by the Act, articles of incorporation, or bylaws), by a writing signed by the shareholder entitled to the notice, which is delivered to the corporation (either before or after the date and time stated in the notice) for inclusion in the minutes or filing with the corporate records.
(d) Shareholder Attendance. A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and
(2) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.
(e) Contents of Notice. The notice of each special shareholder meeting shall include a description of the purpose or purposes for which the meeting is called. Except as provided in this section 2.4(e), the articles of incorporation, or otherwise in the Act, the notice of an annual shareholder meeting need not include a description of the purpose or purposes for which the meeting is called.
If a purpose of any shareholder meeting is to consider either: (1) a proposed amendment to the articles of incorporation (including any restated articles requiring shareholder approval); (2) a plan of merger or share exchange; (3) the sale, lease, exchange, or other disposition of all, or substantially all of the corporation's property; (4) the dissolution of the corporation; or (5) the removal of a director, the notice must so state and, to the extent applicable, be accompanied by a copy or summary of the: (1) articles of amendment; (2) plan of merger or share exchange; (3) agreement for the disposition of all or substantially all of the corporation's property; or (4) the terms of the dissolution. If the proposed corporate action creates dissenters' rights, the notice must state that shareholders are, or may be entitled to assert dissenters' rights, and must be accompanied by a copy of the provisions of the Act governing such rights.
Section 2.5 Meetings by Telecommunications.
Any or all of the shareholders may participate in an annual or special meeting of shareholders by, or the meeting may be conducted through the use of, any means of communication by which all persons participating in the meeting can hear each other during the meeting. A shareholder participating in a meeting by this means is considered to be present in person at the meeting.
Section 2.6 Fixing of Record Date.
For the purpose of determining shareholders of any voting group entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any distribution or dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date. Such record date shall not be more than 70 days prior to the meeting of shareholders or the payment of any distribution or dividend. If no record date is so fixed by the board of directors for the determination of shareholders entitled to notice of, or to vote at a meeting of shareholders, or shareholders entitled to receive a share dividend or distribution, or in order to make a determination of shareholders for any other proper purpose, the record date for determination of such shareholders shall be at the close of business on:
(a) With respect to an annual shareholder meeting or any special shareholder meeting called by the board of directors or any person specifically authorized by the board of directors or these bylaws to call a meeting, the day before the first notice is delivered to shareholders;
(b) With respect to a special shareholders' meeting demanded by the shareholders, the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date the board of directors authorizes the share dividend;
(d) With respect to actions taken in writing without a meeting (pursuant to Article II, section 2.12), the date the first shareholder signs a consent; and
(e) With respect to a distribution to shareholders (other than one involving a repurchase or reacquisition of shares), the date the board authorizes the distribution.
When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section 2.6, such determination shall apply to any adjournment thereof unless the board of directors fixes a new record date. A new record date must be fixed if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.
Section 2.7 Shareholder List.
The officer or agent having charge of the stock transfer books for shares of the corporation shall make a complete record of the shareholders entitled to vote at each meeting of shareholders, arranged in alphabetical order with the address of and the number of shares held by each. The list must be arranged by voting group (if such exists, see Article II, section 2.8) and within each voting group by class or series of shares. The shareholder list must be available for inspection by any shareholder, beginning on the earlier of ten days before the meeting for which the list was prepared or two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting. The list shall be available at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting is to be held. A shareholder, or his agent or attorney, is entitled, on written demand, to inspect and, subject to the requirements of section 2.18 of this Article II and sections 16-10a-1602 and 16-10a-1603 of the Act, or any sections of like tenor as from time to time amended, to inspect and copy the list during regular business hours, at his expense, during the period it is available for inspection. The corporation shall maintain the shareholder list in written form or in another form capable of conversion into written form within a reasonable time.
Section 2.8 Shareholder Quorum and Voting Requirements.
If the articles of incorporation or the Act provides for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group.
Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the articles of incorporation, a bylaw adopted pursuant to section 2.9 of this Article II, or the Act provides otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.
If the articles of incorporation or the Act provides for voting by two or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one voting group on a matter even though no action is taken by another voting group entitled to vote on the matter.
Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation, a bylaw adopted pursuant to section 2.9 of this Article II, or the Act require a greater number of affirmative votes.
Section 2.9 Increasing Either Quorum or Voting Requirements.
For purposes of this section 2.9, a "supermajority" quorum is a requirement that more than a majority of the votes of the voting group be present to constitute a quorum; and a "supermajority" voting requirement is any requirement that requires the vote of more than a majority of the affirmative votes of a voting group at a meeting.
The shareholders, but only if specifically authorized to do so by the articles of incorporation, may adopt, amend, or delete a bylaw which fixes a "supermajority" quorum or "supermajority" voting requirement.
The adoption or amendment of a bylaw that adds, changes, or deletes a "supermajority" quorum or voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
A bylaw that fixes a supermajority quorum or voting requirement for shareholders may not be adopted, amended, or repealed by the board of directors.
Section 2.10 Proxies.
At all meetings of shareholders, a shareholder may vote in person, or vote by proxy, executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the corporation or other person authorized to tabulate votes before or at the time of the meeting. No proxy shall be valid after 11 months from the date of its execution unless otherwise provided in the proxy.
Section 2.11 Voting of Shares.
Unless otherwise provided in the articles of incorporation, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders.
Except as provided by specific court order, no shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting; provided, however, the prior sentence shall not limit the power of the corporation to vote any shares, including its own shares, held by it in a fiduciary capacity.
Redeemable shares are not entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares.
Section 2.12 Corporation's Acceptance of Votes.
(a) If the name signed on a vote, consent, waiver, or proxy appointment or revocation corresponds to the name of a shareholder, the corporation if acting in good faith is entitled to accept the vote, consent, waiver, or proxy appointment or revocation and give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver, or proxy appointment or revocation does not correspond to the name of its shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment or revocation and give it effect as the act of the shareholder if:
(1) the shareholder is an entity as defined in the Act and the name signed purports to be that of an officer or agent of the entity;
(2) the name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment or revocation;
(3) the name signed purports to be that of receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment or revocation;
(4) the name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment or revocation; and
(5) two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all the co-owners.
(c) The corporation is entitled to reject a vote, consent, waiver, or proxy appointment or revocation if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature or about the signatory's authority to sign for the shareholder.
(d) The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment or revocation in good faith and in accordance with the standards of this section are not liable in damages to the shareholder for the consequences of the acceptance or rejection.
(e) Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment or revocation under this section 2.12 is valid unless a court of competent jurisdiction determines otherwise.
Section 2.13 Inspectors of Election.
There shall be appointed at least one inspector of the vote. Such inspector shall first take and subscribe an oath or affirmation faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. Unless appointed in advance of any such meeting by the board of directors, such inspector shall be appointed for the meeting by the presiding officer. In the absence of any such appointment, the secretary of the corporation shall act as the inspector. No candidate for the office of director (whether or not then a director) shall be appointed as such inspector. Such inspector shall be responsible for tallying and certifying each vote, whether made in person or by proxy.
Section 2.14 Shareholder Action Without Meeting.
Any action required or permitted to be taken at a meeting of the shareholders, except for the election of directors as set forth in section 2.15 of this Article II, may be taken without a meeting and without prior notice if one or more consents in writing, setting forth the action so taken, shall be signed by shareholders having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote with respect to the subject matter thereof are present. Directors may be elected without a meeting of shareholders by the written consent of the shareholders holding all of the shares entitled to vote for the election of directors. Unless the written consents of all shareholders entitled to vote have been obtained, notice of any shareholder approval without a meeting shall be given at least ten days before the consummation of the action authorized by the approval to (i) those shareholders entitled to vote who have not consented in writing, and (ii) those shareholders not entitled to vote and to whom the Act requires that notice of the proposed action be given. If the act to be taken requires that notice be given to nonvoting shareholders, the corporation shall give the nonvoting shareholders written notice of the proposed action at least ten days before the action is taken. The notice shall contain or be accompanied by the same material that would have been required if a formal meeting had been called to consider the action. A consent signed under this section 2.14 has the effect of a meeting vote and may be described as such in any document. The written consents are only effective if received by the corporation within a 60 day period and not revoked prior to the receipt of the written consent of that number of shareholders necessary to effectuate such action. Action taken pursuant to a written consent is effective as of the date the last written consent necessary to effect the action is received by the corporation, unless all of the written consents necessary to effect the action specify a later date as the effective date of the action, in which case the later date shall be the effective date of the action. If the corporation has received written consents signed by all shareholders entitled to vote with respect to the action, the effective date of the action may be any date that is specified in all the written consents as the effective date of the action. Such consents may be executed in any number of counterparts or evidenced by any number of instruments of substantially similar tenor.
Section 2.15 Election of Directors; Vote Required.
At all meetings of the shareholders at which directors are to be elected, except as otherwise set forth in any stock designation with respect to the right of the holders of any class or series of stock to elect additional directors under specified circumstances, directors shall be elected by a plurality of the votes cast at the meeting. The election need not be by ballot unless any shareholder so demands before the voting begins. Except as otherwise provided by law, the articles of incorporation, any preferred stock designation, or these bylaws, all matters other than the election of directors submitted to the shareholders at any meeting at which a quorum exists, is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action.
Section 2.16 Business at Annual Meeting.
At any annual meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the board of directors or (b) by any shareholder of record of the corporation who is entitled to vote with respect thereto. Notwithstanding anything in these bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this section. The officer of the corporation or other person presiding at the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with such provisions, and if such presiding officer should so determine and declare to the meeting that business was not properly brought before the meeting in accordance with such provisions and if such presiding officer should so determine, such presiding officer shall so declare to the meeting, and any such business so determined to be not properly brought before the meeting shall not be transacted.
Section 2.17 Conduct of Meeting.
The board of directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate, or convenient. Subject to such rules and regulations of the board of directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations, and procedures and do all such acts as, in the judgment of such chairman, are necessary, appropriate, or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting, and the safety of those present, limitations on participation in such meeting to shareholders of record of the corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot, unless, and to the extent, determined by the board of directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure.
Section 2.18 Shareholder's Rights to Inspect Corporate Records.
(a) Minutes and Accounting Records. The corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation. The corporation shall maintain appropriate accounting records.
(b) Absolute Inspection Rights of Records Required at Principal Office. If a shareholder gives the corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, such shareholder (or his agent or attorney) has the right to inspect and copy, during regular business hours, any of the following records, all of which the corporation is required to keep at its principal office:
(1) its articles or restated articles of incorporation and all amendments to the articles of incorporation currently in effect;
(2) its bylaws or restated bylaws and all amendments to the bylaws currently in effect;
(3) the minutes of all shareholders' meetings, and records of all action taken by shareholders without a meeting, for the past three years;
(4) all written communications to shareholders within the past three years;
(5) a list of the names and business addresses of its current directors and officers;
(6) the most recent annual report of the corporation delivered to the Utah Division of Corporations and Commercial Code; and
(7) all financial statements prepared for periods ending during the last three years that a shareholder could request under section 2.19.
(c) Conditional Inspection Right. In addition, if a shareholder gives the corporation a written demand made in good faith and for a proper purpose at least five business days before the date on which such shareholder wishes to inspect and copy, such shareholder describes with reasonable particularity his purpose and the records he desires to inspect, and the records are directly connected with his purpose, such shareholder of the corporation (or his agent or attorney) is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation:
(1) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors acting on behalf of the corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or board of directors without a meeting, to the extent not subject to inspection under paragraph (b) of this section 2.18;
(2) accounting records of the corporation; and
(3) the record of shareholders (compiled no earlier than the date of the shareholder's demand).
(d) Copy Costs. The right to copy records includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The corporation may impose a reasonable charge, covering the costs of labor and material (including third-party costs) for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records.
(e) Shareholder Includes Beneficial Owner. For purposes of this section 2.18, the term "shareholder" shall include a beneficial owner whose shares are held in a voting trust or by a nominee on his behalf.
Section 2.19 Financial Statements Shall be Furnished to the Shareholders.
Upon written request of any shareholder, the corporation shall mail to such shareholder its most recent annual or quarterly financial statements showing in reasonable detail its assets and liabilities and the results of its operations.
Section 2.20 Dissenters' Rights.
Each shareholder shall have the right to dissent from and obtain payment for such shareholder's shares when so authorized by the Act, the articles of incorporation, these bylaws, or in a resolution of the board of directors.
ARTICLE III. BOARD OF DIRECTORS
Section 3.1 General Powers.
Unless the articles of incorporation have dispensed with or limited the authority of the board of directors, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors.
Section 3.2 Number, Tenure, and Qualification of Directors.
Unless permitted by the Act, the authorized number of directors shall be not less than three. The current number of directors shall be as determined (or as amended from time to time) by resolution adopted from time to time by either the shareholders or directors. Each director shall hold office until the next annual meeting of shareholders or until removed. However, if his term expires, he shall continue to serve until his successor shall have been elected and qualified, or until there is a decrease in the number of directors. A decrease in the number of directors does not shorten an incumbent director's term. Unless required by the articles of incorporation, directors do not need to be residents of Utah or shareholders of the corporation.
Section 3.3 Regular Meetings of the Board of Directors.
A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution.
Section 3.4 Special Meetings of the Board of Directors.
Special meetings of the board of directors may be called by or at the request of the president or any one director. The person authorized to call special meetings of the board of directors may fix any place as the place for holding any special meeting of the board of directors.
Section 3.5 Notice of, and Waiver of Notice for, Special Director Meetings.
Unless the articles of incorporation provide for a longer or shorter period, notice of any special director meeting shall be given at least two days prior thereto either orally, in person, by telephone, by any form of electronic communication, by mail, by private carrier, or by any other manner provided for in the Act. Any director may waive notice of any meeting. Except as provided in the next sentence, the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business and at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting, and does not thereafter vote for or assent to action taken at the meeting. Unless required by the articles of incorporation or the Act, neither the business to be transacted at, nor the purpose of, any special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.
Section 3.6 Director Quorum.
A majority of the number of directors in office immediately before the meeting begins shall constitute a quorum for the transaction of business at any meeting of the board of directors, unless the articles of incorporation require a greater number.
Any amendment to this quorum requirement is subject to the provisions of section 3.8 of this Article III.
Section 3.7 Directors, Manner of Acting.
The act of the majority of the directors present at a meeting at which a quorum is present when the vote is taken shall be the act of the board of directors unless the articles of incorporation require a greater percentage. Any amendment which changes the number of directors needed to take action, is subject to the provisions of section 3.8 of this Article III.
Unless the articles of incorporation provide otherwise, any or all directors may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.
A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken is deemed to have assented to the action taken unless: (1) he objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting; or (2) his dissent or abstention from the action taken is requested by such director to be entered in the minutes of the meeting; or (3) he delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.
Section 3.8 Establishing a "Supermajority" Quorum or Voting Requirement for the Board of Directors.
For purposes of this section 3.8, a "supermajority" quorum is a requirement that requires more than a majority of the directors in office to constitute a quorum; and a "supermajority" voting requirement is any requirement that requires the vote of more than a majority of those directors present at a meeting at which a quorum is present to be the act of the directors.
A bylaw that fixes a supermajority quorum or supermajority voting requirement may be amended or repealed:
(1) if originally adopted by the shareholders, only by the shareholders (unless otherwise provided by the shareholders); or
(2) if originally adopted by the board of directors, either by the shareholders or by the board of directors.
A bylaw adopted or amended by the shareholders that fixes a supermajority quorum or supermajority voting requirement for the board of directors may provide that it may be amended or repealed only by a specified vote of either the shareholders or the board of directors.
Subject to the provisions of the preceding paragraph, action by the board of directors to adopt, amend, or repeal a bylaw that changes the quorum or voting requirement for the board of directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
Section 3.9 Director Action Without a Meeting.
Unless the articles of incorporation provide otherwise, any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if all the directors sign a written consent describing the action taken, and such consent is filed with the records of the corporation. Action taken by consent is effective when the last director signs the consent, unless the consent specifies a different effective date. A signed consent has the effect of a meeting vote and may be described as such in any document. Such consent may be executed in any number of counterparts, or evidenced by any number of instruments of substantially similar tenor.
Section 3.10 Removal of Directors.
The shareholders may remove one or more directors at a meeting called for that purpose if notice has been given that the purpose of the meeting is such removal. The removal may be with or without cause unless the articles of incorporation provide that directors may only be removed with cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is authorized, a director may not be removed if the number of votes sufficient to elect him under cumulative voting is voted against his removal. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast against such removal.
Section 3.11 Board of Director Vacancies.
Unless the articles of incorporation provide otherwise, if a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors, the shareholders may fill the vacancy. During such time that the shareholders fail or are unable to fill such vacancies, then and until the shareholders act:
(1) the board of directors may fill the vacancy; or
(2) if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders. If two or more directors are elected by the same voting group, only remaining directors elected by such voting group are entitled to vote to fill the vacancy of a director elected by the voting group if it is filled by directors.
A vacancy that will occur at a specific later date (by reason of resignation effective at a later date) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.
The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. However, if his term expires, he shall continue to serve until his successor is elected and qualified or until there is a decrease in the number of directors.
Section 3.12 Director Compensation.
Unless otherwise provided in the articles of incorporation, by resolution of the board of directors, each director may be paid his expenses, if any, of attendance at each meeting of the board of directors, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the board of directors or both. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
Section 3.13 Director Committees.
(a) Creation of Committees. Unless the articles of incorporation provide otherwise, the board of directors may create one or more committees and appoint members of the board of directors to serve on them. Each committee must have two or more members, who serve at the pleasure of the board of directors.
(b) Selection of Members. The creation of a committee and appointment of members to it must be approved by the greater of (1) a majority of all the directors in office when the action is taken or (2) the number of directors required by the articles of incorporation to take such action (or if not specified in the articles of incorporation, the number required by section 3.7 of this Article III to take action).
(c) Required Procedures. Sections 3.4, 3.5, 3.6, 3.7, 3.8, and 3.9 of this Article III, which govern meetings, action without meetings, notice and waiver of notice, quorum and voting requirements of the board of directors, apply to committees and their members.
(d) Authority. Unless limited by the articles of incorporation, each committee may exercise those aspects of the authority of the board of directors which the board of directors confers upon such committee in the resolution creating the committee; provided, however, a committee may not:
(1) authorize distributions to shareholders;
(2) approve, or propose to shareholders, action that the Act requires be approved by shareholders;
(3) fill vacancies on the board of directors or on any of its committees;
(4) amend the articles of incorporation pursuant to the authority of directors to do so granted by section 16-10a-1002 of the Act or any section of like tenor as from time to time amended;
(5) adopt, amend, or repeal bylaws;
(6) approve a plan of merger not requiring shareholder approval;
(7) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or
(8) authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the board of directors may authorize a committee (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the board of directors.
ARTICLE IV. OFFICERS
Section 4.1 Number of Officers.
The officers of the corporation shall be a president and a secretary, both of whom shall be appointed by the board of directors. Such other officers and assistant officers as may be deemed necessary, including any vice-presidents, may be appointed by the board of directors. If specifically authorized by the board of directors, an officer may appoint one or more officers or assistant officers. The same individual may simultaneously hold more than one office in the corporation.
Section 4.2 Appointment and Term of Office.
The officers of the corporation shall be appointed by the board of directors for a term as determined by the board of directors. If no term is specified, such term shall continue until the first meeting of the directors held after the next annual meeting of shareholders. If the appointment of officers shall not be made at such meeting, such appointment shall be made as soon thereafter as is convenient. Each officer shall hold office until his successor shall have been duly appointed and shall have qualified, until his death, or until he shall resign or shall have been removed in the manner provided in section 4.3 of this Article IV.
Section 4.3 Removal of Officers.
Any officer or agent may be removed by the board of directors or an officer authorized to do so by the board of directors at any time either before or after the expiration of the designated term, with or without cause. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Neither the appointment of an officer nor the designation of a specified term shall create any contract rights.
Section 4.4 President.
The president shall be the principal executive officer of the corporation and, subject to the control of the board of directors, shall in general supervise and control all of the business and affairs of the corporation. The president shall, when present, preside at all meetings of the shareholders and of the board of directors, if the chairman of the board is not present. The president may sign, with or without the secretary or any other proper officer of the corporation thereunto authorized by the board of directors, certificates for shares of the corporation and deeds, mortgages, bonds, contracts, or other instruments arising in the normal course of business of the corporation and such other instruments as may be authorized by the board of directors, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time.
Section 4.5 Vice-Presidents.
If appointed, in the event of the president's death or inability to act, the vice-president (or in the event there be more than one vice-president, the executive vice-president or, in the absence of any designation, the senior vice-president in the order of their appointment) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. A vice-president, if any, may sign, with the secretary or an assistant secretary, certificates for shares of the corporation the issuance of which has been authorized by resolution of the board of directors; and shall perform such other duties as from time to time may be assigned to him by the president or by the board of directors.
Section 4.6 Secretary.
The secretary shall: (a) keep the minutes of the proceedings of the shareholders and of the board of directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of any seal of the corporation and, if there is a seal of the corporation, see that it is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) when requested or required, authenticate any records of the corporation; (e) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholders; (f) sign with the president, or a vice-president, certificates for shares of the corporation, the issuance of which has been authorized by resolution of the board of directors; (g) have general charge of the stock transfer books of the corporation; and (h) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors.
Section 4.7 Treasurer.
The treasurer, if any, and in the absence thereof of the secretary, shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies, or other depositaries as shall be selected by the board of directors; and (c) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors shall determine.
Section 4.8 Assistant Secretaries and Assistant Treasurers.
Any assistant secretary, when authorized by the board of directors, may sign with the president or a vice-president certificates for shares of the corporation the issuance of which has been authorized by a resolution of the board of directors. Any assistant treasurer shall, if required by the board of directors, give bonds for the faithful discharge of his duties in such sums and with such sureties as the board of directors shall determine. Any assistant secretary or assistant treasurer, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the president or the board of directors.
Section 4.9 Salaries.
The salaries of the officers shall be fixed from time to time by the board of directors or by a duly authorized officer.
ARTICLE V. INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS, AND EMPLOYEES
Section 5.1 Indemnification of Directors.
The corporation shall indemnify any individual made a party to a proceeding because such individual was a director of the corporation to the extent permitted by and in accordance with section 16-10a-901, et seq. of the Act or any amendments of successor sections of like tenor.
Section 5.2 Advance Expenses for Directors.
To the extent permitted by section 16-10a-904 of the Act or any section of like tenor as amended from time to time, the corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding, if:
(a) the director furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct described in the Act;
(b) the director furnishes the corporation a written undertaking, executed personally or on his behalf, to repay advances if it is ultimately determined that he did not meet the standard of conduct (which undertaking must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment); and
(c) a determination is made that the facts then known to those making the determination would not preclude indemnification under section 5.1 of this Article V or section 16-10a-901 through section 16-10a-909 of the Act or similar sections of like tenor as from time to time amended.
Section 5.3 Indemnification of Officers, Agents, and Employees Who are not Directors.
Unless otherwise provided in the articles of incorporation, the board of directors may authorize the corporation to indemnify and advance expenses to any officer, employee, or agent of the corporation who is not a director of the corporation, to the extent permitted by the Act.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 6.1 Certificates for Shares.
(a) Content. Certificates representing shares of the corporation shall at minimum, state on their face the name of the issuing corporation and that it is formed under the laws of the state of Utah; the name of the person to whom issued; and the number and class of shares and the designation of the series, if any, the certificate represents; and be in such form as determined by the board of directors. Such certificates shall be signed (either manually or by facsimile) by the president or a vice-president and by the secretary or an assistant secretary and may be sealed with a corporate seal or a facsimile thereof. Each certificate for shares shall be consecutively numbered or otherwise identified.
(b) Legend as to Class or Series. If the corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations for future series) must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information without charge on request in writing.
(c) Shareholder List. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation.
(d) Transferring Shares. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed, or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe.
Section 6.2 Shares Without Certificates.
(a) Issuing Shares Without Certificates. Unless the articles of incorporation provide otherwise, the board of directors may authorize the issuance of some or all the shares of any or all of its classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation.
(b) Written Statement Required. Within a reasonable time after the issuance or transfer of shares without certificates, the corporation shall send the shareholder a written statement containing at minimum:
(1) the name of the issuing corporation and that it is organized under the laws of the state of Utah;
(2) the name of the person to whom issued; and
(3) the number and class of shares and the designation of the series, if any, of the issued shares.
If the corporation is authorized to issue different classes of shares or different series within a class, the written statement shall describe the designations, relative rights, preferences, and limitations applicable to each class and the variation in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations for future series). Alternatively, each written statement may state conspicuously that the corporation will furnish the shareholder this information without charge on request in writing.
Section 6.3 Registration of the Transfer of Shares.
Registration of the transfer of shares of the corporation shall be made only on the stock transfer books of the corporation. In order to register a transfer, the record owner shall surrender the shares to the corporation for cancellation, properly endorsed by the appropriate person or persons with reasonable assurances that the endorsements are genuine and effective. Unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the record owner of such shares on the books of the corporation, the record owner of such shares shall be deemed by the corporation to be the owner thereof for all purposes.
Section 6.4 Restrictions on Transfer of Shares Permitted.
The board of directors (or shareholders) may impose restrictions on the transfer or registration of transfer of shares (including any security convertible into, or carrying a right to subscribe for or acquire, shares). A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.
A restriction on the transfer or registration of transfer of shares is authorized:
(a) to maintain the corporation's status when it is dependent on the number or identity of its shareholders;
(b) to preserve entitlements, benefits, or exemptions under federal, state, or local law; and
(c) for any other reasonable purpose.
A restriction on the transfer or registration of transfer of shares may:
(a) obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares;
(b) obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares;
(c) require the corporation, the holders of any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable; and
(d) prohibit the transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.
A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section 6.4 and such person has knowledge of the restriction or its existence is noted conspicuously on the front or back of the certificate or is contained in the written statement required by section 6.2 of this Article VI with regard to shares issued without certificates. Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.
Section 6.5 Acquisition of Shares.
The corporation may acquire its own shares and unless otherwise provided in the articles of incorporation, the shares so acquired constitute authorized but unissued shares.
If the articles of incorporation prohibit the reissuance of acquired shares, the number of authorized shares is reduced by the number of shares acquired by the corporation, effective upon amendment of the articles of incorporation, which amendment may be adopted by the shareholders or the board of directors without shareholder action. The articles of amendment must be delivered to the Utah Division of Corporations and Commercial Code for filing and must set forth:
(a) the name of the corporation;
(b) the reduction in the number of authorized shares, itemized by class and series;
(c) the total number of authorized shares, itemized by class and series, remaining after reduction of the shares; and
(d) if applicable, a statement that the amendment was adopted by the board of directors without shareholder action and that shareholder action was not required.
ARTICLE VII. DISTRIBUTIONS
The corporation may make distributions (including dividends on its outstanding shares) as authorized by the board of directors and in the manner and upon the terms and conditions provided by law and in the corporation's articles of incorporation.
ARTICLE VIII. CORPORATE SEAL
The board of directors may provide for a corporate seal which may have inscribed thereon any designation including the name of the corporation, Utah as the state of incorporation, and the words "Corporate Seal."
ARTICLE IX. DIRECTORS CONFLICTING INTEREST TRANSACTIONS
A director's conflicting interest transaction may not be enjoined, be set aside, or give rise to an award of damages or other sanctions, in a proceeding by a shareholder or by or in the right of the corporation, solely because the director, or any person with whom or which the director has a personal, economic, or other association, has an interest in the transaction, if:
(a) directors' action respecting the transaction was at any time taken in compliance with section 16-10a-852 of the Act or any section of like tenor as amended from time to time;
(b) shareholders' action respecting the transaction was at any time taken in compliance with section 16-10a-853 of the Act or any section of like tenor as amended from time to time; or
(c) the transaction, judged according to the circumstances at the time of commitment, is established to have been fair to the corporation.
ARTICLE X. AMENDMENTS
The corporation's board of directors may amend or repeal the corporation's bylaws unless:
(a) the Act or the articles of incorporation reserve this power exclusively to the shareholders in whole or part; or
(b) the shareholders in adopting, amending, or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw; or
(c) the bylaw either establishes, amends, or deletes, a supermajority shareholder quorum or voting requirement (as defined in Article II, section 2.9).
Any amendment which changes the voting or quorum requirement for the board must comply with Article III, section 3.8, and for the shareholders, must comply with Article II, section 2.9.
The corporation's shareholders may amend or repeal the corporation's bylaws even though the bylaws may also be amended or repealed by its board of directors.
ARTICLE XI. FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the board of directors in consultation with the financial and tax advisors of the corporation.
CERTIFICATE OF SECRETARY
The undersigned does hereby certify that such person is the secretary of Scientific Energy, Inc., a corporation duly organized and existing under and by virtue of the laws of the state of Utah; that the above and foregoing bylaws of said corporation were duly and regularly adopted as such by the board of directors of said corporation by unanimous consent dated May 30, 2001, and that the above and foregoing bylaws are now in full force and effect and supersede and replace any prior bylaws of the corporation.
DATED this 30th day of May, 2001.
JANA K. MEYER , Secretary
EXHIBIT 5.1 OPINION
LEONARD E. NEILSON
A PROFESSIONAL CORPORATION
LEONARD E. NEILSON 8160 SOUTH HIGHLAND DRIVE, SUITE 209
ATTORNEY AT LAW SANDY, UTAH 84093
TELEPHONE: (801) 733-0800
FAX: (801) 733-0808
E-MAIL: LNEILSONLAW@AOL.COM
June 2, 2004
Scientific Energy, Inc.
358 South 700 East
Suite B604
Salt Lake City, Utah 84102
Re: Form SB-2
Registration Statement for Scientific Energy, Inc.
To the Board of Directors:
I have acted as counsel to Scientific Energy, Inc., a Utah corporation (the "Company"), in connection with its registration statement on Form SB-2 related to the distribution by its parent corporation, Electronic Game Card, Inc., of 1,125,220 shares of the Company's common stock, par value $0.01 per share. The shares are being distributed pursuant to fulfillment of the terms and conditions set forth in the Registration Statement filed on Form SB-2 in accordance with the registration provisions of the Securities Act of 1933, as amended.
I have examined the Articles of Incorporation and all amendments thereto, By-Laws, minutes of corporate proceedings and other corporate documents with respect to the issuance of the shares by the Company and the offering of shares by the selling stockholders. I have been furnished with originals, or copies certified to my satisfaction, of all such corporate or other records of the Company and I have made such other legal and factual examinations and inquiries as I have considered necessary as a basis for the opinions expressed herein. In the examination of the Company's corporate records, I have presumed the authenticity of all signatures which existed on the records and have presumed the veracity and regularity of all corporate records.
As to the question of fact material to this opinion letter, I have relied upon the representations and warranties, certificates of and conversations and correspondences with, officers and representatives of the Company. Based upon the foregoing, I am of the opinion that:
1. The Company is a corporation duly organized and validly existing under the laws of the State of Utah.
2. The shares subject to the registration statement will be legally and validly authorized under the Articles of Incorporation and Board of Directors of the Company and, when distributed and paid for in accordance with the terms set forth in the registration statement, the shares will be duly and validly issued and outstanding, fully paid and nonassessable.
I hereby consent to the reference to myself in the registration statement covering the offering of the shares, the use of my name beneath the caption "Legal Matters" in the prospectus forming a part thereof, and to the filing of a copy of this opinion as Exhibit 5.1 thereof.
Yours truly,
/S/ Leonard E. Neilson
Leonard E. Neilson
:ae
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EXHIBIT 10.1
JOINT DEVELOPMENT AND
ROYALTY AGREEMENT
THIS AGREEMENT is made and entered into this 15th day of November 2003 by and between SCIENTIFIC ENERGY, INC. a Utah corporation ("SEI"), and Grandway USA, Inc., a Utah corporation. (Grandway).
RECITALS
1. SEI is the owner of intellectual property (products).
2. SEI desires Grandway USA, Inc. to complete the patent process on and market the Inventions. SEI is willing to have Grandway USA, Inc. consider the commercialization of the Inventions for certain consideration.
Inventions
1. Electroluminescence Power Cell (for Lap-Top Computer)
2. Solenoid Pump
3. Solar Powered Fishing Tackle Box
4. Flasher Beacon
5. Electroluminescence Power Cell (for Portable T.V.)
6. Rapid-Hot Water Heater (120 volt)
7. Rapid-Hot Water Heater (12 volt)
8. Hydraulic Solenoid Solar-Powered Pump
9. Solar Powered Camping Lights
10. Solar Powered Survival Lantern With ELT
11. Solar Powered Lantern With Flashing Strobe
12. Solar Powered Barricade Light
13. Turbine Generator
14. Hydrogen Powered Generator System
15. Speedy Sputter with Solenoid Drive
16. Solenoid Pump for Diesel Motors
17. Flexible Socket Extension
18. Spring Loaded Magnetic Socket-wrench
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Assignment to Grandway USA, Inc.: Upon completion, production and commercialization of the above referenced inventions SEI agrees to license and convey to Grandway USA, Inc., and Grandway USA, Inc. agrees to license from SEI, the following:
A. All right, title and interest of SEI in and to that certain products referred to as the Inventions, together with all trademarks, patents, and all powers and privileges relating thereto, and any and all modifications, improvements, enhancements, variations, and alterations relating thereto. It is intended that this Agreement will cover all succeeding generations of this product. Grandway USA, Inc. shall reserve the right to change the name or use it as they deem necessary.
B. All right title and interest of SEI in all existing and future marketing rights, lists of customers, accounts and sales leads, manufacturing processes, drawings, and expertise involved in connection with said Inventions.
2. Patent Applications: Grandway USA, Inc., by this Agreement, agrees to be responsible for advising SEI about the prosecution of the patent applications covering the inventions which are the subject matter of this Agreement in the United States to allowance, final judgement, refusal or abandonment. Grandway USA, Inc. may terminate this Agreement upon thirty (30) days written notice to SEI, if Grandway USA, Inc. determines in its' sole discretion that the prosecution of the patents is not likely to be successful, or continuing the production and marketing of the product is not cost effective to Grandway USA, Inc. SEI, at his sole option retains the right to select any foreign countries as he elects to pay for and file patent applications in. Only under separate agreement, as may be negotiated, shall Grandway USA, Inc. obtain any patent rights granted in such foreign country. Except Grandway USA, Inc. is hereby granted a right of first refusal to acquire such further and select foreign rights. SEI while negotiating with a third party or parties for such foreign rights agrees to keep Grandway USA, Inc. informed of such negotiations and will notify Grandway USA, Inc. of any offers or proposals from such third parties. Grandway USA, Inc. shall have ten (10) business days to meet such offer or proposal, with Grandway USA, Inc.'s failure to fully meet such offer or proposal forever terminating this right of first refusal.
Should this Agreement be terminated, as set out above, at the request of Grandway USA, Inc., Grandway USA, Inc., at their expense will promptly execute appropriate documents for transferring any title to SEI as they may have acquired to issued patents and patent applications, and shall turn over to SEI all materials associated therewith and shall, at the request of SEI, and at SEI expense, cooperate with SEI in continuing the prosecution of such patent application or applications and will take all reasonable steps necessary to protect and preserve such patent rights to the benefit of SEI.
3. Trademarks: Grandway USA, Inc., whether with or without the input of SEI, may adopt a trademark or trademarks covering units of the Inventions. Upon termination, Grandway USA, Inc. agrees that such marks as have become identified with the subject matter of this Agreement shall be conveyed by separate assignment to SEI, which assignment shall include a conveyance of the rights
of Grandway USA, Inc. shall have acquired in such mark or marks, that will expressly include the goodwill associated therewith. This Trademark Assignment will be made without cost to SEI and shall be executed in conjunction with other assignments and conveyances and reconveyance of the rights called for herein.
4. Royalty: Grandway USA, Inc. hereby agrees to pay to SEI a royalty on all sales of the Inventions which royalty shall be as follows:
A. Grandway USA, Inc. shall pay SEI a royalty of 15% of Net Sales, (as defined below) for each unit of the Inventions sold by Grandway USA, Inc. Net Sales shall be deemed to be the gross sales price of a unit less the cost of freight, freight insurance and sales taxes. Net Sales of the Inventions shall be deemed to have been completed which shall trigger the royalty obligation, when Grandway USA, Inc. has received payment for the units sold. No royalty shall be due on any sale until Grandway USA, Inc. receives payment for the order to which the sale relates.
B. Royalties due hereunder shall be paid on a calendar quarter basis and shall be paid within thirty (30) days after the end of each calendar quarter for sales for which payment was received within that calendar quarter. The four calendar quarters shall be the period of January 1st through March 31st as the first calendar quarter, April 1st through June 30th shall be the second calendar quarter, July 1st through September 30th shall be the third calendar quarter and October 1st through December 31st shall be the fourth calendar quarter.
C. With each royalty payment, Grandway USA, Inc. shall deliver to SEI a statement which shall show in detail (I) the number of units sold during the preceding calendar quarter, (ii) the gross selling price of the units and the deductions which Grandway USA, Inc. has taken for freight, freight insurance and sales taxes, (iii) the amount of royalties payable to SEI as a result of such sale, and (iv) any other information reasonably requested by SEI regarding sales of the Inventions which will allow SEI to reasonably determine the basis upon which the royalty is being paid. Any information provided to SEI by Grandway USA, Inc., pursuant to this paragraph (C) or any other paragraph of this Agreement, shall be deemed confidential and privileged information of Grandway USA, Inc. and is secret and proprietary and of great value to Grandway USA, Inc. SEI' use of the information provided herein shall only be for the sole and exclusive purpose of enabling SEI to determine the basis upon which a royalty is being paid.
D. Grandway USA, Inc. shall at all times keep accurate and complete
records showing all sales of the Inventions and shall cause the same
to be kept in sufficient detail to enable royalties payable hereunder
to be determined and to be checked by representatives of SEI. Grandway
USA, Inc. shall allow SEI, or a representative of SEI, access to all
of Grandway USA, Inc.'s records regarding the Inventions as may be
necessary in SEI' reasonable opinion to determine Grandway USA, Inc.'s
compliance with this Agreement and the accuracy and completeness of
reports, statements and payment to be made hereunder. All such records
of Grandway USA, Inc. shall be retained for a period of at least two
(2) years after the royalties to which such records relate have
accrued and been paid. Grandway USA, Inc. shall, upon two working
day's prior request, during normal business hours, provide reasonable
access to such records to SEI or an independent accounting firm or
such other agent of SEI,
as SEI shall designate, for purposes of investigation of the royalties, manufacturing and other operations related to sales of the Inventions.
E. If, at any time, SEI' examination of the records of Grandway USA, Inc. shall show that a royalty paid to SEI is in error by 5% or more, then Grandway USA, Inc. shall be obligated to pay all of the costs incurred by SEI in examining the books of Grandway USA, Inc. and all costs associated with SEI' efforts to obtain full royalty due including reasonable attorney's fees. Upon determining that an underpayment of the royalties has been made, Grandway USA, Inc. shall immediately remit such underpayment to SEI.
F. The obligation of Grandway USA, Inc., its successors or assigns, to pay royalties to SEI continues after the expiration of this Agreement for so long as is necessary to account for all royalties due under this Agreement for contracts or sales commitments made during the term of this Agreement but for which payment will be received by Grandway USA, Inc. after the termination of this Agreement.
G. Any payment due by Grandway USA, Inc. to SEI, if not paid when due, shall immediately begin to accrue interest from the due date until paid at the published prime rate or base rate of Zions First National Bank, N.A. of Salt Lake City, UT, plus 3%, which interest shall be compounded monthly, until paid. All royalty payments shall be made or sent to SEI or his successors or assigns at 630 North 400 West, Salt Lake City, Utah, 84103, or such other address as SEI may specify from time to time pursuant to the notice requirements hereof. All payments shall be applied first to accrued interest and then to the amount of the royalty due.
H. Notwithstanding any other agreement herein to the contrary, Grandway USA, Inc. agrees that during each calendar year Grandway USA, Inc. will pay SEI a yearly minimum royalty of $1000.00 in order to maintain exclusive manufacturing and marketing rights for the Inventions in the United States and in foreign jurisdictions acquired pursuant to the provisions of Section 2 hereof. Grandway USA, Inc. shall be entitled to subtract from said minimum royalty, all royalties paid by Grandway USA, Inc. to SEI which are attributable to sales receipts during that calendar year as specified in Sections 4(A) and 4(B) hereof. The minimum royalty for each calendar year shall be due and payable in full within thirty (30) days after the end of each calendar year. Any amount of the minimum royalty not paid when due shall bear interest from the due date until paid at the same rate as specified in paragraph 4(G) hereof. All payment shall be applied first to accrued interest and then to the royalty payment due. In the event that the yearly minimum royalty is not paid after 30 days written notice from SEI, the exclusive manufacturing and marketing rights shall be canceled. Grandway USA, Inc. shall cease further manufacturing and marketing except to liquidate product as defined in Section 5(D).
5. Security Interest: Grandway USA, Inc., for itself, its successors and assigns, hereby grants to SEI a security interest in the Inventions, know as the above referenced inventions listed in paragraph "Recitals" above, and all preferred embodiments of said Inventions as disclosed in the Unites States Patent Application. The security interest granted hereby shall include, but not be limited to, all of Grandway USA, Inc.'s right, title and interest in the Inventions as described in the Unites States Patent Application and in all divisions, continuations and continuations in part of said Application, or reissues or extensions of letters of patent or patents granted thereon and in all
corresponding applications filed in the United States and all patents issued thereon in the United States. All of the above is hereinafter referred to as the "Collateral".
A. Grandway USA, Inc. hereby warrant that there is no financing statement now on file in any public office covering the Collateral or any of the proceeds thereof and so long as any royalties remain unpaid, Grandway USA, Inc. shall not execute or file a financing statement or security agreement covering the Collateral to anyone other than SEI, except for financing statements or security agreements to Grandway USA, Inc.'s line of credit lender or other lenders, which security interests shall be junior to the security interest of SEI. Grandway USA, Inc. agrees to sign or deliver one or more or other instruments as SEI may from time to time require to comply with the requirements of the Utah Uniform Commercial Code, the commercial code of any other state or country or to properly evidence the security interest of SEI in the United States Patent Office or anywhere else where a filing is required to make a record, preserve, perfect or protect the first priority security interest in the Collateral granted by this security agreement to SEI or to enforce the security interest of SEI, and Grandway USA, Inc. shall pay all costs of filing such statements or instruments. If Grandway USA, Inc. does not execute such reasonable agreements, as SEI shall request, SEI is hereby authorized to sign such statements or instruments on behalf of Grandway USA, Inc. and Grandway USA, Inc. hereby consents to the filing of such statements executed by SEI.
B. If Grandway USA, Inc. fails to make any payment or perform any acts
required by this Agreement or to take acts which SEI reasonably deems
advisable or necessary to preserve the Collateral or priority or
perfection of SEI' security interest, SEI may advance funds for the
same and Grandway USA, Inc. shall immediately be obligated to
reimburse SEI for all advances so made and such advances shall be
deemed part of the Collateral and secured hereby and shall be
immediately payable to SEI. All payments required to be made in this
Section 5(B) or in Section 5(A) shall be paid within ten (10) days of
Grandway USA, Inc.'s receipt of an invoice from SEI and if not paid by
such date shall immediately bear interest at the rate specified in
Section 4(G) until paid. All payments shall be applied first to
accrued interest and then to the amount due.
C. Grandway USA, Inc. shall be in default hereunder if any of the following events shall occur:
(I). Grandway USA, Inc. fails to pay when due any amounts due by Grandway USA, Inc. to SEI at the time and in the manner required hereunder;
(ii).Grandway USA, Inc. fails to perform any material undertaking or breaches any material warranty in this Agreement;
(iii). Any material statement, representation or warranty of Grandway USA, Inc. herein or in any other writing or report at any time furnished by Grandway USA, Inc. to SEI hereunder or in connection with the Inventions is false in any material respect when made;
(iv).Grandway USA, Inc. becomes insolvent or makes an assignment for the benefit of creditors or any proceeding is instituted by or against Grandway USA, Inc. alleging that Grandway USA, Inc. is insolvent or unable to pay
debts as they mature and such proceeding is not dismissed within thirty (30) days of such filing; or
(v). Grandway USA, Inc. shall transfer any interest in the Collateral to any other party other than sales of units of the Inventions in the normal course of business for which Grandway USA, Inc. receives reasonable compensation without the prior written consent of SEI.
D. If, upon the occurrence of an event of default, and such occurrence shall not have been cured within thirty (30) days after the date of such occurrence, then SEI may send written notice of such default to Grandway USA, Inc. In the case of default in the payment of any amount due from Grandway USA, Inc. to SEI, Grandway USA, Inc. shall have thirty (30) days after such notice to cure the default. In the case of any default other than the failure to make a payment required hereby, Grandway USA, Inc. shall have sixty (60) days after such notice to cure such default. If a default shall not have been cured within the period specified above, then SEI shall immediately have all the rights and remedies of a secured party under the Utah Uniform Commercial Code or other applicable law, and (I) all of Grandway USA, Inc.'s right, title, and interest in the Inventions and all of the Collateral shall immediately revert back to SEI, the original owner, and Grandway USA, Inc. shall no longer have any right, title, or interest therein or to make further sales of the Inventions (except to liquidate any product which was ordered and received prior to expiration of the thirty (30) or sixty (60) day default period or received after the expiration of the default period but ordered before and in which it was not possible to stop shipment of the order) or in any way to exercise any rights with respect to the Inventions or the collateral; (ii) Grandway USA, Inc. shall immediately execute such documents of assignment or other documents necessary to reconvey title to the collateral to SEI; (iii) SEI may sell, license, or otherwise use or dispose of, in whole or in part, any rights in the Collateral to any other party immediately upon an event of default and shall immediately have the right to take all action necessary to obtain title of record in the Unites States Patent Office to the Collateral or in any other office or agency necessary in SEI' reasonable opinion to evidence SEI' ownership of the Collateral after the date of an event of default which has not been cured.
E. Grandway USA, Inc. shall pay all taxes and assessments of any nature which may be levied or assessed against the Collateral; Grandway USA, Inc. shall not permit or allow any adverse, lien, security interest or encumbrance except as provided in Section 5(A) hereof upon the Collateral and shall not permit the collateral to be attached in any manner.
F. Grandway USA, Inc. will not use the Collateral in violation of any applicable statues, regulations or ordinances or this Agreement.
G. All expenses of retaking and obtaining title to the Collateral in SEI' including SEI' reasonable attorney fees and legal expenses, shall be the obligation of Grandway USA, Inc.
H. No waiver by SEI of any default shall operate as a waiver of any other default of or of the same default on a future occasion. The taking of this security Agreement shall not waive or impair any other security SEI may have or hereafter acquire for the payment of the royalties or other obligations due hereunder nor shall the taking of any such additional security waive or impair this security agreement; all rights of SEI hereunder shall inure to the benefit of his successors or assigns and all promises or duties of Grandway USA, Inc. shall bind its successors or assigns. Without affecting any obligations of Grandway USA, Inc. under this agreement, SEI, without notice or demand, may renew, extend or otherwise change the terms and conditions of any obligations hereunder, take or release any other collateral as security and add or release any guarantor, surety or other party to any obligations of Grandway USA, Inc. hereunder.
I. Grandway USA, Inc. shall execute all such documents as SEI shall reasonably request necessary to evidence SEI' secured position in the Collateral.
6. Term of Agreement. At the election of Grandway USA, Inc., Grandway USA, Inc. may terminate this agreement upon thirty (30) days written notice to SEI at anytime. If any patents shall be issued with respect to the Inventions, and unless this Agreement is terminated earlier in accordance with the provisions hereof, the Agreement shall remain in effect until the life of the patent or patents issued and covering the Inventions shall have expired. In the case that no patents are issued, the agreement will remain in full force and effect until this Agreement is terminated in accordance with the provisions hereof. Upon the expiration of such patents, or if this Agreement is terminated as defined hereof, all right, title and interest of Grandway USA, Inc. or its successors or assigns, in the Collateral shall be transferred to SEI or his successors or assigns and shall immediately thereupon become the sole and exclusive property of SEI or his successors or assigns.
7. Indemnification. Grandway USA, Inc. hereby agrees to indemnify and hold harmless SEI, and his successors or assigns, from and against all liabilities, claims, losses, damages, costs and expenses (including reasonable attorneys fees) resulting from or connected with Grandway USA, Inc.'s breach of this Agreement, including, but not limited to, breach of any covenant, warranty or representation made by Grandway USA, Inc. hereunder.
(ii Assignment. Grandway USA, Inc. shall have no right to make any assignment or transfer of all or any part of its interest in the Inventions or the Collateral without the prior written consent of SEI, which consent shall not be unreasonably withheld. Any assignment or transfer of any interest in the Collateral by Grandway USA, Inc. to any other party shall include provisions which incorporate the terms of this Agreement and which shall specifically acknowledge and require the assignee or other party to recognize the rights of SEI herein, to make the royalty payments required hereunder and to have assignee grant to SEI a security interest in the Collateral as described herein. SEI shall not assign his interest herein to any other party without the prior written consent of Grandway USA, Inc., which consent shall not be unreasonably withheld.
9. Marketing Efforts/Inventions Protection.
A. Grandway USA, Inc. agrees that as long as this Agreement is in effect, Grandway USA, Inc. will use reasonable and good faith efforts to manufacture and market the Inventions referred to herein subject to market conditions that would make such efforts a profitable venture.
B. In the event that any infringement of the patents acquired by Grandway USA, Inc. comes to the attention of either party, such party shall promptly notify the other party of the infringement. Thereupon, the parties shall consult with a view to reaching agreement as to ways and means of eliminating the infringement. If either party desires to litigate the infringement, and the other party refuses to do so or refuses to bear one-half of the costs thereof, the party desiring litigation may at its sole discretion, and as its sole cost and expense, bring suit to restrain such infringement and may join the refusing parting as a party plaintiff in such suit. SEI shall indemnify Grandway USA, Inc. against all liability, loss, damage, or expense resulting from any suit brought against Grandway USA, Inc. for patent infringement based on the use, sale or other disposition of the Inventions or any other products claimed in the referenced patents. However, this right of indemnification shall be limited so as not to exceed the aggregate amount of royalties paid to SEI under this Agreement. Grandway USA, Inc. shall have control of the defense in such suit and in all negotiations relating to its settlement.
10. Miscellaneous.
A. Notices. All notices, demands and other communications hereunder shall be in writing and shall be sufficient if mailed by certified mail, return receipt requested and postage prepaid to the parties or their permitted assignees at the following addresses:
To: Grandway USA, Inc.: Grandway USA, Inc.
760 West 1700 South
Salt Lake City, UT 84104
To: Scientific Energy, Inc. Scientific Energy, Inc.
630 North 400 West
Salt Lake City, Utah 84103
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Notice shall be deemed to have been given and received (1) when actually received if delivered in person or (2) on the date two business days after such notice has been mailed in the manner described herein. Any party herein may, at any time, upon giving notice as specified herein, designate another address in substitution of the foregoing address to which such notice shall be given and to which all notices thereafter shall be sent.
B. Severability. Any provision hereof prohibited or deemed unlawful or unenforceable under applicable law of any jurisdiction shall, as to such jurisdiction, be ineffective
without affecting any other provision of this Agreement. To the full extent, however, that the provisions of such applicable law may be waived, they are hereby waived to the end that this Agreement be deemed to be a valid and binding agreement and enforceable in accordance with its terms. In the event that any term or provision of this agreement shall be held invalid by a competent court or government agency, the remainder of this Agreement shall not be affected thereby and the parties hereto shall continue to be bound by the remaining terms hereof. In such event, the relevant term or provision (or should such terms or provisions be a crucial element of this Agreement) then the entire Agreement shall be renegotiated by the parties in a good faith effort to achieve mutual agreement consistent with such holding and shall continue to perform under this Agreement in a manner consistent with its intention and objectives.
C. Further Action. The parties agree to execute and deliver all documents, provide information and take or forebear from all such action as may be necessary or appropriate to achieve the purposes of this Agreement.
D. Applicable Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah without reference to choice of law remedies. The parties hereto subject themselves to the jurisdiction of the courts of the State of Utah and agree that the exclusive venue and place of jurisdiction for any lawsuit arising under or relating to this Agreement shall be in the State of Utah.
E. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors, legal representatives and assigns; provided that this provision shall not be construed as permitting the assignment, substitution, delegation or other transfer of rights or obligations except strictly in accordance with the other provisions of this Agreement.
F. Integration. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto. No covenant, representation or condition not expressed in this Agreement shall affect or be deemed to interpret, change or restrict the express provisions hereof.
G. Relationship of the Parties. Neither Grandway USA, Inc., or SEI nor any of their officers, directors, partners, employees, or agents shall be deemed to be the representative, agent or employee of the other for any purpose whatsoever. Nor shall they, or any of them, have any right or authority to assume or create an obligation of any kind or nature, express or implied, on behalf of such other, nor to accept service of any legal process addressed to or intended for such other.
H. Cooperation. The parties agree to promptly cooperate in good faith to carry out the provisions of this Agreement and the activities contemplated hereby and shall all cooperate in good faith to resolve any disputes or differences which may arise in connection with the provisions hereof and the activities contemplated hereby.
I. Titles and Captions. The article and section titles or captions of this Agreement are for convenience only and shall not be deemed part of this Agreement and shall in no
way define, limit, augment or extend or describe the scope, content or intent of any part or parts of this Agreement.
J. Authorization. Each individual executing this Agreement does hereby represent and warranty to each other person so signing (and each other entity for which another person may be signing) that he or she has been duly authorized to execute this Agreement in the capacity and for the entity set forth where he or she signs.
K. Attorney's Fees. If any action is brought to recover for breach of this Agreement, or any payment or other amount under this Agreement because of any default under this Agreement, to enforce or interpret any of the provisions of this Agreement, or for recovery of possession of the patents or collateral hereunder, the party prevailing in such action shall be entitled to recover from the other reasonable attorneys' fees (including those incurred in connection with any appeal), the amount of which shall be fixed by the court and made a part of any judgement rendered. Grandway USA, Inc. shall be responsible for all costs and expenses, including, without limitation, attorney's fees, that SEI incurs in any case or proceeding involving Grandway USA, Inc. under or related to any bankruptcy or insolvency proceeding involving Grandway USA, Inc. SEI shall be responsible for all costs and expenses, including, without limitation, the attorney's fees, that Grandway USA, Inc. incurs in any case or proceeding involving SEI under or related to any bankruptcy or insolvency proceeding involving SEI.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
Scientific Energy, Inc., a Utah corporation 630 North 400 West Salt Lake City, Utah 84103
BY: /S/ TODD B. CROSLAND
Todd B. Crosland, President
Grandway USA, Inc., a Utah corporation
760 West 1700 South
Salt Lake City, UT 84104
BY: /S/ DALE C. GLEDHILL
Dale C. Gledhill, President
Grandway.agr
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Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Scientific Energy, Inc.
We have issued an audit report dated January 14, 2004 for the year ended December 31, 2003 and 2002 for Scientific Energy, Inc. included in the Registration Statement Form SB-2. We consent to the use of our auditors report in the aforementioned registration statement.
Respectfully submitted,
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
May 28, 2004
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