U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 000-31377
REFLECT SCIENTIFIC, INC.
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(Name of Small Business Issuer in its Charter)
UTAH 87-0642556
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
970 Terra Bella Avenue
Mountain View, California, 94043
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(Address of Principal Executive Offices)
Issuer's Telephone Number: (650) 960-0300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
June 30, 2004
24,000,000
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
-------------------------------
The Financial Statements of the Company required to be filed with
this 10-QSB Quarterly Report were prepared by management, and commence on the
following page, together with Related Notes. In the opinion of management,
the Financial Statements fairly present the financial condition of the
Company.
REFLECT SCIENTIFIC, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and December 31, 2003
REFLECT SCIENTIFIC, INC.
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2004 2003
(Unaudited)
CURRENT ASSETS
Cash $ 57,080 $ 99,924
Accounts receivable, net 369,411 232,464
Inventory, net 193,141 210,447
Prepaid expenses 800 800
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Total Current Assets 620,432 543,635
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FIXED ASSETS (NET) 20,838 21,923
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OTHER ASSETS
Deposits 5,350 5,350
Capitalized loan costs, net 5,775 6,125
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Total Other Assets 11,125 11,475
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TOTAL ASSETS $ 652,395 $ 577,033
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
REFLECT SCIENTIFIC, INC.
Consolidated Balance Sheets (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
2004 2003
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 179,426 $ 199,374
Accrued expenses 19,169 15,180
Income taxes payable 13,200 -
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Total Current Liabilities 211,795 214,554
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NON-CURRENT LIABILITIES
Long term line of credit 268,986 269,011
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Total Non-Current Liabilities 268,986 269,011
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Total Liabilities 480,781 483,565
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value, authorized
50,000,000 shares; 24,000,000 shares
issued and outstanding 240,000 240,000
Additional paid-in capital (deficit) (188,319) (210,841)
Retained earnings 119,933 64,309
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Total Shareholders' Equity 171,614 93,468
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 652,395 $ 577,033
============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
REFLECT SCIENTIFIC, INC.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2004 2003 2004 2003
REVENUES $ 581,656 $ 464,983 $ 1,081,707 $ 958,338
COST OF GOODS SOLD 332,912 305,812 644,035 581,886
-------- --------- ----------- ---------
GROSS PROFIT 248,744 159,171 437,672 376,452
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OPERATING EXPENSES
Salaries and wages 86,848 74,852 176,182 151,774
Payroll taxes 6,639 6,275 15,431 13,258
Rent expense 18,999 24,938 38,058 37,480
General and
administrative expense 67,638 17,552 138,168 82,196
-------- --------- ----------- ---------
Total Operating Expenses 180,124 123,619 367,839 284,708
-------- --------- ----------- ---------
OPERATING INCOME 68,620 35,552 69,833 91,744
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OTHER INCOME (EXPENSE)
Sundry income 5,000 30,000 5,000 30,000
Miscellaneous income
(expense) - 16,283 (301) 16,015
Interest expense (2,851) (3,435) (5,707) (8,068)
-------- --------- ----------- ---------
Total Other Income
(Expense) 2,149 42,848 (1,008) 37,947
-------- --------- ----------- ---------
NET INCOME BEFORE INCOME TAX 70,769 78,400 68,825 129,691
-------- --------- ----------- ---------
INCOME TAX EXPENSE 13,200 - 13,200 -
NET INCOME $ 57,569 $ 78,400 $ 55,625 $ 129,691
======== ========= =========== =========
EARNINGS PER SHARE $ 0.00 $ 0.00 $ 0.00 $ 0.01
======== ========= =========== =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 24,000,000 22,914,949 24,000,000 22,914,949
========== ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
REFLECT SCIENTIFIC, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the
Six Months Ended
June 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 55,625 $ 129,693
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 350 1,184
Amortization of capitalized loan
costs 1,085 420
Changes in operating assets and
liabilities:
(Increase) in accounts
receivable (136,947) (46,685)
Decrease in inventory 17,305 39,454
Decrease in prepaid expenses - 6,124
Increase (decrease) in accounts
payable and accrued expenses (15,959) 9,531
Increase in income taxes payable 13,200 -
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Net Cash Used by Operating
Activities (65,341) 139,721
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short term lines of credit - -
Change in long term line of credit (25) -
Contributed capital 22,522 (1,579)
Distribution to shareholder - (101,000)
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Net Cash (Used) Provided by
Financing Activities 22,497 (102,579)
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NET DECREASE IN CASH (42,844) 37,142
CASH AT BEGINNING OF PERIOD 99,924 115,644
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CASH AT END OF PERIOD $ 57,080 $ 152,786
========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 4,729 $ 7,068
Income taxes $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
5
REFLECT SCIENTIFIC, INC.
Notes to the Consolidated Financial Statements
June 30, 2004 and December 31, 2003
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by the Company pursuant to accounting principles generally
accepted in the United States of America. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted in accordance
with such rules and regulations. The information furnished in the
interim condensed financial statements include normal recurring
adjustments and reflects all adjustments, which, in the opinion of
management, are necessary for a fair presentation of such financial
statements. Although management believes the disclosures and
information presented are adequate to make the information not
misleading, it is suggested that these interim condensed financial
statements be read in conjunction with the Company's most recent audited
financial statements and notes thereto included in its December 31, 2003
financial statements. Operating results for the six months ended June
30, 2004 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2004.
NOTE 2 - ACQUISITION OF REFLECT SCIENTIFIC
On December 30, 2003, pursuant to an agreement and plan of
reorganization, the Company completed a reverse merger with the
shareholder of Reflect Scientific, Inc. in which it acquired 100% of
Reflect Scientific, Inc., a California Company in exchange for 22,914,949
common shares of the Company. The terms of the acquisition are detailed
in an 8-K filing dated December 31, 2003. Under the terms of the
agreement, the President of Reflect Scientific, Inc. became the President
of the Company and was elected to the Board of Directors, the acquisition
was accounted for as a recapitalization of Reflect Scientific, Inc.
because the members of Reflect Scientific, Inc. controlled the Company
after the acquisition. Reflect Scientific, Inc. was treated as the
acquiring entity for accounting purposes and Cole, Inc. was the surviving
entity for legal purposes. There was no adjustment to the carrying
values of the assets or liabilities of Reflect Scientific, Inc. and no
goodwill was recorded.
6
Item 2. Management's Discussion and Analysis or Plan of Operation.
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Results of Operations.
----------------------
Our revenues increased during the quarter ended June 30, 2004, to
$581,656 from $464,983 for the quarter ended June 30, 2003, primarily as
a result of a general improvement in sales across several new product lines
and improving market conditions.
Our cost of goods increased in the period ending June 30, 2004,
as compared to June 30, 2003, to $332,912 from $305,812. The difference
was partly as a result of an increase in sales, increased raw material costs
and increased labor costs.
General and administrative expenses increased to $67,638 during the
quarter ended June 30, 2004, from $17,552 during the quarter ended June 30,
2003. This increase was due to the addition of one full-time employee,
increased payroll and increased operational expenses, like legal and
accounting fees.
Liquidity and Capital Resources.
--------------------------------
Our cash resources at June 30, 2004, were $57,080, with accounts
receivable of $369,411. We have relied on revenues and lines of credit for
our cash resources. At June 30, 2004, we had utilized $268,986 of our
$400,000 line of credit. These funds should be adequate for the next 12
months for continuing operations; however, plans for expansion will require
additional capital of between $500,000 and $750,000.
Forward-Looking Statements.
---------------------------
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a safe harbor for forward-looking statements made by or on behalf of
our Company. Our Company and its representatives may from time to time make
written or oral statements that are "forward- looking," including statements
contained in this Quarterly Report and other filings with the Securities and
Exchange Commission and in reports to our Company's stockholders. Management
believes that all statements that express expectations and projections with
respect to future matters, as well as from developments beyond our Company's
control including changes in global economic conditions are forward-looking
statements within the meaning of the Act. These statements are made on the
basis of management's views and assumptions, as of the time the statements are
made, regarding future events and business performance. There can be no
assurance, however, that management's expectations will necessarily come to
pass. Factors that may affect forward- looking statements include a wide
range of factors that could materially affect future developments and
performance, including the following:
Changes in Company-wide strategies, which may result in changes in
the types or mix of businesses in which our Company is involved or chooses to
invest; changes in U.S., global or regional economic conditions, changes in
U.S. and global financial and equity markets, including significant interest
rate fluctuations, which may impede our Company's access to, or increase the
cost of, external financing for our operations and investments; increased
competitive pressures, both domestically and internationally, legal and
regulatory developments, such as regulatory actions affecting environmental
activities, the imposition by foreign countries of trade restrictions and
changes in international tax laws or currency controls; adverse weather
conditions or natural disasters, such as hurricanes and earthquakes, labor
disputes, which may lead to increased costs or disruption of operations.
This list of factors that may affect future performance and the
accuracy of forward-looking statements is illustrative, but by no means
exhaustive. Accordingly, all forward-looking statements should be evaluated
with the understanding of their inherent uncertainty.
Item 3. Controls and Procedures.
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As of the end of the period covered by this Quarterly Report, we carried
out an evaluation, under the supervision and with the participation of our
President and Treasurer, of the effectiveness of our disclosure controls and
procedures. Based on this evaluation, our President and Treasurer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information required to be included in our periodic
Securities and Exchange Commission reports. It should be noted that the
design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote. In addition, we reviewed our internal
controls over financial reporting, and there have been no changes in our
internal controls or in other factors in the last fiscal quarter that has
materially affected or is reasonably likely to materially affect our internal
control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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None; not applicable.
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
Securities.
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None; not applicable.
Item 3. Defaults Upon Senior Securities.
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None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
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None; not applicable.
Item 5. Other Information.
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None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits.
31.1 302 Certification of Kim Boyce
31.2 302 Certification of Pamela Boyce
32 906 Certification.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
REFLECT SCIENTIFIC, INC.
Date: 8/16/2004 /s/Kim Boyce
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Kim Boyce, President
Date: 8/16/2004 /s/Pamela Boyce
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Pamela Boyce, Secretary