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 September 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:
September 30, 2004
Common Stock - 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
September 30, 2004 and December 31, 2003
REFLECT SCIENTIFIC, INC.
Consolidated Balance Sheets
ASSETS
September 30, December 31,
2004 2003
(Unaudited)
CURRENT ASSETS
Cash $ 34,668 $ 99,924
Accounts receivable, net 319,129 232,464
Inventory, net 241,525 210,447
Prepaid expenses 800 800
----------- -----------
Total Current Assets 596,122 543,635
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FIXED ASSETS (NET) 20,247 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 $ 627,494 $ 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
September 30, December 31,
2004 2003
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 161,228 $ 199,375
Accrued expenses 27,201 15,179
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Total Current Liabilities 188,429 214,554
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NON-CURRENT LIABILITIES
Long term line of credit 268,985 269,011
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Total Non-Current Liabilities 268,985 269,011
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Total Liabilities 457,414 483,565
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value, authorized
5,000,000 shares; no issued or outstanding
shares - -
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 118,399 64,309
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Total Shareholders' Equity 170,080 93,468
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 627,494 $ 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 Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
REVENUES $ 522,600 $ 457,067 $ 1,604,307 $ 1,425,762
COST OF GOODS SOLD 319,435 254,829 963,470 854,396
-------- --------- ----------- -----------
GROSS PROFIT 203,165 202,238 640,837 571,366
-------- --------- ----------- -----------
OPERATING EXPENSES
Salaries and wages 87,091 70,137 263,273 230,007
Payroll taxes 7,127 5,920 22,558 19,644
Rent expense 19,306 18,870 57,364 56,596
General and
administrative expense 88,124 35,374 226,292 93,526
-------- --------- ----------- -----------
Total Operating Expenses 201,648 130,301 569,487 399,773
-------- --------- ----------- -----------
OPERATING INCOME 1,517 71,937 71,350 171,593
-------- --------- ----------- -----------
OTHER INCOME (EXPENSE)
Sundry income - - 5,000 -
Miscellaneous income
(expense) - - (301) -
Interest expense (3,051) (1,780) (8,759) (11,262)
-------- --------- ----------- -----------
Total Other Income
(Expense) (3,051) (1,780) (4,060) (11,262)
-------- --------- ----------- -----------
NET INCOME BEFORE INCOME TAX (1,534) 70,157 67,290 160,331
-------- --------- ----------- -----------
INCOME TAX EXPENSE - - 13,200 -
NET INCOME $ (1,534) $ 70,157 $ 54,090 $ 160,331
======== ========= =========== ===========
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 Shareholders' Equity
Additional
Common Stock Preferred Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings
Balance, December
31, 2001 22,914,949 $ 10,000 - $ - $ - $ 83,619
Dividend - - - - - (63,000)
Net income for
the year ended
December 31, 2002 - - - - - 141,018
---------- -------- ---- ------ ------- -----------
Balance, December
31, 2002 22,914,949 10,000 - - - 161,637
Dividend - - - - - (156,000)
Contributed Capital - - - - 26,950 -
Recapitalization
(Note 2) 1,085,051 230,000 - - (237,791) -
Net income for the
year ended
December 31, 2003 - - - - - 58,672
---------- -------- ---- ------ --------- -----------
Balance, December
31, 2003 24,000,000 240,000 - - (210,841) 64,309
Contributed capital
(unaudited) - - - - 22,522 -
Net income for the
nine months ended
September 30, 2004
(unaudited) - - - - - 54,090
---------- -------- ---- ------ --------- ----------
Balances, September
30, 2004
(unaudited) 24,000,000 $240,000 - $ - $(188,319) $ 118,399
========== ======== ==== ====== ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
5
REFLECT SCIENTIFIC, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the
Nine Months Ended
September 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 54,090 $ 160,331
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 1,676 1,776
Amortization of capitalized loan
costs 350 630
Changes in operating assets and
liabilities:
(Increase) in accounts
receivable (86,666) (93,967)
Decrease in prepaid expenses - 6,124
(Increase) decrease in inventory (31,079) 5,988
Increase (decrease) in accounts
payable and accrued expenses (26,124) 37,643
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Net Cash Used by Operating
Activities (87,753) 118,525
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets - (450)
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Net Cash Used by Investing
Activities - (450)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short term lines of credit - (103,049)
Change in long term line of credit (25) 101,470
Contributed capital 22,522 -
Distributions to sole shareholder - (101,000)
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Net Cash Provided (Used) by
Financing Activities 22,497 (102,579)
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NET INCREASE (DECREASE) IN CASH (65,256) 15,496
CASH AT BEGINNING OF PERIOD 99,924 115,644
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CASH AT END OF PERIOD $ 34,668 $ 131,140
========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 3,051 $ 11,380
Income taxes $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
6
REFLECT SCIENTIFIC, INC.
Notes to the Consolidated Financial Statements
September 30, 2004 and December 31, 2003
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated 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 consolidated 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 consolidated
financial statements be read in conjunction with the Company's most
recent audited consolidated financial statements and notes thereto
included in its December 31, 2003 financial statements. Operating
results for the nine months ended September 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.
7
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 September 30, 2004,
to $522,600 from $457,067 for the quarter ended September 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 September 30, 2004,
as compared to September 30, 2003, to $319,435 from $254,829. 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 $88,124 during the
quarter ended September 30, 2004, from $35,374 during the quarter ended
September 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 September 30, 2004, were $34,668, with
accounts receivable of $319,129. We have relied on revenues and lines of
credit for our cash resources. At September 30, 2004, we had utilized
$268,985 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.
----------------------------------
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. Unregistered Sales of Equity Securities and Use of Proceeds.
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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.
----------------------------
November 9, 2004, we filed Articles of Amendment to our Articles of
Incorporation that designated 750,000 shares of our preferred stock as "2004
Series A Convertible Preferred Stock". For a detailed description of the
rights, privileges and preferences of the 2004 Series A Convertible Preferred
Stock, see a copy of the Articles of Amendment that is attached hereto and
incorporated herein by reference as Exhibit 3.1. See Item 6.
We also have attached hereto and incorporated herein as Exhibit 3.2
an Amendment to our Bylaws that was adopted July 28, 2003. See Item 6.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits.
3.1 Articles of Amendment
3.2 Amendment to Bylaws
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: 11/11/2004 /s/Kim Boyce
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Kim Boyce, President
Date: 11/11/2004 /s/Pamela Boyce
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Pamela Boyce, Secretary