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, 2005
[ ] 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
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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
--- --- --- ---
Indicate by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
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, 2005
24,380,000
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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, 2005 and December 31, 2004
REFLECT SCIENTIFIC, INC.
Consolidated Balance Sheets
ASSETS
September 30, December 31,
2005 2004
(Unaudited)
CURRENT ASSETS
Cash $ 461,586 $ 80,739
Accounts receivable, net 335,302 281,173
Inventory, net 353,145 260,012
Prepaid expenses 800 800
----------- -----------
Total Current Assets 1,150,833 622,724
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FIXED ASSETS (NET) 21,775 24,249
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OTHER ASSETS
Deposits 5,350 5,350
Capitalized loan costs, net 4,900 5,600
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Total Other Assets 10,250 10,950
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TOTAL ASSETS $ 1,182,858 $ 657,923
=========== ===========
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,
2005 2004
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 185,584 $ 131,610
Accrued expenses 10,656 23,955
Income taxes payable 30,705 30,705
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Total Current Liabilities 226,945 186,270
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NON-CURRENT LIABILITIES
Long term line of credit - 269,036
Deferred income taxes 39,000 39,000
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Total Non-Current Liabilities 39,000 308,036
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Total Liabilities 265,945 494,306
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value,
authorized 5,000,000 shares, 700,000
shares issued and outstanding 7,000 -
Common stock, $0.01 par value, authorized
50,000,000 shares; 24,380,000 shares
issued and outstanding 243,800 240,000
Additional paid-in capital (deficit) 514,937 (183,319)
Retained earnings 151,176 106,936
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Total Shareholders' Equity 916,913 163,617
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 1,182,858 $ 657,923
============= ============
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,
2005 2004 2005 2004
REVENUES $ 573,572 $ 522,600 $ 1,628,313 $1,604,307
COST OF GOODS SOLD 326,041 319,435 919,883 963,470
-------- --------- ----------- ----------
GROSS PROFIT 247,531 203,165 708,430 640,837
-------- --------- ----------- ----------
OPERATING EXPENSES
Salaries and wages 88,784 87,091 250,131 263,273
Payroll taxes 7,803 7,127 21,416 22,558
Rent expense 21,454 19,306 59,761 57,364
General and
administrative expense 72,490 88,127 322,921 226,295
-------- --------- ----------- ----------
Total Operating Expenses 190,531 201,648 654,229 569,487
-------- --------- ----------- ----------
OPERATING INCOME 57,000 1,517 54,201 71,350
-------- --------- ----------- ----------
OTHER INCOME (EXPENSE)
Sundry income - - - 5,000
Miscellaneous expense - - - (301)
Interest expense (1,583) (3,051) (9,961) (8,759)
-------- --------- ----------- ----------
Total Other Income
(Expense) (1,583) (3,051) (9,961) (4,060)
-------- --------- ----------- ----------
NET INCOME (LOSS) BEFORE
INCOME TAX 55,417 (1,534) 44,240 67,290
-------- --------- ----------- ----------
INCOME TAX EXPENSE - - - 13,200
NET INCOME $ 55,417 $ (1,534) $ 44,240 $ 54,090
======== ========= =========== ==========
Preferred distribution,
dividends (108,054) - (700,000) -
NET INCOME (LOSS) PER SHARE
APPLICABLE TO COMMON
SHAREHOLDERS $ (52,637) $ (1,534) $ (655,759)$ 54,090
========= ========= =========== ==========
EARNINGS PER SHARE $ 0.00 $ (0.00) $ 0.00 $ 0.00
======== ========= =========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 24,380,000 24,000,000 24,204,615 24,000,000
========== ========== =========== ==========
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, 2004 24,000,000 240,000 - - (183,319) 106,936
Preferred stock
issued for cash
(unaudited) - - 436,000 4,360 431,640 -
Preferred stock
issued for cash
(unaudited) - - 264,000 2,640 261,360 -
Common stock
issued for services
(unaudited) 380,000 3,800 - - 5,256 -
Net income for the
nine months ended
September 30, 2005
(unaudited) - - - - - 44,240
---------- -------- ------- ------ --------- ----------
Balances,
September 30, 2005
(unaudited) 24,380,000 $243,800 700,000 $7,000 $ 514,937 $ 151,176
========== ======== ======= ====== ========= ==========
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,
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 44,240 $ 54,090
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 2,474 1,676
Amortization of capitalized loan
costs 700 350
Common stock issued for services 9,056 -
Changes in operating assets and
liabilities:
(Increase) in accounts receivable (54,129) (86,666)
(Increase) in inventory (93,133) (31,079)
Increase (decrease) in accounts
payable and accrued expenses 40,675 (26,124)
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Net Cash (Used) by Operating
Activities (50,117) (87,753)
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Change in long term line of credit (269,036) (25)
Contributed capital - 22,522
Proceeds from preferred stock issuance 700,000 -
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Net Cash Provided by
Financing Activities 430,964 22,497
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NET (INCREASE) DECREASE IN CASH 380,847 (65,256)
CASH AT BEGINNING OF PERIOD 80,739 99,924
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CASH AT END OF PERIOD $ 461,586 $ 34,668
========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 9,961 $ 3,051
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, 2005 and December 31, 2004
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, 2004 financial statements. Operating
results for the nine months ended September 30, 2005 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2005.
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.
NOTE 3 EQUITY TRANSACTIONS
Dividends
The holders of the Series A Preferred Stock are entitled to dividends at
the rate of 8 percent per year of the liquidation preference of $1.00
per share, payable annually, if and when declared by the board of
directors. Dividends are not cumulative and the board of directors are
under no obligation to declare dividends.
Convertibility
Upon the approval of the Board of Directors, Series A Preferred Stock
may be convertible into the Company's common stock by dividing $1.00
plus any unpaid dividends by 50% of the five day average closing bid
price of the common shares. The Company's board of directors has
subsequently voted to amend the terms of the conversion price of the
Series A Preferred Stock to be %0.60 per share.
During the period the Company sold 700,000 shares of Series A
Convertible Preferred Stock in exchange for proceeds of $700,000. As a
result of the beneficial conversion feature inherent in the conversion
rights and preferences of Series A Preferred Stock, the Company has
recognized a deemed dividend of $700,000. This deemed dividend was
calculated based on the conversion price above at the time of
conversion. Because the Company does not have sufficient retained
earnings, dividends were recorded in additional paid-in-capital and have
a net affect of zero in that account and is therefore not presented on
the statement of shareholders' equity as a separate item. This
beneficial conversion feature was recorded to additional paid in capital
and will be recorded as a deemed dividend to preferred shareholders
(accretion) over the period to the instruments earliest conversion date.
This date was July 19, 2005. Subsequent to September 30, 2005, and as of
the date of this report, holders of the preferred shares have converted
all 700,000 shares into 1,166,667 shares of common stock.
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, 2005,
to $573,572, from $522,600 for the quarter ended September 30, 2004, primarily
as a result of a general improvement in sales across several product lines.
Our cost of goods increased in the quarter ended September 30, 2005,
as compared to September 30, 2004, to $326,041 from $319,435, as a result of
increased raw material costs and increased sales.
General and administrative expenses decreased to $72,490 during the
quarter ended September 30, 2005, from $88,127 during the quarter ended
September 30, 2004. This decrease was due to a reduction in research and
development expenses.
Our revenues increased during the nine months ended September 30,
2005, to $1,628,313, from $1,604,307 for the nine months ended September 30,
2004, again primarily as a result of increased sales across several product
lines.
Our cost of goods decreased in the nine months ending September 30,
2005, as compared to September 30, 2004, to $919,883 from $963,470, as a
result of a one time inventory obsolescence write off that was taken in 2004.
General and administrative expenses increased to $322,921 during the
nine months ended September 30, 2005, from $226,296 during the nine months
ended September 30, 2004. This increase was due to increased operational
expenses, primarily legal and accounting expenses.
Liquidity and Capital Resources.
--------------------------------
Our cash resources at September 30, 2005, were $461,586, with
accounts receivable of $335,302. We have relied on revenues and lines of
credit for our cash resources; and have received gross proceeds of $700,000
during the first six months of 2005 from the sale of Series A Convertible
Preferred Stock at $1.00 per share. At September 30, 2005, we had paid off
our 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 effectively designed
to ensure that information required to be disclosed or filed by us is
recorded, processed or summarized, within the time periods specified in the
rules and regulations of the Securities and Exchange Commission. 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.
----------------------------
None; not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
----------------------------------------------------------------------
2004 Convertible Preferred Stock.
---------------------------------
As of the quarter ended June 30, 2005, we sold 700,000 shares of
our 2004 Series A Convertible Preferred Stock at an offering price of $1.00
per share to 26 persons who were "accredited investors" as that term in
defined in Regulation D of the Securities and Exchange Commission.
Subsequent to September 30, 2005, and as of the date of this Quarterly Report,
holders of the preferred shares have converted all 700,000 shares into
1,166,667 shares of common stock.
We also issued 380,000 shares of common stock for services during
the quarter ended June 30, 2005, valued at $.0238 per share or $9,056.00.
We issued all of these securities to persons who were either
"accredited investors," or "sophisticated investors" who, by reason of
education, business acumen, experience or other factors, were fully capable of
evaluating the risks and merits of an investment in our company; and each had
prior access to all material information about us. We believe that the offer
and sale of these securities were exempt from the registration requirements of
the Securities Act, pursuant to Sections 4(2) and 4(6) thereof, and Rule 506
of Regulation D of the Securities and Exchange Commission and from various
similar state exemptions.
Item 3. Defaults Upon Senior Securities.
------------------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
--------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
----------------------------
None; not applicable.
Item 6. Exhibits.
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Exhibits.
31.1 302 Certification of Kim Boyce
31.2 302 Certification of Kevin Cooksy
32 906 Certification.
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: 11/10/05 /s/Kim Boyce
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Kim Boyce, President
Date: 11/10/05 /s/Tom Tait
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Tom Tait, Vice President
Date: 11/10/05 /s/Kevin Cooksy
------------------------------------
Kevin Cooksy, Secretary/Treasurer