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 March 31, 2006
[ ] 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.
------------------------
(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: March 31, 2006 -
25,930,002 shares of common stock.
Transitional small business disclosure format (check one): Yes No X
--- ---
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
March 31, 2006 and December 31, 2005
REFLECT SCIENTIFIC, INC.
Consolidated Balance Sheets
ASSETS
March 31,
2006
(Unaudited)
CURRENT ASSETS
Cash $ 616,096
Note receivable (Note 3) 200,000
Accounts receivable,(net) 318,707
Inventory, net 318,208
Prepaid expenses 4,363
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Total Current Assets 1,457,374
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FIXED ASSETS, (NET) 20,126
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OTHER ASSETS
Deposits 5,350
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TOTAL ASSETS $ 1,482,850
===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
REFLECT SCIENTIFIC, INC.
Consolidated Balance Sheets (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31,
2006
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 157,073
Accrued expenses 11,000
Income taxes payable 27,037
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Total Current Liabilities 195,110
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NON-CURRENT LIABILITIES
Deferred income taxes 32,644
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Total Liabilities 227,754
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value,
authorized 5,000,000 shares, 10,000
shares issued and outstanding 100
Common stock, $0.01 par value, authorized
50,000,000 shares; 25,930,002 shares issued
and outstanding 259,300
Additional paid-in capital 1,526,337
Accumulated deficit (530,641)
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Total Shareholders' Equity 1,255,096
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 1,482,850
=============
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
March 31,
2006 2005
REVENUES $ 630,904 $ 507,392
COST OF GOODS SOLD 375,990 311,107
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GROSS PROFIT 254,914 196,285
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OPERATING EXPENSES
Salaries and wages 111,149 70,108
Payroll taxes 10,835 7,498
Rent expense 17,263 18,859
General and
administrative expense 87,601 109,384
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Total Operating Expenses 226,848 201,735
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OPERATING INCOME (LOSS) 28,066 (5,450)
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OTHER INCOME (EXPENSE)
Interest expense (25) (4,114)
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Total Other Expenses (25) (4,114)
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INCOME (LOSS) BEFORE INCOME TAXES 28,041 (9,564)
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Income tax expense 3,781 -
NET INCOME (LOSS) $ 24,260 $ (9,564)
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Preferred distribution, dividends - (147,313)
NET INCOME (LOSS) PER SHARE APPLICABLE
TO COMMON SHAREHOLDERS $ 24,260 $ (156,877)
============ ==========
EARNINGS (LOSS) PER SHARE $ 0.00 $ (0.01)
============ ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 25,547,780 24,000,000
============ ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
REFLECT SCIENTIFIC, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 24,260 $ (9,564)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 824 826
Amortization of capitalized loan
costs - 350
Changes in operating assets and
liabilities:
Increase in accounts receivable (1,433) (181)
Increase in inventory (12,524) (9,107)
Decrease in accounts payable and
accrued expenses (6,954) (2,364)
Decrease in deferred income taxes (179) -
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Net Cash Provided (Used) by
Operating Activities 3,994 (20,040)
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of note receivable (200,000) -
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Net Cash Used by
Investing Activities (200,000) -
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CASH FLOWS FROM FINANCING ACTIVITIES
Change in long term line of credit - (25)
Proceeds from preferred stock issuance 320,000 436,000
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Net Cash Provided by
Financing Activities 320,000 435,975
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NET INCREASE IN CASH 123,994 415,935
CASH AT BEGINNING OF PERIOD 492,102 80,739
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CASH AT END OF PERIOD $ 616,096 $ 495,674
========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 25 $ 4,119
Income taxes $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
5
REFLECT SCIENTIFIC, INC.
Notes to the Consolidated Financial Statements
March 31, 2006 and December 31, 2005
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, 2005 financial statements. Operating
results for the three months ended March 31, 2006 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2006.
NOTE 2 EQUITY TRANSACTIONS
Private Placement of Common Stock
In late March, 2006, the Company offered and sold 400,000 shares of its
common stock that are "restricted securities" as defined in Rule 144 to
"accredited investors" only, to finance the acquisition of JM SciTech,
LLC. These shares were sold at a price of $0.80 per share. None of
these shares were accorded registration rights of any kind.
NOTE 3 SUBSEQUENT EVENT
Plan of Merger
Effective April 19, 2006, the Company entered into an Agreement and Plan
of Merger with Cryomastor Inc. Under the merger agreement, the Company
will issue 3,000,000 shares of its common stock that are restricted
securities to the shareholders of Cryomastor, inc. as well as pay
$700,000 to the same shareholders. The Company will also advance
$300,000 to be utilized for the operations of Cryomastor, Inc. and pay a
$300,000 debt of Cryomastor, Inc. for a U.S. patent of Cryomastor
systems. An employment agreement will be executed and the Company will
pay to the Cryomastor shareholders 2.5% of the gross annual revenue
earned by the Company.
Pursuant to this plan of merger, the Company loaned $200,000 to
Cryomastor. The principal amount of the note will be accounted for as
part of the merger. In the event the plan of merger is not closed, the
note will be repaid with five percent interest before December 31, 2006.
F-6
REFLECT SCIENTIFIC, INC.
Notes to the Consolidated Financial Statements
March 31, 2005 and December 31, 2004
NOTE 3 SUBSEQUENT EVENT (Continued)
Plan of Merger (Continued)
As part of the execution and delivery of the Merger Agreement, the
Company will offer a minimum of 1,000,000 shares of common stock at $1
per share to accredited investors. This is a condition precedent to the
closing of the merger.
Material Definitive Agreement
Effective April 4, 2006, the Company entered into an agreement to
purchase JM SciTech, LLC. Pursuant to this agreement, the Company
purchased and JM SciTech, LLC sold all rights, title and interest in and
to the JMST Technology. As consideration for the JMST Technology, the
Company will issue 200,000 shares of its common stock that are
restricted securities, pay the sum of $250,000, and pay certain royalty
payments as outlined in the agreement. As part of this agreement, the
Company issued 400,000 shares of common stock to finance the acquisition
at $.80 per share.
F-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 March 31, 2006,
to $630,904, from $507,392 for the quarter ended March 31, 2005, primarily
as a result of a general improvement in sales across several product lines.
Our cost of goods increased in the quarter ended March 31, 2006,
as compared to March 31, 2005, to $375,990 from $311,107, as a result of
increased raw material costs and increased sales.
General and administrative expenses decreased to $87,601 during the
quarter ended March 31, 2006, from $109,384 during the quarter ended March 31,
2005. This decrease was due to a reduction in research and development
expenses.
Liquidity and Capital Resources.
--------------------------------
Our cash resources at March 31, 2006, were $616,096, with accounts
receivable of $318,707. In late March, 2006, we offered and sold 400,000
shares of our common stock that are "restricted securities" as defined
in Rule 144 to "accredited investors" only, to finance the acquisition of JM
SciTech, LLC. These shares were sold at a price of $0.80 per share. None of
these shares were accorded registration rights of any kind. 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 our 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.
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None; not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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As of the quarter ended March 31, 2006, we sold 400,000 shares of
our common stock that are "restricted securities" as defined in Rule 144 to
"accredited investors" only, to finance the acquisition of JM SciTech, LLC.
These shares were sold at a price of $0.80 per share. None of these shares
were accorded registration rights of any kind.
We issued all of these securities to persons who were "accredited
investors"; 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 of 1933, as amended (the
"Securities Act"), pursuant to Sections 4(2) and 4(6) thereof; and Rule 506 of
Regulation D of the Securities and Exchange Commission, under which state law
is preempted.
Item 3. Defaults Upon Senior Securities.
------------------------------------------
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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Effective April 19, 2006, which is subsequent to the date of this
Quarterly Report, we entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Cryomastor, Inc., a California corporation ("Cryomastor").
Under the Merger Agreement, subject to closing, we will issue 3,000,000 shares
of our common stock that are "restricted securities" as defined in Rule 144 of
the Securities and Exchange Commission to the shareholders of Cryomastor, as
well as pay $700,000 to the Cryomastor shareholders, pro rata. We will also
advance $300,000 to be utilized for the operations of Cryomastor and pay a
$300,000 debt of Cryomastor for a U.S. patent that comprises Cryomastor's
intellectual property. Certain Employment Agreement will also be executed and
delivered; and, we are required to pay to the Cryomastor's shareholders, 2.5%
of the gross annual revenue earned by us or any affiliated entity in
connection with the license, sale or other distribution of the Cryomastor
intellectual property ("Cryomastor Revenue"). The foregoing payment shall not
be due or payable or accrue unless and until the aggregate Cryomastor Revenue
for a fiscal year is projected to exceed, or actually exceeds, Three Million
Dollars ($3,000,000). The foregoing payment shall be payable in shares of our
common stock valued at the greater of (I) "Market Value" at the time of the
accrual of the payment; or (ii) $1.80 per share. Market Value shall mean the
average of the bid and asked prices of our common stock on the OTC Bulletin
Board or any other nationally recognized medium on which our common stock is
publicly traded on the date or dates when such percentage payments are due and
payable. The maximum aggregate amount of shares issuable for this purpose
shall be Two Million (2,000,000) shares. Payments shall be paid on a quarterly
basis within 30 days of the end of each quarter, based on projected Cryomastor
Revenue (payments based on actual Cryomastor Revenue shall be paid in one lump
sum within 30 days of the end of the fiscal period in which they were earned).
Portions of the payments so paid shall be adjusted to reconcile the actual
Cryomastor Revenue within 30 days of the end of the fiscal year in which they
were paid.
Pursuant to the Letter of Intent regarding this merger, we loaned
$200,000 to Cryomastor. The principal amount of the note will be accounted for
as part of the merger. In the event the merger is not closed, the note will be
repaid with five percent interest before December 31, 2006.
As part of the execution and delivery of the Merger Agreement, we
are offering a minimum of 1,000,000 shares of our common stock at $1 per
share to "accredited investors" to fund the payments required under the Merger
Agreement. This is a condition precedent to the closing of the merger. See
our 8-K Current Report dated April 19, 2006, which was filed with the
Securities and Exchange Commission on April 25, 2006, and which is
incorporated herein by reference. See Item 6.
Effective as of April 4, 2006, we entered into a Purchase Agreement
(the "Agreement") among us; JM SciTech, LLC, a limited liability company
organized under the laws of the State of Colorado, and doing business as JMST
Systems ("JMST"); David Carver, an individual ("Carver"); and Julie Martin, an
individual ("Martin")(JMST, Carver and Martin are sometimes hereinafter
referred to collectively as "Sellers"). Pursuant to the Agreement, we
purchased and JMST sold all right, title and interest in and to the JMST
Technology (the "JMST Technology"), as described in the Agreement; and Carver
conveyed and assigned any rights he had in and to certain patents (the "Carver
Patents") and related intellectual assets as described in the Agreement
("collectively, including the Carver Patents, referred to herein as the
"Carver Technology"). We issued 200,000 shares of our common stock that
comprised "restricted securities" as defined in Rule 144 to the JMST interest
holders and paid $250,000 to Carver; and we sold 400,000 shares of
our common stock that are "restricted securities" as defined in Rule 144 to
"accredited investors" only, to finance the acquisition, at a price of $0.80
per share. None of these shares were accorded registration rights of any
kind. See our 8-K Current Report dated April 4, 2006, which was filed with
the Securities and Exchange Commission on April 7, 2006, and which is
incorporated herein by reference. See Item 6.
Item 6. Exhibits.
-------------------
Exhibits.
31.1 302 Certification of Kim Boyce
31.2 302 Certification of Kevin Cooksy
32 906 Certification.
8-K Current Report dated April 19, 2006, which was filed with the
Securities and Exchange Commission on April 25, 2006*
8-K Current Report dated April 4, 2006, which was filed with
the Securities and Exchange Commission on April 7, 2006*
* Incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Quarterly Report to be signed on its
behalf by the undersigned thereunto duly authorized.
REFLECT SCIENTIFIC, INC.
Date: 5/9/06 /s/Kim Boyce
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Kim Boyce, President
Date: 5/9/06 /s/Tom Tait
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Tom Tait, Vice President
Date: 5/9/06 /s/Kevin Cooksy
------------------------------------
Kevin Cooksy, Secretary/Treasurer