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, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ---------------
Commission File No. 000-31377
REFLECT SCIENTIFIC, INC.
------------------------
(Name of Small Business Issuer in its Charter)
UTAH 87-0642556
---- ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
970 Terra Bella Avenue
Mountain View, California, 94043
--------------------------------
(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
--- --- --- ---
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: June 30, 2006 -
29,130,002 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
June 30, 2006
REFLECT SCIENTIFIC, INC.
Consolidated Balance Sheets
ASSETS
June 30,
2006
(Unaudited)
CURRENT ASSETS
Cash $ 154,051
Restricted cash 258,470
Accounts receivable,(net) 394,595
Inventory, net 543,917
Prepaid expenses 14,363
-----------
Total Current Assets 1,365,396
-----------
FIXED ASSETS (NET) 33,770
-----------
OTHER ASSETS
Intangible assets (net) 5,434,009
Income tax receivable 24,761
Deposits 5,350
-----------
Total other assets 5,464,120
-----------
TOTAL ASSETS $ 6,863,286
===========
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,
2006
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 245,116
Notes payable 262,235
Common stock payable 1,028,500
Accrued expenses 93,929
Income taxes payable 400
------------
Total Current Liabilities 1,630,180
------------
NON-CURRENT LIABILITIES
Deferred income taxes 32,676
------------
Total Liabilities 1,662,856
------------
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; 29,130,002 shares issued
and outstanding 291,300
Additional paid-in capital 5,584,337
Retained earnings (675,307)
-------------
Total Shareholders' Equity 5,200,430
-------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 6,863,286
=============
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,
2006 2005 2006 2005
REVENUES $ 624,277 $ 547,349 $ 1,255,181 $1,054,741
COST OF GOODS SOLD 383,796 282,735 759,786 593,842
-------- --------- ----------- ----------
GROSS PROFIT 240,481 264,614 495,395 460,899
-------- --------- ----------- ----------
OPERATING EXPENSES
Salaries and wages 112,008 91,239 223,157 161,347
Payroll taxes 10,422 6,115 21,257 13,613
Rent expense 21,398 19,448 38,661 38,307
General and
administrative expense 269,429 145,160 357,030 250,430
-------- --------- ----------- ----------
Total Operating Expenses 413,257 261,962 640,105 463,697
-------- --------- ----------- ----------
OPERATING INCOME (LOSS) (172,776) 2,652 (144,710) (2,798)
-------- --------- ----------- ----------
OTHER INCOME (EXPENSE)
Sundry income - - - -
Miscellaneous income
(expense) - - - -
Interest expense - (4,264) (25) (8,378)
-------- --------- ----------- ----------
Total Other Income
(Expense) - (4,264) (25) (8,378)
-------- --------- ----------- ----------
NET INCOME (LOSS) BEFORE
INCOME TAX (172,776) (1,612) (144,735) (11,176)
-------- --------- ----------- ----------
INCOME TAX PROVISION (BENEFIT)(28,110) - (24,329) -
NET INCOME (LOSS) $(144,666) $ (1,612) $ (120,406)$ (11,176)
======== ========= =========== ==========
Preferred distribution,
dividends - (444,633) - (591,946)
NET LOSS PER SHARE APPLICABLE
TO COMMON SHAREHOLDERS $(144,666) $(446,245) $ (120,406)$ (603,122)
========= ========= =========== ==========
EARNINGS PER SHARE $ (0.01) $ (0.02) $ (0.00)$ (0.03)
======== ========= =========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 26,220,112 24,229,670 25,883,593 24,115,470
========== ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Consolidated Statements of Shareholder's Equity
Additional
Preferred Stock Common 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 436,000 4,360 - - 431,640 -
Preferred stock
issued for cash 264,000 2,640 - - 261,360 -
Common stock
issued for services - - 380,000 3,800 5,256 -
Conversion of
preferred stock
into common
stock (690,000) (6,900) 1,150,002 11,500 (4,600) -
Beneficial conversion
of convertible
preferred stock - - - - 700,000 -
Amortization of
beneficial conversion
feature of convertible
preferred stock - - - - - (700,000)
Net income for
the year ended
December 31, 2005 - - - - - 38,163
-------- ----- ---------- ------- --------- --------
Balance,
December 31, 2005 10,000 100 25,530,002 255,300 1,210,337 (554,901)
-------- ----- ---------- ------- --------- --------
Common stock issued
for cash (unaudited) - - 400,000 4,000 316,000 -
Common stock issued
pursuant to merger
with Cryomaster
(unaudited) - - 3,000,000 30,000 3,720,000 -
Common stock issued
pursuant to JM
SciTech, LLC
purchase
(unaudited) - - 200,000 2,000 338,000 -
Net loss for the
six months ended
June 30, 2006
(unaudited) - - - - - (120,406)
-------- ----- ---------- ------- --------- --------
Balances,
June 30, 2006
(unaudited) 10,000 $ 100 29,130,002 $291,300 $5,584,337 $(675,307)
======== ======= ========== ======= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
REFLECT SCIENTIFIC, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (120,406) $ (11,176)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 1,860 1,650
Amortization of capitalized loan
costs - 525
Amortization of intangible assets 7,567 -
Common stock issued for services - 9,056
Changes in operating assets and
liabilities:
Increase in restricted cash (258,470) -
Increase in accounts receivable (77,321) (66,118)
Increase in inventory (238,233) (40,944)
Increase in income tax receivable (24,761) -
Increase in prepaid asset (10,000) -
Increase (decrease) in accounts
payable and accrued expenses 140,999 17,485
---------- -----------
Net Cash Used by
Operating Activities (578,765) (89,522)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for intangible assets (1,093,106) -
Cash paid for fixed assets (14,680) -
---------- -----------
Net Cash Used by
Investing Activities (1,107,786) -
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in long term line of credit - (25)
Proceeds from stock subscription 1,028,500 -
Proceeds from common stock issuance 320,000 -
Proceeds from preferred stock issuance - 700,000
---------- -----------
Net Cash (Used) Provided by
Financing Activities 1,348,500 699,975
---------- -----------
NET INCREASE (DECREASE) IN CASH (338,051) 610,453
CASH AT BEGINNING OF PERIOD 492,102 80,739
---------- -----------
CASH AT END OF PERIOD $ 154,051 $ 691,192
========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 25 $ 8,378
Income taxes $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
6
REFLECT SCIENTIFIC, INC.
Notes to the Consolidated Financial Statements
June 30, 2006
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, 2005
financial statements. Operating results for the six months ended June
30, 2006 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2006. It is noted that no
results of Cryomastor operations were included in the financial
statements for this period as Cryomastor was purchased June 27, 2006, and
no operations occurred during the last 3 days of the quarter. From this
time forward all operations will be included in the consolidated
financial statements.
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 - ACQUISITIONS
On April 19, 2006, the Company entered into a Merger Agreement
with Cryomastor Inc. that was effective at June 27, 2006. As part of this
Merger Agreement, the Company received assets valued at the following:
Patents $ 3,081,777
Customer Lists 480,000
Goodwill 1,289,799
---------
$ 4,851,576
=========
As consideration for these assets, the Company issued 3,000,000 shares
at $1.25 of its common stock that are "restricted securities" to the
shareholders of Cryomastor, Inc. as well as paid $700,000 to the same
shareholders. The Company also advanced $300,000 to be utilized for the
operations of Cryomastor, Inc. and is obligated to pay a $300,000 debt of
Cryomastor, Inc. for a U.S. patent of the Cryomastor systems. Certain
employments agreements have been executed, and the Company will pay to
the Cryomastor shareholders 2.5% of the gross annual revenue earned by
the Company, subject to the satisfaction of certain conditions.
As part of the execution and delivery of the Merger Agreement, the
Company offered a minimum of 1,000,000 and a maximum of 1,500,000 shares
of common stock at $1 per share to accredited investors. At June 30,
2006, 1,028,500 shares had been sold; and at the closing of this offering
on July 31, 2006, 1,073,500 shares had been sold. As of June 30, 2006,
the Company had not issued these shares.
The funds raised in this offering were placed in escrow in the name of
the Company. As of June 30, 2006, $258,470 remained in escrow and was
subsequently distributed to the prior owners of Cryomastor.
7
REFLECT SCIENTIFIC, INC.
Notes to the Consolidated Financial Statements
June 30, 2006 and December 31, 2005
NOTE 3 - ACQUISITIONS (continued)
The Company acquired Cryomaster because the business was synergistic
with the Company as they both serve the Biotech industry. The business
offers a growth opportunity for the Company because of products that can
fill a market need.
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. This resulted in the Company obtaining assets
valued as follows:
Intangible assets $ 350,000
Goodwill 240,000
-------
$ 590,000
=======
As consideration for the JMST Technology, the Company issued 200,000 shares at
$1.70 of its common stock that are restricted securities, paid the sum of
$250,000, and will pay certain royalty payments as outlined in the agreement.
As part of this agreement, the Company issued 400,000 shares of 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.
The Company acquired JMST because the business was synergistic with the
Company as they both serve the Biotech industry. The business offered a
strong growth opportunity, a successful business model, ongoing sales,
innovation and four patents.
NOTE 4 - SUBSEQUENT EVENTS
Effective August 3, 2006, the Company signed a Letter of Intent to
purchase All Temp Engineering. As consideration for the purchase,
the Company will issue 2,000,000 shares of its common stock that are
restricted securities.
8
Item 2. Management's Discussion and Analysis or Plan of Operation.
--------------------------------------------------------------------
Results of Operations.
----------------------
Three Months Ended June 30, 2006, compared to Three Months Ended June 30,
2005.
-----
Our revenues increased during the quarter ended June 30, 2006,
to $624,277, from $547,349 for the quarter ended June 30, 2005, primarily
as a result of a general improvement in sales across several product lines.
Our cost of goods increased in the quarter ended June 30, 2006,
as compared to June 30, 2005, to $383,796 from $282,735, as a result of
increased raw material costs and increased sales.
General and administrative expenses increased to $269,429 during the
quarter ended June 30, 2006, from $145,160 during the quarter ended June 30,
2005. This increase was due to increased legal and accounting activity for
acquisitions.
Six Months Ended June 30, 2006, compared to Six Months Ended June 30, 2005.
---------------------------------------------------------------------------
Our revenues increased during the six months ended June 30, 2006,
to $1,255,181, from $1,054,741 for the six months ended June 30, 2005, also
primarily as a result of a general improvement in sales across several product
lines.
Our cost of goods increased in the six months ended June 30, 2006,
as compared to June 30, 2005, to $759,786 from $593,842, also as a result of
increased raw material costs and increased sales.
General and administrative expenses increased to $357,030 during the
six months ended June 30, 2006, from $250,430 during the six months ended June
30, 2005. This increase was due to one-time charges associated with moving
and acquisition consolidation into the Orem facility.
Liquidity and Capital Resources.
--------------------------------
Our cash resources at June 30, 2006, were $154,051, with accounts
receivable of $394,595. 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. We also sold an additional 1,028,500 shares of our
common stock during the quarter ended June 30, 2006, to finance the purchase
of Cryomastor, Inc. None of these shares were accorded registration rights of
any kind. Our cash resources 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. See the Company's 8-K Current
Reports respectively dated April 4, 2006 (filed on April 7, 2006), and June
27, 2006 (filed June 30, 2006), which are incorporated herein by reference.
See Item 6.
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 Secretary, of the effectiveness of the design and operation
of our disclosure controls and procedures. Based on this evaluation, our
President and Secretary concluded that information required to be disclosed is
recorded, processed, summarized and reported within the specified periods and
is accumulated and communicated to management, including our President and
Secretary, to allow for timely decisions regarding required disclosure of
material information required to be included in our periodic Securities and
Exchange Commission reports. Our disclosure controls and procedures are
designed to provide reasonable assurance of achieving their objectives and our
President and Secretary have concluded that our disclosure controls and
procedures are effective to a reasonable assurance level of achieving such
objectives. However, 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 our internal
controls 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.
----------------------------------------------------------------------
As of the quarter ended June 30, 2006, we issued 3,000,000
shares of our common stock at $1.25 per share to the shareholders of
Cryomastor, Inc., in consideration for assets valued at $4,851,576. We also
issued 200,000 shares of our common stock at $1.70 per share in
consideration for the JMST Technology assets valued at $590,000. To fund
these acquisitions, we privately sold 1,028,500 shares of our common stock for
the Cryomastor acquisition at $1 per share; and 400,000 shares for the JMST
acquisition at $1.70 per share. All shares were "restricted securities" as
defined in Rule 144 of the Securities and Exchange Commission; and none were
accorded any registration rights. See the Company's 8-K Current Reports
respectively dated June 27, 2006 (filed on June 30, 2006), and April 4, 2006
(filed April 7, 2006), which are incorporated herein by reference. See Item
6.
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.
--------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
----------------------------
Effective August 3, 2006, which is subsequent to the date of this
Quarterly Report, we signed a Letter of Intent to purchase All Temp
Engineering. As consideration for the purchase, the Company will issue
2,000,000 shares of its common stock that are "restricted securities." All
Temp Engineering is owned by the former shareholders of Cryomastor, Inc.
Item 6. Exhibits.
-------------------
Exhibits.
31.1 302 Certification of Kim Boyce
31.2 302 Certification of Kevin Cooksy
32 906 Certification.
See the Company's 8-K Current Reports respectively dated April 4, 2006 (filed
on April 7, 2006), and June 27, 2006 (filed June 30, 2006), which are
incorporated herein by reference.*
* 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: 8/17/06 /s/Kim Boyce
------------------------------------
Kim Boyce, President
Date: 8/17/06 /s/Tom Tait
------------------------------------
Tom Tait, Vice President
Date: 8/17/06 /s/Kevin Cooksy
------------------------------------
Kevin Cooksy, Secretary/Treasurer