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, 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
---- ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1270 South 1380 West
Orem, Utah 84058
----------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 226-4100
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970 Terra Bella Avenue
Mountain View, California, 94043
--------------------------------
Former Name or Address
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, 2006 -
30,618,502 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
September 30, 2006
REFLECT SCIENTIFIC, INC.
Consolidated Balance Sheets
ASSETS
September 30,
2006
(Unaudited)
CURRENT ASSETS
Cash $ 113,653
Accounts receivable,(net) 447,160
Inventory, net 377,105
Prepaid expenses 14,363
-----------
Total Current Assets 952,281
-----------
FIXED ASSETS (NET) 195,449
-----------
OTHER ASSETS
Intangible assets (net) 5,429,055
Income tax receivable 24,761
Deposits 5,350
-----------
Total other assets 5,459,166
-----------
TOTAL ASSETS $ 6,606,896
===========
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,
2006
(Unaudited)
CURRENT LIABILITIES
Notes payable $ 303,765
Accounts payable 239,052
Accrued expenses 96,958
Customer deposits 36,504
Income taxes payable 400
------------
Total Current Liabilities 676,679
------------
NON-CURRENT LIABILITIES
Deferred income taxes 32,676
------------
Total Liabilities 709,355
------------
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; 30,672,177 shares issued
and outstanding 306,722
Additional paid-in capital 7,036,665
Accumulated deficit (1,445,946)
-------------
Total Shareholders' Equity 5,897,541
-------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 6,606,896
=============
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,
2006 2005 2006 2005
REVENUES $ 652,359 $ 573,572 $ 1,907,540 $1,628,313
COST OF GOODS SOLD 417,351 326,041 1,177,137 919,883
-------- --------- ----------- ----------
GROSS PROFIT 235,008 247,531 730,403 708,430
-------- --------- ----------- ----------
OPERATING EXPENSES
Salaries and wages 252,625 88,784 475,782 250,131
Payroll taxes 20,755 7,803 42,012 21,416
Rent expense 11,869 21,454 50,530 59,761
General and
administrative expense 724,569 72,490 1,053,099 322,921
--------- --------- ----------- ----------
Total Operating Expenses 1,009,818 190,531 1,621,423 654,229
--------- --------- ----------- ----------
OPERATING INCOME (LOSS) (774,810) 57,000 (891,020) 54,201
-------- --------- ----------- ----------
OTHER EXPENSE
Interest expense - (1,583) (25) (9,961)
-------- --------- ----------- ----------
Total Other Expense - (1,583) (25) (9,961)
-------- --------- ----------- ----------
NET INCOME (LOSS) BEFORE
INCOME TAX (774,810) 55,417 (891,045) 44,240
-------- --------- ----------- ----------
INCOME TAX EXPENSE - - - -
NET INCOME (LOSS) $(774,810) $ 55,417 $ (891,045)$ 44,240
======== ========= =========== ==========
Preferred distribution,
dividends - (108,054) - (700,000)
NET LOSS PER SHARE APPLICABLE
TO COMMON SHAREHOLDERS $(774,810) $ (52,637) $ (891,045)$ (655,759)
========= ========= =========== ==========
EARNINGS PER SHARE $ (0.03) $ (0.00) $ (0.03)$ (0.03)
======== ========= =========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 30,156,174 24,380,000 27,124,903 24,204,615
========== ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
REFLECT SCIENTIFIC, INC.
Consolidated Statements of Shareholder's Equity
Additional
Preferred Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings
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 -
Common stock issued
for cash (unaudited) - - 1,073,500 10,735 1,062,765 -
Common stock issued
for services
(unaudited) - - 415,000 4,150 390,100 -
Common stock issued
for commissions
(unaudited) - - 53,675 537 52,065 -
Stock offering costs
(Unaudited) - - - - (52,602) -
Net loss for the
quarter ended
September 30, 2006
(unaudited) - - - - - (891,045)
-------- ----- ---------- ------- --------- --------
Balances,
September 30, 2006
(unaudited) 10,000 $ 100 30,672,177 $306,722$7,036,665$(1,445,946)
======== ======= ========== ======= ======== ==========
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,
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (891,045) $ 44,240
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 33,891 2,474
Amortization 15,850 700
Common stock issued for services 394,250 9,056
Changes in operating assets and
liabilities:
Increase in accounts receivable (129,886) (54,129)
Increase in inventory (71,421) (93,133)
Increase in income tax receivable (24,761) -
Increase in prepaid asset (10,000) -
Increase in accounts payable and
accrued expenses 170,703 40,675
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Net Cash Used by
Operating Activities (512,419) (50,117)
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CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for fixed assets (208,390) -
Cash paid for intangible assets (1,354,905) -
---------- -----------
Net Cash Used by
Investing Activities (1,563,295) -
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in long term line of credit - (269,036)
Notes payable 303,765 -
Proceeds from common stock issuance 1,393,500 -
Proceeds from preferred stock issuance - 700,000
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Net Cash Provided by
Financing Activities 1,697,265 430,964
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NET INCREASE (DECREASE) IN CASH (378,449) 380,847
CASH AT BEGINNING OF PERIOD 492,102 80,739
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CASH AT END OF PERIOD $ 113,653 $ 461,586
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid For:
Interest $ 25 $ 9,961
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ 446,852 $ 9,056
The accompanying notes are an integral part of these consolidated financial
statements.
6
REFLECT SCIENTIFIC, INC.
Notes to the Consolidated Financial Statements
September 30, 2006 and December 31, 2005
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 nine months ended
September 30, 2006 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2006.
NOTE 2 - ACQUISITIONS
Effective April 19, 2006, the Company entered into a merger agreement
with Cryomastor Inc. As part of this 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 were required to pay a $300,000 debt
of Cryomastor, Inc. for a U.S. patent of Cryomastor systems within 90
days of the closing on June 27, 2006, or on or about September 25, 2006.
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.
As part of the execution and delivery of the Merger Agreement, the
Company offered a minimum of 1,000,000 shares of common stock at $1 per
share to accredited investors. To date the Company has sold 1,073,500 of
these shares.
7
REFLECT SCIENTIFIC, INC.
Notes to the Consolidated Financial Statements
September 30, 2006 and December 31, 2005
NOTE 2 - 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 3 - 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 and pay certain royalties to its shareholders. As
of September 30, 2006, the purchase had not yet been completed.
Effective August 23, 2006, the Company signed a Letter of Intent to
purchase Smithgall & Associates, Inc., dba Image Labs International. As
consideration for the purchase, the Company will issue 525,000 shares of
its common stock that are restricted securities; pay $200,000; pay
certain royalties on certain of Image Labs business segments to this
shareholder; and will employ Image Labs sole shareholder. Simultaneously,
the Company signed another Letter of Intent to employ another person
associated with a business segment of Image Labs; paid the associated
person $37,500 on the signing of that Letter of Intent; will pay that
person certain royalties on another business segment of Image Labs; and
has agreed to issue 500,000 shares of its common stock that are
restricted securities. As of September 30, 2006, the purchase of Image
Labs had not yet been completed.
The due date of the $300,000 Note assumed by the Company in the
Cryomastor acquisition was extended from September 25, 2006, to December
31, 2006.
8
Item 2. Management's Discussion and Analysis or Plan of Operation.
--------------------------------------------------------------------
Results of Operations.
----------------------
Our revenues increased during the quarter ended September 30, 2006,
to $652,359, from $573,572 for the quarter ended September 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 September 30, 2006,
as compared to September 30, 2005, to $417,351 from $326,041, as a result of
increased raw material costs and increased sales.
General and administrative expenses increased to $724,569 during the
quarter ended September 30, 2006, from $72,490 during the quarter ended
September 30, 2005. This increase was due to equity based non-cash employee
compensation, acquisition related expenditures and increased employment
levels.
Nine Months Ended September 30, 2006 compared to Nine Months Ended September
30, 2005
--------
Our revenues increased during the nine months ended September 30,
2006, to $1,907,540, from $1,628,313 for the nine months ended September 30,
2005, also primarily as a result of a general improvement in sales across
several product lines.
Our cost of goods increased in the nine months ended September 30,
2006, as compared to September 30, 2005, to $1,177,137 from $919,883, also as
a result of increased raw material costs and increased sales.
General and administrative expenses increased to $1,053,099 during
the nine months ended September 30, 2006, from $322,921 during the nine months
ended September 30, 2005. This increase was due to equity based non-cash
employee compensation, acquisition related expenditures and increased
employment levels.
Liquidity and Capital Resources.
--------------------------------
Our cash resources at September 30, 2006, were $113,653, with
accounts receivable of $447,160. 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.
Subsequent to the quarter ended September 30, 2006, the Company sold
503,335 shares of its common stock that are "restricted securities" at $0.75
per share for aggregate consideration of $$377,501.25. These funds should be
adequate for the next 12 months for continuing operations; however, plans for
expansion will require additional capital of approximately $2,500,000.
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 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 September 30, 2006, we issued 1,073,500
of our common stock for cash.
We also issued 415,000 shares of our common stock for services and
53,675 shares of our common stock for introductory services.
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.
Effective August 3, 2006, 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 and
pay certain royalties to its shareholders. As of September 30, 2006, the
purchase had not been completed.
Effective August 23, 2006, we signed a Letter of Intent to purchase
Smithgall & Associates, Inc., dba Image Labs International. As consideration
for the purchase, the Company will issue 525,000 shares of its common stock
that are restricted securities; pay $200,000; pay certain royalties on certain
of Image Labs business segments to this shareholder; and will employ Image
Labs sole shareholder. Simultaneously, the Company signed another Letter of
Intent to employ another person associated with a business segment of Image
Labs; paid the associated person $37,500 on the signing of that Letter of
Intent; will pay that person certain royalties on another business segment of
Image Labs; and has agreed to issue 500,000 shares of its common stock that
are restricted securities. As of September 30, 2006, the purchase of Image
Labs had not yet been completed.
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.
-------------------
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 Quarterly Report to be signed on its
behalf by the undersigned thereunto duly authorized.
REFLECT SCIENTIFIC, INC.
Date: 11/13/06 /s/Kim Boyce
------------------------------------
Kim Boyce, President
Date: 11/13/06 /s/Tom Tait
------------------------------------
Tom Tait, Vice President
Date: 11/13/06 /s/Kevin Cooksy
------------------------------------
Kevin Cooksy, Secretary/Treasurer