U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 000-31377
REFLECT SCIENTIFIC, INC.
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(Name of Small Business Issuer in its Charter)
UTAH 87-0642556
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
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incorporation or organization)
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.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:
September 30, 2004
PART I - FINANCIAL INFORMATION
The Financial Statements of the Company required to be filed with this 10-QSB Quarterly Report were prepared by management, and commence on the following page, together with Related Notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Company.
REFLECT SCIENTIFIC, INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and December 31, 2003
REFLECT SCIENTIFIC, INC.
Consolidated Balance Sheets
ASSETS
September 30, December 31,
2004 2003
(Unaudited)
CURRENT ASSETS
Cash $ 34,668 $ 99,924
Accounts receivable, net 319,129 232,464
Inventory, net 241,525 210,447
Prepaid expenses 800 800
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Total Current Assets 596,122 543,635
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FIXED ASSETS (NET) 20,247 21,923
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OTHER ASSETS
Deposits 5,350 5,350
Capitalized loan costs, net 5,775 6,125
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Total Other Assets 11,125 11,475
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TOTAL ASSETS $ 627,494 $ 577,033
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The accompanying notes are an integral part of these consolidated financial
statements.
REFLECT SCIENTIFIC, INC.
Consolidated Balance Sheets (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
2004 2003
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 161,228 $ 199,375
Accrued expenses 27,201 15,179
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Total Current Liabilities 188,429 214,554
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NON-CURRENT LIABILITIES
Long term line of credit 268,985 269,011
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Total Non-Current Liabilities 268,985 269,011
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Total Liabilities 457,414 483,565
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value, authorized
5,000,000 shares; no issued or outstanding
shares - -
Common stock, $0.01 par value, authorized
50,000,000 shares; 24,000,000 shares
issued and outstanding 240,000 240,000
Additional paid-in capital (deficit) (188,319) (210,841)
Retained earnings 118,399 64,309
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Total Shareholders' Equity 170,080 93,468
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 627,494 $ 577,033
============= ============
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The accompanying notes are an integral part of these consolidated financial
statements.
REFLECT SCIENTIFIC, INC.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
REVENUES $ 522,600 $ 457,067 $ 1,604,307 $ 1,425,762
COST OF GOODS SOLD 319,435 254,829 963,470 854,396
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GROSS PROFIT 203,165 202,238 640,837 571,366
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OPERATING EXPENSES
Salaries and wages 87,091 70,137 263,273 230,007
Payroll taxes 7,127 5,920 22,558 19,644
Rent expense 19,306 18,870 57,364 56,596
General and
administrative expense 88,124 35,374 226,292 93,526
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Total Operating Expenses 201,648 130,301 569,487 399,773
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OPERATING INCOME 1,517 71,937 71,350 171,593
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OTHER INCOME (EXPENSE)
Sundry income - - 5,000 -
Miscellaneous income
(expense) - - (301) -
Interest expense (3,051) (1,780) (8,759) (11,262)
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Total Other Income
(Expense) (3,051) (1,780) (4,060) (11,262)
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NET INCOME BEFORE INCOME TAX (1,534) 70,157 67,290 160,331
-------- --------- ----------- -----------
INCOME TAX EXPENSE - - 13,200 -
NET INCOME $ (1,534) $ 70,157 $ 54,090 $ 160,331
======== ========= =========== ===========
EARNINGS PER SHARE $ 0.00 $ 0.00 $ 0.00 $ 0.01
======== ========= =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 24,000,000 22,914,949 24,000,000 22,914,949
========== ========== =========== ===========
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The accompanying notes are an integral part of these consolidated financial
statements.
REFLECT SCIENTIFIC, INC.
Consolidated Statements of Shareholders' Equity
Additional
Common Stock Preferred Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings
Balance, December
31, 2001 22,914,949 $ 10,000 - $ - $ - $ 83,619
Dividend - - - - - (63,000)
Net income for
the year ended
December 31, 2002 - - - - - 141,018
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Balance, December
31, 2002 22,914,949 10,000 - - - 161,637
Dividend - - - - - (156,000)
Contributed Capital - - - - 26,950 -
Recapitalization
(Note 2) 1,085,051 230,000 - - (237,791) -
Net income for the
year ended
December 31, 2003 - - - - - 58,672
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Balance, December
31, 2003 24,000,000 240,000 - - (210,841) 64,309
Contributed capital
(unaudited) - - - - 22,522 -
Net income for the
nine months ended
September 30, 2004
(unaudited) - - - - - 54,090
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Balances, September
30, 2004
(unaudited) 24,000,000 $240,000 - $ - $(188,319) $ 118,399
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The accompanying notes are an integral part of these consolidated financial statements.
REFLECT SCIENTIFIC, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the
Nine Months Ended
September 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 54,090 $ 160,331
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 1,676 1,776
Amortization of capitalized loan
costs 350 630
Changes in operating assets and
liabilities:
(Increase) in accounts
receivable (86,666) (93,967)
Decrease in prepaid expenses - 6,124
(Increase) decrease in inventory (31,079) 5,988
Increase (decrease) in accounts
payable and accrued expenses (26,124) 37,643
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Net Cash Used by Operating
Activities (87,753) 118,525
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets - (450)
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Net Cash Used by Investing
Activities - (450)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short term lines of credit - (103,049)
Change in long term line of credit (25) 101,470
Contributed capital 22,522 -
Distributions to sole shareholder - (101,000)
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Net Cash Provided (Used) by
Financing Activities 22,497 (102,579)
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NET INCREASE (DECREASE) IN CASH (65,256) 15,496
CASH AT BEGINNING OF PERIOD 99,924 115,644
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CASH AT END OF PERIOD $ 34,668 $ 131,140
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NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 3,051 $ 11,380
Income taxes $ - $ -
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The accompanying notes are an integral part of these consolidated financial
statements.
REFLECT SCIENTIFIC, INC.
Notes to the Consolidated Financial Statements September 30, 2004 and December 31, 2003
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with the Company's most recent audited consolidated financial statements and notes thereto included in its December 31, 2003 financial statements. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.
NOTE 2 - ACQUISITION OF REFLECT SCIENTIFIC
On December 30, 2003, pursuant to an agreement and plan of reorganization, the Company completed a reverse merger with the shareholder of Reflect Scientific, Inc. in which it acquired 100% of Reflect Scientific, Inc., a California Company in exchange for 22,914,949 common shares of the Company. The terms of the acquisition are detailed in an 8-K filing dated December 31, 2003. Under the terms of the agreement, the President of Reflect Scientific, Inc. became the President of the Company and was elected to the Board of Directors, the acquisition was accounted for as a recapitalization of Reflect Scientific, Inc. because the members of Reflect Scientific, Inc. controlled the Company after the acquisition. Reflect Scientific, Inc. was treated as the acquiring entity for accounting purposes and Cole, Inc. was the surviving entity for legal purposes. There was no adjustment to the carrying values of the assets or liabilities of Reflect Scientific, Inc. and no goodwill was recorded.
Our revenues increased during the quarter ended September 30, 2004, to $522,600 from $457,067 for the quarter ended September 30, 2003, primarily as a result of a general improvement in sales across several new product lines and improving market conditions.
Our cost of goods increased in the period ending September 30, 2004, as compared to September 30, 2003, to $319,435 from $254,829. The difference was partly as a result of an increase in sales, increased raw material costs and increased labor costs.
General and administrative expenses increased to $88,124 during the quarter ended September 30, 2004, from $35,374 during the quarter ended September 30, 2003. This increase was due to the addition of one full-time employee, increased payroll and increased operational expenses, like legal and accounting fees.
Our cash resources at September 30, 2004, were $34,668, with accounts receivable of $319,129. We have relied on revenues and lines of credit for our cash resources. At September 30, 2004, we had utilized $268,985 of our $400,000 line of credit. These funds should be adequate for the next 12 months for continuing operations; however, plans for expansion will require additional capital of between $500,000 and $750,000.
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.
As of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our President and Treasurer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our President and Treasurer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. In addition, we reviewed our internal controls over financial reporting, and there have been no changes in our internal controls or in other factors in the last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
None; not applicable.
None; not applicable.
None; not applicable.
None; not applicable.
November 9, 2004, we filed Articles of Amendment to our Articles of Incorporation that designated 750,000 shares of our preferred stock as "2004 Series A Convertible Preferred Stock". For a detailed description of the rights, privileges and preferences of the 2004 Series A Convertible Preferred Stock, see a copy of the Articles of Amendment that is attached hereto and incorporated herein by reference as Exhibit 3.1. See Item 6.
We also have attached hereto and incorporated herein as Exhibit 3.2 an Amendment to our Bylaws that was adopted July 28, 2003. See Item 6.
(a) Exhibits.
3.1 Articles of Amendment
3.2 Amendment to Bylaws
31.1 302 Certification of Kim Boyce
31.2 302 Certification of Pamela Boyce
32 906 Certification.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
REFLECT SCIENTIFIC, INC.
Date: 11/11/2004 /s/Kim Boyce
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Kim Boyce, President
Date: 11/11/2004 /s/Pamela Boyce
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Pamela Boyce, Secretary
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Exhibit 3.1
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
REFLECT SCIENTIFIC, INC.
Pursuant to the provisions of Section 16-10a-1006 of the Utah Revised Business Corporation Act (the "Act"), the undersigned corporation hereby adopts the following Articles of Amendment to its Articles of Incorporation.
FIRST: The name of the corporation is Reflect Scientific,
Inc.
SECOND: The following amendments to the Articles of
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Incorporation of the corporation were duly adopted through a resolution by consent of the Board of Directors in accordance with Section 16-10a-821 of the Act on the 8th day of November, 2004, and Article IV of this corporation's Articles of Incorporation, as amended, following approval thereof by the Board of Directors in the manner prescribed by the Act and the Articles of Incorporation, to-wit:
Article IV- Stock
The aggregate number of shares which this corporation shall have authority to issue is 55,000,000 shares, divided into two classes, (i) 50,000,000 shares of common stock of a par value of one cent ($0.01) per share; and (ii) 5,000,000 shares of preferred stock of a par value of one cent ($0.01) per share, 4,250,000 of which shall have such rights and preferences as the Board of Directors shall determine; and 750,000 of which shall be designated as the "2004 Series A Convertible Preferred Stock" with the following powers, preferences, rights, qualifications, limitations and restrictions:
1. Liquidation.
1.01. In the event of any voluntary or involuntary liquidation (whether complete or partial), dissolution, or winding up of the corporation, the holders of the 2004 Series A Convertible Preferred Stock shall be entitled to be paid out of the assets of the corporation available for distribution to its shareholders, whether from capital, surplus or earnings, an amount in cash equal to the purchase price of One Dollar ($1.00) per share plus all unpaid dividends previously declared thereon to the date of final distribution. No distribution shall be made on any common stock or other series of preferred stock of the corporation by reason of any voluntary or involuntary liquidation (whether complete or partial), dissolution or winding up of the corporation unless each holder of any 2004 Series A Convertible Preferred Stock shall have received all amounts to which such holder shall be entitled under this subsection.
1.02 If on any liquidation (whether complete or partial), dissolution or winding up of the corporation, the assets of the corporation available for distribution to holders of 2004 Series A Convertible Preferred Stock shall be insufficient to pay the holders of outstanding 2004 Series A Convertible Preferred Stock the full amounts to which they otherwise would be entitled under Section 1.01, the assets of the corporation available for distribution to holders of the 2004 Series A Convertible Preferred Stock shall be distributed to them pro rata on the basis of the number of shares of 2004 Series A Convertible Preferred Stock held by each such holder.
2. Voting Rights. The 2004 Series A Convertible Preferred Stock shall not be entitled to vote as a separate class or as a single class with the common stock of the corporation, except to the extent that the consent of the holders of the 2004 Series A Convertible Preferred Stock, voting as a class, is specifically required by the provisions of the corporate law of the State of Utah as now existing or as hereafter amended.
3. Subordination. Any payment of any dividends or any redemption hereunder shall be subordinated to payment in full of all Senior Debt as defined herein. "Senior Debt" shall mean the principal of and premium, if any, and interest on all indebtedness of the corporation to any financial institution, including, but not limited to, (i) banks whether currently outstanding or hereinafter created and whether or not such loans are secured or unsecured; (ii) any other indebtedness, liability, obligation, contingent or otherwise of the corporation, to guarantee endorsement of the contingent obligation with respect to any indebtedness, liability or obligation whether created, assumed or occurred by the corporation and after the date of the creation of the 2004 Series A Convertible Preferred Stock, which is, when created, specifically designated by the corporation as Senior Debt; and (iii) any refunding, renewals or extensions of any indebtedness or similar obligations described as Senior Debt in subparagraphs (i) and (ii) above.
4. Dividends.
4.01 The corporation shall pay to the holders of the 2004 Series A Convertible Preferred Stock out of the assets of the corporation at any time for the payment of dividends at the times so declared by the Board of Directors of the corporation and in the manner provided for in this Section 4. The dividend shall be six percent (6%) of the liquidation preference which is the purchase price of the shares of Preferred Stock, or $1.00 per share, payable annually. Dividends shall not be cumulative and the Board of Directors shall be under no obligation to declare dividends.
4.02 Any payment of dividends declared and due under this
Section 4 with respect to any shares of the 2004 Series A Convertible
Preferred Stock shall be made by means of a check drawn on funds
immediately available for the payment thereof to the order to the
holders of such shares at the address for such record holder shown on
the stock records maintained by or for the corporation, which checks
shall be mailed by United States first class mail, postage prepaid. Any
such payment shall be deemed to have been paid by the corporation on the
date that such payment is deposited in the United States mail as
provided above; provided, that in the event the check or other medium by
which any payment shall be made shall prove not to be immediately
collectible on the date of payment, such payment shall not be deemed to
have been made until cash in the amount of such payment shall actually
be received by the persons entitled to receive such payment.
4.03 Registration of transfer of any share of the 2004 Series A Convertible Preferred Stock on the stock records maintained by or for the corporation to a person other than the transferor shall constitute a transfer of any right which the transferor may have had to receive any declared but unpaid dividends as of the date of transfer, and the corporation shall have no further obligation to the transferor with respect to such unpaid dividends.
5. Conversion.
5.01 Each share of the 2004 Series A Convertible Preferred Stock is convertible into common stock, par value $0.01 (the "Common Stock"), of the corporation at the times, in the manner and subject to the conditions provided in this Section 5.
5.02 Each share of the 2004 Series A Convertible Preferred Stock may be converted during the twenty (20) day period beginning on the earlier of five (5) days after the date the corporation has three market makers publicly quoting its shares of common stock on any nationally recognized medium or ninety (90) days after the shares of Common Stock of the corporation are first listed for trading on any nationally recognized stock exchange. If the holder has not notified the corporation of such conversion during the applicable twenty (20) day period, then the holder will have no further opportunity to elect to convert. Conversion shall be at the election of the holder on the presentation and surrender of the certificate representing the shares, duly endorsed, with written instructions specifying the number of shares of the 2004 Series A Convertible Preferred Stock to be converted and the name and address of the person to whom certificate(s) representing the Common Stock issuable on conversion are to be issued at the principal office of the corporation.
5.03 Each share of 2004 Series A Convertible Preferred Stock
shall be convertible into such number of shares of fully paid and non-
assessable shares of Common Stock as is determined by dividing the
purchase price of preferred stock, plus the amount of any accrued and
unpaid dividends the corporation elects to pay on the Common Stock by
the conversion price (as defined below) in effect at the time of
conversion. The conversion price at which shares of Common Stock shall
be deliverable upon conversion of the 2004 Series A Preferred Stock
without the payment of additional consideration by the holder thereof
(the "Conversion Price") shall be fifty percent (50%) of the five (5)
day average closing bid price of the shares of Common Stock on the
earlier of five (5) days following the date the corporation has three
market makers publicly quoting its Common Stock on any nationally
recognized medium or ninety (90) days after the shares of Common Stock
are first listed on any nationally recognized stock exchange. As set
forth herein, the term "Closing Bid Price" means, for any security as of
any date, the closing bid price on the principal securities exchange or
trading market where the Common Stock is listed or traded as reported by
Bloomberg, L.P. ("Bloomberg") or, if applicable, the closing bid price
of the Common Stock in the over-the-counter market on the OTC Electronic
Bulletin Board for such security as reported by Bloomberg, or, if no
closing bid price is reported for the Common Stock by Bloomberg, then
the average of the bid prices of any market makers quoting the Common
Stock on the most nationally recognized of the mediums where the Common
Stock is quoted and/or trading. "Trading Days" shall mean any day on
which the Common Stock is traded for any period on the principal
securities exchange or other securities market on which the Common Stock
is then being traded. The conversion rate (the "Conversion Rate"),
based upon the Conversion Price, shall be subject to adjustment pursuant
to Section 5.04.
5.04 The Common Stock to be received in conversion of the 2004 Series A Convertible Preferred Stock shall be "restricted securities" as that term is defined in Rule 144 of the United States Securities and Exchange Commission, and the requisite holding period required by Rule 144 shall commence, for all purposes of resale under Rule 144, on the date of conversion of the 2004 Series A Convertible Preferred Stock by the holder or holders thereof. The holders agree that they may not "tack" the holding period of their 2004 Series A Preferred Stock to that of the Conversion Stock into which it is converted, regardless of applicable laws, rules or regulations.
5.05 In order to prevent dilution of the rights granted hereunder, the Conversion Rate and liquidated voting rights shall be subject to adjustment from time to time in accordance with this Section 5.04.
(a) In the event the corporation shall declare a dividend or make any other distribution on any capital stock of the corporation payable in Common Stock, options to purchase Common Stock, or securities convertible into Common Stock of the corporation or shall at any time subdivide (other than by means of a dividend payable in Common Stock) its outstanding shares of Common Stock into a greater number of shares or combine such outstanding stock into a smaller number of shares, then in each such event, the Conversion Rate in effect immediately prior to such combination shall be adjusted so that the holders of the 2004 Series A Convertible Preferred Stock shall be entitled to receive the kind and number of shares of Common Stock or other securities of the corporation which they would have owned or have been entitled to receive after the happening of any of the events described above, had such shares of the 2004 Series A Convertible Preferred Stock been converted immediately prior to the happening of such event or any record date with respect thereto; an adjustment made pursuant to this paragraph (a) shall become effective immediately after the effective date of such event retroactive to the record date for such event.
(b) If any capital reorganization or reclassification of the capital stock of the corporation, consolidation or merger of the corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger, or sale, lawful adequate provisions shall be made whereby the holders of the 2004 Series A Convertible Preferred Stock shall thereafter, subject to prior redemption by the corporation, have the right to acquire and receive on conversion of the 2004 Series A Convertible Preferred Stock such shares of stock, securities or assets as would have been issuable or payable (as part of the reorganization, reclassification, consolidation, merger or sale) with respect to or in exchange for such number of outstanding shares of the corporation's Common Stock as would have been received on conversion of the 2004 Series A Convertible Preferred Stock immediately before such reorganization, reclassification, consolidation, merger or sale. In any such case, appropriate provisions shall be made with respect to the rights and interests of the holders of the 2004 Series A Convertible Preferred Stock to the end that the provisions hereof (including without limitations provisions for adjustments of the Conversion Rate and for the number of shares issuable on conversion of the 2004 Series A Convertible Preferred Stock) shall thereafter be applicable in relation to any shares of stock, securities or assets thereafter deliverable on the conversion of the 2004 Series A Convertible Preferred Stock. In the event of a merger or consolidation of the corporation with or into another corporation or the sale of all or substantially all of its assets as a result of which a number of shares of Common Stock of the surviving or purchasing corporation greater or lesser than the number of shares of Common Stock of the corporation outstanding immediately prior to such merger, consolidation, or purchase are issuable to holders of Common Stock of the corporation, then the Conversion Rate in effect immediately prior to such merger, consolidation, or purchase shall be adjusted in the same manner as though there was a subdivision or combination of the outstanding shares of Common Stock of the corporation.
(c) No adjustment shall be made in the Conversion Rate of the number of shares of Common Stock issuable on conversion of 2004 Series A Convertible Preferred Stock:
(i) In connection with the offer and sale of any shares of 2004 Series A Convertible Preferred Stock;
(ii) In connection with the issuance of any Common Stock, securities or assets on conversion or redemption of shares of 2004 Series A Convertible Preferred Stock;
(iii)In connection with the issuance of any shares of
Common Stock, securities or assets on account of
the anti-dilution provisions set forth in this
Section 5.05;
(iv) In connection with the purchase or other acquisition by the corporation of any capital stock, evidence of its indebtedness or other securities of the corporation; or
(v) In connection with the sale or exchange by the corporation of any Common Stock, evidence of its indebtedness, or other securities of the corporation, including securities containing the right to subscribe for or purchase Common Stock or 2004 Series A Convertible Preferred Stock of the corporation.
5.06 The corporation covenants and agrees that:
(a) The shares of Common Stock issuable on any conversion of any shares of 2004 Series A Convertible Preferred Stock shall have been deemed to have been issued to the person on the Conversion Date, and on the Conversion Date, such person shall be deemed for all purposes to have become the record holder of such Common Stock.
(b) ll shares of Common Stock issued on any conversion of the 2004 Series A Convertible Preferred Stock will, on issuance, be fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. Without limiting the generality of the foregoing, the corporation will from time to time take all such action as may be requisite to assure that the par value of the unissued Common Stock on any conversion of the 2004 Series A Convertible Preferred Stock is at all times equal to or less than the amount determined by dividing the par value of a share of 2004 Series A Convertible Preferred Stock by the number shares of Common Stock on conversion of such shares.
(c) The issuance of certificates for Common Stock on conversion of the 2004 Series A Convertible Preferred Stock shall be made without charge to the registered holder thereof for any issuance tax in respect thereof or other costs incurred by the corporation in connection with the conversion of the 2004 Series A Convertible Preferred Stock and the related issuance of Common Stock.
6. Redemption
6.01 Subject to the requirements and limitations of the corporate law of the State of Utah, the corporation shall have the right to redeem shares of the 2004 Series A Convertible Preferred Stock on the following terms and conditions.
6.02 The shares of the 2004 Series A Convertible Preferred Stock are subject to redemption by the corporation at any time after the corporation has three market makers offering a quote on shares of Common Stock on any nationally recognized medium or ninety (90) days after the shares of Common Stock are first listed for trading on any nationally recognized stock exchange. Redemption shall be pursuant to written notice of redemption given to the holders thereof on not less than thirty (30) days, specifying the date on which the 2004 Series A Convertible Preferred Stock shall be redeemed (the "Redemption Date").
6.03 The redemption price for each share of 2004 Series A
convertible Preferred Stock shall be one hundred ten (110%) percent of
the stated value of the shares where stated value is the purchase price
for the shares plus any unpaid dividends, if applicable, on such share
as of the Redemption Date (the "Redemption Price"). The Redemption
Price shall be paid in part, or in full, with shares of Common Stock of
the corporation that are "restricted securities" as that term is defined
in Rule 144 of the United States Securities and Exchange Commission.
The number of shares of Common Stock issuable for each share of the 2004
Series A Convertible Preferred Stock redeemed for accrued but unpaid
dividends shall be equal to fifty percent (50%) of the dollar value of
the average of the closing bid price for the Common Stock for the five
(5) consecutive Trading Days immediately prior to the redemption date
divided by the dollar amount of accrued but unpaid dividends.
6.04 Redemption of the 2004 Series A Convertible Preferred Stock shall be made in the following manner:
(a) The corporation shall notify the transfer agent of the corporation's Common Stock (the "Transfer Agent"), of its intention to redeem the 2004 Series A Convertible Preferred Stock. Such notice shall include a list of all holders of the 2004 Series A Convertible Preferred Stock outstanding as of the most recent practicable date and a statement of the number of shares of 2004 Series A Convertible Stock to be redeemed and the manner in which the Redemption Price is to be paid. At least ten (10) days prior to the date that written notice of redemption is given to the holders of the 2004 Series A Convertible Preferred Stock, the corporation shall make appropriate arrangements with the Transfer Agent for the delivery of funds and/or Common Stock necessary to make payment of the Redemption Price for all shares of the 2004 Series A Convertible Preferred Stock redeemed by the corporation.
(b) The holder of any shares of 2004 Series A Convertible Preferred Stock so redeemed shall be required to tender the certificates representing such shares, duly endorsed, to the Transfer Agent in exchange for payment of the Redemption Price and re-issuance of the balance of the 2004 Series A Convertible Preferred Stock not otherwise converted or redeemed. On such surrender, the Transfer Agent shall cause to be issued and delivered a check or Common Stock, with all reasonable dispatch to the holder and such name or names as the holder may designate. Subsequent to notice of redemption and prior to the redemption date, shares of the 2004 Series A Convertible Preferred Stock may still be converted to Common Stock pursuant to Section 5 hereof.
(c) The corporation may redeem a portion or all of the issued and outstanding shares of the 2004 Series A Convertible Preferred Stock; provided, that in the event that less than all of the outstanding shares of the 2004 Series A Convertible Preferred Stock are redeemed, such redemption shall be pro rata determined on the basis of the number of shares of the 2004 Series A Convertible Preferred Stock held by each holder reflected on the stock records and the total number of shares of 2004 Series A Convertible Preferred Stock outstanding.
(d) Following the expiration of a period of thirty (30) days following the Redemption Date, the Transfer Agent shall provide to the corporation a complete accounting of the 2004 Series A Convertible Preferred Stock redeemed and a list of all shares of 2004 Series A Convertible Preferred Stock remaining unconverted and not returned to the corporation for redemption. Any certificates representing the 2004 Series A Convertible Preferred Stock received by the Transfer Agent subsequent to the accounting by the Transfer Agent to the corporation will be promptly delivered to the corporation. The corporation shall pay all costs associated with establishing and maintaining any bank accounts for funds deposited with the Transfer Agent, including the costs of issuing any checks or shares of Common Stock.
(e) The corporation may not deliver notice of redemption to any holder of the 2004 Series A Convertible Preferred Stock which would cause the holder's election to convert the 2004 Series A Convertible Preferred Stock to Common Stock or cash to be in violation of any federal or state securities laws, including but not limited to, Section 16 of the Securities Exchange Act of 1934, as amended.
7. Return of Capital. If the corporation does not have its
securities listed for trading on any nationally recognized stock exchange
within two years of the date of issuance of the 2004 Series A Preferred Stock
and provided that the 2004 Series A Preferred Stock has not been converted or
redeemed, the corporation covenants and agrees to repurchase the shares of
2004 Series A Preferred Stock at a price equal to the purchase price plus
interest at the rate of eight (8%) percent from the date of purchase. The
corporation shall repay the purchase price and interest starting twenty four
(24) months from the purchase date and make equal monthly payments over three
years at eight (8%) percent interest.
8. Additional Provisions
8.01 No change in the provisions of the 2004 Series A Convertible Preferred Stock set forth in this Designation affecting any interests of the holders of any shares of 2004 Series A Convertible Preferred Stock shall be binding or effective unless such change shall have been approved or consented to by the holders of 2004 Series A Convertible Preferred Stock in the manner provided in the corporation laws of the State of Utah, as the same may be amended from time to time.
8.02 The shares of 2004 Series A Convertible Preferred Stock shall be transferable only on the books of the corporation maintained at its principal office, on delivery thereof duly endorsed by the holder or by his/her/its duly authorized attorney or representative or accompanied by proper evidence of succession, assignment, or authority to transfer. In all cases of transfer by an attorney, the original letter of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited and remain with the corporation. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced and may be required to be deposited and remain with the new certificate representing the share of 2004 Series A Convertible Preferred Stock so transferred to the person entitled thereto.
8.03 The corporation shall not be required to issue any fractional shares of Common Stock on the conversion or redemption of any share of 2004 Series A Convertible Preferred Stock.
8.04 Any notice required or permitted to be given to the holders of the 2004 Series A Convertible Preferred Stock under this Designation shall be deemed to have been duly given if mailed by first class mail, postage prepared to such holders at their respective addresses appearing on the stock records maintained by or for the corporation and shall be deemed to have been given as of the date deposited in the United States mail.
Fully paid stock of this corporation shall not be liable to any further call or assessment.
THIRD: These amendments do not provide for any exchange, reclassification or cancellation of issued shares.
FOURTH: The effective date of these amendments shall be the date of the filing of these Articles of Amendment.
FIFTH: These amendments were adopted by the Board of Directors without stockholder action, pursuant to Section 16-10a-602 of the Act.
IN WITNESS WHEREOF, the undersigned President and Secretary, having been thereunto duly authorized, have executed the foregoing Articles of Amendment for the corporation under the penalty of perjury this 8th day of November, 2004.
REFLECT SCIENTIFIC, INC.
By/s/Kim Boyce
Kim Boyce, President
Attest:
/s/Pamela Boyce
Pamela Boyce, Secretary
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Exhibit 3.2
AMENDMENT TO BYLAWS OF
COLE, INC.
The following amendment to the Bylaws of Cole, Inc. was adopted by unanimous consent of the Board of Directors of the Company on the 28th date of July, 2003:
Section 2.11 Written Consent to Action by Shareholders. Any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior nice ore consents in writing, setting forth the action so take, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were entitled to be present and to vote.
I, Luke Bradley, Secretary of Cole, Inc., hereby certify that the foregoing Amendment to the Bylaws of Cole, Inc. was duly adopted by resolution of the Board of Directors on the 28th day of July, 2003.
/s/Luke Bradley --------------------- Luke Bradley |
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kim Boyce, President of Reflect Scientific, Inc., (the "small business issuer"), certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of the small business issuer;
2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this Quarterly Report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this Quarterly Report is being prepared;
b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and
c) disclosed in this Quarterly Report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions);
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Dated: 11/11/2004 Signature:/s/Kim Boyce
Kim Boyce
President, Principal Accounting
Officer
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Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Pamela Boyce, Secretary of Reflect Scientific, Inc., (the "small business issuer"), certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of the small business issuer;
2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this Quarterly Report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this Quarterly Report is being prepared;
b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and
c) disclosed in this Quarterly Report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions);
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Dated: 11/11/2004 Signature:/s/Pamela Boyce
Pamela Boyce
Secretary
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Reflect Scientific, Inc. (the "Company") on Form 10-QSB for the period ending September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Quarterly Report"), we, Kim Boyce, President and Pamela Boyce, Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:
(1) The Quarterly Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: 11/11 /2004 /s/Kim Boyce
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Kim Boyce
President and director
Dated: 11/11/2004 /s/Pamela Boyce
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Pamela Boyce
Secretary and director
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