SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
December 31, 2003
-----------------
Date of Report
(Date of Earliest Event Reported)
Reflect Scientific, Inc.
------------------------
(Exact Name of Registrant as Specified in its Charter)
Utah 000-31377 87-0642556
---- --------- ----------
(State or other (Commission File No.) (IRS Employer I.D. No.)
Jurisdiction)
970 Terra Bella Avenue
Mountain View, California 94043
-------------------------------
(Address of Principal Executive Offices)
(650) 960-0300
--------------
Registrant's Telephone Number
Cole, Inc.
1223 Wilshire Blvd., #912
Santa Monica, California 90403
------------------------------
(Former Name or Former Address if changed Since Last Report)
Item 1. Changes in Control of Registrant.
---------------------------------
(a) Effective as of December 31, 2003, the Registrant ("Cole, Inc."),
Reflect Scientific, Inc., a California corporation ("Reflect"), and all of the
stockholders of Reflect (the "Reflect Stockholders"), executed an Agreement
and Plan of Reorganization (the "Agreement"), whereby the Registrant agreed to
acquire 100% of the outstanding shares of common stock of Reflect in exchange
for an aggregate of 22,914,949 shares of common stock of the Registrant. The
combination of these entities was treated as a "reverse" reorganization for
accounting purposes, and Reflect became a wholly-owned subsidiary of the
Registrant on closing.
By virtue of (i) the percentage of the Registrant acquired under the
Agreement by the Reflect Stockholders; and (ii) the provisions of the
Agreement that provided for the election of the current sole director and
executive officers of Reflect to the Board of Directors and as officers of the
Registrant, this Agreement may be deemed to have involved a "change of
control."
The source of the consideration used by the Reflect Stockholders to
acquire their respective interests in the Registrant was the exchange of
outstanding securities of Reflect.
The primary basis of the "control" by the Reflect Stockholders is stock
ownership and/or management positions.
The principal terms of the Agreement were:
1. The issuance, pro rata, of an aggregate of 22,914,949 shares of
common stock ("restricted securities") of the Registrant for 100% of the
outstanding shares of Reflect;
2. Following the closing of the Agreement, the Registrant amended its
Articles of Incorporation to change its name to "Reflect Scientific, Inc.,"
without stockholder approval, as allowed under Article XI of its Articles of
Incorporation; has obtained a new Cusip Number; and will be obtaining a new
OTC Bulletin Board Symbol for such name. The Articles of Amendment
authorizing a name change without further stockholder approval were filed with
the Utah Department of Commerce on September 8, 2003, and the Articles of
Amendment changing the name of the Registrant were filed with the Utah
Department of Commerce on January 12, 2004. Copies of these documents
accompany this Current Report and are, by this reference, incorporated herein.
See Item 7, Exhibits 3.1 and 3.2.;
3. SCS, Inc., a Utah corporation ("SCS"), and its President and sole
stockholder, Karl S. Smith, and all of the current directors and executive
officers of the Registrant, delivered at the closing, their Letter Agreement
in satisfactory form to the Registrant and Reflect in consideration of such
closing to the effect that any Registrant securities owned or hereafter
acquired by either of them for a period of one year from the closing shall be
subject to resale in compliance with "broker's transactions" and "manner of
sale" requirements as those terms are defined in Rule 144 of the Securities
and Exchange Commission, together with any other requirements necessary to
comply with the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), and the general rules and regulations promulgated
thereunder by the Securities and Exchange Commission, with the stock
certificates representing any such shares to be imprinted with an appropriate
notation reflecting these resale conditions. The Registrant believes these
notations, together with instructions to its transfer and registrar agent,
will allow it to reasonably monitor and ensure compliance with these resale
restrictions.
4. The designation of the sole director and executive officers of
Reflect to the Board of Directors of the Registrant and as officers of the
Registrant.
Prior to the completion of the Agreement, there were 1,085,051
outstanding shares of the Registrant's common stock. Following the completion
of the Agreement, there were 24,000,000 outstanding shares of common stock.
A copy of the Agreement, including all material exhibits and related
instruments, accompanies this Current Report, which, by this reference, is
incorporated herein; the foregoing summary is modified in its entirety by such
reference. See Item 7, Exhibit 2.1.
(b)(i) To the knowledge of management and based upon a review of the
stock ledger maintained by the Registrant's transfer agent and registrar, the
following table sets forth the beneficial ownership of persons who owned more
than five percent of the Registrant's common stock prior to the closing of the
Agreement, and the share holdings of the then members of management:
Name Positions Held Shares Owned %
---- -------------- ------------ ---
James P. Doolin President and 26,250 2.40%
Director
Shane E. Thueson Vice President 5,000 .04%
and Director
Luke Bradley Secretary and 5,000 .04%
Director
Leonard W. Burningham Shareholder 213,551 19.7%
Sharlene T. Doolin Shareholder 200,000 18.4%
Duane S. Jenson Shareholder 200,000 18.4%
Quad D. Partnership* Shareholder 333,500 30.7%
TOTALS: 983,301 89.7%
* Sharlene T. Doolin may be deemed to be the beneficial owner of Quad D
Partnership's shares as she is the general partner of Quad D Partnership; and
the mother of James P. Doolin.
(b)(ii) To the knowledge of management and based upon a review of the
stock ledger maintained by the Registrant's transfer agent and registrar, the
following table sets forth the beneficial ownership of persons who owned more
than five percent of the Registrant's common stock following the closing of
the Agreement, and the share holdings of the new members of management:
Name Positions Held Shares Owned %
---- -------------- ------------- --
Kim Boyce President and 18,723,250 78.0%
Sole Director
Pamela Boyce Secretary -0- 0.0%
Diversified Investments Shareholder 1,681,500 7.0%
LLC
SCS, Inc. Shareholder 2,310,199 9.6%
TOTALS: 22,714,949 94.6%
Item 2. Acquisition or Disposition of Assets.
-------------------------------------
(a) See Item 1.
The consideration exchanged under the Agreement was negotiated at "arms
length," and the Board of Directors of the Registrant used the following
criteria in evaluating whether the Agreement should be completed: the relative
value of the assets of the Registrant in comparison to those of Reflect;
Reflect's present and past business operations; the future potential of
Reflect; its management; and the potential benefit to the stockholders of the
Registrant. The Board of Directors determined that the consideration for the
exchange was reasonable, under these circumstances, in their good faith
judgment.
No director, executive officer or five percent or more stockholder of the
Registrant had any direct or indirect interest in Reflect or the Reflect
Stockholders prior to the completion of the Agreement; similarly, no nominee
to become a director or any Reflect Stockholder or any beneficial owner of any
Reflect Stockholder had any interest in the Registrant prior to the closing of
the Agreement.
(b) The Registrant is a successor to and intends to continue the
planned business operations intended to be conducted by Reflect.
The following is a summary of certain general information about Reflect:
REFLECT SCIENTIFIC, INC.
------------------------
Business
--------
Reflect is a privately held California corporation engaged in the
manufacture and distribution of unique laboratory consumables" and
"disposables" such as filtration and purification products, customized sample
handling vials, electronic wiring assemblies, high temperature silicone,
graphite and Vespel/graphite sealing components for use by Original Equipment
Manufacturers (OEM) in the chemical analysis industries primarily in the field
of gas/liquid chromatography. Mr. Kim Boyce, founded the Company in Mountain
View, California, in 1993 to provide the aforementioned products to customer
specification and in specialized packaging direct to high volume OEM clients.
The focus by Mr. Boyce on dedicated customer service and technical support has
driven an unbroken increase in sales since incorporation.
Chromatography, which is a laboratory technique for separating a mixture
of compounds into its individual components, is the most prevalent chemical
analysis technique in the world. Many of the products from Reflect Scientific
are related directly to this analytical technique. The Company holds an
excellent niche share of an immense global market and has maintained a
positive growth profile since inception.
Reflect boasts a product line of over 1,000 items that includes gas ultra
purification filters, molecular sieves and various scientific items necessary
to most chemistry laboratories in the world. Several first tier corporations
in the global market place, are the primary buyers of Reflect's filters, which
Reflect manufactures internally and delivers to its OEM customer base. It is
this customer-focused system, incorporating tailor-made products to the
customer's specification, that has developed a solid customer base. Reflect's
established access to so many local leading companies that utilize Reflect's
existing products present Reflect with a unique opportunity for growth.
Reflect's existing manufacturing locations in Union City, California and
Ogden, Utah, produce the glass vial caps, silicone liners, laser filtration
products, gas chromatography filtration products, high pressure liquid
chromatography products various ferrules and high temperature septa products.
The OEM Strategy, as instigated by Reflect, to manufacture products as
defined by the buyer and to nameplate these products with the name of the
buyer, as if Reflect were an in-house R&D company manufacturing specifically
for a parent, has proved to be imminently successful in creating a niche
market. By producing precisely what OEM's required in such critical areas as
gas purifiers, Reflect was not under pressure to create its own catalogue, nor
does it now compete against any other producer of similar "consumables"
directly, since its work is within the scientific confines of the buyer
company and often carries the nameplate of the buyer. It was and remains the
belief of Mr. Boyce as CEO that this unique sales direct to the scientific
markets for semiconductor fabrication, bio-technology and chemical analysis
will yield an ever increasing income stream if developed carefully over the
next ten to twenty years.
Chromatography, Generally
-------------------------
Chromatography is a widely used method to separate, detect and quantify
organic chemicals. The procedure relies upon capillary action as the
separating mechanism. There are several types of chromatography, including
liquid and gaseous applications. Reflect is active in all of the sub-markets
of chromatography.
Gas Chromatography
------------------
Gas Chromatography is a method for separating the components of a
solution and measuring their relative quantities. It is a useful technique for
chemicals that do not decompose at high temperatures and when a very small
quantity of a sample (micrograms) is available.
In gas chromatography, a sample is rapidly heated and vaporized at the
injection port of the instrument. The sample is transported through the
column by a mobile phase consisting of an inert gas. Sample components are
separated based on their boiling points and relative affinity for the
stationary phase, which is most often viscous liquid within the column. The
higher a components affinity for the stationary phase, the slower it traverses
the length of the separation column. The components are detected and
represented as peaks on a chromatogram. Gas chromatographs are routinely found
in all petrochemical, pharmaceutical and environmental laboratories, to name
just a few (generally all wet chemistry laboratories will have a chromatograph
instrument).
Research and Development
------------------------
In 2002, Reflect expended $0 for research and development. From January
1, 2003, to September 30, 2003, Reflect expended $11,707 for research and
development.
Facilities
----------
Ogden, Utah - This facility is a manufacturing and office facility with
2,552 square feet of space; Reflect rents this facility on a month to month
basis at $1,688 per month.
Union City, California - This facility is also a manufacturing and office
facility with 3,936 square feet of space; Reflect leases this facility at
$2,947 per month with the lease term expiring June 31, 2004.
Mountain View, California - This facility is office space only with 1,870
square feet of space; Reflect leases this facility at $1,717 per month with
the lease term expiring June 31, 2005.
Employees
---------
Reflect employs eight full time employees and two part time employees.
Growth Plan
-----------
Outlined below are the key elements of Reflect's current plans to (i)
expand its existing business and (ii) create and position a transformed
business in the Biotech, and other high growth industries.
Expand into Biotech Analytical/Instrumentation and Medical
Diagnostics Equipment
---------------------
Reflect has an established position as a supplier of analytical equipment
to scientific communities across a broad range of industries, which already
includes the biotech sector.
Biotech companies rely heavily on their ability to collect and rapidly
analyze high volumes of samples and to develop key tests for genes and
proteins. In many cases equipment that is presently available from suppliers
is inadequate. This has created a need for custom manufacturing of analytical
and diagnostic tools to support efforts in the Genome, Proteome and Genetic
Engineering fields. These fields are becoming well established and many
pharmaceutical companies are securing positions with key biotech companies as
the outlook for protein based "personalized" drug therapies grows closer.
Several potential acquisitions of small companies (engaged in the fabrication
of related analytical equipment) have been identified that would allow RSI to
build a stronger presence in the Biotech Markets.
Biotech Technology Acquisitions/Licensing
-----------------------------------------
Once established in this field as a service provider, RSI can develop
alliances and identify additional areas of opportunity. Several consultants
have been contacted and identified as individuals who could provide RSI with
excellent insight. This, coupled with RSI's own presence, should provide a
firm basis upon which a technology portfolio can be built. There has been a
wealth of intellectual property developed in the Biotech area by universities,
government institutions, etc., all of which is available for licensing.
Individual pieces of technology, while not enabling on their own, can in
aggregate create a technology platform that will provide the proper foundation
to transform RSI into a leading edge company with high market value added. The
above route is preferred against trying to acquire an existing Biotech
company, which (even if available) would come at extremely high multiples.
RSI's goal is to create intrinsic value. Hiring expertise to build this core
competency, although a critical issue, is not anticipated to be difficult.
Universities are graduating numerous students trained in "molecular biology"
and experienced individuals are usually keen to "participate" in a new
business opportunity.
Laboratory Automation/Leveraging Skills in Robotics
---------------------------------------------------
Biotech and Pharmaceutical companies have a pressing need for higher
productivity research. The pharmaceutical industry has a drug problem - they
can't find enough new ones. Traditional methods of drug discovery are
becoming ineffective, cost too much and produce too little (Rod McKenzie, VP
Pfizer R&D). Re-tooling is needed to enable companies to screen thousands of
potential drug molecules per day. Other industries are also in need of
improved ways of zeroing in on high growth products and technologies; i.e.,
chemical, aerospace, transportation, telecommunication and information
technology sectors. Personalized medicines are expected to prevail and in
order for pharmaceutical companies to be successful in the future they must
have the ability to understand the genome and the proteome and pick the right
targets by understanding molecular medicine. The above issues have resulted
in a key requirement for "high throughput screening" - faster ways in which to
conduct experimentation, gather, analyze and manage data. Biotech companies
and other industry sectors conducting new product research will find it
difficult to compete without improvements in productivity. Robotics are
necessary tools to support future research.
Management
----------
Kim Boyce
President & CEO, Chairman of the Board of Directors
Mr. Boyce is the founder of Reflect Scientific and serves as President, Chief
Executive Officer and Chairman of the Board of Directors of the Company.
Mr. Boyce has thirty-one years of experience in manufacturing; sales,
distribution and management of scientific products related companies in the
chemical analysis, semiconductor fabrication and optics industries. His
responsibilities have included serving as a Western Regional Sales Manager,
OEM Special Accounts Manager, Plant Operations Manager and various other
senior management positions within California's renowned Silicon Valley. In
addition to his noteworthy experience in high growth companies, Mr. Boyce
brings unparalleled leadership skills and profound understanding of startup
entity management. Mr. Boyce attended West Valley College in Santa Clara,
California and DeAnza College in San Jose, California.
John Hammerman
Senior Vice President
Business Development & Marketing
Mr. Hammerman serves as Senior Vice President, Business Development &
Marketing. Prior to joining the Company, Mr. Hammerman was employed for
twenty-six years by UOP, parent to the Mat/Sen Division. His most recent
position was as General Manager, UOP Specialty Products that included
responsibility for the UOP Mat/Sen Analytical and Semiconductor Division.
During his tenure he also held the positions of Director- Petrochemical
Products; Manager- International Market development and Manager-Commercial
Development Group. Recent accomplishments include the formation and start up
of a new joint venture company that provides custom separations and catalysis
services to the Pharma/Biotech Industry. Mr. Hammerman brings extensive
experience in strategic alliance and joint venture partnering with an emphasis
on the European and Asia - Pacific theaters. Mr. Hammerman's exceptional
combination of scientific skill and international corporate development acumen
will drive the Company's global marketing initiative.
Mr. Hammerman received his BSc degree in Chemical Engineering (Valedictorian)
from the University of Wales, United Kingdom. He is the holder of five U.S.
patents.
Directors and Executive Officers
--------------------------------
The following members of the Board of Directors will serve until the next
annual meeting of stockholders or until their successors have been elected and
qualified. The officers serve at the pleasure of the Board of Directors.
Name Position Held Positions Since
---- -------- --------------------
Kim Boyce Sole Director and President 12/31/03
Pamela Boyce Secretary 12/31/03
Item 3. Bankruptcy or Receivership.
---------------------------
None, not applicable.
Item 4. Changes in Registrant's Certifying Accountant.
----------------------------------------------
On January 13, 2004, upon approval of the Registrant's sole director, we
appointed HJ Associates & Consultants LLP as the Registrant's independent
auditors and dismissed Mantyla, McReynolds. The report of Mantyla, McReynolds
on the financial statements as of and for the fiscal year ended December 31,
2002, did not contain an adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles
except that Mantyla, McReynolds issued an explanatory paragraph in its fiscal
2002 and 2001 reports as to the Registrant's ability to continue as a going
concern. During the years ended December 31, 2002 and 2001 and through the
date of this Current Report on Form 8-K, there were no disagreements with
Mantyla, McReynolds on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which if not
resolved to Mantyla McReynolds' satisfaction, would have caused it to make
reference to the subject matter in connection with its report on the Company's
consolidated financial statements for such years; and there were no reportable
events as defined in Item 304(a)(1)(iv)(B) of Regulation S-B.
The Registrant did not consult HJ Associates & Consultants with respect
to the application of accounting principles as to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements, or any other matters or
reportable events as set forth in Items 304(a)(1)(iv) and (v) of Regulation
S-B.
The Registrant has provided a copy of this disclosure to Mantyla,
McReynolds in compliance with the provisions of Item 304 (a) (3) of Regulation
S-B. See Exhibit 16.1 Letter from Mantyla, McReynolds to the Securities and
Exchange Commission dated January 14, 2004.
Item 5. Other Events and Regulation FD Disclosure.
------------------------------------------
See the Press Release filed with the Securities and Exchange Commission
on Form 8-K Current Report on December 31, 2003.
Item 6. Resignations of Registrant's Directors.
---------------------------------------
Pursuant to the Agreement, the current directors and executive officers
of Reflect were designated to serve on the Board of Directors of the
Registrant and as executive officers of the Registrant until the next
respective annual meetings of the stockholders and the Board of Directors and
until their respective successors are elected and qualified or until their
prior resignation or termination. Effective on December 31, 2003, Kim Boyce
will serve as sole director and President; and Pamela Boyce will serve as
Secretary. The directors and executive officers of the Registrant resigned on
closing of the Agreement.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
---------
(a) Financial Statements of Businesses Acquired.
For the years ended December 31, 2002 and 2001:
REFLECT SCIENTIFIC, INC.
FINANCIAL STATEMENTS
December 31, 2002
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . 3
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations . . . . . . . . . . . . . . . . . . . 6
Statements of Shareholder's Equity . . . . . . . . . . . . . . 7
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . 8
Notes to the Financial Statements. . . . . . . . . . . . . . . 9
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
Reflect Scientific, Inc.
Mountain View, California
We have audited the accompanying balance sheet of Reflect Scientific, Inc., as
of December 31, 2002, and the related statements of operations, shareholder's
equity and cash flows for the years ended December 31, 2002, and 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Reflect Scientific, Inc., as
of December 31, 2002, and the results of operations and cash flows for the
years ended December 31, 2002, and 2001, in conformity with accounting
principles generally accepted in the United States of America.
HJ Associates & Consultants, LLP
Salt Lake City, Utah
December 15, 2003
REFLECT SCIENTIFIC, INC.
Balance Sheet
ASSETS
December 31,
2002
CURRENT ASSETS
Cash $ 115,644
Accounts receivable (Note 2) 172,900
Inventory, net (Note 4) 245,921
Prepaid assets 6,924
-----------
Total Current Assets 541,389
-----------
FIXED ASSETS, NET (Note 3) 24,291
-----------
OTHER ASSETS
Deposits 5,350
Capitalized loan costs (Note 2) 6,825
-----------
Total Other Assets 12,175
-----------
TOTAL ASSETS $ 577,855
===========
The accompanying notes are an integral part of these financial statements.
4
REFLECT SCIENTIFIC, INC.
Balance Sheet (Continued)
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31,
2002
CURRENT LIABILITIES
Accounts payable $ 123,704
Accrued expenses 11,924
Short term lines of credit (Note 5) 103,049
----------
Total Current Liabilities 238,677
----------
NON-CURRENT LIABILITIES
Long term line of credit (Note 5) 167,541
----------
Total Non-Current Liabilities 167,541
----------
Total Liabilities 406,218
----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY
Common stock, $1.00 par value, authorized 1,000,000
shares; 10,000 shares issued and outstanding 10,000
Retained earnings 161,637
----------
Total Shareholder's Equity 171,637
----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 577,855
==========
The accompanying notes are an integral part of these financial statements.
5
REFLECT SCIENTIFIC, INC.
Statements of Operations
For the Years Ended
December 31,
2002 2001
REVENUES $1,810,528 $1,951,948
COST OF GOODS SOLD 1,078,721 1,269,427
---------- ----------
GROSS PROFIT 731,807 682,521
---------- ----------
OPERATING EXPENSES
Salaries and wages 288,405 209,354
Payroll taxes 23,801 15,214
Rent expense 74,718 71,971
General and administrative 182,154 204,900
---------- ----------
Total Operating Expenses 569,078 501,439
---------- ----------
OPERATING INCOME 162,729 181,082
---------- ----------
OTHER EXPENSES
Interest expense (21,711) (33,143)
---------- ----------
Total Other Expenses (21,711) (33,143)
---------- ----------
NET INCOME $ 141,018 $ 147,939
========== ==========
The accompanying notes are an integral part of these financial statements.
6
REFLECT SCIENTIFIC, INC.
Statements of Shareholder's Equity
Common Stock Retained
Shares Amount Earnings
Balance, December 31, 2000 10,000 $ 10,000 $ 15,025
Distributions to sole shareholder - - (79,345)
Net income for the year ended
December 31, 2001 - - 147,939
--------- --------- ----------
Balances, December 31, 2001 10,000 10,000 83,619
Distributions to sole shareholder - - (63,000)
Net income for the year ended
December 31, 2002 - - 141,018
---------- --------- ----------
Balances, December 31, 2002 10,000 $ 10,000 $ 161,637
========== ========= ==========
The accompanying notes are an integral part of these financial statements.
7
REFLECT SCIENTIFIC, INC.
Statements of Cash Flows
For the Years Ended
December 31,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 141,018 $ 147,939
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 753 628
Amortization of capitalized loan costs 2,358 633
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 48,355 (110,310)
(Increase) decrease in prepaid expenses (6,124) 1,126
(Increase) decrease in net inventory (66,014) 71,810
Decrease in deposits 1,884 168
(Decrease) in accounts payable and accrued
liabilities (48,104) (5,977)
-------- ----------
Net Cash Provided by Operating Activities 74,126 106,017
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (5,283) -
-------- ----------
Net Cash Used by Investing Activities (5,283) -
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short term lines of credit 25 -
Payments on short term lines of credit (6,883) (58,076)
Payments on notes payable (47,054) (19,661)
Capitalized loan costs (7,000) -
Proceeds from long term line of credit 108,664 58,877
Distributions to shareholder (63,000) (79,345)
-------- ----------
Net Cash Used by Financing Activities (15,248) (98,205)
-------- ----------
NET INCREASE IN CASH 53,595 7,812
CASH AT BEGINNING OF YEAR 62,049 54,237
-------- ----------
CASH AT END OF YEAR $115,644 $ 62,049
======== ==========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 18,502 $ 33,143
Income taxes $ - $ -
The accompanying notes are an integral part of these financial statements.
8
REFLECT SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The financial statements presented are those of Reflect Scientific, Inc., a
California Corporation ("the Company"). The Company was incorporated on June
14, 1993, under the laws of California to engage in the manufacture of vial
test kits for use in scientific studies.
The Company was formed as a Subchapter S corporation. Accordingly, it is
taxed as a partnership. All income and expenses are passed through to the
Company's sole shareholder, who is taxed at the individual level based upon
his pro rata shares of the Company's net earnings.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year-end.
b. Revenue Recognition
The Company recognizes revenues as required by Staff Accounting Bulletin No.
101 "Revenue Recognition in Financial Statements". Revenue is only recognized
on product sales once the product has been shipped to the customers (FOB
Origin), and all other obligations have been met.
c. Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
d. Accounts Receivable
The Company writes off trade receivables when deemed uncollectable. No trade
receivables were deemed to be uncollectable during the years ended December
31, 2002, and 2001.
e. Inventory
Inventories are stated at the lower of cost or market value based upon the
First-In First-Out (FIFO) inventory method. The Company's inventory primarily
consists of parts for scientific vial kits.
9
REFLECT SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2002 and 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Capitalized Loan Costs
Capitalized loan costs are related to the origination and maintenance of a
note payable that has been fully extinguished as of December 31, 2002, and a
new line of credit established in 2001. These capitalized costs are being
amortized on a straight line basis over the term of the related debt.
Amortization expense related to these costs was $2,358 and $633 in 2002, and
2001, respectively.
g. Advertising Expense
The Company follows the policy of charging the costs of advertising to expense
as incurred. The Company recognized $5,542 and -0- of advertising expense
during the years ended December 31, 2002, and 2001, respectively.
h. Newly Issued Accounting Pronouncements
SFAS No. 145 -- On April 30, 2002, the FASB issued FASB Statement No. 145
(SFAS 145), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." SFAS 145 rescinds both
FASB Statement No. 4 (SFAS 4), "Reporting Gains and Losses from Extinguishment
of Debt," and the amendment to SFAS 4, FASB Statement No. 64 (SFAS 64),
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." Through
this rescission, SFAS 145 eliminates the requirement (in both SFAS 4 and SFAS
64) that gains and losses from the extinguishment of debt be aggregated and,
if material, classified as an extraordinary item, net of the related income
tax effect. However, an entity is not prohibited from classifying such gains
and losses as extraordinary items, so long as it meets the criteria in
paragraph 20 of Accounting Principles Board Opinion No. 30, Reporting the
Results of Operations Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Further, SFAS 145 amends paragraph 14(a) of FASB Statement No.
13, "Accounting for Leases", to eliminate an inconsistency between the
accounting for sale-leaseback transactions and certain lease modifications
that have economic effects that are similar to sale-leaseback transactions.
The amendment requires that a lease modification (1) results in recognition of
the gain or loss in the 9 financial statements, (2) is subject to FASB
Statement No. 66, "Accounting for Sales of Real Estate," if the leased asset
is real estate (including integral equipment), and (3) is subject (in its
entirety) to the sale-leaseback rules of FASB Statement No. 98, "Accounting
for Leases: Sale-Leaseback Transactions Involving Real Estate, Sales-Type
Leases of Real Estate, Definition of the Lease Term, and Initial Direct Costs
of Direct Financing Leases." Generally, FAS 145 is effective for transactions
occurring after May 15, 2002. The Company does not expect that the adoption
of SFAS 145 will have a material effect on its financial performance or
results of operations.
10
REFLECT SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2002 and 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Newly Issued Accounting Pronouncements (continued)
SFAS No. 146 -- In June 2002, the FASB issued SFAS No. 146, "Accounting for
Exit or Disposal Activities" (SFAS 146). SFAS 146 addresses significant
issues regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring
activities that are currently accounted for under EITF No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." The scope
of SFAS 146 also includes costs related to terminating a contract that is not
a capital lease and termination benefits that employees who are
involuntarily terminated receive under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS 146 will be effective for exit or
disposal activities that are initiated after December 31, 2002 and early
application is encouraged. The provisions of EITF No. 94-3 shall continue to
apply for an exit activity initiated under an exit plan that met the criteria
of EITF No. 94-3 prior to the adoption of SFAS 146. The effect on adoption of
SFAS 146 will change on a prospective basis the timing of when the
restructuring charges are recorded from a commitment date approach to when the
liability is incurred. The Company does not expect that the adoption of SFAS
146 will have a material effect on its financial performance or results of
operations.
SFAS No. 147 -- In October 2002, the FASB issued Statement No. 147
"Acquisitions of Certain Financial Institutions an amendment of FASB
Statements No. 72 and 144 and FASB Interpretation No. 9" (SFAS 147). SFAS 147
removes acquisitions of financial institutions from the scope of both
Statement 72 and Interpretation 9 and requires that those transactions be
accounted for in accordance with FASB Statements No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. Thus, the
requirement in paragraph 5 of Statement 72 to recognize (and subsequently
amortize) any excess of the fair value of liabilities assumed over the fair
value of tangible and identifiable intangible assets acquired as an
unidentifiable intangible asset no longer applies to acquisitions within the
scope of this Statement. In addition, this Statement amends FASB Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, to
include in its scope long-term customer-relationship intangible assets of
financial institutions such as depositor- and borrower-relationship intangible
assets and credit cardholder intangible assets. Consequently, those intangible
assets are subject to the same undiscounted cash flow recoverability test and
impairment loss recognition and measurement provisions that Statement 144
requires for other long-lived assets that are held and used. SFAS 147 is
effective October 1, 2002. The Company does not expect that the adoption of
SFAS 147 will have a material effect on its consolidated financial statements.
11
REFLECT SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2002 and 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Newly Issued Accounting Pronouncements (Continued)
SFAS No. 148 -- In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation -- Transition and Disclosure"(SFAS 148"). SFAS
148 amends SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS
123"), to provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS 148
is effective for fiscal years beginning after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. The Company
is currently evaluating the effect that the adoption of SFAS 148 will have on
its results of operations and financial condition.
SFAS No. 149 In April 2003, the FASB issued Statement of Financial
Accounting Standards No. 149 ("SFAS 149"), "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", to provide clarification on
the meaning of an underlying, the characteristics of a derivative that
contains financing components and the meaning of an initial net investment
that is smaller than would be required for other types of contracts that would
be expected to have a similar response to changes in market factors. This
statement will be applied prospectively and is effective for contracts entered
into or modified after June 30, 2003. The statement will be applicable to
existing contracts and new contracts relate to forward purchases or sales of
when-issued securities or other securities that do not yet exist. The Company
does not expect that the adoption of SFAS 149 will have a material effect on
the Company's consolidated financial statements.
SFAS No. 150 In May 2003, the FASB issued Statement of Financial
Accounting Standards No 159 ("SFAS 150"), Accounting for certain financial
instruments with characteristics of both liabilities and equity. This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement will be effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. It is to
be implemented by reporting the cumulative effect of a change in an accounting
principal for financial instruments created before the issuance date of the
statement and existing at the beginning of the interim period of adoption.
The Company does not expect that the adoption of SFAS 150 will have material
effect on the Company's consolidated financial statements.
12
REFLECT SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2002 and 2001
NOTE 3 - FIXED ASSETS
Fixed assets are stated at cost. Expenditure for minor repairs, maintenance,
and replacement parts which do not increase the useful lives of the assets are
charged to expense as incurred. All major additions and improvements are
capitalized. Depreciation is computed using the straight-line method. The
lives over which the fixed assets are depreciated range from 5 to 7 years.
Fixed assets and related depreciation for the period are as follows:
December 31,
2002
Machinery and equipment $ 2,592
Furniture and fixtures 25,215
Computer and office equipment 57,064
Leasehold improvements 23,671
Accumulated depreciation (84,251)
----------
Total Fixed Assets $ 24,291
==========
Depreciation expense for the years ended December 31, 2002, and 2001, was $753
and $628, respectively.
NOTE 4 - INVENTORIES
Inventory consisted of the following at December 31, 2002:
December 31,
2002
Raw materials $ 148,750
Work in process 6,775
Finished goods 102,949
Allowance (12,553)
----------
Total Fixed Assets $ 245,921
==========
NOTE 5 - NOTES PAYABLE AND LINES OF CREDIT
Short term lines of credit consisted of the following at December 31, 2002:
Line of Credit with a maximum amount of $30,000,
interest at a variable rate tied to prime (currently 12.7%),
interest-only payments due monthly, guaranteed by
sole shareholder $22,002
13
REFLECT SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2002 and 2001
NOTE 5 - NOTES PAYABLE AND LINES OF CREDIT (Continued)
Line of Credit with a maximum amount of $25,000,
interest at a variable rate tied to prime (currently 11.375%),
interest-only payments due monthly, guaranteed by
sole shareholder 25,000
Line of Credit with a maximum amount of $35,000,
interest at a variable rate tied to prime (currently 12.25%),
interest-only payments due monthly, guaranteed by
sole shareholder 22,971
Line of Credit with a maximum amount of $40,000,
interest at 6.0%, interest-only payments due monthly,
guaranteed by sole shareholder 33,076
--------
Total Short Term Lines of Credit $103,049
========
The lines of credit detailed above were all consolidated into a single line of
credit during the year ended December 31, 2003. Accordingly, all have been
classified as short term liabilities.
Long term lines of credit consisted of the following at December 31, 2002:
Line of Credit with a maximum amount of $400,000,
interest at a variable rate tied to prime (currently 4.25%),
interest-only payments due monthly until maturity at
September 9, 2011, guaranteed by sole shareholder $ 167,541
The future maturities of all of the lines of credit are presented below:
Year Ending
December 31, Amount
2003 $ 103,049
2004 -
2005 -
2006 -
2007 -
Thereafter 167,541
----------
Total 270,590
During the year ended December 31, 2002, the Company extinguished a note
payable, totaling $47,054, that had been outstanding since 1998. Upon the
extinguishments of the debt, the capitalized loan costs associated the note
were fully amortized to interest expense.
14
REFLECT SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2002 and 2001
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Operating Lease Obligations
The Company leases its office and warehouse space under non-cancelable lease
agreements accounted for as operating leases. The Company also leases several
automobiles under similar non-cancelable lease agreements, which are also
accounted for as operating leases.
Minimum rental payments under the non-cancelable operating leases are as
follows:
Years ending
December 31, Amount
2003 $ 66,931
2004 45,903
2005 12,019
2006 -
2007 -
---------
Total $ 124,853
=========
Rent expense was $74,718 and $73,547 for the years ended December 31, 2002,
and 2001, respectively.
Automobile lease expense was $12,953 and $19,293 for the years ended December
31, 2002, and 2001, respectively.
NOTE 7 - CONCENTRATIONS OF RISK
Cash in Excess of Federally Insured Amount
The Company currently maintains a cash balance at a single financial
institution in excess of the federally insured maximum of $100,000.
Revenues and Accounts Receivable
The Company has three significant customers that account for $1,525,421 and
$1,649,884, or 84% and 85%, of sales for the years ended December 31, 2002,
and 2001, respectively. These same three customers also account for $141,984
and $189,133, or 82% and 86%, of the total accounts receivable balance at
December 31, 2002, and 2001, respectively.
15
For the periods ended September 30, 2003 and December 31, 2002:
REFLECT SCIENTIFIC, INC.
FINANCIAL STATEMENTS
September 30, 2003 and December 31, 2002
REFLECT SCIENTIFIC, INC.
Balance Sheets
ASSETS
September 30, December 31,
2003 2002
(Unaudited)
CURRENT ASSETS
Cash $ 131,140 $ 115,644
Accounts receivable 266,867 172,900
Inventory, net 239,933 245,921
Prepaid expenses 800 6,924
----------- ----------
Total Current Assets 638,740 541,389
----------- ----------
FIXED ASSETS (NET) 22,965 24,291
----------- ----------
OTHER ASSETS
Deposits 5,350 5,350
Capitalized loan costs 6,195 6,825
----------- ----------
Total Other Assets 11,545 12,175
----------- ----------
TOTAL ASSETS $ 673,250 $ 577,855
=========== ==========
The accompanying notes are an integral part of these financial statements.
2
REFLECT SCIENTIFIC, INC.
Balance Sheets (Continued)
LIABILITIES AND SHAREHOLDER'S EQUITY
September 30, December 31,
2003 2002
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 161,986 $ 123,704
Accrued expenses 11,285 11,924
Short term lines of credit - 103,049
----------- ------------
Total Current Liabilities 173,271 238,677
----------- ------------
NON-CURRENT LIABILITIES
Long term line of credit 269,011 167,541
----------- ------------
Total Non-Current Liabilities 269,011 167,541
----------- ------------
Total Liabilities 442,282 406,218
----------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY
Common stock, $1.00 par value, authorized
1,000,000 shares; 10,000 shares issued and
outstanding 10,000 10,000
Retained earnings 220,968 161,637
----------- ------------
Total Shareholder's Equity 230,968 171,637
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 673,250 $ 577,855
=========== ============
The accompanying notes are an integral part of these financial statements.
3
REFLECT SCIENTIFIC, INC.
Statements of Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
REVENUES $ 467,424 $ 457,067 $ 1,425,762 $ 1,351,409
COST OF GOODS SOLD 272,510 254,829 854,396 777,057
----------- ----------- ------------ -----------
GROSS PROFIT 194,914 202,238 571,366 574,352
----------- ----------- ------------ -----------
OPERATING EXPENSES
Salaries and wages 78,233 70,137 230,007 206,653
Payroll taxes 6,386 5,920 19,644 15,780
Rent expense 19,116 18,870 56,596 55,683
General and
administrative expense 57,346 35,374 93,526 116,059
----------- ----------- ------------ -----------
Total Operating
Expenses 161,081 130,301 399,773 394,175
----------- ----------- ------------ -----------
OPERATING INCOME 33,833 71,937 171,593 180,177
----------- ----------- ------------ -----------
OTHER EXPENSES
Interest expense (3,194) (1,780) (11,262) (12,069)
----------- ----------- ------------ -----------
Total Other Expenses (3,194) (1,780) (11,262) (12,069)
----------- ----------- ------------ -----------
NET INCOME $ 30,639 $ 70,157 $ 160,331 $ 168,108
=========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements.
4
REFLECT SCIENTIFIC, INC.
Statements of Shareholder's Equity
Common Stock Retained
Shares Amount Earnings
Balances, December 31, 2001 $ 10,000 $ 10,000 $ 83,619
Distributions to sole shareholder - - (63,000)
Net income for the year ended
December 31, 2002 - - 141,018
----------- --------- ----------
Balances, December 31, 2002 10,000 10,000 161,637
Distributions to sole
shareholder (unaudited) - - (101,000)
Net income for the nine months
ended September 30, 2003
(unaudited) - - 160,331
----------- --------- ----------
Balances, September 30, 2003
(unaudited) 10,000 $ 10,000 $ 220,968
=========== ========= ==========
The accompanying notes are an integral part of these financial statements.
5
REFLECT SCIENTIFIC, INC.
Statements of Cash Flows
(Unaudited)
For the
Nine Months Ended
September 30,
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 160,331 $ 168,108
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,776 423
Amortization of capitalized loan costs 630 2,183
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (93,967) 49,635
(Increase) in prepaid expenses 6,124 -
(Increase) decrease in inventory 5,988 (92,776)
Decrease in deposits - 1,884
Increase (decrease) in accounts payable and
accrued expenses 37,643 (60,095)
------------ ------------
Net Cash Provided by Operating Activities 118,525 69,362
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (450) -
------------ ------------
Net Cash Used by Investing Activities (450) -
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short term lines of credit (103,049) (5,609)
Payments on note payable - (47,054)
Proceeds from long term line of credit 101,470 101,664
Capitalized loan costs - (7,000)
Distributions to sole shareholder (101,000) (63,000)
------------ ------------
Net Cash Used by Financing Activities (102,579) (20,999)
------------ ------------
NET INCREASE IN CASH 15,496 48,363
CASH AT BEGINNING OF PERIOD 115,644 62,049
------------ ------------
CASH AT END OF PERIOD $ 131,140 $ 110,412
============ ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 11,380 $ 13,876
Income taxes $ - $ -
The accompanying notes are an integral part of these financial statements.
6
REFLECT SCIENTIFIC, INC.
Notes to the Financial Statements
September 30, 2003 and December 31, 2002
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by the Company pursuant to accounting principals 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, 2002 financial statements. Operating
results for the nine months ended September 30, 2003 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2003.
7
(b) Pro Forma Financial Information.
Pro forma financial statements are deemed to be not material.
(c) Exhibits.
2.1 Agreement and Plan of Reorganization
Exhibit A- Reflect Stockholders
Exhibit B- Cole Financial Statements
Exhibit B-1 Cole Financial Statements
Exhibit C- Exceptions to Cole Financial
Statements
Exhibit D- Reflect Financial Statements
Exhibit E- Exceptions to Reflect Financial
Statements
Exhibit F- Investment Letter
Exhibit G- Cole Compliance Certificate
Exhibit H- Reflect Compliance Certificate
3.1 Certificate of Amendment authorizing the Board of
Directors to effect a reverse or forward split and
to change the name of the Registrant without further
stockholder approval.
3.2 Certificate of Amendment for Name Change.
16.1 Letter of Mantyla, McReynolds
Item 8. Change in Fiscal Year.
----------------------
None; not applicable.
Item 9. Regulation FD Disclosure.
-------------------------
See the Press Release that was distributed on December 31, 2003, and
filed on Form 8-K Current Report dated December 31, 2003, and filed with the
Securities and Exchange Commission on December 31, 2003.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Current Report to be signed on its behalf
by the undersigned hereunto duly authorized.
Reflect Scientific, Inc.
DATED: 01/15/03 /s/ Kim Boyce
------------------ ----------------------------
Kim Boyce
President and Director