U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the calender year ended December 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to __________________
Commission File No. 001-08397
REFLECT SCIENTIFIC, INC.
------------------------
(Name of Small Business Issuer in its Charter)
UTAH 87-0642556
---- ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
970 Terra Bella Avenue
Mountain View, California, 94043
--------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (650) 960-0300
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $0.01 par value
------------------------------
Check whether the Company (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") during the past 12 months (or for such shorter period that the
Company was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will
be contained, to the best of the Company's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent calender year: December
31, 2003: $1,928,663.
The aggregate market value of the common equity of our Company
(comprised only of common stock) held by non-affiliates, based upon the
average bid and asked prices of the common stock of our Company on March 15,
2004 ($.18 per share), as reported by the OTC Bulletin Board, was
approximately $949,815, based upon an ownership of 5,276,750 shares.
Our Company has not been involved in any bankruptcy proceedings.
The number of shares of our Company's common equity outstanding as
of March 15, 2004, was 24,000,000 shares of common stock.
A description of "Documents Incorporated by Reference" is
contained in the Exhibit Index, Part III, Item 13, of this Annual Report.
Transitional Small Business Disclosure Format: Yes X No
--- ---
PART I
Item 1. Description of Business.
Business Development.
---------------------
General.
--------
Reflect Scientific, Inc., a Utah corporation (the "Company," "we,"
"our," "us" and words of similar import), was organized under the laws of the
State of Utah on November 3, 1999, under the name "Cole, Inc.," for the
primary purpose of offering formatting and EDGAR filing services for companies
and individuals that desired to submit electronic filings to the Securities
and Exchange Commission. These business operations were minimal, and were not
deemed to be material.
Material Developments During Calender 2003.
-------------------------------------------
The Board of Directors and certain holders of our Company's common
stock who owned a majority of the outstanding voting securities (54.8%) have
voted to amended Article IV of our Articles of Incorporation to increase the
authorized capital to $550,000 divided into 55,000,000 shares of $0.01 par
value stock, divided into two classes, 50,000,000 shares of common stock and
5,000,000 shares of preferred stock, and to add new Article XI to the Articles
of Incorporation to provide that the Board of Directors can change our name
without shareholder approval to a name that reflects the industry or business
in which our Company's business operations are conducted or to a name that
will promote or conform to any principal product, technology or other asset of
our Company that the Board of Directors, in its sole discretion, deems
appropriate. See our Company's Definitive Information Statement that was
filed with the Securities and Exchange Commission on August 25, 2003, and
which is incorporated by reference herein. See Part III, Item 13.
Effective as of December 31, 2003, our Company, Reflect Scientific,
Inc., a California corporation ("Reflect California"), and all of the
stockholders of Reflect California (the "Reflect California Stockholders"),
executed an Agreement and Plan of Reorganization (the "Reflect California
Agreement"), whereby we agreed to acquire 100% of the outstanding
shares of common stock of Reflect California in exchange for an aggregate of
22,914,949 shares of common stock of our Company. The combination of these
entities was treated as a "reverse" reorganization for accounting purposes,
and Reflect California became a wholly-owned subsidiary of our Company on
closing. For additional information, see our Company's 8-K dated December 31,
2003, filed with the Securities and Exchange Commission on January 15, 2004,
and which is incorporated by reference herein. See Part III, Item 13.
Following the closing of the Reflect California Agreement, we
amended our Articles of Incorporation to change our name to "Reflect
Scientific, Inc." A copy of the Articles of Amendment was attached to our
Company's Form 8-K Current Report dated December 31, 2003. See Part III, Item
13.
Material Developments Prior to Calender 2003.
---------------------------------------------
For a discussion of the material developments of our Company prior
to December 31, 2002, see our 10-KSB Annual Report for the year ended December
31, 2002, filed with the Securities and Exchange Commission on March 31, 2003,
and which incorporated herein by reference. See Part III, Item 13.
Business.
---------
Our Company, through Reflect California, is 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. Kim Boyce, our Company's current President and
sole Director, founded our Company in Mountain View, California, in 1993, to
provide these products to customer specification and in specialized packaging
direct to high volume OEM clients.
Chromatography, which is a laboratory technique for separating a
mixture of compounds into its individual components and is the most prevalent
chemical analysis technique in the world. Many of the products from our
Company are related directly to this analytical technique. Our Company holds
an excellent niche share of an immense global market and has maintained a
positive growth profile since inception.
We boast 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 our filters, which are
manufactured internally and delivered to our 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. Our Company
established access to so many local leading companies that utilize our
existing products and present our Company with a unique opportunity for
growth.
Our 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.
Our Company's OEM Strategy is to manufacture products as defined by
the buyers and to nameplate these products with the name of the buyers as if
our Company were an in-house R & D company manufacturing specifically for a
parent has proved to be immediately successful in creating a niche market. By
producing precisely what OEM's require in such critical areas as gas
purifiers, our Company is not under pressure to create our own catalogue
or to compete against any other producer of similar "consumables" directly
since our work is within the scientific confines of the buyers' companies and
often carries the nameplate of the buyers. It was and remains the belief of
Mr. Boyce as CEO that this unique sales program, 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 10 to 20.
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. We are 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).
Sources and Availability of Raw Materials.
------------------------------------------
Sources and availability of key mateials and intermediates continue
to remain stable. Where supply is considered a critical success factor for our
business, we have certified vendors in place.
Dependence One or More Customers.
---------------------------------
Three of our customers represent approximately 80% of our revenues.
Our relationships with these customers are strong and have been stable for
many years.
Competitive Conditions.
-----------------------
In recent years, including our calendar year ended December 31,
2003, there has been no erosion in our business due to changes in competition.
We continue to enjoy a strong niche market that remains somewhat insulated
from main stream competition.
Patents and Trademarks.
-----------------------
We do not have any patents or trademarks, and to the best of our
knowledge, none of our products infringe on any other's patents or trademarks.
We are not making or selling any products under any third party licensing
agreements.
Growth Plan.
------------
Outlined below are the key elements of our Company's current plans
to (i) expand our 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.
----------------------
We have 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 us to
build a stronger presence in the biotech markets.
Biotech Technology Acquisitions/Licensing.
------------------------------------------
Once established in this field as a service provider, we can
develop alliances and identify additional areas of opportunity. Several
consultants have been contacted and identified as individuals who could
provide us with excellent insight. This, coupled with our 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 and others, all of which are
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 us into a leading edge company with high
market value added. The plan is preferred against trying to acquire an
existing biotech company, which (even if available) would come at extremely
high multiples. Our 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. 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.
Research and Development.
-------------------------
In 2002, we expended $12,063 for research and development. From
January 1, 2003, to December 31, 2003, we expended $18,807 for research and
development.
Employees.
----------
Our Company employs eight full time employees and two part time
employees.
Effect of Existing or Probable Governmental Regulations on
Business.
---------
Small Business Issuer.
----------------------
The integrated disclosure system for small business issuers
adopted by the Securities and Exchange Commission in Release No. 34-30968 and
effective as of August 13, 1992, substantially modified the information and
financial requirements of a "Small Business Issuer," defined to be an issuer
that has revenues of less than $25 million; is a U.S. or Canadian issuer; is
not an investment company; and if a majority-owned subsidiary, the parent is
also a small business issuer; provided, however, an entity is not a small
business issuer if it has a public float (the aggregate market value of the
issuer's outstanding securities held by non-affiliates) of $25,000,000 or
more. Our Company is deemed to be a "small business issuer."
The Securities and Exchange Commission, state securities commissions
and the North American Securities Administrators Association, Inc. ("NASAA")
have expressed an interest in adopting policies that will streamline the
registration process and make it easier for small business issuers to have
access to the public capital markets.
Sarbanes-Oxley Act.
-------------------
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley
Act of 2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act imposes a wide
variety of new regulatory requirements on publicly-held companies and their
insiders. Many of these requirements will affect our Company. For example:
* Our chief executive officer and chief financial officer must
now certify the accuracy of all of the periodic reports that
contain financial statements;
* Our periodic reports must disclose the conclusions about the
effectiveness of the disclosure controls and procedures; and
* We may not make any loan to any director or executive
officer, and we may not materially modify any existing loans.
The Sarbanes-Oxley Act has required us to review the current
procedures and policies to determine whether they comply with the
Sarbanes-Oxley Act and the new regulations promulgated thereunder. Our
Company will continue to monitor compliance with all future regulations that
are adopted under the Sarbanes-Oxley Act and will take whatever actions are
necessary to ensure that we are in compliance.
Penny Stock.
------------
Our Company's common stock is "penny stock" as defined in Rule
3a51-1 of the Securities and Exchange Commission. Penny stocks are stocks:
* with a price of less than five dollars per share;
* that are not traded on a "recognized" national exchange;
* whose prices are not quoted on the NASDAQ automated quotation
system; or
* in issuers with net tangible assets less than $2,000,000, if
the issuer has been in continuous operation for at least three
years, or $5,000,000, if in continuous operation for less than
three years, or with average revenues of less than $6,000,000
for the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 of the Securities
and Exchange Commission require broker/dealers dealing in penny stocks to
provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the
document before making any transaction in a penny stock for the investor's
account. You are urged to obtain and read this disclosure carefully before
purchasing any of the shares.
Rule 15g-9 of the Securities and Exchange Commission requires
broker/dealers in penny stocks to approve the account of any investor for
transactions in these stocks before selling any penny stock to that investor.
This procedure requires the broker/dealer to:
* get information about the investor's financial situation,
investment experience and investment goals;
* reasonably determine, based on that information, that
transactions in penny stocks are suitable for the investor and
that the investor can evaluate the risks of penny stock
transactions;
* provide the investor with a written statement setting forth
the basis on which the broker/dealer made his or her
determination; and
* receive a signed and dated copy of the statement from the
investor, confirming that it accurately reflects the investor'
financial situation, investment experience and investment
goals.
Compliance with these requirements may make it harder for the
Company's stockholders to resell their shares.
Reporting Obligations.
----------------------
Section 14(a) of the Exchange Act requires all companies with
securities registered pursuant to Section 12(g) of the Exchange Act to comply
with the rules and regulations of the Securities and Exchange Commission
regarding proxy solicitations, as outlined in Regulation 14A. Matters
submitted to stockholders of our Company at a special or annual meeting
thereof or pursuant to a written consent will require our Company to provide
the stockholders with the information outlined in Schedules 14A or 14C of
Regulation 14; preliminary copies of this information must be submitted to the
Securities and Exchange Commission at least 10 days prior to the date that
definitive copies of this information are forwarded to our Company's
stockholders.
Our Company is also required to file annual reports on Form 10-KSB
and quarterly reports on Form 10-QSB with the Securities Exchange Commission
on a regular basis, and will be required to timely disclose certain material
events (e.g., changes in corporate control; acquisitions or dispositions of a
significant amount of assets other than in the ordinary course of business;
and bankruptcy) in a Current Report on Form 8-K.
Governmental Approvals.
-----------------------
No products presently being manufactured or sold are subject to
prior governmental approvals.
Item 2. Description of Property.
Facilities.
-----------
Ogden, Utah - This facility is a manufacturing and office facility
with 2,552 square feet of space; our Company 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; our Company 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; our Company leases this facility at $1,717 per
month with the lease term expiring June 31, 2005.
Item 3. Legal Proceedings.
There are no material legal proceedings pending against or involving
our Company; and none of its directors, executive officers or 10% stockholders
is party to any action adverse to our Company.
Item 4. Submission of Matters to a Vote of Security Holders.
On July 29, 2003, the Board of Directors and certain holders of our
Company's common stock who owned a majority of the outstanding voting
securities (54.8%) voted to amended Article IV to increase the authorized
capital to $550,000 divided into 55,000,000 shares of $0.01 par value stock,
divided into two classes, 50,000,000 shares of common stock and 5,000,000
shares of preferred stock, and to add new Article XI to the Articles of
Incorporation to provide that the Board of Directors can change the name of
our Company without shareholder approval to a name that reflects the
industry or business in which our Company's business operations are conducted
or to a name that will promote or conform to any principal product, technology
or other asset of our Company that the Board of Directors, in its sole
discretion, deems appropriate.
For a detailed discussion of these matters, see our Company's
Definitive Information Statement filed with the Securities and Exchange
Commission on August 25, 2003. See Item 13, Part III.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The common stock of our Company is quoted on the OTC Bulletin Board
of the National Association of Securities Dealers, Inc. (the "NASD")under the
symbol "COLH." Our Company intends to seek a new symbol in the near future
that reflects its new name.
Market Prices and Bid Information for Common Stock.
---------------------------------------------------
The following table sets forth, for the periods indicated, the high
and low bid information for our Company's common stock on the OTC Bulletin
Board for the two years ended December 31, 2003:
Calender Quarterly
Year Period High Low
------ --------- ---- ---
2003: First Quarter $0.10 $0.10
Second Quarter 0.11 0.10
Third Quarter 0.11 0.11
Fourth Quarter 0.11 0.11
2002: First Quarter $0.10 $0.02
Second Quarter 0.10 0.02
Third Quarter 0.10 0.02
Fourth Quarter 0.10 0.02
The high and low bid information respecting the quotations of our
Company's common stock on the OTC Bulletin Board was provided by the National
Quotations Bureau, LLC, and reflects inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
Holders.
--------
The number of record holders of our Company's common stock as of
March 15, 2004, was approximately 42; this number does not include an
indeterminate number of stockholders whose shares may be held by brokers in
street name.
Dividends.
----------
Our Company has not declared any cash dividends with respect to
the common stock, and does not intend to declare dividends in the
foreseeable future. The present intention of management is to utilize all
available funds for the development of our Company's business. There are no
material restrictions limiting, or that are likely to limit, our Company's
ability to pay dividends on the common stock.
Recent Sales of Restricted Securities.
--------------------------------------
Common Stock.
-------------
The only "restricted securities" issued by our Company during the past
three years were issued pursuant to the "Reflect California Agreement." See
the heading "Business Development" of Part I, Item 1. The following indicates
the number of shares of Reflect California common stock exchanged for shares
of common stock of our Company.
Number of Shares Number of Shares of
Owned of Cole to be
Name and Address Reflect Received in Exchange
---------------- ------- --------------------
Kim Boyce 8,171 18,723,250
970 Terra Bella Avenue
Mountain View, CA 94043
Michael Dancy 43.6 100,000
Suite 205
455 East 500 South Street
Salt Lake City, Utah 84111
Diversified Instruments, LLC 733.8 1,681,500
528 14th Avenue
Salt Lake City, Utah 84103
David Nelson 43.6 100,000
Suite 200
455 East 500 South Street
Salt Lake City, Utah 84111
SCS, Inc. 1,008 2,310,199
Suite 200
455 East 500 South Street
Salt Lake City, Utah 84111
------ ----------
Totals: 10,000 22,914,949
Item 6. Management's Discussion and Analysis or Plan of Operation
Plan of Operations.
-------------------
For the next 12 months, we see:
(1) A continued expansion of our core business through the development
and commercialization of new products, that have already been identified, to
meet existing market opportunities. This will be supported by an ongoing
effort to create strategic marketing alliances that are targeted towards
increasing net present value by optimizing cost and speed to market. Seven new
products are currently pending commercialization.
(2) The continuation of a complementary growth initiative, through
strategic acquisitions, to improve our position with respect to tools,
technologies and intellectual property as well as providing a near term
increase in earnings. Four related programs are currently in progress.
(3) As part of an ongoing management process, our fund raising efforts
and support for the above initiatives will be continuously reviewed and
prioritized to ensure that returns are commensurate with levels of investment.
Also see the heading "Growth Plan" of the heading "Business" of Part I,
Item 1.
Results of Operations.
----------------------
Our revenues increased during the year ended December 31, 2003, to
$1,928,663, from $1,810,528 for the year ended December 31, 2002, primarily as
a result of a general improvement in sales across most product lines, due to
improving market conditions and an increase in sales of laboratory glassware.
Our cost of goods increased in the period ending December 31, 2003
as compared to December 31, 2002 to $1,213,889 from $1,078,721. The difference
was partly as a result of a write off of obsolete inventory. The percentage on
gross margins for the two years was essentially unchanged.
General and administrative expenses increased to $231,122 during the
year ended December 31, 2003, from $182,154 during the year ended December 31,
2002. This increase was due to the addition of one full time employee to
assist in the development and introduction of new products as an investment in
the future.
Liquidity and Capital Resources.
--------------------------------
Our cash resources at December 31, 2003, were $99,924, with accounts
receivable of $232,464. We have relied on revenues and lines of credit for
our cash resources. At December 31, 2003, we had utilized $269,011 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.
Forward-Looking Statements.
---------------------------
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a safe harbor for forward-looking statements made by or on behalf of
our Company. Our Company and its representatives may from time to time make
written or oral statements that are "forward- looking," including statements
contained in this Annual Report and other filings with the Securities and
Exchange Commission and in reports to our Company's stockholders. Management
believes that all statements that express expectations and projections with
respect to future matters, as well as from developments beyond our Company's
control including changes in global economic conditions are forward-looking
statements within the meaning of the Act. These statements are made on the
basis of management's views and assumptions, as of the time the statements are
made, regarding future events and business performance. There can be no
assurance, however, that management's expectations will necessarily come to
pass. Factors that may affect forward- looking statements include a wide
range of factors that could materially affect future developments and
performance, including the following:
Changes in Company-wide strategies, which may result in changes in
the types or mix of businesses in which our Company is involved or chooses to
invest; changes in U.S., global or regional economic conditions, changes in
U.S. and global financial and equity markets, including significant interest
rate fluctuations, which may impede our Company's access to, or increase the
cost of, external financing for our operations and investments; increased
competitive pressures, both domestically and internationally, legal and
regulatory developments, such as regulatory actions affecting environmental
activities, the imposition by foreign countries of trade restrictions and
changes in international tax laws or currency controls; adverse weather
conditions or natural disasters, such as hurricanes and earthquakes, labor
disputes, which may lead to increased costs or disruption of operations.
This list of factors that may affect future performance and the
accuracy of forward-looking statements is illustrative, but by no means
exhaustive. Accordingly, all forward-looking statements should be evaluated
with the understanding of their inherent uncertainty.
Item 7. Financial Statements.
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
(FORMERLY COLE INC.)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations. . . . . . . . . . . . . 6
Consolidated Statements of Shareholder's Equity. . . . . . . . 7
Consolidated Statements of Cash Flows. . . . . . . . . . . . . 8
Notes to the Consolidated Financial Statements . . . . . . . . 9
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Reflect Scientific, Inc. and Subsidiary
(Formerly Cole, Inc.)
Mountain View, California
We have audited the accompanying consolidated balance sheet of Reflect
Scientific, Inc. and Subsidiary, as of December 31, 2003, and the related
consolidated statements of operations, shareholder's equity and cash flows for
the years ended December 31, 2003, and 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on the 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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that the audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Reflect
Scientific, Inc. and Subsidiary, as of December 31, 2003, and the results of
their operations and their cash flows for the years ended December 31, 2003,
and 2002, in conformity with accounting principles generally accepted in the
United States of America.
/s/HJ Associates & Consultants, LLP
HJ Associates & Consultants, LLP
Salt Lake City, Utah
March 22, 2004
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Consolidated Balance Sheet
ASSETS
December 31,
2003
CURRENT ASSETS
Cash $ 99,924
Accounts receivable (Note 2) 232,464
Inventory, net (Note 4) 210,447
Prepaid assets 800
-----------
Total Current Assets 543,635
-----------
FIXED ASSETS, NET (Note 3) 21,923
-----------
OTHER ASSETS
Deposits 5,350
Capitalized loan costs (Note 2) 6,125
-----------
Total Other Assets 11,475
-----------
TOTAL ASSETS $ 577,033
===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Consolidated Balance Sheet (Continued)
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31,
2003
CURRENT LIABILITIES
Accounts payable $ 199,374
Accrued expenses 15,180
----------
Total Current Liabilities 214,554
----------
NON-CURRENT LIABILITIES -
Long term line of credit (Note 5) 269,011
----------
Total Non-Current Liabilities 269,011
----------
Total Liabilities 483,565
----------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDER'S EQUITY
Common stock, $0.01 par value, authorized
50,000,000 shares; 24,000,000 shares issued
and outstanding 240,000
Additional paid in capital (Deficit) (210,841)
Retained earnings 64,309
----------
Total Shareholder's Equity 93,468
----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 577,033
==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Consolidated Statements of Operations
For the Years Ended
December 31,
2003 2002
REVENUES $1,928,663 $1,810,528
COST OF GOODS SOLD 1,213,889 1,078,721
---------- ----------
GROSS PROFIT 714,774 731,807
---------- ----------
OPERATING EXPENSES
Salaries and wages 336,899 288,405
Payroll taxes 27,695 23,801
Rent expense 75,701 74,718
General and administrative 231,122 182,154
---------- ----------
Total Operating Expenses 671,417 569,078
---------- ----------
OPERATING INCOME 43,357 162,729
---------- ----------
OTHER INCOME (EXPENSES)
Other Income 30,000 -
Interest expense (14,685) (21,711)
---------- ----------
Total Other Income (Expenses) 15,315 (21,711)
---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 58,672 141,018
---------- ----------
Income tax expense - -
---------- ----------
NET INCOME $ 58,672 $ 141,018
========== ==========
EARNINGS PER SHARE $ 0.00 $ 0.01
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 22,917,922 22,914,949
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
(Formerly Cole, Inc.)
Consolidated Statements of Shareholder's Equity
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
Balance, December 31, 2001 22,914,249 $ 10,000 $ - $ 83,619
Dividend - - - (63,000)
Net income for the year
ended December 31, 2002 - - - 141,018
---------- --------- -------- --------
Balance, December 31, 2002 22,914,949 10,000 - 161,637
Dividend - - - (156,000)
Contributed Capital - - 26,950 -
Recapitalization (Note 1) 1,085,051 230,000 (237,791) -
Net income for the year
ended December 31, 2003 - - - 58,672
---------- --------- -------- ---------
Balance, December 31, 2003 24,000,000 $ 240,000 $(210,841) $ 64,309
========== ========= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 58,672 $ 141,018
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 2,368 753
Amortization of capitalized
loan costs 700 2,358
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (59,564) 48,355
(Increase) decrease in prepaid
expenses 6,125 (6,124)
(Increase) decrease in net
inventory 35,474 (66,014)
Decrease in deposits - 1,884
Increase (Decrease) in accounts
payable and accrued liabilities 71,135 (48,104)
-------- ---------
Net Cash Provided by
Operating Activities 114,909 74,126
--------- ---------
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 (103,049) (6,883)
Payments on notes payable - (47,054)
Capitalized loan costs - (7,000)
Proceeds from long term line of credit 101,470 108,664
Capital contribution 26,950 -
Dividends paid (156,000) (63,000)
--------- ---------
Net Cash Used by
Financing Activities (130,629) (15,248)
--------- ---------
NET INCREASE (DECREASE) IN CASH (15,720) 53,595
CASH AT BEGINNING OF YEAR 115,644 62,049
--------- ---------
CASH AT END OF YEAR $ 99,924 $ 115,644
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 14,685 $ 18,502
Income taxes $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Cole, Inc. (the Company) was incorporated under the laws of the State of
Utah on November 3, 1999. The Company was organized to engage in any
lawful activity for which corporations may be organized under the Utah
Revised Business Corporation Act. On December 30, 2003 the Company
changed its name to Reflect Scientific, Inc.
Reflect Scientific, Inc. a California Corporation, was incorporated on
June 14, 1993, under the laws of California to engage in the manufacture
of test kits for use in scientific studies.
On December 30, 2003, pursuant to an agreement and plan of
reorganization, the Company completed a reverse merger with the
shareholders 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. The operations
for the year ended December 31, 2003 and 2002 are those of Reflect
Scientific, Inc.
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.
F-9
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Accounts Receivable
The Company writes off trade receivables when deemed uncollectable.
$11,038 and $-0- were deemed to be uncollectable during the years ended
December 31, 2003, and 2002, respectively. The allowance for doubtful
accounts balance at December 31, 2003 was $11,038.
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.
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 $700 and
$2,358 in 2003, and 2002, respectively.
g. Advertising Expense
The Company follows the policy of charging the costs of advertising to
expense as incurred. The Company recognized $3,036 and $5,542 of
advertising expense during the years ended December 31, 2003, and 2002,
respectively.
h. Newly Issued Accounting Pronouncements
During the year ended December 31, 2003, the Company adopted the
following accounting pronouncements:
SFAS No. 143 -- In August 2001, the FASB issued SFAS No. 143, Accounting
for Asset Retirement Obligations, which established a uniform
methodology for accounting for estimated reclamation and abandonment
costs. The statement was effective for calender years beginning after
June 15, 2002. The adoption of SFAS No. 143 did not have a material
effect on the financial statements of the Company.
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.
F-10
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
. . . . .Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Newly Issued Accounting Pronouncements (Continued)
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 adoption of SFAS 145 did not have a
material effect on the financial statements of the Company.
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 adoption of SFAS
146 did not have a material effect on the financial statements of the
Company.
SFAS No. 147 -- In October 2002, the Financial Accounting Standards
Board FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 147, "Acquisitions of Certain Financial Institutions" which is
effective for acquisitions on or after October 1, 2002. This statement
provides interpretive guidance on the application of the purchase method
to acquisitions of financial institutions. Except for transactions
between two or more mutual enterprises, this Statement removes
acquisitions of financial institutions from the scope of both SFAS 72
and Interpretation 9 and requires that those transactions
F-11
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Newly Issued Accounting Pronouncements (Continued)be accounted for in
accordance with SFAS No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets". The adoption of SFAS No. 147
did not have a material effect on the financial statements of the
Company.
SFAS No. 148 -- In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock Based Compensation-Transition and Disclosure-an
amendment of FASB Statement No. 123" which is effective for financial
statements issued for calender years ending after December 15, 2002.
This Statement amends SFAS 123, Accounting for Stock-Based Compensation,
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, this Statement 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 compensation and the effect of the method used on reported
results. The adoption of SFAS No. 148 did not have a material effect on
the financial statements of the Company.
SFAS No. 149 -- In April 2003, the FASB issued SFAS No. 149, "Amendment
of Statement 133 on Derivative Instruments and Hedging Activities" which
is effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. This
statement amends and clarifies financial accounting for derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and hedging activities under SFAS 133. The adoption of
SFAS No. 149 did not have a material effect on the financial statements
of the Company.
SFAS No. 150 -- In May 2003, the FASB issued SFAS No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" which is effective for financial instruments
entered into or modified after May 31, 2003, and is otherwise effective
at the beginning of the first interim period beginning after June 15,
2003. This Statement establishes standards for how an issuer classifies
and measures in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances) because
that financial instrument embodies an obligation of the issuer. The
adoption of SFAS No. 150 did not have a material effect on the financial
statements of the Company.
FASB Interpretation No. 45 -- "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others an Interpretation of FASB Statements No. 5, 57
and 107". The initial recognition and initial measurement provisions of
this Interpretation are to be applied prospectively to guarantees issued
or modified after December 31, 2002. The disclosure requirements in the
Interpretation were effective for financial statements of interim or
annual periods ending after December 15, 2002. The adoption of FASB
F-12
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Newly Issued Accounting Pronouncements (Continued)
Interpretation No. 45 did not have a material effect on the financial
statements of the Company.
FASB Interpretation No. 46 -- In January 2003, the FASB issued FASB
Interpretation No. 46 "Consolidation of Variable Interest Entities." FIN
46 provides guidance on the identification of entities for which control
is achieved through means other than through voting rights, variable
interest entities, and how to determine when and which business
enterprises should consolidate variable interest entities. This
interpretation applies immediately to variable interest entities created
after January 31, 2003. It applies in the first calender year or interim
period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before
February 1, 2003. The adoption of FIN 46 did not have a material impact
on the Company's financial statements.
During the year ended December 31, 2003, the Company adopted the
following Emerging Issues Task Force Consensuses: EITF Issue No. 00-21
"Revenue Arrangements with Multiple Deliverables", EITF Issue No. 01 8
" Determining Whether an Arrangement Contains a Lease", EITF Issue No.
02-3 "Issues Related to Accounting for Contracts Involved in Energy
Trading and Risk Management Activities", EITF Issue No. 02-9 "Accounting
by a Reseller for Certain Consideration Received from a Vendor", EITF
Issue No. 02-17, "Recognition of Customer Relationship Intangible
Assets Acquired in a Business Combination", EITF Issue No. 02-18
"Accounting for Subsequent Investments in an Investee after Suspension
of Equity Method Loss Recognition", EITF Issue No. 03-1, "The Meaning of
Other Than Temporary and its Application to Certain Instruments", EITF
Issue No. 03-5, "Applicability of AICPA Statement of Position 9702,
'Software Revenue Recognition' to Non-Software Deliverables in an
Arrangement Containing More Than Incidental Software", EITF Issue No.
03-7, "Accounting for the Settlement of the Equity Settled Portion of a
Convertible Debt Instrument That Permits or Requires the Conversion
Spread to be Settled in Stock", EITF Issue No. 03-10, "Application of
EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to
Consumers by Manufacturers.
I. Basic Earnings Per Share
The computation of earnings per share of common stock are based on the
weighted average number of shares outstanding during the period of the
consolidated financial statements as follows:
For the Years Ended
December 31,
2003 2002
Net Income (Numerator) $ 58,672 $ 141,018
Shares (denominator) 22,917,922 22,914,949
Per share amount $ 0.00 $ 0.01
F-13
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
I. Basic Earnings Per Share (Continued)
As of December 31, 2003 and 2002 the Company had no outstanding common
stock equivalents, as such the diluted earnings per share and basic
earnings per share are the same.
j. Shipping and Handling Fees and Costs
The Company records all shipping and handling cost in cost of goods
sold.
k. Income Taxes
The following income tax information relates to Cole, Inc., the
surviving entity for tax purposes in the reverse acquisition described
in Note 1. Prior to the reverse acquisition, Reflect Scientific was a
Subchapter S corporation. All income and expenses were passed through
to the Company's shareholder, who was taxed at the individual level
based upon his pro rata shares of the Company's net earnings.
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax assets are recognized
for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of
December 31, 2003 and 2002:
2003 2002
Deferred tax assets:
NOL Carryover $ - $ 2,679
Deferred tax liabilities: - -
Valuation allowance - (2,679)
------- -------
Net deferred tax asset $ - $ -
======= =======
F-14
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Income Taxes (Continued)
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax income
from continuing operations for the years ended December 31, 2003 and
2002 due to the following:
2003 2002
Book income $ - $(1,245)
Other - (180)
Valuation allowance - 1,425
------ -------
$ - $ -
====== =======
At December 31, 2003, the Company had net operating loss carryforwards
of $0.
At December 31, 2003, the Company had net operating loss carryforwards
of approximately $22,000 that may be offset against future taxable
income from the year 2003 through 2023. No tax benefit has been
reported in the December 31, 2003 consolidated financial statements
since the potential tax benefit is offset by a valuation allowance of
the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986,
net operating loss carryforwards for Federal income tax reporting
purposes are subject to annual limitations. Should a change in
ownership occur, net operating loss carryforwards may be limited as to
use in future years.
l. Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiary, which is wholly owned. All material
intercompany accounts and transactions are eliminated in consolidation.
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:
F-15
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 3 - FIXED ASSETS
December 31, 2003
Machinery and equipment $ 2,592
Furniture and fixtures 25,215
Computer and office equipment 57,064
Leasehold improvements 23,671
Accumulated depreciation (86,619)
-----------
Total Fixed Assets $ 21,923
===========
Depreciation expense for the years ended December 31, 2003, and 2002,
was $2,368 and $723, respectively.
NOTE 4 - INVENTORIES
Inventory consisted of the following at December 31, 2003:
December 31,
2003
------------
Raw materials $ 151,971
Work in process 8,121
Finished goods 105,441
Allowance (55,086)
------------
Total Fixed Assets $ 210,447
============
NOTE 5 - NOTES PAYABLE AND LINES OF CREDIT
Long term lines of credit consisted of the following at December 31,
2003:
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 major shareholder $ 269,011
============
F-16
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
NOTE 5 - NOTES PAYABLE AND LINES OF CREDIT (Continued)
The future maturities of all the line of credit is presented below:
Year Ending
December 31, Amount
2003 $ -
2004 -
2005 -
2006 -
2007 -
Thereafter 269,011
--------
Total $269,011
========
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
2004 $ 45,903
2005 12,019
2006 -
2007 -
2008 -
-----------
Total $ 57,922
===========
Rent expense was $75,701 and $74,718 for the years ended December 31,
2003, and 2002, respectively.
Automobile lease expense was $10,375 and $12,953 for the years ended
December 31, 2003, and 2002, respectively.
F-17
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
(Formerly Cole, Inc.)
Notes to the Consolidated Financial Statements
December 31, 2003 and 2002
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 $1,664,659
and $1,525,421 or 86% and 84%, of sales for the years ended December 31,
2003, and 2002, respectively. These same three customers also account
for $202,094 and $141,984, or 83% and 82%, of the total accounts
receivable balance at December 31, 2003, and 2002, respectively.
F-18
Item 8. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On January 13, 2004, upon approval of our Company's sole director,
we appointed HJ Associates & Consultants LLP as our Company's independent
auditors and dismissed Mantyla, McReynolds.
For a detailed discussion of this change, see our Company's 8-K
Current Report dated December 31, 2003, filed with the Securities and Exchange
Commission January 15, 2004. See Part III, Item 13.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers of the Company.
------------------------------------------------
The following table sets forth certain information concerning the
directors and executive officers of our Company.
Officer/
Director
Name Age Position Since
---- --- -------- --------
Kim Boyce 49 President and Sole Director 12/31/03
Pamela Boyce 50 Secretary 12/31/03
Family Relationships.
---------------------
Pamela Boyce is the wife of Kim Boyce, our Company's sole director.
All directors hold office until the next annual meeting of shareholders and
until their successors are duly elected and qualified. Officers serve at the
pleasure of the Board of Directors.
Audit Committee Financial Expert.
---------------------------------
Our Company does not have an audit committee or an audit committee
financial expert. Our Company does not believe, based upon its present
operations, that the failure to have such a committee or expert is material to
the financial statements of our Company.
Resumes of Directors and Executive Officers.
--------------------------------------------
The principal occupations of the executive officers and directors
named above for at least the past five years are as follows:
Kim Boyce. Mr. Boyce is the founder of Reflect California and
serves as President, Chief Executive Officer and Chairman of the Board of
Directors of our Company. Mr. Boyce has 31 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.
Pamela Boyce. Mrs. Boyce has been the Purchasing/ Business Manager
for Reflect California for the past five years. She has been involved in
procurement, inventory control, payroll and the manufacturing aspects of the
Mountain View, California, Union City, California and Ogden, Utah business
locations. She has served as secretary of Reflect California since 2000. She
has 20 years of business and management experience. Her responsibilities have
included purchasing, payroll, accounting and she has been involved with
district and in-house audit teams for a worldwide retail chain. She was also
the co-founder of a regional aviation company. Mrs. Boyce attended Fresno
City College in Fresno, California.
Section 16(a) Beneficial Reporting Compliance.
----------------------------------------------
Section 16(a) of the Exchange Act requires that our Company's
executive officers and directors, and persons who beneficially own more than
10% of our Company's Common Stock, file initial reports of stock ownership and
reports of changes in stock ownership with the Securities and Exchange
Commission. Officers, directors, and greater than 10% owners are required by
applicable regulations to furnish our Company with copies of all Section 16(a)
forms that they file.
Based solely on a review of the copies of such forms furnished to
our Company or written representations from certain persons, our Company
believes that during our calender year ended December 31, 2003, all filing
requirements applicable to our officers, directors and ten-percent were met by
such persons.
Code of Ethics.
---------------
Our Company has adopted a Code of Ethics that applies to all of the
Company's directors and executive officers serving in any capacity for the
Company, including its principal executive officer, principal financial
officer, principal accounting officer or controller or persons performing
similar functions, which Code of Ethics is attached hereto in Part III, Item
13, as Exhibit 14.
Item 10. Executive Compensation.
Compensation of Executive Officers.
-----------------------------------
The following table sets forth information concerning all cash
compensation paid by our Company for services in all capacities to our
Company's Principal Executive Officer during the two-year period ended
December 31, 2003. Our Company has no other officers whose total cash
compensation exceeded $100,000 for the year. Our Company has no plans that
will require our Company to contribute to or to provide pension, retirement or
similar benefits to directors or officers of our Company.
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) ) (d) (e) (f) (g) (h) (I)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensat'n
----------------------------------------------------------------------
Kim Boyce 12/31/03 $87,698 0 0 0 0 0 0
12/31/02 $76,579 0 0 0 0 0 0
Pamela Boyce 12/31/03 $52,611 0 0 0 0 0 0
12/31/02 $43,314 0 0 0 0 0 0
Options Grants in Last Calender Year.
-----------------------------------
Our Company granted no options or warrants during the calendar years
ended December 31, 2003 and 2002.
Compensation of Directors.
--------------------------
There are no standard arrangements pursuant to which our Company's
directors are compensated for any services provided as director. No
additional amounts are payable to our Company's directors for committee
participation or special assignments.
Termination of Employment and Change of Control Arrangement.
------------------------------------------------------------
There are no employment contracts, compensatory plans or
arrangements, including payments to be received from our Company, with respect
to any director or executive officer of our Company which would in any way
result in payments to any such person because of his or her resignation,
retirement or other termination of employment with our Company, any change in
control of our Company, or a change in the person's responsibilities following
a change in control of our Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the share holdings of those persons
who own more than five percent of our Company's common stock as of the date of
March 15, 2004:
Name and Address of Amount and Nature of Percent
Class Beneficial Owner Beneficial Ownership of Class
----- ---------------- -------------------- --------
Common Diversified Instruments 1,681,500(1) 7.0%
LLC
528 14th Avenue
Salt Lake City, Utah 84103
Common SCS, Inc. 2,310,199(2) 9.6%
455 East 500 South #200
Salt lake City, Utah 84111
Security Ownership of Management.
---------------------------------
The following table sets forth the share holdings of our Company's
directors and executive officers as of March 15, 2004:
Percentage Number
Name and Address of Class of Shares Beneficially Owned
---------------- -------- ----------------------------
Kim Boyce President and 18,723,250 78.0%
Sole Director
Pamela Boyce Secretary -0- 0.0%
All Directors and
Executive Officers
as a group (two persons) 18,723,250 78.0%
Item 12. Certain Relationships and Related Transactions.
Transactions with Management and Others.
----------------------------------------
There have been no material transactions, series of similar
transactions or currently proposed transactions, to which our Company or any
of our subsidiaries was or is to be a party, in which the amount involved
exceeds $60,000 and in which any director or executive officer, or any
security holder who is known to our Company to own of record or beneficially
more than five percent of our Company's common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Certain Business Relationships.
-------------------------------
There have been no material transactions, series of similar
transactions or currently proposed transactions, to which our Company or any
of our subsidiaries was or is to be a party, in which the amount involved
exceeds $60,000 and in which any director or executive officer, or any
security holder who is known to our Company to own of record or beneficially
more than five percent of our Company's common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Indebtedness of Management.
---------------------------
There have been no material transactions, series of similar
transactions or currently proposed transactions, to which our Company or any
of our subsidiaries was or is to be a party, in which the amount involved
exceeds $60,000 and in which any director or executive officer, or any
security holder who is known to our Company to own of record or beneficially
more than five percent of our Company's common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Parents of the Issuer.
----------------------
None; however Kim Boyce may be deemed to be our Company's "Parent" by
virtue of his substantial shareholdings in our Company.
Transactions with Promoters.
----------------------------
There have been no material transactions, series of similar
transactions, currently proposed transactions, or series of similar
transactions, to which our Company or any of our subsidiaries was or is to
be a party, in which the amount involved exceeds $60,000 and in which any
promoter or founder, or any member of the immediate family of any of the
foregoing persons, had a material interest.
Item 13. Exhibits and Reports on Form 8-K
(a) The following Exhibits are attached hereto or incorporated
herein by reference as indicated in the table below:
Exhibit Location if other
No. Title of Document than attached hereto
--- ----------------- --------------------
14 Code of Ethics
21 Subsidiaries of the Company
31.1 302 Certification
31.2 302 Certification
32 906 Certification
8-K Current Report dated December 31, 2003, filed with the Securities and
Exchange Commission on January 15, 2004.
8-K/A Current Report dated December 31, 2003, filed with the Securities and
Exchange Commission on January 22, 2004.
14 C Definitive Information Statement dated July 29, 2003, filed with the
Securities and Exchange Commission on August 25, 2003.
------------------
(b) Our Company did file a Current Report on Form 8-K
dated December 31, 2003, and filed with the Securities and Exchange Commission
on January 15, 2004.
Item 14. Controls and Procedures
As of December 31, 2003, an evaluation was performed by the
Company's management, including the CEO and one of its vice-presidents, of the
effectiveness of the design and operation of our Company's disclosure controls
and procedures. Based on that evaluation, our Company's management concluded
that our Company's disclosure controls and procedures were effective as of
December 31, 2003. There have been no significant changes in our Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to that date.
Our Company's auditors have noted that one employee is responsible
for maintaining accounting records. This employee also signs checks and is
responsible for reconciling bank account records; only one signature is
required on the checks. Our Company's auditors have recommended that an
independent person be responsible for reviewing the monthly bank statements
and reconciliations, and that this concern could be satisfied by having an
employee outside of the accounting functions or an accounting firm perform
this function. Management intends to implement this recommendation.
Item 15. Principal Accountant Fees and Services.
Audit Fees.
-----------
During the calender year ended December 31, 2003, audit expenses
were $1,692, and paid to Mantyla,McReynolds, CPA; and during the calender year
ended December 31, 2002, audit expenses were $1,459, to be paid to H.J. &
Associates LLC.
Audit Related Fees.
-------------------
During the calender year ended December 31, 2003, audit related fees
were $850, and paid to Mantyla, McReynolds, CPA; and during the calender year
ended December 31, 2002, audit expenses were $770, to be paid to H.J. &
Associates LLC.
Tax Fees.
---------
During the calender year ended December 31, 2003, tax related fees
were $175, and paid to Mantyla, McReynolds, CPA; and during the calender
year ended December 31, 2002, tax related fees were $135, to be paid to
H.J. & Associates LLC.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Company has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REFLECT SCIENTIFIC, INC.
Date: 04/12/04 /s/ KIM BOYCE
------------------------------------
Kim Boyce, President
Date: 04/12/04 /s/ PAMELA BOYCE
------------------------------------
Pamela Boyce, Secretary