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 calendar year ended December 31, 2005
[ ] 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 Issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. [ ]
Check whether the Issuer (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 Registrant'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. [ ]
Indicate by check mark whether the Issuer is a shell company (as
defined by Rule 12b-2 of the Exchange Act). Yes No X
--- ---
State the Issuer's revenues for its most recent calendar year
(December 31, 2005): $2,241,069.
The aggregate market value of the common equity of our Company
(comprised only of our common stock) held by non-affiliates, based upon the
average bid and asked prices of our common stock on February 22, 2006 ($1.50
per share), as reported by the OTC Bulletin Board of the National Association
of Securities Dealers, Inc., was approximately $9,797,628, based upon a non-
affiliate ownership of 6,531,752 shares.
Our Company has not been involved in any bankruptcy proceedings.
The number of shares of our Company's common equity outstanding as
of December 31, 2005, was 25,530,002 shares of common stock; and 10,000 shares
of 2004 Series A Convertible Preferred Stock.
A description of our "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
--- ---
1
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 2005.
-------------------------------------------
On January 17, 2005, we accepted the resignation of Pamela Boyce,
our Secretary/Treasurer, for personal reasons. We elected Tom Tait and Craig
D. Morrison, M.D. to serve on our Board of Directors; Tom Tait to serve as our
Vice President; and Kevin Cooksy to serve as our Secretary/Treasurer, all
until the next annual meetings of our shareholders and Board of Directors.
See our 8-K Current Report dated January 17, 2005, filed with the Securities
and Exchange Commission on January 18, 2005, and which is incorporated herein
by reference. See Part III, Item 13.
During the year ended December 31, 2005, we offered and sold 700,000
shares of our Series A Convertible Preferred Stock in a private placement to
"accredited investors" only. During that year, 690,000 shares of this class
of our preferred stock were converted into 1,150,002 shares of our common
stock at a price of $0.60 per share. As of December 31, 2005, 10,000 shares
of this class of preferred stock were issued and outstanding.
On November 29, 2005, we announced the execution of a Letter of
Intent to acquire Cryomastor Corporation, a California corporation ("Cryo").
If and when the acquisition of Cryo and its newly developed ultra low
temperature freezer ("ULT") is completed, it will provide us with tremendous
growth potential. Under the Letter of Intent, we loaned Cryo the sum of
$200,000 on or about January 25, 2006. We anticipate closing this acquisition
during the second quarter of fiscal 2006, depending upon the availability
of required funding. See our 8-K Current Report dated January 25, 2006, filed
with the Securities and Exchange Commission on January 30, 2006, and which is
incorporated herein by reference. See Part III, Item 13.
Material Developments Prior to Calendar 2005.
---------------------------------------------
For a discussion of the material developments of our Company prior
to December 31, 2005, see our 10-KSB Annual Report for the year ended December
31, 2004. See Part III, Item 13.
2
Business.
---------
Our Company, through Reflect Scientific, Inc., a California
corporation and our wholly-owned subsidiary ("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 President and a 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 have 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 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 existing manufacturing location in Orem, Utah, produces 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
we were an in-house R & D company manufacturing specifically for a parent;
this has proved to be immediately successful in creating a niche market for
us. By producing precisely what OEM's require in such critical areas as gas
purifiers, we are 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.
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.
3
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 materials 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 85% 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,
2005, there has been no erosion in our business due to changes in competition.
We believe that 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 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 current plans to (i)
expand our existing business and to (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.
4
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.
Cold Storage of Compounds.
--------------------------
We have signed a Letter of Intent to acquire Cryo. See the heading
"Material Developments During Calender 2005," above, under the caption
"Business Development," of this Item. Cryo has developed a unique ultra low
temperature freezer that addresses a growing critical need as a repository
for users in biotech, U.S. disease control centers, hospitals and military
bio-research. The Cryo ULT provides superior temperature control, reliability
and energy savings, and this technology is expected to play an important role
in areas such as vaccine storage, stem cell research and other emerging growth
areas.
Research and Development.
-------------------------
In 2004, we expended $12,318 for research and development. From
January 1, 2005, to December 31, 2005, we expended $804 for research and
development.
Employees.
----------
We employ seven full-time employees and two part-time employees.
5
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. We are 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.
6
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 our
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 us to provide our
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 stockholders.
We are 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.
7
Governmental Approvals.
-----------------------
No products presently being manufactured or sold by us are subject
to prior governmental approvals.
Item 2. Description of Property.
Facilities.
-----------
Orem, Utah - This facility is a manufacturing and office facility
with 6,000 square feet of space; our Company leases this facility at $3,563
per month, with the lease term expiring on November 30, 2008.
Mountain View, California - This facility is office space only with
1,870 square feet of space; our Company leases this facility at $1,738 per
month, with the lease term expiring on July 31, 2006.
Item 3. Legal Proceedings.
There are no material legal proceedings pending against or involving
our Company; and none of our directors, executive officers or 10% stockholders
is party to any action adverse to us.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of our Company's security holders
during the fourth quarter of the calendar year covered by this Annual Report.
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Small
Business Purchases of Equity Securities.
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 "RSCF."
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 common stock on the OTC Bulletin Board for the
two years ended December 31, 2005:
Calender Quarterly
Year Period High Low
------ --------- ---- ---
2004: First Quarter $0.18 $0.15
Second Quarter 0.20 0.18
Third Quarter 0.20 0.20
Fourth Quarter 0.25 0.20
2005: First Quarter $0.30 $0.25
Second Quarter 0.30 0.30
Third Quarter 1.82 0.30
Fourth Quarter 1.97 1.21
The high and low bid information respecting the quotations of our
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.
8
Holders.
--------
The number of record holders of our common stock as of February 22,
2006, was approximately 98; this number does not include an indeterminate
number of stockholders whose shares may be held by brokers in street name.
Dividends.
----------
We have not declared any cash dividends with respect to our common
stock, and do not intend to declare dividends in the foreseeable future. Our
future dividend policy cannot be ascertained with any certainty. There are no
material restrictions limiting, or that are likely to limit, our ability to
pay dividends on our securities.
The holders of our Series A Convertible Preferred Stock are entitled
to dividends at the rate of 8% per year of the liquidation preference of $1.00
per share, payable, annually, if and when declared by our board of directors.
Dividends are not cumulative and our board of directors is under no obligation
to declare dividends. There are only 10,000 outstanding shares of this class
of our preferred stock.
Recent Sales of Restricted Securities; Use of Proceeds of Registered
Securities.
-----------
*Common Stock.
--------------
Except for shares of our common stock that were issued in conversion
of Series A Convertible Preferred Stock as outlined below and 380,000 shares
that were issued for services that are also described below, the only common
stock that comprised "restricted securities" issued by us during the past
three years were issued pursuant to the "Reflect California Agreement" whereby
we acquired Reflect California on December 31, 2004. See our 8-K Current
Report dated December 31, 2004, filed with the Securities and Exchange
Commission on January 15, 2004, and which is incorporated herein by reference.
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 Our Common Stock
Name and Address Reflect California 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
9
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
*Common Stock Issued For Services.
----------------------------------
Effective May 6, 2005, we issued 380,000 shares of our common stock
to eleven persons, which included three of our directors and executive
officers, for services rendered and valued at approximately $0.03 per share.
*2004 Convertible Preferred Stock.
----------------------------------
During the year ended December 31, 2005, we sold 700,000 shares of
our 2004 Series A Convertible Preferred Stock at an offering price of $1.00
per share to 26 persons who were "accredited investors" as that term in
defined in Regulation D of the Securities and Exchange Commission. During the
calendar year ended December 31, 2005, 690,000 shares of this class of our
preferred stock were converted by the holders thereof into 1,150,002 shares of
our common stock.
* We issued all of these securities to persons who were "accredited
investors" or "sophisticated investors" as those terms are defined in
Regulation D of the Securities and Exchange Commission; and each such investor
had prior access to all material information about us. We believe that the
offer and sale of these securities were exempt from the registration
requirements of the Securities Act, pursuant to Sections 4(2) and 4(6)
thereof, and Rule 506 of Regulation D of the Securities and Exchange
Commission. Sales to "accredited investors" are preempted from state
regulation.
Use of Proceeds of Registered Securities.
-----------------------------------------
There were no proceeds received during the calendar year ended
December 31, 2005, from the sale of registered securities.
Securities Authorized for Issuance under Equity Compensation Plans.
-------------------------------------------------------------------
We have no equity compensation plans.
Purchases of Equity Securities by Us and Affiliated Purchasers.
---------------------------------------------------------------
There were no purchases of our equity securities by us or any
affiliated purchasers during the calendar year ended December 31, 2005.
10
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.
Several 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.
(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 caption "Business" of Part
I, Item 1, above.
Results of Operations.
----------------------
Our revenues increased during the year ended December 31, 2005, to
$2,241,069, from $2,103,339 for the year ended December 31, 2004, primarily as
a result of a general improvement in sales across most product lines, due to
the addition of several new product lines.
Our cost of goods increased in the period ending December 31, 2005,
as compared to December 31, 2004, to $1,323,883 from $1,281,529. The
difference was partly as a result of a increased sales and raw material price
increases. The percentage on gross margins for the two years was
essentially unchanged.
General and administrative expenses increased to $380,845 during the
year ended December 31, 2005, from $220,931 during the year ended December 31,
2004. This was due to a increase in outside services, accounting and legal
fees.
Liquidity and Capital Resources.
--------------------------------
Our cash resources at December 31, 2005, were $492,102, with
accounts receivable of $317,274. We have relied on revenues and sales of
preferred stock for cash resources. At December 31, 2005, we raised $700,000
from the sale of 700,000 shares of our 2004 Series A Convertible Preferred
Stock. These funds should be adequate for the next 12 months for continuing
operations and our plans for expansion; however, additional funds will be
required to complete certain planned acquisitions, including the acquisition
of Cryo that is discussed in Part I, Item 1, above.
11
Forward-Looking Statements.
---------------------------
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a safe harbor for forward-looking statements made by or on behalf of
our Company. Our Company and our representatives may from time to time make
written or oral statements that are "forward-looking," including statements
contained in this 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.
12
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
C O N T E N T S
Report of Independent Registered Accounting Firm . . . . . . . F-3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Operations. . . . . . . . . . . . . F-6
Consolidated Statements of Shareholder's Equity. . . . . . . . F-7
Consolidated Statements of Cash Flows. . . . . . . . . . . . . F-8
Notes to the Consolidated Financial Statements . . . . . . . . F-9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders of
Reflect Scientific, Inc. and Subsidiary
Mountain View, California
We have audited the accompanying consolidated balance sheet of Reflect
Scientific, Inc. and Subsidiary as of December 31, 2005, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the years ended December 31, 2005 and 2004. 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 our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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 our 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 consolidated financial position
of Reflect Scientific, Inc. and Subsidiary as of December 31, 2005, and the
results of their operations and their cash flows for the years ended December
31, 2005 and 2004 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
February 10, 2006
F-3
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Consolidated Balance Sheet
ASSETS
December 31,
2005
CURRENT ASSETS
Cash $ 492,102
Accounts receivable (Note 2) 317,274
Inventory (Note 4) 305,684
Prepaid assets 4,363
-----------
Total Current Assets 1,119,423
-----------
FIXED ASSETS, NET (Note 3) 20,950
-----------
OTHER ASSETS
Deposits 5,350
-----------
TOTAL ASSETS $ 1,145,723
===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Consolidated Balance Sheet (Continued)
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31,
2005
CURRENT LIABILITIES
Accounts payable $ 176,644
Accrued expenses 2,343
Income taxes payable 23,077
----------
Total Current Liabilities 202,064
----------
NON-CURRENT LIABILITIES
Deferred income taxes 32,823
----------
Total Liabilities 234,887
----------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDER'S EQUITY
Preferred stock, $0.01 par value, authorized
5,000,000 shares; 10,000 shares issued and
outstanding 100
Common stock, $0.01 par value, authorized
50,000,000 shares; 25,530,002 shares issued
and outstanding 255,300
Additional paid in capital 510,337
Retained earnings 145,099
----------
Total Shareholder's Equity 910,836
----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,145,723
==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended
December 31,
2005 2004
REVENUES $2,241,069 $2,103,339
COST OF GOODS SOLD 1,323,883 1,281,529
---------- ----------
GROSS PROFIT 917,186 821,810
---------- ----------
OPERATING EXPENSES
Salaries and wages 362,935 368,498
Payroll taxes 29,495 31,277
Rent expense 79,587 76,613
General and administrative 380,845 220,931
---------- ----------
Total Operating Expenses 852,862 697,319
---------- ----------
OPERATING INCOME 64,324 124,491
---------- ----------
OTHER EXPENSES
Interest expense (9,261) (12,159)
---------- ----------
Total Other Income (Expenses) (9,261) (12,159)
---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 55,063 112,332
---------- ----------
Income tax expense 16,900 69,705
---------- ----------
NET INCOME $ 38,163 $ 42,627
========== ==========
Preferred distribution dividends (700,000) -
NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS $ (661,837) $ 42,627
========== ==========
BASIC AND FULLY DILUTED EARNINGS
PER SHARE $ (0.03) $ 0.00
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 24,441,014 24,000,000
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Consolidated Statements of Shareholder's Equity
Additional
Preferred Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings
Balance,
December 31, 2003 - $ - 24,000,000 240,000 $(210,841) 64,309
Contributed capital - - - - 27,522 -
Net income for the
year ended December
31, 2004 - - - - - 42,627
-------- ----- ---------- ------- -------- --------
Balance,
December 31, 2004 - - 24,000,000 240,000 (183,319) 106,936
Preferred stock
issued for cash 700,000 7,000 - - 693,000 -
Common stock
issued for services - - 380,000 3,800 5,256 -
Conversion of
preferred stock
into common
stock (690,000) (6,900) 1,150,002 11,500 (4,600) -
Net income for
the year ended
December 31, 2005 - - - - - 38,163
-------- ----- ---------- ------- -------- --------
Balance,
December 31, 2005 10,000 $ 100 25,530,002 $255,300 $510,337 $ 145,099
======== ======= ========== ======= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 38,163 $ 42,627
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 3,299 2,883
Amortization of capitalized
loan costs 5,600 525
Common stock issued for services 9,056 -
Changes in operating assets and
liabilities:
Increase in accounts receivable (36,101) (48,709)
(Increase) decrease in prepaid
expenses (3,563) -
Increase in net inventory (45,672) (49,565)
Increase in accounts payable and
accrued liabilities 9,617 10,716
-------- ---------
Net Cash Used in
Operating Activities (19,601) (41,523)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - (5,209)
--------- ---------
Net Cash Used by
Investing Activities - (5,209)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in long term line of credit (269,036) 25
Capital contribution - 27,522
Proceeds from preferred stock issuance 700,000 -
--------- ---------
Net Cash Provided by
Financing Activities 430,964 27,547
--------- ---------
NET INCREASE (DECREASE) IN CASH 411,363 (19,185)
CASH AT BEGINNING OF YEAR 80,739 99,924
--------- ---------
CASH AT END OF YEAR $ 492,102 $ 80,739
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 9,261 $ 12,159
Income taxes $ 31,687 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
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, 2005 and 2004 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 SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Accounts Receivable
The Company writes off trade receivables when deemed uncollectable. The
Company expensed $0 and $0 to bad debt expense for the years ended
December 31, 2005 and 2004, respectively. The allowance for doubtful
accounts balance at December 31, 2005 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 was paid in full as of December 31, 2005. These
capitalized costs were being amortized on a straight line basis over the
term of the related debt. As of December 31, 2005 all capitalized loan
costs had been expensed. Amortization expense related to these costs
was $5,600 and $525 in 2005, and 2004, respectively.
g. Advertising Expense
The Company follows the policy of charging the costs of advertising to
expense as incurred. The Company recognized $1,034 and $4,338 of
advertising expense during the years ended December 31, 2005, and 2004,
respectively.
h. Newly Issued Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) (SFAS 123
)) "Share-based payment". SFAS 123 ) will require compensation costs
related to share-based payment transactions to be recognized in the
financial statements. With limited exceptions, the amount of
compensation cost will be measured based on the grant-date fair value of
the equity or liability instruments issued. In addition, liability
awards will be re-measured each reporting period. Compensation cost will
be recognized over the period that an employee provides service in
exchange for the award. FASB 123 ) replaces FASB 123, Accounting for
Stock-Based Compensation and supersedes APB option No. 25, Accounting
for Stock Issued to Employees. This guidance is effective as of the
first interim or annual reporting period after December 15, 2005 for
Small Business filers.
F-10
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Newly Issued Accounting Pronouncements (Continued)
In November 2004, the FASB issued SFAS No. 151 (SFAS 151), "Inventory
Costs". SFAS 151 amends ARB No. 43, Chapter 4. This statement clarifies
the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). SFAS 151 is the result
of a broader effort by the FASB and the IASB to improve financial
reporting by eliminating certain narrow differences between their
existing accounting standards. This statement is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. The
adoption of SFAS 151 did not have a material impact on the results of
operations of the Company.
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real
Estate Time-Sharing Transactions," which is effective for years
beginning after June 15, 2005. The adoption of this new accounting
standard had no material effect on the Company's consolidated financial
statements.
In December 2004, the FASB issued SFAS No. 153 (SFAS 153) "Exchange of
Non-monetary assets". This statement was a result of a joint effort by
the FASB and the IASB to improve financial reporting by eliminating
certain narrow differences between their existing accounting standards.
One such difference was the exception from fair value measurement in APB
Opinion No. 29, Accounting for Non-Monetary Transactions, for non-
monetary exchanges of similar productive assets. SFAS 153 replaces this
exception with a general exception from fair value measurement for
exchanges of non-monetary assets that do not have commercial substance.
A non-monetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of
the exchange. This statement is effective for non-monetary assets
exchanges occurring in fiscal periods beginning after June 15, 2005. The
adoption of SFAS 153 did not have a material effect on the Company's
financial position or results of operations.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," which replaces APB Opinion No. 20 "Accounting Changes,"
and FASB Statement No. 3 "Reporting Accounting Changes in Interim
Financial Statements," and changes the requirements for the accounting
for and reporting of a change in accounting principle. This Statement
requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the
cumulative effect of the change. This Statement shall be effective for
accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. Early adoption is permitted for
accounting changes and corrections of errors made in fiscal years
beginning after the date this Statement is issued. We do not believe
that adoption of SFAS 154 will have a material impact on our financial
statements.
F-11
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Newly Issued Accounting Pronouncements (Continued)
The implementation of the provisions of these pronouncements are not
expected to have a significant effect on the Company's consolidated
financial statement presentation.
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,
2005 2004
Net Income (Numerator) $(661,837) $ 42,627
Shares (denominator) 24,441,014 24,000,000
---------- ----------
Per share amount $ (0.03) $ 0.00
========== ==========
As of December 31, 2005 the Company had 10,000 shares of 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
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
liabilities 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.
F-12
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Income Taxes (Continued)
The provision (benefit) for income taxes for the year ended December
31, 2005 and 2004 consist of the following:
2005 2004
Federal:
Current $ 21,046 $ 20,765
Deferred (4,542) 27,043
State:
Current 2,031 9,940
Deferred (1,635) 11,957
-------- ---------
$ 16,900 $ 69,705
======== =========
Net deferred tax assets consist of the following components as of
December 31, 2005 and 2004:
2005 2004
Deferred tax assets:
NOL Carryover $ - $ -
Deferred tax liabilities
Depreciation (32,823) (39,000)
Valuation allowance - -
-------- ---------
Net deferred tax liability $(32,823) $ (39,000)
======== =========
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal and state income tax rates of
34% to pretax income from continuing operations for the year ended
December 31, 2005 and 2004 due to the following:
2005 2004
Book Tax Expense $ 18,612 $ 20,427
Meals & Entertainment 2,423 3,783
Research & Development - 961
Stock for Services 3,060 -
Depreciation 509 (4,700)
Income Tax Expense (1,527) 23,380
State Taxes - (3,876)
Research Credit - (19,210)
-------- --------
$ 23,077 $ 20,765
======== ========
F-13
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Income Taxes (Continued)
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.
Prior to the reverse acquisition of Reflect by Cole, Inc. the Company
was a subchapter S corporation. All income and expenses were passed
through to the Company's shareholder, therefore no tax liabilities
existed at December 31, 2003.
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:
December 31,
2005
Machinery and equipment $ 5,685
Furniture and fixtures 25,214
Computer and office equipment 59,180
Leasehold improvements 23,671
Accumulated depreciation (92,800)
----------
Total Fixed Assets $ 20,950
==========
Depreciation expense for the years ended December 31, 2005, and 2004,
was $3,299 and $2,883, respectively.
F-14
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 4 - INVENTORIES
Inventory consisted of the following at December 31, 2005:
Finished goods 305,684
----------
Total Inventory $ 305,684
==========
NOTE 5- 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
2006 $ 59,384
2007 44,292
2008 38,278
2009 -
2010 -
---------
Total $ 141,954
=========
Rent expense was $79,587 and $76,613 for the years ended December 31,
2005, and 2004, respectively.
Automobile lease expense was $10,673 and $15,170 for the years ended
December 31, 2005, and 2004, respectively.
NOTE 6 - PREFERRED STOCK
In November 2004 the Company amended its Articles of Incorporation so
as to authorize 5,000,000 shares of preferred stock. 750,000 of these
shares have been designated as "Series A Convertible Preferred
Stock". During the year ended December 31, 2005 theses shares were
offered in a private placement. As of December 31, 2005 10,000 shares
of the preferred stock are issued and outstanding.
F-15
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 6 - PREFERRED STOCK (continued)
Dividends
The holders of the Series A Preferred Stock are entitled to dividends
at the rate of 8 percent per year of the liquidation preference of
$1.00 per share, payable annually, if and when declared by the board
of directors. Dividends are not cumulative and the board of
directors are under no obligation to declare dividends.
Convertibility
Upon the approval of the Board of Directors, Series A Preferred Stock
may be convertible into the Company's common stock by dividing $1.00
plus any unpaid dividends by 50% of the five day average closing bid
price of the common shares.
During the year the Company sold 700,000 shares of Series A
Convertible Preferred Stock in exchange for proceeds of $700,000. As
a result of the beneficial conversion feature inherent in the
conversion rights and preferences of Series A Preferred Stock, the
Company has recognized a deemed dividend of $700,000. This deemed
dividend was calculated based on the conversion price above at the
time of conversion. Because the Company does not have sufficient
retained earnings, dividends were recorded in additional paid-in-
capital and have a net effect of zero in that account and is
therefore not presented on the statement of shareholders' equity as a
separate item. This beneficial conversion feature was recorded to
additional paid in capital and will be recorded as a deemed dividend
to preferred shareholders (accretion) over the period to the
instruments earliest conversion date.
In November, 2005 690,000 shares of Preferred Stock were converted
into 1,150,002 shares of Common Stock at $0.60 per share.
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
$1,914,824 and $1,854,100 or 85% and 88%, of sales for the years
ended December 31, 2005, and 2004, respectively. These same three
customers also account for $272,202 and $230,247, or 86% and 78%, of
the total accounts receivable balance at December 31, 2005, and 2004,
respectively.
F-16
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 8 - SUBSEQUENT EVENTS
Subsequent to year end the Company loaned $200,000 to Cryomaster
Corporation pursuant to a Letter of Intent to acquire the
corporation. Upon the closing of the Plan of Merger, the principal
amount of the loan will be included in and accounted for as part of
the merger. In the event that the Plan of Merger is not closed, the
loan will be repaid to the Company on or before December 31, 2006
with accrued interest on the outstanding principal balance at an
annualized rate of five percent.
F-17
Item 8. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure.
During the past two fiscal years, there have been no changes in our
independent auditors that have not been previously reported in our Annual
Report on Form 10-KSB for the calendar year ended December 30, 2004. See Part
III, Item 13 of this Annual Report.
Item 8(a). Controls and Procedures.
As of the end of the period covered by this Annual Report, we
carried out an evaluation, under the supervision and with the participation of
our President and Treasurer, of the effectiveness of our disclosure controls
and procedures. Based on this evaluation, our President and Secretary
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be included in our periodic
Securities and Exchange Commission reports. It should be noted that the
design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote. In addition, we reviewed our internal
controls over financial reporting, and there have been no changes in our
internal controls or in other factors in the last fiscal quarter that has
materially affected or is reasonably likely to materially affect our internal
control over financial reporting.
Item 8(b). Other Information.
Subsequent to year end, we loaned $200,000 to Cryomaster Corporation
pursuant to a Letter of Intent to acquire the Cryo. Upon the closing of the
anticipated Plan of Merger and subject to raising required funding, the
principal amount of the loan will be included in and accounted for as part of
the merger. In the event that the Plan of Merger is not closed, the loan will
be repaid to us on or before December 31, 2006, with accrued interest on the
outstanding principal balance at an annualized rate of five percent from the
date that the parties determine that the merger will not go forward. See Part
I, Item 1, above.
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 51 President and Director 12/31/03
970 Terra Bella
Mountain View,
California 94043
Tom Tait 50 Vice President and Director 1/17/05
970 Terra Bella
Mountain View,
California 94043
Kevin Cooksy 43 Secretary/Treasurer 1/17/05
970 Terra Bella
Mountain View,
California 94043
Craig D. Morrison 62 Director 1/17/05
970 Terra Bella
Mountain View,
California 94043
13
Business Experience.
--------------------
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.
Tom Tait. Mr. Tait received his B. S. degree in Chemistry from
Clarkson University in 1977 and his MBA degree in Technology Management from
the University of Phoenix in 2002. From 1998 to 2002, Mr. Tait was the
General Manager HyperQuan, Inc., in Colorado Springs, Colorado. HyperQuan is
a technology startup focused on analytical instrumentation. Then, from 2002
to 2004, Mr. Tait was the Senior Product Manager for Hach Company, in
Loveland, Colorado. Hach Company is a leader in the development,
manufacturing and distribution of water quality testing equipment.
Kevin Cooksy. Mr. Cooksy received his B. S. degree in Chemistry
from Northern Illinois University in 1984; an MBA degree with distinction
(magna cum laude) from Lake Forest in 1988; and received his Juris Doctor in
1995 from the McGeorge School of Law at the University of the Pacific, in
California. Mr. Cooksy is a corporate attorney and executive manager with
experience in legal, strategic, technology planning, mergers and acquisitions
and intellectual property matters.
Craig Morrison, M.D., practices medicine at the Brigham Young
University Student Health Center in Provo, Utah. He has been an attending
and consulting staff general surgeon since 1978 at the following hospitals:
Utah Valley Regional Medical Center, Orem Community Hospital, Colombia
Mountain View Hospital and Central Valley Hospital. Dr. Morrison received his
Doctor of Medicine Degree from the University of Oregon Medical School in
1970, followed by a pediatric internship and surgical residency at the
University of Southern California-Los Angeles County Hospital and the
Huntington Memorial Hospital in 1975.
Family Relationships.
---------------------
There are no family relationships between any of our current
directors and executive officers.
Audit Committee Financial Expert.
---------------------------------
Our Company does not have an audit committee or an audit committee
financial expert. We do not believe, based upon our present operations, that
the failure to have such a committee or expert is material to the financial
statements of our Company.
14
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 calendar year ended December 31, 2005, all filing
requirements applicable to our officers, directors and 10% stockholders were
met by such persons.
Audit Committee.
----------------
We have no audit committee, and we are not required to have an audit
committee; we do not believe the lack of an audit committee will have any
adverse effect on our financial statements, based upon our current operations.
We will assess whether an audit committee may be necessary in the future.
Compensation Committee.
-----------------------
We have not established a Compensation Committee because we believe
that our three member Board of Directors is able to effectively manage the
issues normally considered by a Compensation Committee.
Nominating and Corporate Governance Committee.
----------------------------------------------
We have not established a Nominating and Corporate Governance
Committee because we believe that our three member Board of Directors is able
to effectively manage the issues normally considered by a Nominating and
Corporate Governance Committee.
Code of Ethics.
---------------
Our Company has adopted a Code of Ethics that applies to all of our
directors and executive officers serving in any capacity for our Company,
including our principal executive officer, principal financial officer,
principal accounting officer or controller or persons performing similar
functions, which Code of Ethics was attached to our Form 10-KSB Annual Report
for the year ended December 31, 2003. See Part III, Item 13.
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, 2005. Our Company has no other officers whose total cash
compensation exceeded $100,000 for these years. Our Company has no plans that
will require our Company to contribute to or to provide pension, retirement or
similar benefits to directors or officers of our Company.
15
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensat'n
----------------------------------------------------------------------
Kim Boyce 12/31/05 $105,000 0 0 0 0 0 0
President & 12/31/04 $108,132 0 0 0 0 0 0
Director 12/31/03 $ 87,698 0 0 0 0 0 0
Tom Tait 12/31/05 $ 50,769 0 0 * 0 0 0
VP & Director
Kevin Cooksy 12/31/05 0 0 0 * 0 0 0
S/T
Craig D. 12/31/05 0 0 0 * 0 0 0
Morrison, M.D.
Director
Pamela Boyce 12/31/04 $ 53,362 0 0 * 0 0 0
Former S/T 12/31/03 $ 52,611 0 0 0 0 0 0
* Effective May 6, 2005, the following persons were issued the
following shares of our common stock that were "restricted
securities," for services rendered and all valued at approximately
$0.03 per share: Tom Tait, 50,000 shares; Kevin Cooksy, 25,000
shares; Craig D. Morrison, M.D., 100,000 shares; and Pamela Boyce,
50,000 shares.
Options Grants in Last Calender Year.
-----------------------------------
Our Company granted no options or warrants during the calendar years
ended December 31, 2005 and 2004.
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.
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Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Security Ownership of Management.
---------------------------------
The following table sets forth the share holdings of our Company's
directors and executive officers as of March 29, 2005:
Percentage Number
Name and Address* of Class of Shares Beneficially Owned
---------------- -------- ----------------------------
Kim Boyce President and 18,723,250 73.3%
Director
Tom Tait Vice President 50,000 .2%
and Director
Kevin Cooksy Secretary/Treasurer 25,000 .1%
Craig D. Morrison, Director 200,000 .78%
M.D.
All Directors and
Executive Officers
as a group (four persons) 18,998,250 74.4%
* Addresses are listed above in Part III, Item 9.
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
exceeded $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
exceeded $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
exceeded $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.
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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 exceeded $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
(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
--- ----------------- --------------------
3.1 Articles of Incorporation 10-SB Registration Statement*
3.2 Articles of Amendment to 10-SB Registration Statement*
Articles of Incorporation
3.3 By-Laws 10-SB Registration Statement*
3.4 Articles of Amendment 8-K dated December 31, 2003*
to Articles of Incorporation
3.5 Articles of Amendment 8-K dated December 31, 2003*
to Articles of Incorporation
3.6 Articles of Amendment September 30, 2004 10-QSB*
3.7 By-Laws Amendment September 30, 2004 10-QSB*
14 Code of Ethics December 31, 2003 10-KSB*
21 Subsidiaries of the Company December 31, 2004 10-KSB*
31.1 302 Certification of Kim Boyce
31.2 302 Certification of Kevin Cooksy
32 906 Certification
8-K Current Report dated January 17, 2005. Part I*
8-K Current Report dated August 18, 2005. Part I*
8-K Current Report dated January 25, 2006. Part II*
*Incorporated herein by reference.
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Item 14. Principal Accountant Fees and Services.
---------------------------------------
The following is a summary of the fees billed to us by our principal
accountants during the fiscal years ended December 31, 2004 and 2003:
Fee category 2005 2004
------------ ---- ----
Audit fees $18,500 $6,046
Audit-related fees $ 0 $ 0
Tax fees $ 250 $ 250
All other fees $ 0 $ 0
------- ------
Total fees $18,750 $6,296
Audit fees. Consists of fees for professional services rendered by
our principal accountants for the audit of our annual financial statements and
the review of financial statements included in our Forms 10-QSB Quarterly
Reports or services that are normally provided by our principal accountants in
connection with statutory and regulatory filings or engagements.
Audit-related fees. Consists of fees for assurance and related
services by our principal accountants that are reasonably related to the
performance of the audit or review of the Company's financial statements and
are not reported under "Audit fees."
Tax fees. Consists of fees for professional services rendered by
our principal accountants for tax compliance, tax advice and tax planning.
All other fees. Consists of fees for products and services provided
by our principal accountants, other than the services reported under "Audit
fees," "Audit-related fees" and "Tax fees" above.
20