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, 2004
[ ] 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 the Company's revenues for its most recent calendar year
(December 31, 2004): $2,103,339.
The aggregate market value of the common equity of our Company
(comprised only of our common stock) held by non-affiliates, based upon the
average bid and asked prices of our common stock on March 29, 2005 ($.10 per
share), as reported by the OTC Bulletin Board of the National Association of
Securities Dealers, Inc., was approximately $264,175, based upon a non-
affiliate ownership of 2,641,750 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 29, 2005, was 24,000,000 shares of common stock; and 436,000 shares
of 2004 Series A Convertible Preferred 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 2004.
-------------------------------------------
On November 9, 2004, we amended our Articles of Incorporation to
designate a class of preferred stock. Our authorized capital is divided into
two classes, 50,000,000 shares of common stock with a $.01 par value and
5,000,000 shares of preferred stock with a $.01 par value. Of the 5,000,000
shares of preferred authorized, 4,250,000 shares shall have such rights and
preferences as the Board of Directors shall determine; and 750,000 of which
shall be designated as "2004 Series A Convertible Preferred Stock," with the
powers, preferences, rights, qualifications, limitations and restrictions as
outlined in the Articles of Amendment that were attached as Exhibit 3 to our
10-KSB Annual Report for the calendar year ended December 31, 2003, filed with
the Securities and Exchange Commission on April 12, 2004, and which are
incorporated herein by reference. See Part III, Item 13.
We also resolved on November 8, 2004, to conduct a private
placement under Sections 4(6) and 4(2) of the Securities Act of 1933, as
amended, (the "Securities Act"), and Rule 506 of the Securities and Exchange
Commission promulgated thereunder to offer and sell up to 750,000 of such
shares of 2004 Series A Convertible Preferred Stock at a price of $1.00 per
share. As of the date of this Annual Report, 436,000 shares of the 2004
Series A Convertible Preferred Stock have been sold.
Material Developments Prior to Calendar 2004.
---------------------------------------------
For a discussion of the material developments of our Company prior
to December 31, 2003, see our 10-KSB Annual Report for the year ended December
31, 2003. See Part III, Item 13.
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 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 years.
Chromatography, Generally.
--------------------------
Chromatography is a widely used method to separate, detect and
quantify organic chemicals. The procedure relies upon capillary action as the
separating mechanism. There are several types of chromatography, including
liquid and gaseous applications. 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 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 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,
2004, 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 2003, we expended $18,087 for research and development. From
January 1, 2004, to December 31, 2004, we expended $12,318 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 $2,990 per month with the lease term expiring July 31, 2005.
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 July 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.
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 "COLH." Our Company intends to seek a new symbol in the near future
that reflects our current 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, 2004:
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
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
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 29, 2005, was approximately 58; this number does not include an
indeterminate number of stockholders whose shares may be held by brokers in
street name.
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, 2004.
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; Use of Proceeds of Registered
Securities.
-----------
*Common Stock.
--------------
The only common stock that comprised "restricted securities" issued by
our Company 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
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
*2004 Convertible Preferred Stock.
----------------------------------
Subsequent to the year ended December 31, 2004, we sold 436,000 shares of
our 2004 Series A Convertible Preferred Stock at an offering price of $1.00
per share to 22 persons who were "accredited investors" as that term in
defined in Regulation D of the Securities and Exchange Commission.
* We issued all of these securities to persons who were either
"accredited investors," or "sophisticated investors" who, by reason of
education, business acumen, experience or other factors, were fully capable of
evaluating the risks and merits of an investment in our company; and each had
prior access to all material information about us. We believe that the offer
and sale of these securities were exempt from the registration requirements of
the Securities Act, pursuant to Sections 4(2) and 4(6) thereof, and Rule 506
of Regulation D of the Securities and Exchange Commission and from various
similar state exemptions.
Use of Proceeds of Registered Securities.
-----------------------------------------
There were no proceeds received during the calendar year ended December
31, 2004, from the sale of registered securities.
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 heading "Business" of Part I,
Item 1.
Results of Operations.
----------------------
Our revenues increased during the year ended December 31, 2004, to
$2,103,339, from $1,928,663 for the year ended December 31, 2003, primarily as
a result of a general improvement in sales across most product lines, due to
improving market conditions.
Our cost of goods increased in the period ending December 31, 2004,
as compared to December 31, 2003, to $1,281,529 from $1,213,889. The
difference was partly as a result of a write off of obsolete inventory and
increased sales. The percentage on gross margins for the two years was
essentially unchanged.
General and administrative expenses decreased to $220,931 during the
year ended December 31, 2004, from $231,122 during the year ended December 31,
2003. This was due to a decrease in research and development and benefits.
Liquidity and Capital Resources.
--------------------------------
Our cash resources at December 31, 2004, were $80,739, with accounts
receivable of $281,173. We have relied on revenues and lines of credit for
our cash resources. At December 31, 2004, we had utilized $269,036 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. Of this amount, $436,000
was raised from the sale of 436,000 shares of our 2004 Series A Convertible
Preferred Stock during the first quarter of 2005.
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.
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
C O N T E N T S
Report of Independent Registered Accounting Firm . . . . . . . 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
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, 2004, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the years ended December 31, 2004 and 2003. 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 financial position of Reflect
Scientific, Inc. and Subsidiary as of December 31, 2004, and the results of
their operations and their cash flows for the years ended December 31, 2004
and 2003 in conformity with accounting principles generally accepted in the
United States of America.
HJ Associates & Consultants, LLP
Salt Lake City, Utah
March 18, 2005
REFLECT SCIENTIFIC, INC. AND SUBSIDIARY
Consolidated Balance Sheet
ASSETS
December 31,
2004
CURRENT ASSETS
Cash $ 80,739
Accounts receivable (Note 2) 281,173
Inventory (Note 4) 260,012
Prepaid assets 800
-----------
Total Current Assets 622,724
-----------
FIXED ASSETS, NET (Note 3) 24,249
-----------
OTHER ASSETS
Deposits 5,350
Capitalized loan costs (Note 2) 5,600
-----------
Total Other Assets 10,950
-----------
TOTAL ASSETS $ 657,923
===========
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,
2004
CURRENT LIABILITIES
Accounts payable $ 131,610
Accrued expenses 23,955
Income taxes payable 30,705
----------
Total Current Liabilities 186,270
----------
NON-CURRENT LIABILITIES
Long term line of credit (Note 5) 269,036
Deferred income taxes 39,000
----------
Total Non-Current Liabilities 308,036
----------
Total Liabilities 494,306
----------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDER'S EQUITY
Preferred stock, $0.01 par value, authorized
5,000,000 shares; no shares outstanding -
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) (183,319)
Retained earnings 106,936
----------
Total Shareholder's Equity 163,617
----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 657,923
==========
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,
2004 2003
REVENUES $2,103,339 $1,928,663
COST OF GOODS SOLD 1,281,529 1,213,889
---------- ----------
GROSS PROFIT 821,810 714,774
---------- ----------
OPERATING EXPENSES
Salaries and wages 368,498 336,899
Payroll taxes 31,277 27,695
Rent expense 76,613 75,701
General and administrative 220,931 231,122
---------- ----------
Total Operating Expenses 697,319 671,417
---------- ----------
OPERATING INCOME 124,491 43,357
---------- ----------
OTHER INCOME (EXPENSES)
Other income - 30,000
Interest expense (12,159) (14,685)
---------- ----------
Total Other Income (Expenses) (12,159) 15,315
---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 112,332 58,672
---------- ----------
Income tax expense 69,705 -
---------- ----------
NET INCOME $ 42,627 $ 58,672
========== ==========
EARNINGS PER SHARE $ 0.00 $ 0.00
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 24,000,000 22,917,922
========== ==========
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
Common Stock Paid-in Retained
Shares Amount Capital Earnings
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
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
========== ========= ======== =========
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,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 42,627 $ 58,672
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 2,883 2,368
Amortization of capitalized
loan costs 525 700
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (48,709) (59,564)
(Increase) decrease in prepaid
expenses - 6,125
(Increase) decrease in net
inventory (49,565) 35,474
Increase (Decrease) in accounts
payable and accrued liabilities 10,716 71,135
-------- ---------
Net Cash Provided by (Used in)
Operating Activities (41,523) 114,909
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (5,209) -
--------- ---------
Net Cash Used by
Investing Activities (5,209) -
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short term lines of credit - (103,049)
Proceeds from long term line of credit 25 101,470
Capital contribution 27,522 26,950
Dividends paid - (156,000)
--------- ---------
Net Cash Provided (Used) by
Financing Activities 27,547 (130,629)
--------- ---------
NET INCREASE (DECREASE) IN CASH (19,185) (15,720)
CASH AT BEGINNING OF YEAR 99,924 115,644
--------- ---------
CASH AT END OF YEAR $ 80,739 $ 99,924
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash Paid For:
Interest $ 12,159 $ 14,685
Income taxes $ - $ -
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, 2004 and 2003
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, 2004 and 2003 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
Notes to the Consolidated Financial Statements
December 31, 2004 and 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Accounts Receivable
The Company writes off trade receivables when deemed uncollectible. The
Company expensed $0 and $11,038 to bad debt expense for the years ended
December 31, 2004 and 2003, respectively. The allowance for doubtful
accounts balance at December 31, 2004 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 a balance of $269,036 as of December 31, 2004.
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 $525 and $700 in 2004, and 2003, respectively.
g. Advertising Expense
The Company follows the policy of charging the costs of advertising to
expense as incurred. The Company recognized $4,338 and $3,036 of
advertising expense during the years ended December 31, 2004, and 2003,
respectively.
h. Newly Issued Accounting Pronouncements
On December 16, 2004 the FASB issued SFAS No. 123), Share-Based
Payment, which is an amendment to SFAS No. 123, Accounting for Stock-
Based Compensation. This new standard eliminates the ability to account
for share-based compensation transactions using Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees,
and generally requires such transactions to be accounted for using a
fair-value-based method and the resulting cost recognized in our
financial statements. This new standard is effective for awards that
are granted, modified or settled in cash in interim and annual periods
beginning after June 15, 2005. In addition, this new standard will
apply to unvested options granted prior to the effective date. We will
adopt this new standard effective for the fourth fiscal quarter of 2005,
and have not yet determined what impact this standard will have on our
financial position or results of operations.
F-10
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2004 and 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Newly Issued Accounting Pronouncements (Continued)
In November 2004, the FASB issued SFAS No. 151, Inventory Costs - an
amendment of ARB No. 43, Chapter 4. This Statement amends the guidance
in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs,
and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that ". . . under some circumstances, items such as
idle facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as current
period charges. . . ." This Statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this Statement requires that
allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. This
statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Management does not believe the adoption
of this Statement will have any immediate material impact on the
Company.
In December 2004, the FASB issued SFAS No. 152, Accounting for Real
Estate Time-sharing Transactions, which amends FASB statement No. 66,
Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing Transactions. This statement
also amends FASB Statement No. 67, Accounting for Costs and Initial
Rental Operations of Real Estate Projects, to state that the guidance
for (a) incidental operations and (b) costs incurred to sell real estate
projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in
SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. Management believes the
adoption of this Statement will have no impact on the financial
statements of the Company.
In December 2004, the FASB issued SFAS No.153, Exchange of Nonmonetary
Assets. This Statement addresses the measurement of exchanges of
nonmonetary assets. The guidance in APB Opinion No. 29, Accounting for
Nonmonetary Transactions, is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the
assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. This Statement amends Opinion 29
to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. A
nonmonetary 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 financial statements for
fiscal years beginning after June 15, 2005. Earlier application is
permitted for nonmonetary asset exchanges incurred during fiscal years
beginning after the date of this statement is issued. Management
believes the adoption of this Statement will have no impact on the
financial statements of the Company.
F-11
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2004 and 2003
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,
2004 2003
Net Income (Numerator) $ 42,627 $58,672
Shares (denominator) 24,000,000 22,917,922
---------- ----------
Per share amount $ 0.00 $ 0.00
========== ==========
As of December 31, 2004 and 2003 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
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 SUSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2004 and 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Income Taxes (Continued)
The provision (benefit) for income taxes for the year ended December
31, 2004 consist of the following:
2004
Federal:
Current $ 20,765
Deferred -
State:
Current $ 9,940
Deferred -
------------
$ 30,705
============
Net deferred tax assets consist of the following components as of
December 31, 2004:
2004
Deferred tax assets:
NOL Carryover $ -
Deferred tax liabilities:
Depreciation (39,000)
Valuation allowance -
------------
Net deferred tax liability $ (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
39% to pretax income from continuing operations for the year ended
December 31, 2004 due to the following:
2004
Book income $ 20,427
Meals & Entertainment 3,780
Research & Development 961
Income tax expense 23,380
State taxes (1,810)
Research credit (2,464)
Adjustment due to C-Corp conversion 25,431
------------
$ 69,705
============
F-13
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2004 and 2003
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,
2004
Machinery and equipment $ 5,685
Furniture and fixtures 25,215
Computer and office equipment 59,180
Leasehold improvements 23,671
Accumulated depreciation (89,502)
------------
Total Fixed Assets $ 24,249
============
Depreciation expense for the years ended December 31, 2004, and
2003, was $2,883 and $2,368, respectively.
F-14
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2004 and 2003
NOTE 4 - INVENTORIES
Inventory consisted of the following at December 31, 2004:
December 31,
Finished goods 260,012
-------------
Total Fixed Assets $ 260,012
=============
NOTE 5 - NOTES PAYABLE AND LINES OF CREDIT
Long term lines of credit consisted of the following at December 31,
2004:
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 269,036
Line of Credit with a maximum amount of $30,000,
interest accrues at 12.7%, unsecured -
Line of Credit with a maximum amount of $25,000,
interest accrues at 12.37%, unsecured -
Line of Credit with a maximum amount of $35,000,
interest accrues at 10.25%, unsecured -
Total Lines of Credit $ 269,036
=========
The future maturities of the lines of credit is presented below:
December 31, Amount
2005 $ -
2006 -
2007 -
2008 -
2009 -
Thereafter 269,036
---------
Total $ 269,036
=========
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.
F-15
REFLECT SCIENTIFIC, INC. AND SUSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2004 and 2003
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
Operating Lease Obligations (Continued)
Minimum rental payments under the non-cancelable operating leases are
as follows:
Years ending
December 31, Amount
2005 $ 43,762
2006 10,665
2007 5,976
2008 2,100
2009 -
---------
Total $ 62,503
=========
Rent expense was $76,613 and $69,530 for the years ended December 31,
2004, and 2003, respectively.
Automobile lease expense was $15,170 and $10,375 for the years ended
December 31, 2004, and 2003, respectively.
NOTE 7 - 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".
The Company plans to offer these shares in a private placement in the
future. As of December 31, 2004 no shares of the preferred stock are
issued or outstanding.
NOTE 8 - 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 $1,854,100
and $1,664,659 or 88% and 86%, of sales for the years ended December
31, 2004, and 2003, respectively. These same three customers also
account for $230,247 and $202,094, or 78% and 83%, of the total
accounts receivable balance at December 31, 2004, and 2003,
respectively.
NOTE 9 - SUBSEQUENT EVENT
During the first quarter of 2005 the Company issued 426,000 shares of
its newly authorized preferred stock at $1.00 per share in a private
placement.
F-16
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 8-K Current
Report dated December 31, 2003. See Part III, Item 13.
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 Secretary, 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.
On January 17, 2005, we accepted the resignation of Pamela Boyce our
Secretary/Treasurer, for personal reasons. The Company elected Tom Tait and
Craig D. Morrison, M.D. to serve on the Board of Directors and Tom Tait to
serve as its Vice President and Kevin Cooksy as Secretary/Treasurer, to serve
until the next annual meeting of 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.
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 50 President and Sole Director 12/31/03
Pamela Boyce* 51 Secretary 12/31/03
* Pamela Boyce resigned as our Secretary and certain other persons
were designated to serve as directors and executive officers of our Company on
January 17, 2005. See Part II, Item 8(b) above.
Family Relationships.
---------------------
There are no family relationships between any of our current
directors and executive officers, following the resignation of Pamela Boyce as
our Secretary on January 17, 2005. Se Part II, Item 8(b) above.
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 calendar year ended December 31, 2004, 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 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, 2004. Our Company has no other officers whose total cash
compensation exceeded $100,000 for the year. Our Company has no plans that
will require our Company to contribute to or to provide pension, retirement or
similar benefits to directors or officers of our Company.
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensat'n
----------------------------------------------------------------------
Kim Boyce 12/31/04 $108,132 0 0 0 0 0 0
12/31/03 $ 87,698 0 0 0 0 0 0
Pamela Boyce 12/31/04 $ 53,362 0 0 0 0 0 0
12/31/03 $ 52,611 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, 2004 and 2003.
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 28, 2005:
Name and Address of Amount and Nature of Percent
Class Beneficial Owner Beneficial Ownership of Class
----- ---------------- -------------------- --------
Common SCS, Inc. 2,335,000 9.7%
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 29, 2005:
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
--- ----------------- --------------------
21 Subsidiaries of the Company
31.1 302 Certification
32 906 Certification
8-K Current Report dated January 17, 2005. Part II*
8-K Current Report dated December 31, 2004. Part I*
Annual Report on Form 10KSB for the year ended Part I*
December 31, 2003.
*Incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
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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 2004 2003
------------ ---- ----
Audit fees $6,046 $1,692
Audit-related fees $ 0 $ 850
Tax fees $ 250 $ 175
All other fees $ 0 $ 0
------ ------
Total fees $6,296 $2,717
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.
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: 03/31/05 /s/ KIM BOYCE
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Kim Boyce, President