<PAGE>
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 fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File No.:0-23819
COLE COMPUTER CORPORATION
--------------------
(Name of Small Business Issuer in its Charter)
NEVADA 76-0547762
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
11711 South Portland
Oklahoma City, Oklahoma 73170
-----------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (405) 692-5351
N/A
---
(Former Name or Former Address, if changed since last Report)
Securities Registered under Section 12(b) of the Exchange Act: None
Name of Each Exchange on Which Registered: None
Securities Registered under Section 12(g) of the Exchange Act: $0.001 par
value common voting stock
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of 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 files in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: December 31, 1998 -
$8,305,479.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of a specified
date within the past 60 days.
May 10, 1999 - $3,675,125. There are approximately 3,675,125 shares of
common voting stock of the Company held by non-affiliates. During the past
two years, there has been no "public market" for shares of common
voting stock of the Company, so the Company has arbitrarily valued these
shares at $1.00 per share, which is the offering price of "restricted
securities" recently offered by the Company; the Company recently submitted
for quotations of the OTC Bulletin Board of the National Association of
Securities Dealers, Inc. (the "NASD").
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
N/A
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date:
May 10, 1999
9,990,900
DOCUMENTS INCORPORATED BY REFERENCE
A description of "Documents Incorporated by Reference" is contained
in Item 13 of this Report.
Transitional Small Business Issuer Format Yes X No ___
---
<PAGE>
PART I
Item 1. Description of Business.
------------------------
Business Development.
- ---------------------
Historical
----------
For a discussion of the business development of the Company from
inception to the end of the calendar year ended December 31, 1997, see the
Company's Registration Statement on Form 10-SB, as amended, initially filed
with the Securities and Exchange Commission on February 18, 1998, which is
incorporated herein by this reference. See Part III, Item 13.
Year ended December 31, 1998
----------------------------
On December 23, 1998, the Company and Electronic Service
Co., Inc., an Oklahoma corporation doing business as Computer Masters
("Computer Masters"), executed an Agreement and Plan of Reorganization (the
"Computer Masters Plan"), whereby the Registrant acquired 100% of the
outstanding securities and subscriptions to purchase securities of Computer
Masters. A complete description of the Computer Masters Plan is contained in
the 8-K Current Reports of the Company dated December 23, 1998, which are
incorporated herein by this reference. See Part III, Item 13.
Business.
- ---------
The Company is an emerging computer corporation which began out of
the garage of founders Cynthia A. and Homer O. Cole III, in November, 1991,
doing business as Computer Masters, which filled a valuable niche in
Oklahoma's computer community providing helpful friendly service while
upgrading customer's computers at a fraction of the cost of new systems sold
by competitors. The customer demand for helpful service, low cost and state
of the art computers drove Computer Masters into the marketing of new
computers, in wholesale and retail sales. Computer Masters started doing
business as Computer Masters in 1996; and through high volume sales, was able
to aggressively purchase computer parts gaining purchasing power, while
reducing computer costs and passing these savings on to customers. Again,
customer demand dictated Computer Masters' growth from a statewide corporation
into a multi-state corporation with stores in Arkansas, Oklahoma, offices in
California and monthly computer shows in Texas.
Principal Products or Services and their Markets.
- -------------------------------------------------
Computer Masters has found that rural and small-town computer
markets have been left alone by the major computer companies which have chosen
to focus on sales of complete systems alone or by major retailers who fail to
offer parts, upgrade components or professional support to the computer user.
The Company, through its wholly-owned subsidiaries, operates nine
(9) retail storefront locations under the name of Computer Masters for
components, upgrade parts and complete personal computers for use in the home,
business and professional and government markets. All Computer Masters
locations provide complete sales and service, including full upgrade
capabilities, to its customers no matter which brand or manufacturer's
computer system a customer may have.
Even as important as retail storefront sales, the Company has
integrated a direct marketing plan using the Internet via its web sites
(www.colecomputercorp.com and www.okcmasters.com) along with "direct to the
customer" mail-order, as established by Dell Computers and Gateway, to satisfy
the demand of price conscious, "do-it-yourself" Internet customers. The
Company's web site has complete e.commerce capabilities for retail, government
and wholesale buyers, included a shopping cart with a secure credit card
payment system. The implementation of each phase will place the Company in an
opportune position to market its products and services in select niches,
including the exciting Internet marketplace across the World Wide Web.
The Company has built solid commercial relationships with major
manufacturers and other suppliers of parts and upgrade components. The
ability to purchase directly from the manufacturer or to capitalize on
discounted prices from other sources has been a key element in the
advantageous cost structure of Computer Masters. In addition, the Company
follows, in philosophy and in practice, the inventory methodology of "Just in
Time" or JIT. This JIT inventory practice has kept the Company's inventory
purchase costs as close to the current market of many price sensitive parts.
While this practice requires virtually daily ordering and a continual
management of all price sensitive inventory, the management time (and
inventory control system) yields benefits that far exceed the extra effort.
In the world we live in, a UPS/FEDEX/Overnight US Mail delivery of JIT often
saves substantial sums when inventory prices are declining. In an upwardly
spiraling market, the Company can simply adjust its wholesale/retail prices to
reflect daily price changes.
Manufacturing of custom computers, inventory purchasing/control,
strategic marketing and internal accounting are maintained at the corporate
facility. In addition, the Company has planned an expansion of the
centralized manufacturing unit can be accomplished by utilizing available
space and a production line system. This expansion can establish the Company
with the facility and staff to produce up to 750 to 1,000 complete custom
computer systems per day.
An important element of the Company's success has been the honest,
quality personnel retained by the Corporation. All of the Company's employees
embody the philosophy of being "Your Best Friend in Computers" which starts
with the Chief Executive Officer, Mr. Brad Cole, and the Company's majority
shareholder, Ms. Cynthia Cole. Each of the founders have been instrumental in
the selection of key personnel which has reached 48 employees as of the end of
1998, including the main manufacturing and warehouse facility.
The Company will build on its strengths in the regional Oklahoma
marketplace and implement a disciplined and controlled expansion which will
follow the growth pattern of other successful major retailers. The initial
rural and "small-town" America approach will take the best of a proven,
textbook Wal-Mart strategy. Further, the Company will build on its
"Heartland" success with a low overhead retail operation of a Radio Shack
style storefront. The Company's management believes that this expansion will
result in a nationwide enterprise of substantial standing and profitability.
In addition to traditional retail and wholesale activities, Company
management is pleased to report that it has recently obtained the backing of
Advanced Micro Devices in a joint effort to establish Computer Masters as the
preferred marketer for designated manufacturer products to U.S. Armed Forces
military installations across the United States. These efforts will include
substantial computer systems sales along with an upgrade initiative for
existing desktop computer systems to governmental agencies.
Competition.
- ------------
The Company's present and intended business operations will center
in areas of great competition, which will include many competitors who are
larger, better financed and currently have a national or international image
in these fields of endeavor. These competitors will include, in addition to
many small other enterprises, the following: Wal-Mart Stores, Inc.; Tandy
Corporation; Best Buy Co., Inc.; Circuit City Stores, Inc.; CompUSA, Inc.;
Dell Computer Corporation; Gateway, Inc.; Micron Technology, Inc.; Insight
Enterprises, Inc.; CDW Computer Centers, Inc.; Micro Warehouse, Inc.; and
Apple Computers. The Company will be at a distinct disadvantage in competing
with these entities, and its current comparative position in this industry
must be deemed to be nominal; however, the Company intends to focus its
efforts in rural and "small-town" America, which management believes has been
neglected by its major competitors. The Company believes it will be a
competitive force in these areas.
Sources and Availability of Raw Materials.
- ------------------------------------------
The Company purchases component and upgrade parts from a number of
suppliers for further manufacturing or resale activities of complete component
systems or upgrade and/or component parts. Most materials are readily
available from suppliers.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or
Labor Contracts.
- ----------------
None.
Governmental Approval of Principal Products or Services.
- --------------------------------------------------------
None.
Effects of Existing or Probable Governmental Regulations.
- ---------------------------------------------------------
On the effectiveness of its Registration Statement on Form 10-SB,
the Company became subject to Regulation 14A of the Securities and Exchange
Commission, which regulates proxy solicitations. Section 14(a) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), requires all
companies with securities registered pursuant to Section 12(g) thereof 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 the Company at a special or annual
meeting thereof or pursuant to a written consent will require the Company to
provide its 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 stockholders.
The Company will also be required to file annual reports on Form
10-KSB and quarterly reports on Form 10-QSB with the Securities and 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.
Cost and Effect of Compliance with Environmental Laws.
- ------------------------------------------------------
There are no material environmental laws, rules or regulations
effecting the present and intended business operations of the Company.
Research and Development Expenses.
- ----------------------------------
None.
Number of Employees.
- --------------------
48 full time employees.
Item 2. Description of Property.
------------------------
Computer Masters has nine stores and a manufacturing/corporate
facility.
Store Number Square Footage Rent Term
1 1,200 sq. ft. Month to Month
2 700 sq. ft. Pres - Jan 31, 2003
3 1,624 sq. ft. Pres - Feb 21, 2001
4 959 sq. ft. Pres - Jan 31, 2001
5 1,200 sq. ft. Pres - Mar 30, 1999
6 1,000 sq. ft. Pres -June 30, 2000
7 3,300 sq. ft. Pres - Oct 30, 2000
8 1,200 sq. ft. Pres - Apr 30, 2001
9 750 sq. ft. Pres - Jan 01, 2000
TOTAL: 11,933 sq. ft.
Manufacturing/Corporate 8,500 sq. ft. Pres - July 31, 2001
Item 3. Legal Proceedings.
------------------
The Company is not a party to any pending legal proceeding. No
federal, state or local governmental agency is presently contemplating any
proceeding against the Company. No director, executive officer or affiliate
of the Company or owner of record or beneficially of more than five percent of
the Company's common stock is a party adverse to the Company or has a material
interest adverse to the Company in any proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
During the fourth quarter of the calendar year ended December 31,
1998, no matter was submitted to a vote of the Company's security holders,
whether through the solicitation of proxies or otherwise; however, an
Information Statement was forwarded to stockholders on January 4, 1999,
respecting resolutions of the Board of Directors to change the Company's name
to "Cole Computer Corporation" and to effect a three for one forward split of
the outstanding voting securities of the Company. Stockholders owning
approximately 72% of the outstanding voting securities of the Company, with
none opposing and none abstaining, adopted, ratified and approved the name
change and the forward split. This Information Statement is incorporated
herein by reference. See Part III, Item 13.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
---------------------------------------------------------
Market Information
- ------------------
There has been no "public market" for shares of common stock of the
Company for a number of years. Recently, the Company submitted for quotations
of its common stock on the OTC Bulletin Board of the NASD; comments and
questions of the NASD respecting this filing have not yet been finalized.
Even the acceptance of the Company for quotations on the OTC Bulletin Board
will not mean there is a viable "public market" for the Company's common
stock, or if any such market does develop on the OTC Bulletin Board, that it
will be maintained or continue. Sales of "restricted securities" issued under
the Computer Masters Plan, amounting to approximately 9,480,000 post-split
shares, all of which will have satisfied the holding period of Rule 144 of the
Securities and Exchange Commission on or after December 22, 1999, could have
an adverse effect on any such market.
Holders
- -------
The number of record holders of the Company's common stock as of
May 10, 1999, was approximately 290.
Dividends
- ---------
The Company has not declared any cash dividends with respect to its
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 the Company's business. There are no material
restrictions limiting, or that are likely to limit, the Company's ability to
pay dividends on its common stock.
Item 6. Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
Plan of Operation.
- ------------------
Computer Masters has developed the unique opportunity in the
computer markets with sales of parts, software, upgrade components and custom
designed computer systems coupled with quality and personal service to retail
and wholesale customers as well as local, state and federal government
agencies.
This market niche exists because of the monumental and rapid changes
in the computer industry wherein a computer system from last year (or even
last month) needs to be upgraded due to technology advances. The ultimate
design of every computer system today must consider the need for
interchangeable parts so that these systems can be upgraded, with ease, when
future technology advances are made.
Computer Masters has sought to fill this market need by its
selection of strategic suppliers, including Advanced Micro Devices, Microsoft
and many others, and has grown with such partners to now hold direct
purchasing power, which provides a substantial economic advantage over other
competitors in its area of focus.
Computer Masters has found that rural and small-town computer
markets have been left alone by the major computer companies which have chosen
to focus on sales or complete systems alone or by major retailers who fail to
offer parts, upgrade components or professional support to the computer user.
From its home base in central Oklahoma, Computer Masters has and
will continue to be in the development of select market areas in the Midwest,
especially rural and "small-town" America, which have been neglected by major
computer retailers. This niche currently seeks personal contact with quality
support and services to meet their information systems needs, no matter if
such consumer is a family, small business, school district, federal government
agency or military forces base.
Results of Operations.
- ----------------------
The Company achieved revenues from commercial operations of
$8,305,479 for the year ended December 31, 1998, as compared to $4,459,475 for
the year ended December 31, 1997. Such revenues were derived from sales of
computer systems, component parts and upgrade parts from its nine storefront
locations in Oklahoma and Arkansas. During 1998, the Company opened four new
locations and is pleased to report significant activity accomplishments at
each existing and new location.
During 1998, the Company's gross profit margin was an estimated
10.7% of net sales. This includes wholesale, government and retail sales
activities. No single customer accounted for more than 10% of sales
activities for the year. This gross margin percentage reflects the opening of
four new store fronts in 1998.
The Company incurred a ($191,359) net loss after taxes for the
fiscal year ending December 31, 1998, as compared to a net income of $19,471
after taxes for the year ended December 31, 1997. Such activities include all
costs of operations along with incurred or accrued costs from the
reorganization activities between the public corporation and the privately
held Computer Masters (the "Computer Masters Plan" [see Part I, Item 1, "Year
Ended December 31, 1998," under the heading "Business Development."])
Liquidity.
- ----------
The Company had $205,794 of working capital as of December 31,
1998. This includes current assets of $226,418 in cash, $86,058 in Accounts
Receivable, $651,596 of inventory and $12,131 in other current assets. This
also includes trade accounts payable of $554,447, accrued purchases/expenses
of $155,583, along with current portions of installments and notes payable of
$59,879.
The Company also raised $392,900 through the sale of 392,900 shares
of its common stock ("restricted securities") during 1998.
Year 2000
- ---------
All hardware products sold by the Company are Year 2000 compliant.
However, the Company accepts no responsibility or Y2K compliance with regards
to software. Software compliance is the sole responsibility of its respective
manufacturers.
The Company can give no assurance that third parties with whom it
intends to do business will ensure Year 2000 compliance in a timely manner or
that, if they do not, their computer systems will not have an adverse effect
on the Company. However, the Company does not believe that Year 2000
compliance issues of third parties will result in a material adverse
effect on its financial condition or results of operations.
Item 7. Financial Statements.
---------------------
Independent Auditor's Report
Balance Sheet as of December 31, 1998
Statements of Income for the Years ended
December 31, 1998 and 1997
Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997
Statements of Cash Flows for the years ended
December 31, 1998 and 1997
Notes to Financial Statements
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Cole Computer Corporation
(formerly Pandora's Golden Box)
Oklahoma City, Oklahoma
We have audited the accompanying balance sheet of Cole Computer Corporation
and subsidiary as of December 31, 1998 and the related statements of income,
stockholders' equity and cash flows for each of the two years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Cole
Computer Corporation and subsidiary as of December 31, 1998, and the
results of its operations and its cash flows for each of the two years then
ended in conformity with generally accepted accounting principles.
March 15, 1999
Malone & Bailey, PLLC
Houston, Texas
<PAGE>
<TABLE>
COLE COMPUTER CORPORATION
(formerly Pandora's Golden Box)
BALANCE SHEET
As of December 31, 1998
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash $ 226,418
Accounts receivable 86,058
Inventory 651,596
other current assets 12,131
Total Current Assets 975,703
EQUIPMENT, less accumulated depreciation of $33,704 69,335
TOTAL ASSETS $ 1,045,538
CURRENT LIABILITIES
Current portion of installment
notes payable $ 9,272
Demand note payable to stockholder 50,607
Accounts payable 554,447
Accrued expenses 155,583
Total Current Liabilities 769,909
LONG-TERM DEBT, net of current portion 24,356
Total Liabilities 794,265
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 25,000,000
shares authorized, 9,940,900 shares
issued and outstanding 9,941
Paid in capital 445,753
Retained earnings (Deficit) (204,421)
Total Stockholders, Equity (Deficit) 251,273
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,045,538
</TABLE>
see accompanying summary of accounting policies and notes to financial
statements.
<TABLE>
COLE COMPUTER CORPORATION
(formerly Pandora's Golden Box)
STATEMENTS OF INCOME
For the Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
REVENUES $8,305,479 $4,459,475
COST OF SALES
Materials 7,147,868 3,887,875
Labor 225,797 107,734
Other 41,732 22,650
Total Cost of Sales 7,415,397 4,018,259
GROSS MARGIN 890,082 441,216
Selling expenses 629,897 221,771
General and administrative 433,538 172,390
NET INCOME (LOSS) FROM OPERATIONS ( 173,353) 47,055
Interest (income) ( 651) ( 1,122)
Interest expense 26,245 23,079
NET INCOME (LOSS) BEFORE TAXES ( 198,947) 23,079
INCOME TAX (Benefit) ( 7,588) 3,608
NET INCOME (LOSS) ( 191,359) $ 19,471
Income (loss) per common share $(.025) $.003
Weighted average shares outstanding 7,520,077 7,300,002
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<TABLE>
COLE COMPUTER CORPORATI0N
(formerly Pandora's Golden Box)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<CAPTION>
- common stock - Paid in Retained
Shares $ Capital (Deficit) Totals
<S> <C> <C> <C> <C> <C>
Balances
December 31, 1996 7,300,002 $ 7,300 ($ 223) $( 32,533) $( 25,456)
Net income - 1997 19,471 19,471
Balances -
December 31, 1997 7,300,002 7,300 ( 222) $( 13,062) ( 5,985)
Shares Contributed
by founding
shareholders (955,725) (956) 956
shares issued for
services performed
early to mid-1998 955,725 956 285,761 286,717
Shares issued in
connection with
reorganization
December 1998 2,248,000 2,248 1,604,727 1,606,975
Costs of fundraising
shares issued (1,816,975) (1,816,975)
cash paid ( 21,000) ( 21,000)
Shares sold for cash
December 1998 392,898 393 392,507 392,900
Net income - 1998 (191,359) (191,359)
Balances-
December 31, 1998 9,940,900 $ 9,941 $ 445,753 $(204,421) $ 251,273
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<TABLE>
COLE COMPUTER CORPORATION
(formerly Pandora's Golden Box)
STATEMENTS OF CASH FLOW
For the Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(191,359) $ 19,471
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock issued for services 76,718
Depreciation 17,597 10,096
Deferred income taxes ( 2,793) 2,793
Change in cash from:
Accounts receivable (25,887) ( 57,807)
Inventory (520,051) ( 96,999)
Other current assets ( 7,953) ( 4,179)
Accounts payable 486,170 15,671
Accrued expenses 102,187 53,396
NET CASH OPERATING ACTIVITIES ( 65,371) ( 57,558)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment ( 30,111) ( 43,306)
CASH FLOWS FROM FINANCING ACTIVITIES
stock issued for cash 392,900
Cash paid for stock sales consulting ( 21,000)
Advances by (repayments to) stockholders 50,607 ( 54,862)
New installment loans 18,561 175,000
Principal payments on installment loans (142,128) ( 17,805)
NET CASH FINANCING ACTIVITIES 298,940 102,333
NET INCREASE IN CASH 203,458 1,469
CASH ON HAND beginning of year 22,960 21,491
end of year $226,418 $ 22,960
SUPPLEMENTAL DISCLOSURES
Interest paid $ 26,245 $ 25,098
Income taxes paid 0 10,588
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
COLE COMPUTER CORPORATION
(formerly Pandora's Golden Box)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Electronic Service Co., Inc. ("ESCI") was formed in
November 1991 as an Oklahoma corporation for the purpose of acquiring and
operating an electronics repair business. In 1996, the Company adopted the dba
Computer Masters and changed its business to personal computer "clone"
hardware assembly, sales, and repair, utilizing both the Intel and AMD
microprocessors. The Company changed its name to Cole Computer Corporation
(the "Company") and its state of incorporation (Nevada) incident to its
reverse acquisition ("reorganization") described in Note 3. ESCI is now a
wholly-owned subsidiary of the Company. The Company now has nine retail stores
in Oklahoma and Arkansas, and also sells to area government agencies and
military installations.
All shares transactions for the two-year period have been restated for the
3-for-1 split occurring December 1998. All significant intercompany
transactions have been eliminated in the consolidated financial statements.
In preparing financial statements, management makes estimates and assumptions
that affect the reported amounts of assets and liabilities in the balance
sheet and revenue and expenses in the income statement. Actual results could
differ from those estimates.
Cash and Cash Equivalents include highly liquid investments, which are readily
convertible into cash and have maturities of three months or less.
Revenue is recognized when products are delivered. Bad debts are insignificant
and are recognized when collection is deemed doubtful by management.
Inventories, include component parts, sub-assemblies and merchandise held for
sale, and are valued at the lower of cost or market, using the first-in,
first-out method. Obsolete inventory is written down to liquidation value as
needed. Virtually all inventory on hand is component parts, as completed
computers are sold as they are built.
Equipment is carried at cost and consists of a vehicle and computers used for
inventory control and retail point-of-sale terminals.
Depreciation is determined Using the straight-line method based over their
estimated useful lives.
Deferred income taxes are determined on the liability method. Timing
differences between net income and taxable income as reported result mostly
from depreciation timing differences.
Warranty repair expenses are immaterial and no reserve for warranty repairs
has been established.
NOTE 2 - RELATED PARTY DEMAND NOTE PAYABLE
The majority stockholder advanced monies to the Company in 1998. The notes
attach no collateral, are repayable on demand, and carry a 12% interest rate.
NOTE 3 - INSTALLMENT NOTES PAYABLE
Installment debt is as follows:
l998 1997
Notes payable to GMAC and Union
Acceptance, payable in remaining
installments of $418 and $386,
respectively, including interest
at 4.9% and 13.5% APR, respectively,
secured by equipment and a vehicle $ 33,628 $ 20,091
Notes payable to American State Bank,
payable in installments of $2,763
including interest at 10.5% APR,
secured by substantially all assets 137,104
Less: current maturities ( 9,272) (32,100)
Net long-term debt $ 24,356 $125,095
The principal portion is due $7,599 in 2000, $8,262 in 2001, $5,632 in 2002
and $2,862 in 2003.
NOTE 4 - INCOME TAXES
As of December 31, 1998, the Company had a net operating loss carryforward of
about $200,000, which expires in 2018.
NOTE 5 - COMMON STOCK
in early to mid-1998, the Company paid various consultants and advisers
255,725 shares, which it has valued at $76,718.
In December 1998, the Company agreed to a reorganization with Pandora's Golden
Box ("Pandora"), a Nevada publicly-held shell company, whereby the Company's
shareholders exchanged 100% of the Company's outstanding stock for 73% of the
outstanding shares of Pandora. Pandora had no significant assets or
liabilities.
Immediately following this reorganization, all shares were given a 3-for-1
split. A summary of shares issued in connection with the reorganization is as
follows:
original shareholders of Cole Computer 7,300,002
original shareholders of Pandora 641,025
Promoters and consultants 1,006,975
Attorneys 600,000
9,548,002
Add: shares sold at $1 in December 1998 392,898
Total shares outstanding at
December 31, 1998 9,940,900
Stock issued to promoters, consultants and attorneys in connection with the
reorganization and fundraising efforts is valued at $1 and is shown as a
reduction of paid in capital.
Shortly after the reorganization, $442,900 in cash was raised by the sales of
stock at $1 per share, with $392,900 raised in December 1998 and another
$50,000 received January 1999. These Monies were used to pay off $118,000 of
installment debt, $21,000 in offering costs, with the balance available for
operating expenses.
As of March 15, 1999, there were no stock options or warrants outstanding and
none have ever been issued.
NOTE 6 - OPERATING LEASES
The Company has nine retail stores and one corporate office. Leases on these
spaces vary in cost and term. Rent expense for 1998 and 1997 is $89,785 and
$27,236, respectively. Net minimum lease payments are due $84,770 in 1999,
$73,645 in 2000 and $21,233 in 2001.
NOTE 7 - MAJOR VENDORS
The following were significant vendors during 1998 and 1997:
1998 1997
Mighty Micro, Inc. $2,222,461 32% $1,168,628 30%
Lasertech Computer
Distributors, Inc. 1,361,898 19 769,898 20
Lasertech owns 100,000 shares or 1% of outstanding Company stock. No single
customer accounted for as much as 10% of total sales during either year.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ---------------------
See the 8-K Current Report of the Company dated December 23, 1998,
Part III, Item 13.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
- --------------------------------------------------
Identification of Directors and Executive Officers
- --------------------------------------------------
The following table sets forth the names of all current directors and
executive officers of the Company. These persons will serve until the next
annual meeting of stockholders (held in July of each year) or until their
successors are elected or appointed and qualified, or their prior resignation
or termination.
<TABLE>
<CAPTION>
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
---- ---- ----------- --------------
<S> <C> <C> <C>
Sam Bono Director 3/7/97 12/23/98
President
Carol Novick Sec'y/Treasurer 3/7/97 12/23/98
Director
Homer O. Cole III Director, CEO 12/23/98 *
President
Cynthia A. Cole Director 12/23/98 *
Sec'y/Treasurer
Kam Mar Director 12/23/98 *
S.F. Hartley, Director 12/23/98 *
D.P.M.
</TABLE>
* This person presently serves in the capacities indicated.
Business Experience.
- --------------------
Homer O. Cole III. Mr. Cole is 43 years of age and is a Director and
the President of the Registrant. Mr. Cole's work experience includes serving
as Computer Masters Chief Executive Officer since 1991. Mr. Cole has years of
previous experience as a Service Manager for several TV and appliance
companies who maintained a leading presence based on quality service and
integrity in the Oklahoma markets. The Archbishop of Oklahoma City and the
President of St. Gregory's University selected Mr. Cole as a founder of the
University.
Cynthia A. Cole. Ms. Cole is 36 years of age and is a Director and
the Secretary of the Registrant. Ms. Cole has served as President of Computer
Masters since 1991. Ms. Cole received a nursing degree from Rose State
College and is a registered nurse. Ms. Cole performs many charitable services
within the community and is involved in her community church.
Kam Mar. Mr. Mar is 58 years of age and is a Director of the
Registrant. In 1986, Mr. Mar and his business partner, Tony Ho, developed
Elco Computer, a small computer retail store, in Alhambra, California, which,
in one year, became a multi-million dollar computer parts distributor. In
1987, he brought the least expensive PC mother board with 1 mega byte of RAM
to the market. In 1987, Mr. Mar founded Procomp Computer and was the chief
financial officer until 1996. Procomp Computer is a system integrator
providing customized micro computers to corporations. In 1989, he founded
K.M. Corporation to manufacture 486 mother boards in Sunnyvale, California.
In 1994, Lasertech Computer Distributor, Inc. was founded with Mr. Mar as the
CEO and CFO.
S.F. Hartley, D.P.M. Dr. Hartley is 54 years of age and is a
Director of the Registrant. He is a well respected podiatrist in Houston,
Texas, owns five (5) podiatry clinics and is a co-owner of three (3) surgery
centers in the greater Houston area. In addition, Dr. Hartley is a
shareholder and Board of Director member of a national company that owns
seventy-two (72) podiatry clinics across the U.S. Dr. Hartley is on staff at
several hospitals and also serves as the National Representative for the State
of Texas on the National Podiatry Board. Dr. Hartley is also a Board of
Director member for several commercial banking institutions.
Family Relationships
- --------------------
With the exception that Homer O. Cole III and Cynthia A. Cole are
husband and wife, and that Dr. S.F. Hartley is the uncle to Cynthia A. Cole,
there are no family relationships between any directors or executive officers
of the Company, either by blood or by marriage.
Involvement in Certain Legal Proceedings
- ----------------------------------------
During the past five years, no present or former director, person
nominated to become a director, executive officer, promoter or control person
of the Company:
(1) Was a general partner or executive officer of any business by
or against which any bankruptcy petition was filed, whether at
the time of such filing or two years prior thereto;
(2) Was convicted in a criminal proceeding or named the subject of
a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
him from or otherwise limiting his involvement in any type of
business, securities or banking activities:
(4) Was found by a court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission or the
Commodity Futures Trading Commission to have violated any
federal or state securities or commodities law, and the
judgment has not been reversed, suspended, or vacated.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
To the knowledge of management, required reports under Section 16(a)
of the 1934 Act were timely filed by the former directors and executive
officers of the Company; Forms 3 of the current directors and executive
officers are being filed simultaneous with the filing of this Report.
Item 10. Executive Compensation.
-----------------------
Cash Compensation
- -----------------
The following table sets forth the aggregate compensation paid by
the Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
Other ities All
Name and Year or Annual Rest- Under- LTIP Other
Principal Period Salary Bonus Compen- ricted lying Pay- Comp-
Position Ended ($) ($) sation Stock Options outs ensat'n
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sam Bono, 12/31/97 0 0 0 0 0 0 0
Former 12/31/98 0 0 0 0 0 0 0
President
& Director
Carol
Novick, 12/31/97 0 0 0 0 0 0 0
Former 12/31/98 0 0 0 0 0 0 0
Sec'y/Treas
& Director
Homer O. 12/31/97 $59,315 $25,000 0 0 0 0 0
Cole, III 12/31/98 $37,654 0 0 0 0 0 0
President
& Director
Cynthia 12/31/97 $ 2,831 $25,000 0 0 0 0 0
A. Cole, 12/31/98 $13,439 0 0 0 0 0 0
Sec'y/Treas
& Director
Kam Mar. 12/31/97 0 0 0 0 0 0 0
Director 12/31/98 0 0 0 0 0 0 0
S.F. 12/31/97 0 0 0 0 0 0 0
Hartley, 12/31/98 0 0 0 0 0 0 0
Director, D.P.M.
</TABLE>
Bonuses and Deferred Compensation
- ---------------------------------
None.
Compensation Pursuant to Plans
- ------------------------------
None.
Pension Table
- -------------
None; not applicable.
Other Compensation
- ------------------
None.
Compensation of Directors
- -------------------------
There are no standard arrangements pursuant to which the Company's
directors are compensated for any services provided as director. No
additional amounts are payable to the Company's directors for committee
participation or special assignments.
Employment Contracts
- --------------------
None.
Termination of Employment and Change of Control Arrangements
- ------------------------------------------------------------
There are no employment contracts, compensatory plans or
arrangements, including payments to be received from the Company, with respect
to any director or executive officer of the 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 the Company or its
subsidiaries, any change in control of the Company, or a change in the
person's responsibilities following a change in control of the 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 the Company's common stock as of the date of
this Report:
Percentage Number
Name and Address of Class of Shares Beneficially Owned
- ---------------- --------- ----------------------------
Cynthia A. Cole 62% 6,192,775
11711 South Portland
Oklahoma City, OK 73170
Each of these individuals or entities has sole investment and
voting power with regard to the securities listed opposite his, her or its
name.
Security Ownership of Management.
---------------------------------
The following table sets forth the shareholdings of the Company's
directors and executive officers as of the date of this Report:
Percentage Number
Name and Address of Class of Shares Beneficially Owned
- ---------------- ------- -----------------------------
Cynthia A. Cole 62% 6,192,775
11711 South Portland
Oklahoma City, OK 73170
Homer O. Cole -0- -0-
11711 South Portland
Oklahoma City, OK 73170
S.F. Hartley, D.P.M. .007% 73,000
2201 Juanita Lane
Deer Park, TX 77536
Kam Mar .005% 50,000
1110 Volante Drive
Arcasia, CA 91007
All directors and executive
officers as a group (4) 62.012% 6,315,775
See Part III, Item 9, for information concerning the
offices or other capacities in which the foregoing persons serve with the
Company.
Changes in Control
- ------------------
To the knowledge of the Company's management, there are no present
arrangements or pledges of the Company's securities which may result in a
change in control of the Company.
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 the Company
or any of its 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 the Company to own of record or
beneficially more than five percent of the 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 the Company
or any of its 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 the Company to own of record or
beneficially more than five percent of the 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 the Company
or any of its 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 the Company to own of record or
beneficially more than five percent of the 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; not applicable.
Transactions with Promoters.
- ----------------------------
There have been no material transactions, series of
similar transactions, currently proposed transactions, or series of similar
transactions, to which the Company or any of its 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.*
---------------------------------
Reports on Form 8-K
- -------------------
The Company filed an 8-K Current Report dated December 23, 1998,
respecting the Computer Masters Plan; See Part III, Item 13.
Exhibits*
(i)
Where Incorporated
in this Report
--------------
Registration Statement on Form 10-SB** Part I
3.1 Initial Articles of Incorporation dated August 4, 1987**
3.2 Certificate of Amendment to the Articles of Incorporation
dated December 31, 1997 respecting the 100 for 1 reverse
split**
3.3 By-Laws**
10-SBA-1 Registration Statement**
Form 8-K Current Report dated 12/23/98**
2 Agreement and Plan of Reorganization**
Exhibit A- Stockholders and Subscribers of
of Electronic Service, Co., Inc.**
Exhibit B- Pandora's Financial Statements for
the years ended 12/31/97 and 12/31/96**
Exhibit B-1- Pandora's Unaudited Balance Sheet
and Statement of Operations for the
Nine Months ended 9/30/98**
Exhibit C- Pandora's Exceptions**
Exhibit D- Electronic Service Co., Inc. Unaudited
Financial Statement for the period
ended 12/31/97**
Exhibit D-1 Electronic Service Co., Inc. Unaudited
Balance Sheet for the period ended
5/31/98**
Exhibit E- Electronic Service Co., Inc.
Exceptions**
Exhibit F- Investment Letter**
Exhibit G- Pandora's Compliance Certificate**
Exhibit H- Electronic Service Co., Inc. Compliance
Certificate**
3 Certificate of Amendment effecting the name change to
"Cole Computer Corporation" and the three for one
forward split**
13 Form 10-KSB Annual Report for the year ended December
31, 1997**
16 Letter regarding change in certifying accountants**
19 Information Statement**
Form 8-KA-1 Current Report dated 12/23/98**
2 Certificate of Amendment effecting the name change to
"Cole Computer Corporation" and effecting the three
for one forward split**
16 Letter regarding change in certifying accountants**
Form 8-KA-2 Current Report dated 12/23/99**
(a) Audited financial statements of the Company and subsidiaries as
of December 31, 1998 and 1997.**
Independent Auditor's Report**
Balance Sheet as of December 31, 1998**
Statements of Income for the Years ended
December 31, 1998 and 1997**
Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997**
Statements of Cash Flows for the years ended
December 31, 1998 and 1997**
Notes to Financial Statements**
(b) Pro forma consolidating income statement and pro forma
consolidated condensed balance sheet, taking into account the Agreement and
Plan of Reorganization between the Registrant and Electronic Service Co.,
Inc., an Oklahoma corporation.**
Pro Forma Consolidating Income Statement**
Pro Forma Consolidated Condensed Balance Sheet**
Notes to Pro Forma Consolidated Condensed Balance Sheet**
(ii)
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
* Summaries of all exhibits contained within this
Report are modified in their entirety by reference
to these Exhibits.
** These documents and related exhibits have been
previously filed with the Securities and Exchange
Commission and are incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
COLE COMPUTER CORPORATION
Date: 5/21/99 By /s/ Homer O. Cole III, Director
and President
Date: 5/21/99 By /s/ Cynthia A. Cole, Director
and Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated:
COLE COMPUTER CORPORATION
Date: 5/21/99 By /s/ Homer O. Cole III, Director
and President
Date: 5/21/99 By /s/ Cynthia A. Cole, Director
and Secretary/Treasurer
Date: By
------------ ------------------------------
Kam Mar, Director
Date: 5/21/99 By /s/ S. F. Hartley, D.P.M., Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 226,418
<SECURITIES> 0
<RECEIVABLES> 86,058
<ALLOWANCES> 0
<INVENTORY> 651,596
<CURRENT-ASSETS> 975,703
<PP&E> 103,039
<DEPRECIATION> 33,704
<TOTAL-ASSETS> 1,045,538
<CURRENT-LIABILITIES> 769,909
<BONDS> 0
0
0
<COMMON> 9,941
<OTHER-SE> 241,332
<TOTAL-LIABILITY-AND-EQUITY> 1,045,538
<SALES> 8,305,479
<TOTAL-REVENUES> 8,305,479
<CGS> 7,415,397
<TOTAL-COSTS> 7,415,397
<OTHER-EXPENSES> 1,063,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,245
<INCOME-PRETAX> (198,947)
<INCOME-TAX> (7,588)
<INCOME-CONTINUING> (191,359)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (191,359)
<EPS-PRIMARY> (0.025)
<EPS-DILUTED> (0.025)
</TABLE>
