Reflect Scientific Inc.
03/31/2023 | Press release | Distributed by Public on 03/31/2023 04:04
Annual Report for Fiscal Year Ending December 31, 2022 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2022
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No. 000-31377
| REFLECT SCIENTIFIC, INC. |
| (Exact name of registrant as specified in its charter) |
| Utah | 87-0642556 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 1266 South 1380 West, Orem, UT | 84058 | |
| (Address of principal executive offices) | (Zip Code) |
| (801)226-4100 |
| (Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: $0.01 par value common stock.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer☒ | Smaller reporting company ☒ |
| Emerging Growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No☒
As of June 30, 2022 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate market value of the registrant's common shares held by non-affiliates (based upon the closing price of such shares as reported on OTC Bulletin Board of the National Association of Securities Dealers, Inc.) was approximately $4.3 million. Shares held by each executive officer and director and by each person who owns 10% or more of the outstanding common shares have been excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 24, 2023, there were a total of 85,214,086 common shares of the registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
A description of "Documents Incorporated by Reference" is contained in Part IV, Item 15, of this Annual Report.
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REFLECT SCIENTIFIC, INC.
Annual Report on Form 10-K
Year Ended December 31, 2022
TABLE OF CONTENTS
PART I
| Item 1. | Business | 4 |
| Item 1A. | Risk Factors | 10 |
| Item 1B. | Unresolved Staff Comments | 10 |
| Item 2. | Properties | 10 |
| Item 3. | Legal Proceedings | 10 |
| Item 4. | Mine Safety Disclosure | 10 |
PART II
| Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 10 |
| Item 6. | Reserved | 11 |
| Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| Item 7A | Quantitative and Qualitative Disclosure about Market Risk | 15 |
| Item 8. | Financial Statements and Supplementary Data | 15 |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 16 |
| Item 9A. | Controls and Procedures | 16 |
| Item 9B. | Other Information | 17 |
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 17 |
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance | 17 |
| Item 11. | Executive Compensation | 19 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 20 |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 21 |
| Item 14. | Principal Accounting Fees and Services | 21 |
PART IV
| Item 15. | Exhibits and Financial Statement Schedules | 22 |
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Forward-Looking Statements
When used in this Annual Report on Form 10-K, the words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements specifically include, but are not limited to, our expectations regarding strategic business initiatives, our intentions to defend our intellectual property rights, continue our research and development, seek regulatory approvals and plans regarding sales and marketing.
We caution readers not to place undue reliance on the forward-looking statements, which speak only as of the date of this Annual Report, are based on certain assumptions and expectations which may or may not be valid or actually occur and which involve various risks and uncertainties, including but not limited to competitive products and pricing, difficulties in product development, commercialization and technology, changes in the regulation of life science products, or other necessary approvals to sell future products and other risk described elsewhere herein. If and when sales of our new product lines commence, sales may not reach the levels anticipated. As a result, our actual results for future periods could differ materially from those anticipated or projected. All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
PART I
Item 1. Description of Business
Business Development
History
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." On December 30, 2003, we acquired Reflect Scientific, Inc., a California corporation. We changed our name to "Reflect Scientific, Inc." and succeeded to the business operations of our wholly-owned subsidiary, that involved 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.
On November 29, 2005, we announced the execution of a Letter of Intent to acquire Cryomastor Corporation, a California corporation ("Cryomastor" [sometimes called "Cryometrix," its amended name]).
Effective as of April 4, 2006, we entered into a Purchase Agreement (the "JMST Agreement") with JM SciTech, LLC, a limited liability company organized under the laws of the State of Colorado, and doing business as JMST Systems ("JMST"); David Carver, an individual ("Carver"); and Julie Martin, an individual ("Martin") (JMST, Carver and Martin are sometimes hereinafter referred to collectively as "Sellers"). Pursuant to the JMST Agreement, we purchased and JMST sold all right, title and interest in and to the JMST Technology (the "JMST Technology"), as described in the JMST Agreement; and Carver conveyed and assigned any rights he had in and to certain patents (the "Carver Patents") and related intellectual assets as described in the JMST Agreement (collectively, including the Carver Patents, referred to herein as the "Carver Technology"). JMST had created a line of chemical detection instruments that are used in the pharmaceutical, biotechnology and homeland security markets. The patented technology allows researchers to accurately analyze chemical formulations for their composition and identity.
On June 27, 2006, we completed the acquisition of Cryomastor pursuant to an Agreement and Plan of Merger (the "Cryomastor Merger Agreement"), which became our wholly-owned subsidiary; changed its name to "Cryometrix, Inc.";
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and succeeded to its business operations, which involved the manufacture and sale of ultra-low temperature freezer systems powered by liquid nitrogen for use in bio-repositories associated with the biotech and pharmaceutical industries, as well as government facilities, universities and many other diverse applications that require a large number of reliable and energy efficient freezers.
Our Business
Impact of the Covid-19 Pandemic
The recent COVID-19 Pandemic ("the Pandemic") has to date had little negative effect on our business with regard to disruption of normal business activities such as receiving and processing orders and shipping. Many of the new COVID-19 vaccines and protein-based therapeutics require freezers either in processing or storing these products. The press surrounding the COVID-19 vaccines has often focused on the dearth of freezers capable of storing vaccines at an appropriately low temperature. The Company sells ultra low temperature freezers and as a consequence benefited from the press-generated awareness of the need for these types of freezers. Our pharmaceutical freezer customers develop and manufacture many vaccines. The Company is not privy to the specific use of its low temperature freezers and can not determine if any increases in sales or revenue are directly attributable to the Pandemic.
There is a continued risk of supply chain interruption, availability of raw materials or other unforeseen issues that can be caused by the ever-changing progression of the Pandemic. In addition, demand for the Company's products may decrease or fluctuate in the future and current demand for our products may not, therefore, be indicative of sales and revenue going forward.
We recognize these risks and are taking every effort to prevent or mitigate them as they arise.
Overview
Reflect Scientific is engaged in the manufacture and distribution of innovative products targeted at the life science market. Our customers include hospitals, diagnostic laboratories, pharmaceutical and biotech companies, cold chain management, universities, government and private sector research facilities, chemical and industrial companies.
Our goal is to provide our customers with the best solution for their needs. This philosophy extends into our business strategies and acquisition plans. Through a series of strategic acquisitions, we acquired technology that has enabled us to expand our line of products to align with, and capitalize on, market needs. Our growing product portfolio includes ultra-low temperature freezers, blast freezers, solvent chillers and refrigerated transportation in addition to supplying OEM products to the life sciences industry.
Our Cryometrix brand ultra-low temperature and blast freezers innovative design enables our customers to save substantially on energy costs related to cryogenic storage. Ultra-low temperature freezers are used worldwide for the storage of vaccines, DNA, RNA, proteins and many other biological and chemical substances. There is a growing need for energy efficient, reliable ultra-low temperature storage units. Our Cryometrix freezers are targeted to this growing market and we have had tremendous success in blood storage and pharmaceutical manufacturing applications. The application of this technology for use in refrigerated trailers (commonly called "reefers") used to transport goods which need to be maintained in a cold environment significantly broadens the market for this technology. The utilization of this technology in reefers eliminates the current method of cooling, which uses engines run on hydrocarbon fuels. The Cryometrix technology is pollutant free and is more efficient and cost effective than the technologies currently used. Reflect Scientific has added a new product line of solvent chillers. Solvent chillers are used in natural products extraction for optimizing product yield and purity.
Products
Reflect Scientific designs, develops and sells scientific equipment for the life sciences and manufacturing industries. Since Reflect Scientific's inception in 1993, our focus is and has been on providing value added products, analytic testing supplies and equipment, and stand-alone products for the life sciences and industrial marketplace. Reflect Scientific's products range from non-mechanical Cyrometrix™ freezers and value-added products and components for the life sciences industry to tools and analytical services for industrial manufacturing.
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Our Cryometrix freezers use an entirely different technology for cooling that requires far less power and has significantly fewer moving parts. Less power consumption and fewer parts (i.e., less chance for wear or malfunction) translates into an immediate realization of cost savings to the customer. Management believes that there is no mechanical freezer that can match the temperature uniformity and rapid cooling of our Cryometrix freezer. These attributes are why these freezers are being sold into the pharmaceutical market - they meet customer needs that cannot be fulfilled by current freezer technology.
All of Reflect Scientific's products and services are developed with one key factor in mind: Providing a superior cost/benefit to the customer verses other products in the same market space. With years of experience in the life science and industrial manufacturing markets, Reflect Scientific has been able to develop not only unique patentable products, but products that we believe offer a superior value proposition to the customer.
We have developed a business model with a focus on excellence in the design and development of products and solutions for life science and industrial manufacturing industries. We outsource the majority of our manufacturing, allowing us to concentrate our efforts on product innovation across multiple lines and industries. Our strength is in developing and providing value added products which we believe offer immediate and verifiable benefits and cost saving solutions.
We have found a number of companies that can manufacture products to our specification, allowing us to focus on our core competencies of development and design, and maintain a flexible corporate structure capable of taking advantage of new opportunities without the large capital investment required to acquire tooling and manufacturing equipment. Our focus on development and design expertise, as opposed to manufacturing of products, enables us to innovate along multiple industry lines and customize our products to meet specific needs in a variety of industrial settings. Our products are sold in the biotechnology, natural products, pharmaceutical, cold chain management and medical industries, as well as manufacturing industries, such as automotive.
Cryometrix Freezers
Our Cryometrix ultra-low temperature and blast freezers are, we believe, a technological breakthrough that provides energy savings and other critically important benefits to cryo-storage customers in the life science related industries. Ultra-low temperature and blast freezers are used in many applications for the storage and fast freezing protocols of everything from blood to cancer vaccines. These types of freezers are used by hospitals and biotechnology research facilities.
The only ultra-low temperature freezers currently available are produced by a limited number of companies and rely on a mechanical process for cooling. Because of inadequacies in the mechanical process, we believe there is loss of inventory each year because of the problems related to reliability inherent with mechanical freezers.
Our freezers incorporate a disruptive technology. They are based on a complete divergence from the technology currently used in ultra-low temperature freezers. Through the advantages of our technology, we believe our freezers solve the current inadequacies and provide immediate cost savings and reliability for our clients. Current cryogenic storage equipment falls short of customer expectations in a variety of key performance criteria.
* High energy usage - a growing problem with rising energy costs
| * | Inflexible temperature range control- existing units cannot be easily modified for colder requirements (colder temperatures are an industry trend) |
* Sample inventory is at risk in the event of a power failure
| * | Poor temperature uniformity -samples in different areas of the freezer can experience wide variations in temperatures which is undesirable from a regulatory standpoint. |
* Frost build-up
Our Cryometrix ultra low temperature and blast freezer uses a patented design and technology which is powered by liquid nitrogen. Through the use of a liquid nitrogen powered freezer system we are able to address the market need for:
* Low energy requirements
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* Flexible temperature control - wide range of usable temperatures
* Power failures have little effect - uses passive liquid nitrogen technology rather than electrically powered compressors.
* Uniform temperatures throughout freezer - more usable storage volume
* Much larger storage volume per area of floor space occupied - reduced facilities cost
* Reliable and essentially maintenance free, further lowering cost of ownership
* Environmental issues related to pollution using the current refrigerated trailer ("reefer") technology
Cryometrix freezers are powered by liquid nitrogen. The competition's freezers, including those developed by Thermo Fisher Scientific and Sanyo Corporation, are compressor based, with hydrofluorocarbon (HFC) refrigerants and electric compressors. This basic technology difference results in the following Cryometrix advantages:
| * | The Cryometrix freezer cooling medium is nitrogen, an all-green element that makes up 78% of our atmosphere. Many competitors use refrigerants that are harmful to the environment. |
| * | Cryometrix freezers cool extremely fast compared to the competition. One particular Cryometrix freezer will cool to -80C in eight minutes, an order of magnitude faster than the competition. |
| * | The inherent Cryometrix technology provides a much more uniform temperature throughout the freezer than competitors' compressor-based freezers. |
| * | When power is lost, the competitors' freezers immediately fail to operate. Cryometrix freezers, when placed in manual freezing mode, continue to maintain a cold temperature for days and even weeks. |
| * | Cryometrix freezers are more reliable than the competition. Those well-versed in mean time between failure analysis calculate potential failures mainly based on the number of moving parts. Compressor-based freezers have many moving parts and are not as reliable in theory or in practice as Cryometrix freezers, which have almost no moving parts. |
The adaptation of the freezer technology to reefers for transporting perishable items opens a significant new market. Trailers can easily be retrofitted with the Cryometrix unit, which operates pollution free, more efficiently, and provides a cost savings compared to the diesel-powered units currently used. The non-polluting Cryometrix unit provides significant benefits over any other unit currently marketed.
A new development using a similar liquid nitrogen cooling technology is the solvent chiller. Solvent chillers are used for providing chilled solvent for extracting a final commercial product from plant materials. The extraction solvent is rapidly chilled to a temperature that will optimize the extraction purity and recovery of the final product of interest. Solvent chillers are currently being sold into the CBD extraction market.
Other Products
In addition to our Cryometrix freezers, we market our Visacon OEM products, LCGCVials.com vial products, GCFerules.com OEM GC consumable products, and HPLC Detectors.com UV detector products into the chromatography market. These are highly technical products and encompass a vast array of sizes, configurations and uses. These products represent a stable supplies business but they do not represent a significant growth opportunity for the Company.
Competition
The environment for our products and services is intensely competitive. Although the complexity of the products we produce limits the number of companies we compete with, the companies with competing technology are generally larger and often subsidiaries or divisions of very large multinational companies. Our competitor's size and association with large multinational companies gives them advantages over us in the ability to access potential customers. Many potential customers already purchase products either directly from our competitors or from another subsidiary of these large multinational companies, creating natural inroads to sales that we do not possess.
Given our relative size versus our competitors, we are often required to seek niche markets for our products or focus on selling consumable components to be used by our competitors. We believe, however, that our technology and experience in the ultra-low freezers space allows us to be competitive in those markets. As our ultra-low freezer products are new to the marketplace, the products long term commercial acceptance is still unknown. Most of our products compete against
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multiple competitors, with our refrigeration products competing primarily against Thermo Fisher Scientific and Sanyo Corporation. Although our Cryometrix freezer products are considered to be in the ultra-cold freezer market space, we do not believe that they compete directly with freezer products sold by these companies because our Cryometrix freezers use a completely different technology, liquid nitrogen cooling, to achieve very fast cooling rates and stable set temperatures. Freezer products sold by Thermo Fisher Scientific and Sanyo Corporation cannot achieve the same rates of cooling. Our Cryometrix freezers compete with other ultra-cold freezer products based on technical merit - their ability to meet freezing parameters ultra-cold freezer market space, we do not believe that they compete directly with freezer products sold by these companies because our Cryometrix freezers use a completely different technology, liquid nitrogen cooling, to achieve very fast cooling rates and stable set temperatures. Freezer products sold by Thermo Fisher Scientific and Sanyo Corporation cannot achieve the same rates of cooling. For additional disclosure about our Cryometrix products, see the discussion under the subheading "Cryometrix Freezers" above.
The product lines other than our Cryometrix freezers face competition from many laboratory supply companies, with Thermo Fisher Scientific being by far the largest. We estimate our market share in this segment to be well under five percent. However, because of the OEM nature of much of our chromatography business, we sell to several of the large chromatography supply companies.
Growth Plan
While we will continuously evaluate acquisitions of businesses and technologies to grow our revenues in the life science and green technology markets, our primary focus will be the continued growth of our own product lines through increasing market share and the addition of new innovative products to enhance our current offerings.
We seek to expand the applications for our products and equipment into additional markets as we develop brand recognition. We hope to be able to obtain market leverage from our existing products and name recognition as we use our existing offerings and product strengths to position us as a key supplier of cryogenic storage, blast freezing and cold chain management solutions. This strategic plan will also enable us to further diversify our customer base.
Manufacturing, Supplies, and Quality Control
Many of our products are manufactured by strategic selection of third-party manufacturers. By outsourcing our manufacturing, we are able to reduce the overall cost position of our products. We manufacture our lower volume products that are less labor and parts intensive in our facility in Orem, Utah.
In addition, we engage in light manufacturing (assembly, filling and repackaging) for many of our chromatography supplies. We also do the final assembly and design for our Cryometrix brand freezers. The freezer shells, doors, shelving, heat exchangers and electronics are produced by contracted vendors. We sell directly to OEM customers and end users.
Regulation and Environmental Compliance
Presently, none of our products are in highly regulated industries.
Sources and Availability of Raw Materials and Names of Principal Suppliers
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 primary vendors in place and have identified secondary vendors.
Dependence on One or a Few Major Customers
We have four major customers who represented 51 percent and 45 percent of our sales volume in 2022 and 2021, respectively. In our 2022 fiscal year, these customers represented 15 percent; 13 percent; 13 percent; and 11 percent of our revenues, respectively.
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The Company has strong relationships with each of its customers and does not believe this concentration poses a significant risk due to those long-term relationships and the uniqueness of the products they purchase from us.
Our customers purchase our products via purchase orders describing the quantity and price of the products being purchased in a given transaction. By way of example, our largest customer purchases products through the use of more than 60 purchase orders per year.
Need for any Governmental Approval of Principal Products or Services
No products presently being manufactured or sold by us are subject to prior governmental approvals.
Effect of Existing or Probable Governmental Regulations on the Business
Our Registration Statement on Form 10, as amended, was initially filed on March 30, 2021, which became effective 60 days after filing with the Securities and Exchange Commission, at which point our securities were registered pursuant to Section 12(g) of the Exchange Act. Issuers with securities registered under Section 12(g) are subject to numerous regulatory requirements under the Exchange Act. For example, we will be subject to the Sarbanes-Oxley Act of 2002. This Act creates a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members appointment, compensation and oversight of the work of public companies' auditors; prohibits certain insider trading during pension fund blackout periods; and establishes a federal crime of securities fraud, among other provisions.
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 our stockholders with the information outlined in Schedules 14A or 14C of Regulation 14; preliminary copies of this information must be submitted to the Securities and Exchange Commission at least 10 days prior to the date that definitive copies of this information are forwarded to our stockholders.
Upon effectiveness of our Registration Statement on Form 10, as amended, we will also be required to file annual reports on Form 10-K and quarterly reports on Form 10-Q 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; changes in executive officers and directors; and bankruptcy) in a Current Report on Form 8-K.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, including Duration
We regard intellectual property ("IP") as a strategic asset that allows us to maintain a highly competitive position in the market. All patents and trademarks relating to acquired technologies have been assigned to us. Where appropriate, we seek patent protection for inventions and developments made by our personnel and incorporated into our products or otherwise falling within our fields of interest. We protect some of our technology as proprietary trade secrets and, where appropriate, we use trademarks or registered trademarks used in connection with our products.
There are currently 32 patents assigned to Reflect Scientific, Inc. All of our patents cover our Cryometrix product line of nitrogen-based equipment for processing, storage and transportation of bio-pharma products. All patents are utility patents within the jurisdiction of the United States, with expiration dates ranging from December 2023, to December 2041. We have a strong commitment to maintaining our IP portfolio and pursuing additional IP to expand our product protection.
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Research and Development Costs During the Last Two Fiscal Years
During the year ended December 31, 2022, we expended $73,425 for research and development. During the year ended December 31, 2021, we expended $58,340 for research and development. The majority of the research and development on our products is performed by independent contractors who have been enhancing technologies, primarily on the reefer unit and the detectors. We expect research and development cost to increase in the future with the development work required to update and make improvements on our Cryometrix freezers.
Employees
As of March 24, 2023, subsequent to the balance sheet date, we had 7 full-time and 2 part-time employees. None of our employees are represented under a collective bargaining agreement. We believe our relations with our employees to be good.
Reports to Security Holders
You may read and copy any materials that we file with the Securities and Exchange Commission at the Securities and Exchange Commissions' Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may also find all of the reports that we have filed electronically with the Securities and Exchange Commission at their Internet site www.sec.gov.
Item 1A. Risk Factors
Not applicable for Registrant.
Item 1B. Unresolved Staff Comments
None. Not applicable.
Item 2. Description of Property
Reflect Scientific conducts all of its business operations from one facility, located in Orem, UT. This is a combination warehouse, manufacturing and office facility with 6,000 square feet of space; we lease this facility at $4,999 per month to the end of the lease term on November 30, 2023.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosure
Not applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters and Registrant Purchases of Equity Securities.
Market Information
Since July 6, 2005, our common stock has been listed under the symbol "RSCF" on the OTCBB. Prior to July 6, 2005, our stock traded under the symbol "COLH" since its initial listing on May 24, 2001.
As of March 24, 2023, there were 85,214,086 shares of our common stock outstanding. On March 24, 2023, the high and low bid price for our common stock was $0.0717 and $0.07, respectively.
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Holders
The number of record holders of our common stock as of March 24, 2022, was approximately 107 this number does not include an indeterminate number of stockholders whose shares may be held by brokers in street name.
Dividends
We have not declared any cash dividends with respect to our common stock, and do not intend to declare dividends in the foreseeable future. Our future dividend policy cannot be ascertained with any certainty. There are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our securities.
Securities Authorized for Issuance under Equity Compensation Plans
| Plan Category | Number of Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) |
| (a) | (b) | (c) | |
| Equity compensation plans approved by security holders |
- |
- |
None |
| Equity compensation plans not approved by security holders |
- |
- |
None |
| Total | - | - | None |
Recent Sales of Unregistered Securities
None.
Use of Proceeds of Registered Securities
There were no proceeds received during the calendar year ended December 31, 2022 and 2021, from the sale of registered securities.
Issuance of Equity Securities by Us
In December 2021, the board approved the issuance of 1,000,000 shares of restricted stock to its patent attorney, 250,000 shares to vest on the grant date with an additional 250,000 shares to vest on each of the next three anniversary dates. In December 2022, this issuance was modified from 1,000,000 shares of restricted stock to 925,000 shares of restricted stock. As of December 31, 2022, 475,000 shares have vested with an additional 225,000 shares to vest on each of the next two anniversary dates as a result of this modification.
Item 6. Reserved.
We are not required to provide information under this item.
Item 7. Management's Discussion and Analysis or Plan of Operation
This periodic report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Plan of Operations provided below, including information regarding the Company's financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities, and the plans and objectives of management. The statements made as part of the Plan of Operations that are not historical facts are hereby identified as "forward-looking statements."
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The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with the financial statements and notes included in this report as Part II, Item 8.
Critical Accounting Policies
Reflect Scientific's accounting policies are more fully described in Note 2 of the consolidated financial statements. As discussed in Note 2, the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about the future events that affect the amounts reported in the consolidated financial statements and the accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.
Overview
Reflect Scientific is engaged in the manufacture and distribution of innovative products targeted at the life science market. Our customers include hospitals, diagnostic laboratories, pharmaceutical and biotech companies, cold chain management, universities, government and private sector research facilities, chemical and industrial companies.
Our goal is to provide our customers with the best solution for their needs. This philosophy extends into our business strategies and acquisition plans. Through a series of strategic acquisitions, we acquired technology that has enabled us to expand our line of products to align with, and capitalize on, market needs. Our growing product portfolio includes ultra-low temperature freezers, blast freezers, solvent chillers and refrigerated transportation in addition to supplying OEM products to the life sciences industry.
Our Cryometrix brand ultra-low temperature and blast freezers innovative design enables our customers to save substantially on energy costs related to cryogenic storage. Ultra-low temperature freezers are used worldwide for the storage of vaccines, DNA, RNA, proteins and many other biological and chemical substances. There is a growing need for energy efficient, reliable ultra-low temperature storage units. Our Cryometrix freezers are targeted to this growing market and we have had tremendous success in blood storage and pharmaceutical manufacturing applications. The application of this technology for use in refrigerated trailers (commonly called "reefers") used to transport goods which need to be maintained in a cold environment significantly broadens the market for this technology. The utilization of this technology in reefers eliminates the current method of cooling, which uses engines run on hydrocarbon fuels. The Cryometrix technology is pollutant free and is more efficient and cost effective than the technologies currently used. Reflect Scientific has added a new product line of solvent chillers. Solvent chillers are used in natural products extraction for optimizing product yield and purity.
During the year ended December 31, 2022 revenue decreased by 27.5% compared to the year ended December 31, 2021. The revenue decline resulted from a decrease in sales of our chillers and freezers, as well as supply chain delays with manufactures.
Impact of Coronavirus Pandemic
In December 2019, a novel coronavirus disease, or COVID-19, was initially reported and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases and affected countries and actions by public health and governmental authorities, businesses, other organizations, and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns.
Despite recent developments of vaccines, the duration and severity of COVID-19, mutations and possible additional mutations and the degree of their impact on our business is uncertain and difficult to predict. The continued spread of the outbreak could result in one or more of the following conditions that could have a material adverse impact on our
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business operations and financial condition: delays or difficulty sourcing certain products and raw materials; increased costs for such products and raw materials; and loss of productivity due to employee absences.
Our efforts to help mitigate the negative impact of the outbreak on our business may not be effective, and we may be affected by a protracted economic downturn. Furthermore, while many governmental authorities around the world have and continue to enact legislation to address the impact of COVID-19, including measures intended to mitigate some of the more severe anticipated economic effects of the virus, we may not benefit from such legislation, or such legislation may prove to be ineffective in addressing COVID-19's impact on our and our customer's businesses and operations. Even after the COVID-19 outbreak has subsided, we may continue to experience impacts to our business as a result of COVID-19's global economic impact and any recession that has occurred or may occur in the future. Further, as the COVID-19 situation is unprecedented and continuously evolving, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or in a manner that we currently do not consider that may present significant risks to our operations.
The extent to which the COVID-19 pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
There is a continued risk of supply chain interruption, availability of raw materials or other unforeseen issues that can be caused by the ever-changing progression of the COVID-19 pandemic. In addition, demand for the Company's products may decrease or fluctuate in the future and current demand for our products may not, therefore, be indicative of sales and revenue going forward.
We recognize these risks and are taking every effort to prevent or mitigate them as they arise. The Company has been proactive in making those business decisions which it believes will enable it to carry out its business plan. Significant cost reduction measures have been implemented, unprofitable subsidiaries divested, facilities consolidated and personnel reductions made.
Contractual Obligations
The Company leases office/warehouse space in Utah. The following summarizes future minimum lease payments under the operating lease at December 31, 2022:
| Minimum Lease Payments | |||
| Year Ending December 31, | Building | ||
| 2023 | $ 58,920 |
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Results of Operations
The following table sets forth key components of our results of operations during the years ended December 31, 2022 and 2021, both in dollars and as a percentage of our revenues.
| Years Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||
| Amount |
% of Revenues |
Amount |
% of Revenues |
|||||||||||||||||
| Revenues | $ | 2,041,297 | 100.0 | % | $ | 2,814,670 | 100.0 | % | ||||||||||||
| Cost of goods sold | 822,147 | 40.3 | % | 884,066 | 31.4 | % | ||||||||||||||
| Gross profit | 1,219,150 | 59.7 | % | 1,930,604 | 68.6 | % | ||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Salaries and wages | 636,038 | 31.2 | % | 608,065 | 21.6 | % | ||||||||||||||
| General and administrative | 419,589 | 20.6 | % | 436,399 | 15.5 | % | ||||||||||||||
| Research and development | 73,425 | 3.6 | % | 58,340 | 2.1 | % | ||||||||||||||
| Total operating expenses | 1,129,052 | 55.3 | % | 1,102,804 | 39.2 | % | ||||||||||||||
| Income from operations | 90,098 | 4.4 | % | 827,800 | 29.4 | % | ||||||||||||||
| Other income | ||||||||||||||||||||
| Gain on forgiveness of debt | - | - | % | 111,265 | 4.0 | % | ||||||||||||||
| Net income before income taxes | 90,098 | 4.4 | % | 939,065 | 33.4 | % | ||||||||||||||
| Income tax expense | (702 | ) | (0.0 | )% | - | - | % | |||||||||||||
| Net income | $ | 89,396 | 4.4 | % | $ | 939,065 | 33.4 | % | ||||||||||||
Revenues. Revenues decreased by $773,373, or 27.5%, to $2,041,297 for the year ended December 31, 2022, as compared to $2,814,670 for the year ended December 31, 2021. Such decrease was primarily due to a significant decrease in freezer and chiller sales during the third quarter and ongoing supply chain delays with manufactures.
Cost of goods sold. Cost of goods sold decreased by $61,919, or 7.0%, to $822,147 for the year ended December 31, 2022, as compared to $884,066 for the year ended December 31, 2021. Such decrease was primarily due to decreased freezer and chillers sales, offset by increased product and shipping costs.
Gross profit. Our gross profit as a percentage of sales decreased to 59.7% for the year ended December 31, 2022, as compared to 68.6% for the year ended December 31, 2021. The decrease in gross profit percentage was primarily due to the decrease in freezer and chiller sales, and increased product and shipping costs.
Salaries and wages. Salaries and wages increased by $27,973, or 4.6%, to $636,038 for the year ended December 31, 2022, as compared to $608,065 for the year ended December 31, 2021. Such increase was primarily due to increased headcount as well as stock-based compensation relating to legal fees.
General and administrative. General and administrative expenses decreased by $16,810, or 3.9%, to $419,589 for the year ended December 31, 2022, as compared to $436,399 for the year ended December 31, 2021. Such decrease is a result of decreased revenues and operations, the cumulative result of small savings in numerous expenses, offset by increased advertising and marketing costs.
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Research and development. Research and development expenses increased by $15,085, or 25.9%, to $73,425 for the year ended December 31, 2022, as compared to $58,340 for the year ended December 31, 2021. Such increase is a result of continued enhancements to the ultra-cold CBD oil chiller during the period.
Other income. Other income was $0 for the year ended December 31, 2022, as compared to $111,265 for the year ended December 31, 2021, a result of forgiveness of our PPP loans.
Net income. As a result of the cumulative effect of the factors described above, our net income was $89,396 for the year ended December 31, 2022, as compared to $939,065 for the year ended December 31, 2021. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.
Liquidity and Capital Resources
As of December 31, 2022 and 2021, our current assets exceeded current liabilities by $2,179,237 and $2,063,516, respectively, and we had cash and cash equivalents of $1,381,927 and $1,473,924, respectively. To date, we have financed our operations primarily through revenue generated from operations, cash proceeds from financing activities, borrowings, and equity contributions by our shareholders.
Summary of Cash Flow
The following table provides detailed information about our net cash flow for the period indicated:
|
Years Ended December 31, |
||||||||
| 2022 | 2021 | |||||||
| Net cash (used in) provided by operating activities | $ | (91,997 | ) | $ | 831,382 | |||
| Net cash provided by investing activities | - | - | ||||||
| Net cash provided by financing activities | - | - | ||||||
| Net change in cash and cash equivalents | (91,997 | ) | 831,382 | |||||
| Cash and cash equivalents at beginning of period | 1,473,924 | 642,542 | ||||||
| Cash and cash equivalents at end of period | $ | 1,381,927 | $ | 1,473,924 |
Net cash used in operating activities was $91,997 for the year ended December 31, 2022, as compared to net cash provided by operating activities of $831,382 for the year ended December 31, 2021. Significant factors affecting operating cash flows was primarily a result of decreased customer deposits and decreased net income during the year ended December 31, 2022.
We continue working to enhance our on-line ordering system to increase sales, develop the market for our ultra-low temperature freezers, work with current vendors to obtain more favorable pricing, and locate new vendors to provide opportunities to further reduce our cost of goods.
We will continue to focus our efforts on our core business activities while pursuing capital resources and evaluating potential future acquisitions which fit within and enhance our core business.
Off-Balance Sheet Arrangements
None noted.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable to Registrant.
Item 8. Financial Statements
The financial statements of the Company are set forth immediately following the signature page to this Form 10-K.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
As of the end of the period covered by this Annual Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief/Principal Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that information required to be disclosed is recorded, processed, summarized and reported within the specified periods and is accumulated and communicated to management, including our President and Principal Financial Officer, to allow for timely decisions regarding required disclosure of material information required to be included in our periodic Securities and Exchange Commission reports. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective due to the material weakness in the Company's internal control. 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.
Management's Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated Framework (2013). Based on this evaluation, our management concluded that, as of December 31, 2022, our internal control over financial reporting was not effective due to the lack of segregation of duties inherent in a small company.
Inherent Limitations over Internal Controls
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Changes in internal control over financial reporting
We have made no change in our internal control over financial reporting during the last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management's report in this annual report on Form 10-K.
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Item 9B. Other Information
None; not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None; not applicable.
PART III
Item 10. 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 of our current directors and executive officers. These persons will serve until the next annual meeting of the stockholders or until their successors are elected or appointed and qualified, or their prior resignation or termination.
| Name | Positions Held | Date of Election or Designation | Date of Termination or Resignation |
| Kim Boyce | President & | ||
| Director | 12/2003 | * | |
| Tom Tait | Vice President, | ||
| Secretary and Director | 01/2005 | * | |
| William G. Moon | Director | 04/2011 | * |
* These persons presently serve in the capacities indicated.
Business Experience
Kim Boyce - CEO, Director
Mr. Boyce, 69,founded Reflect Scientific in 1993 and has over 40 years of experience in manufacturing, sales, distribution and management. His prior experience includes executive roles with Grace/Alltech Scientific, where he served as manager - distribution and sales and manager - plant operations. He also co-founded Labtech Scientific Products in Northern California, a distribution company specializing in equipment for use in life science and environmental related industries. He has an accomplished track record in strategic business development in a variety of markets, including the pharmaceutical and biotechnology sectors and cold chain management. Mr. Boyce received his technical training at DeAnza College in Cupertino, CA and his business training at San Jose State University.
Thomas Tait - Vice President, Secretary, Director
Mr. Tait, 68, serves as Vice President. Mr. Tait brings experience with accelerated product development, "lean" process management tools, strategic market analysis, and acquisition integration. Mr. Tait joined us from Danaher Company where he was a Business Manager over a $120 million in sales product line. Prior assignments have included General Manager of Hyper Quan Inc., Product Manager J&W Scientific and Project Manager Varian Inc. He also co-founded Chira Tech Inc, a high technology Company that was sold to Thermo Electron Corporation. Mr. Tait holds an MBA in Technology Management from the University of Phoenix and a BS in Chemistry from Clarkson University. He also holds patents in Optics and MEMS technologies.
William G. Moon, Director
Mr. Moon, 74, has over 30 years experience in startup and engineering related companies. His leadership experience includes assisting in the formation of what became the world's largest disk drive company, Quantum Corporation, with over 10,000 employees. He was Principal Engineer and Vice President of Engineering for over twenty years, during which time he co-designed numerous standard-setting disk drives. During that time, he was a co-founder of a wholly
17
owned Quantum subsidiary, Plus Development, and was key in the invention of the Hardcard, the first hard drive on a plug-in card. He helped create a partnership with Panasonic for the world's first totally automated disk drive assembly plant in Japan, producing over 100 million disk drives. Prior to that, Mr. Moon designed memory products at Hewlett Packard Labs in their Disk Memory Division. Over the past five years Mr. Moon has served as technical advisor to several companies and has sat on several boards.
We believe that, based on education and experience all of our directors are qualified to serve.
Significant Employees
There are no employees who are not executive officers who are expected to make a significant contribution to our Company's business.
Family Relationships
There are no family relationships between our officers and directors.
Involvement in Certain Legal Proceedings
During the past five years, no director, person nominated to become a director, executive officer, promoter or control person of our Company:
(1) was a general partner or executive officer of any business against which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) was subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
(4) was found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a 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
Section 16(a) of the Exchange Act requires that our executive officers and directors and persons who beneficially own more than 10% of our 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 us or written representations from certain persons, we believe that during our calendar year ended December 31, 2022, all filing requirements applicable to our officers, directors and 10% stockholders were met by such persons.
Code of Ethics
We have adopted a Code of Ethics that applies to all of our directors and executive officers serving in any capacity for our Company, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, which Code of Ethics was attached to our Form 10-K annual Report for the year ended December 31, 2003. See Part IV, Item 15.
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Nominating Committee
We have not established a Nominating and Corporate Governance Committee because we believe that the three members currently comprising our Board of Directors are able to effectively manage the issues normally considered by a Nominating and Corporate Governance Committee.
Audit Committee
Due to the size and status of our Company we have no Audit Committee, and are not required to have an audit committee. We do not believe the lack of an Audit Committee will have any adverse effect on our financial statements, based upon our current operations. We will assess whether an audit committee may be necessary in the future.
Item 11. Executive Compensation
The following table sets forth the aggregate compensation paid by us for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE
|
Name and Principal Position |
Year |
Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation($) |
Nonqualified Deferred Compensation ($) |
All Other Compensation($) |
Total Earnings ($) |
| Kim Boyce CEO & Director |
12/31/22 12/31/21 12/31/20 |
$106,459 $102,200 $102,200 |
- - - |
- - - |
- - - |
- - - |
- - - |
- - - |
$106,459 $102,200 $102,200 |
| Tom Tait VP & Director |
12/31/22 12/31/21 12/31/20 |
$15,000 $14,440 $15,000 |
- - - |
- - - |
- - - |
- - - |
- - - |
- - - |
$15,000 $14,440 $15,000 |
|
William Moon VP and Director |
12/31/22 12/31/21 12/31/20 |
$76,000 $38,500 $38,500 |
- - - |
- - - |
- - - |
- - - |
- - - |
- - - |
$76,000 $38,500 $38,500 |
Outstanding Equity Awards
As of December 31, 2022, there are no outstanding equity awards.
Compensation of Directors
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| None | None | None | None | None | None | None | None |
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Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of March 24, 2023, the names, addresses and number of shares of common stock beneficially owned by all persons known to the management of Reflect Scientific to be beneficial owners of more than 5% of the outstanding shares of common stock, and the names and number of shares beneficially owned by all directors of Reflect Scientific and all executive officers and directors of Reflect Scientific as a group (except as indicated, each beneficial owner listed exercises sole voting power and sole dispositive power over the shares beneficially owned).
For purposes of this table, information as to the beneficial ownership of shares of common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes general voting power and/or investment power with respect to securities. Except as otherwise indicated, all shares of our common stock are beneficially owned, and sole investment and voting power is held, by the person named. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of common stock, which such person has the right to acquire within 60 days after the date hereof. The inclusion herein of such shares listed beneficially owned does not constitute an admission of beneficial ownership.
All percentages are calculated based upon a total number of 85,214,086 shares of common stock outstanding as of March 24, 2023, plus, in the case of the individual or entity for which the calculation is made, that number of options or warrants owned by such individual or entity that are currently exercisable or exercisable within 60 days.
| Amount and Nature of | Percentage of Outstanding | ||||
| Title of Class | Name and Address of Beneficial Owner | Beneficial Owner | Common stock | ||
| Principal Shareholders | |||||
| Common Stock |
Kim Boyce 1266 South 1380 West Orem, Utah 84058 |
43,637,250 | 51.2% | ||
| Officers and Directors | |||||
| Common Stock | Kim Boyce | 43,637,250 | 51.2% | ||
| Common Stock | Tom Tait | 900,000 | 1.06% | ||
| Common Stock | William Moon. | 1,100,000 | 1.29% | ||
| All directors and executive officers of the Company as a group (Five individuals) | 45,637,250 | 53.56% |
Changes in Control
There are no current or planned transactions that would or are expected to result in a change of control of our Company.
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Securities Authorized for Issuance under Equity Compensation Plans
| Plan Category |
Number of Securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) |
| (a) | (b) | (c) | |
|
Equity compensation plans approved by security holders |
- | - | None |
|
Equity compensation Plans not approved by security holders |
- | - | None |
| Total | - | - | None |
The 2007 Equity Inventive Plan as amended on December 31, 2009, authorized the Company to issue 12,000,000 shares of stock options and restricted stock under an equity plan. The plan had an expiration date of December 31, 2019. No stock or option awards were outstanding at the time the plan expired.
Item 13. Certain Relationships and Related Transactions
Transactions with Related Persons
In the years ended December 31, 2022 and 2021, there were no related party transactions.
Parents of the Issuer
None; however Kim Boyce, our President and a director, may be deemed to be our "Parent" by virtue of his substantial shareholdings in our Company.
Transactions with Promoters and Control Persons
There were no material transactions, or series of similar transactions, during our Company's last five fiscal years, or any currently proposed transactions, or series of similar transactions, to which we or any of our subsidiaries was or is to be a party and in which any promoter or founder of ours or any member of the immediate family of any of the foregoing persons, had an interest.
Item 14. Principal Accounting Fees and Services
The following is a summary of the fees billed to us by our principal accountants during the fiscal years ended December 31, 2022 and 2021:
| Fee Category | 2022 | 2021 | ||||||
| Audit Fees | $ | 53,000 | $ | 57,000 | ||||
| Audit-related Fees | $ | - | $ | 1,500 | ||||
| Tax Fees | $ | 2,350 | $ | 2,100 | ||||
| All Other Fees | $ | - | $ | - | ||||
| Total Fees | $ | 55,350 | $ | 60,600 |
Audit Fees - Consists of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q 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
21
related to the performance of the audit or review of our 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.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
We do not have an Audit Committee; therefore, there is no Audit Committee policy in this regard. However, we do require approval in advance of the performance of professional services to be provided to us by our principal accountant. Additionally, all services rendered by our principal accountant are performed pursuant to a written engagement letter between us and the principal accountant.
The Board of Directors has received from our auditors the matters required to be discussed by PCAOB Auditing Standard No. 16 (Communications with Audit Committees).
PART IV
Item 15. Exhibits
Exhibits
| Exhibit No. | Title of Document | Location if other than attached hereto |
| 3.1 | Articles of Incorporation | 10-SB Registration Statement* |
| 3.2 | Articles of Amendment to Articles of Incorporation | 10-SB Registration Statement* |
| 3.3 | By-Laws | 10-SB Registration Statement* |
| 3.4 | Articles of Amendment to Articles of Incorporation | 8-K Current Report dated December 31, 2003* |
| 3.5 | Articles of Amendment to Articles of Incorporation | 8-K Current Report dated December 31, 2003* |
| 3.6 | Articles of Amendment | September 30, 2004 10-QSB Quarterly Report* |
| 3.7 | By-Laws Amendment | September 30, 2004 10-QSB Quarterly Report* |
| 4.1 | Debenture | 8-K Current Report dated June 29, 2008* |
| 4.2 | Form of Purchasers Warrant | 8-K Current Report dated June 29, 2008* |
| 4.3 | Registration Rights Agreement | 8-K Current Report dated June 29, 2008* |
| 4.4 | Form of Placement Agreement | 8-K Current Report dated June 29, 2008* |
| 10.1 | Securities Purchase Agreement | 8-K Current Report dated June 29, 2008* |
| 10.2 | Placement Agent Agreement | 8-K Current Report dated June 29, 2008* |
| 10.3 | JMST Purchase Agreement | 8-k Current Report dated April 4, 2006* |
| 10.4 | Cryomastor Merger Agreement | 8-K Current Report dated April 19, 2006* |
| 10.5 | Image Labs Merger Agreement | 8-K Current Report dated November 15, 2006* |
| 10.6 | All Temp Merger Agreement | 8-K Current Report dated November 17, 2006* |
| Debenture Settlement | 8-K Current Report dated August 17, 2010 | |
| 14 | Code of Ethics | December 31, 2003 10-K Annual Report* |
| 21 | Subsidiaries of the Company | December 31, 2006 10-K Annual Report* |
| 31.1 | 302 Certification of Kim Boyce | This Filing |
| 31.2 | 302 Certification of Kim Boyce | This Filing |
| 32 | 906 Certifications | This Filing |
* Previously filed with the Securities and Exchange Commission in the form indicated and incorporated by reference
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Additional Exhibits Incorporated by Reference
| * | Reflect California Reorganization | 8-K Current Report dated December 31, 2003 |
| * | JMST Acquisition | 8-K Current Report dated April 4, 2006 |
| * | Cryomastor Reorganization | 8-K Current Report dated June 27, 2006 |
| * | Image Labs Merger Agreement Signing | 8-K Current Report dated November 15, 2006 |
| * | All Temp Merger Agreement Signing | 8-K Current Report dated November 17, 2006 |
| * | All Temp Merger Agreement Closing | 8-KA Current Report dated November 17, 2006 |
| * | Image Labs Merger Agreement Closing | 8-KA Current Report dated November 15, 2006 |
| * | Debenture Placement | 8-K Current Reported dated June 29, 2007 |
* Previously filed and incorporated by reference.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the Company caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
REFLECT SCIENTIFIC, INC.
| Date: | 03/30/2023 | By: | /s/Kim Boyce | |
| Kim Boyce, Chief Executive Officer and Director |
| Date: | 03/30/2023 | By: | /s/Kim Boyce | |
| Kim Boyce, Chief Financial Officer (Principal Accounting Officer) |
In accordance with the Securities Exchange Act, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:
REFLECT SCIENTIFIC, INC.
| Date: | 03/30/2023 | By: | /s/Kim Boyce | |
| Kim Boyce, CEO and Director | ||||
| Date: | 03/30/2023 | By: | /s/Tom Tait | |
| Tom Tait, Vice President and Director | ||||
| Date: | 03/30/2023 | By: | /s/William Moon | |
| William Moon, Director |
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FINANCIAL STATEMENTS
| Page | ||
| Report of Independent Registered Public Accounting Firm (PCAOB ID 3627) | 26 | |
| Consolidated Balance Sheets as of December 31, 2022 and 2021 | 27 | |
| Consolidated Statements of Income for the Years Ended December 31, 2022 and 2021 | 28 | |
| Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2022 and 2021 | 29 | |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 | 30 | |
| Notes to Consolidated Financial Statements | 31 |
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Reflect Scientific, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Reflect Scientific, Inc. and subsidiaries ("the Company") as of December 31, 2022 and 2021, the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2022 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company's auditor since 2015.
Draper, UT
March 30, 2023
26
REFLECT SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, 2022 |
December 31, 2021 |
|||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 1,381,927 | $ | 1,473,924 | ||||
| Accounts receivable, net | 129,329 | 175,649 | ||||||
| Inventories, net | 797,352 | 624,486 | ||||||
| Prepaid expenses and other current assets | 20,221 | 31,306 | ||||||
| Total Current Assets | 2,328,829 | 2,305,365 | ||||||
| Operating lease right-of-use assets | 54,265 | 110,483 | ||||||
| Goodwill | 60,000 | 60,000 | ||||||
| Other long-term assets | 3,100 | 3,100 | ||||||
| TOTAL ASSETS | $ | 2,446,194 | $ | 2,478,948 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 78,969 | $ | 66,837 | ||||
| Customer deposits | 13,230 | 118,566 | ||||||
| Current portion of operating lease liabilities | 57,393 | 56,446 | ||||||
| Total Current Liabilities | 149,592 | 241,849 | ||||||
| Operating lease liabilities, net of current portion | - | 57,393 | ||||||
| TOTAL LIABILITIES | 149,592 | 299,242 | ||||||
| Stockholders' Equity | ||||||||
| Preferred Stock, $0.01 par value, 5,000,000 shares authorized; noneissued and outstanding |
-
|
-
|
||||||
| Common stock, $0.01 par value, 100,000,000 shares authorized; 85,214,086 and 84,989,086 shares issued and outstanding as of December 31, 2022 and 2021, respectively | 852,140 | 849,890 | ||||||
| Additional paid-in capital | 20,252,181 | 20,226,931 | ||||||
| Accumulated deficit | (18,807,719 | ) | (18,897,115 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | 2,296,602 | 2,179,706 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,446,194 | $ | 2,478,948 |
The accompanying notes are an integral part of these consolidated financial statements.
27
REFLECT SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
|
Years Ended December 31, |
|||||||||
| 2022 | 2021 | ||||||||
| Revenues | $ | 2,041,297 | $ | 2,814,670 | |||||
| Cost of goods sold | 822,147 | 884,066 | |||||||
| Gross profit | 1,219,150 | 1,930,604 | |||||||
| Operating Expenses | |||||||||
| Salaries and wages | 636,038 | 608,065 | |||||||
| General and administrative | 419,589 | 436,399 | |||||||
| Research and development | 73,425 | 58,340 | |||||||
| Total Operating Expenses | 1,129,052 | 1,102,804 | |||||||
| INCOME FROM OPERATIONS | 90,098 | 827,800 | |||||||
| Other Income | |||||||||
| Gain on forgiveness of debt |
-
|
111,265 | |||||||
| Total Other Income |
-
|
111,265 | |||||||
| NET INCOME BEFORE INCOME TAXES | 90,098 | 939,065 | |||||||
| INCOME TAX EXPENSE | (702 | ) |
-
|
||||||
| NET INCOME | $ | 89,396 | $ | 939,065 | |||||
| Earnings per common share | |||||||||
| Basic | $ | 0.00 | $ | 0.01 | |||||
| Diluted | $ | 0.00 | $ | 0.01 | |||||
| Weighted average shares outstanding | |||||||||
| Basic | 84,990,935 | 84,739,770 | |||||||
| Diluted | 85,440,935 | 85,489,770 |
The accompanying notes are an integral part of these consolidated financial statements.
28
REFLECT SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
| Common Shares |
Additional Paid-In |
Accumulated |
Total Stockholders |
|||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance at December 31, 2020 | 84,739,086 | $ | 847,390 | $ | 20,201,931 | $ | (19,836,180 | ) | $ | 1,213,141 | ||||||||||
| Stock-based compensation | - |
-
|
27,500 |
-
|
27,500 | |||||||||||||||
| Common stock issued in vesting of RSUs | 250,000 | 2,500 | (2,500 | ) | - | - | ||||||||||||||
| Net income | - |
-
|
-
|
939,065 | 939,065 | |||||||||||||||
| Balance at December 31, 2021 | 84,989,086 | 849,890 | 20,226,931 | (18,897,115 | ) | 2,179,706 | ||||||||||||||
| Stock-based compensation | - |
-
|
27,500 |
-
|
27,500 | |||||||||||||||
| Common stock issued in vesting of RSUs | 225,000 | 2,250 | (2,250 | ) |
-
|
-
|
||||||||||||||
| Net income | - |
-
|
-
|
89,396 | 89,396 | |||||||||||||||
| Balance at December 31, 2022 | 85,214,086 | $ | 852,140 | $ | 20,252,181 | $ | (18,807,719 | ) | $ | 2,296,602 |
The accompanying notes are an integral part of these consolidated financial statements.
29
REFLECT SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Years Ended December 31, |
||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 89,396 | $ | 939,065 | ||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Stock-based compensation | 27,500 | 27,500 | ||||||
| Gain on forgiveness of debt |
-
|
(111,265 | ) | |||||
| Amortization of right-of-use assets | 56,218 | 57,158 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 46,320 | 164,778 | ||||||
| Inventories | (172,866 | ) | (185,880 | ) | ||||
| Prepaid expenses and other current assets | 11,085 | (7,172 | ) | |||||
| Accounts payable and accrued expenses | 12,132 | (3,554 | ) | |||||
| Customer deposits | (105,336 | ) | 4,923 | |||||
| Operating lease liabilities | (56,446 | ) | (54,181 | ) | ||||
| Net cash (used in) provided by operating activities | (91,997 | ) | 831,382 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Net cash provided by investing activities |
-
|
-
|
||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net cash provided by financing activities |
-
|
-
|
||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (91,997 | ) | 831,382 | |||||
| CASH AND CASH EQUIVALENTS | ||||||||
| Beginning of the period | 1,473,924 | 642,542 | ||||||
| End of the period | $ | 1,381,927 | $ | 1,473,924 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ |
-
|
$ |
-
|
||||
| Cash paid for income taxes | $ |
-
|
$ |
-
|
||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Common stock issued in vesting of RSUs | 2,250 | 2,500 |
The accompanying notes are an integral part of these consolidated financial statements.
30
REFLECT SCIENTIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
NOTE 1-ORGANIZATION AND NATURE OF BUSINESS
Reflect Scientific, Inc. (the "Company") was incorporated under the laws of the State of Utah on November 3, 1999 as Cole, Inc. 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.
The Company is engaged in the manufacture and distribution of innovative products targeted at the life sciences market. Our customers include hospitals, diagnostic laboratories, pharmaceutical and biotech companies, cold chain management, universities, government and private sector research facilities, chemical and industrial companies.
Our Cryometrix brand ultra-low temperature and blast freezers innovative design enables our customers to save substantially on energy costs related to cryogenic storage. Ultra-low temperature freezers are used worldwide for the storage of vaccines, DNA, RNA, proteins and many other biological and chemical substances. There is a growing need for energy efficient reliable ultra-low temperature storage units. Our Cryometrix freezers are targeted to this growing market and we have had tremendous success in blood storage and pharmaceutical manufacturing applications. The application of this technology for use in refrigerated trailers (commonly called "reefers") used to transport good which need to be maintained in a cold environment significantly broadens the market for this technology. The utilization of this technology in reefers eliminates the current method of cooling, which uses engines run on hydrocarbon fuels. The Cryometrix technology is pollutant free and is more efficient and cost effective than the technologies currently used. Reflect Scientific has added a new product line of solvent chillers. Solvent chillers are used in natural products extraction for optimizing product yield and purity.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and are presented in US dollars.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. The Company maintains deposits in several financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation ("FDIC"). The Company has not experienced any losses related to amounts in excess of FDIC limits.
31
Revenue Recognition
We sell our specialty science and environmental lab supplies through direct sales and through distributor relationships. We sell our ultra-low temperature freezers through consultants and commission-only sales personnel. Revenue is recognized when a customer obtains control of promised goods based on the consideration we expect to receive in exchange for these goods. This core principle is achieved through the following steps:
Identify the contract with the customer. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party's rights regarding the goods to be transferred and identifies the payment terms related to these goods, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for services that are transferred is probable based on the customer's intent and ability to pay the promised consideration. We do not have significant costs to obtain contracts with customers.
Identify the performance obligations in the contract. Generally, our contracts with our laboratory supply customers do not include multiple performance obligations to be completed over a period of time. Our performance obligations generally relate to delivering specialty laboratory products to a customer, subject to the shipping terms of the contract. Limited warranties are provided, under which we typically accept returns and provide either replacement parts or refunds. We do not have significant returns. We do not typically offer extended warranty or service plans.
Ultra-low temperature freezers sold to customers are built to order. Generally, 50% of the value of the contract is paid by the customer prior to work beginning on manufacturing the freezer. Upon completion of manufacturing and testing the customer will then sign an acceptance of the unit and make payment of the remaining balance on the contract, at which title passes to the customer. The units are FOB ship point. The customer may either arrange to transport the unit with a carrier he uses or ask the Company to arrange such shipment, the charges of which are the responsibility of the customer. A customer may, after accepting the unit, request that it be upgraded with additional hardware or software options. Those options are installed under a new contract, with the deposit and final payment requirements being the same as on the original order.
Determine the transaction price. Payment by the customer is due under customary fixed payment terms, and we evaluate if collectability is reasonably assured. As of December 31, 2022 and 2021, none of our contracts contained a significant financing component.
Allocate the transaction price to performance obligations in the contract. We typically do not have multiple performance obligations in our laboratory supply contracts with customers. As such, we generally recognize revenue upon transfer of the product to the customer's control at contractually stated pricing. The freezers likewise do not have milestone or percentage of completion clauses in the contract, so revenue is only recognized when the work has been completed.
Recognize revenue when or as we satisfy a performance obligation. We generally satisfy performance obligations at a point in time upon shipment of goods, or, with our freezers, upon final acceptance of the unit by the customer, in accordance with the terms of each contract with the customer. We do not have significant service revenue.
We have elected to use the practical expedient in ASC 340-40-25-4 (regarding recognition of the incremental costs of obtaining a contact) for costs related to contracts that are estimated to be completed within one year. In other words, we do not have any material accrued contract costs; however, we do require customer deposits to be made on freezer purchases. As of December 31, 2022 and 2021, we have $13,230 and $118,566, respectively, of contract liabilities related to these customer deposits and no contract assets.
Cost of Revenue
The Company includes product costs (i.e., material, direct labor and overhead costs), shipping and handling expense, and production-related expenses in cost of revenues.
32
Accounts Receivable
The Company maintains an allowance for doubtful accounts to provide for losses arising from customers' inability to make required payments. If there is deterioration of our customers' credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required. The Company estimates allowance for doubtful accounts based on the aged receivable balances and historical losses. The Company charges off uncollectible accounts when management determines there is no possibility of collecting the related receivable. The Company considers accounts receivable to be past due or delinquent based on contractual terms, which is generally net 30 days. The allowance for doubtful accounts amounted to $4,000 for the years ended December 31, 2022 and 2021.
Property and Equipment
Property and equipment 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 property and equipment are depreciated range from 5 to 7 years, except for computer equipment, which is depreciated over a 3-year life.
Inventories
The Company's inventory consists of parts for scientific vial kits, refrigerant gases, components for the imaging and inspection systems which it builds, and other scientific items. The Company values inventory at each balance sheet date to ensure that it is carried at the lower of cost or net realizable value with cost determined based on the average cost basis. The Company periodically evaluates the value of items in inventory and provides write-downs to inventory based on its estimate of market conditions. The Company estimated an obsolescence allowance of $106,044 at December 31, 2022 and 2021.
Goodwill
Goodwill represents the excess of purchase price over the fair value of the net assets acquired. We evaluate goodwill for impairment annually, or more frequently if an event occurs or circumstances that indicate the goodwill is not recoverable. When impairment indicators are identified, we may elect to perform an optional qualitative assessment to determine whether it is more likely than not that the fair value of our reporting units has fallen below their carrying value. This assessment is based on several factors, including industry and market conditions, overall financial performance, including an assessment of cash flows in comparison to actual and projected results of prior periods. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value based on our qualitative analysis, or if we elect to skip this step, we perform a Step 1 quantitative analysis to determine the fair value of the reporting unit. At December 31, 2022 and 2021, there were no impairments of goodwill.
Impairment of Long-Lived Assets
The Company reviews its right-of-use ("ROU") assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. The test for impairment is required to be performed by management upon triggering events. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. At December 31, 2022 and 2021, there were no impairments of long-lived assets.
Leases
The Company accounts for leases in accordance with ASC Topic 842, "Leases." The Company determines whether a contract is a lease at contract inception or for a modified contract at the modification date. At inception or modification, the Company recognizes ROU assets and related lease liabilities on the balance sheet for all leases
33
greater than one year in duration. Lease liabilities and their corresponding ROU assets are initially measured at the present value of the unpaid lease payments as of the lease commencement date. If the lease contains a renewal and/or termination option, the exercise of the option is included in the term of the lease if the Company is reasonably certain that a renewal or termination option will be exercised. As the Company's leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate ("IBR") based on the information available at the commencement date of the respective lease to determine the present value of future payments. The IBR is determined by estimating what it would cost the Company to borrow a collateralized amount equal to the total lease payments over the lease term based on the contractual terms of the lease and the location of the leased asset.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term in equal amounts of rent expense attributed to each period during the term of the lease, regardless of when actual payments are made. This generally results in rent expense in excess of cash payments during the early years of a lease and rent expense less than cash payments in later years. The difference between rent expense recognized and actual rental payments is typically represented as the spread between the ROU asset and lease liability.
When calculating the present value of minimum lease payments, we account for leases as one single lease component if a lease has both lease and non-lease fixed cost components. Variable lease and non-lease cost components are expensed as incurred.
We do not recognize ROU assets and lease liabilities for short-term leases that have an initial lease term of 12 months or less. We recognize the lease payments associated with short-term leases as an expense on a straight-line basis over the lease term.
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined in the following three categories:
Level 1: Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date.
Level 2: Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly.
Level 3: Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment.
Cash, receivables, inventory, prepaid expenses, accounts payable, accrued expenses, and customer deposits approximate fair value, due to their short-term nature.
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to long-lived assets and goodwill, which are remeasured when the derived fair value is below carrying value in the consolidated balance sheets.
Earnings Per Share
Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is calculated by adjusting the weighted average number of shares of common stock outstanding for the dilutive effect, if any, of common stock equivalents. Common stock equivalents whose effect would be antidilutive are not included in diluted earnings per share. The Company uses the treasury stock method to determine the dilutive effect, which assumes that all common stock equivalents have been exercised at the beginning of the period and that the funds obtained from those exercises were used to repurchase shares of common stock of the Company at the average closing market price during the period.
34
Stock-Based Compensation
We recognize the fair value compensation cost relating to stock-based payment transactions in accordance with ASC Topic 718, "Share-Based Payments,". Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized on a straight-line basis over the employee's requisite service period, which is generally the vesting period. Restricted stock awards are valued based on the closing stock price on the date of grant (intrinsic value method). The Company has elected to recognize forfeitures as they occur.
Research and Development Expense
In accordance with ASC 730, the Company follows the policy of expensing its research and development costs in the period in which they are incurred. The Company incurred research and development expenses of $73,425 and $58,340 during the years ended December 31, 2022 and 2021, respectively.
Advertising and Marketing Expense
Costs for advertising and marketing are expensed as incurred. Advertising and marketing expense for the years ended December 31, 2022 and 2021 was $77,311 and $21,971, respectively.
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, "Accounting for Income Taxes" as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these consolidated financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Impact of COVID-19
In December 2019, a novel strain of coronavirus ("COVID-19") emerged in China. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The extent of the COVID-19 pandemic's continued effect on our operational and financial performance and those of third parties on which the Company relies will depend on future developments, including the duration, spread and intensity of the outbreak, the pace at which jurisdictions across the country re-open and restrictions begin to lift. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential impacts on its business and financing. However, these effects could have a material impact on the Company's liquidity, capital resources, operations and business and those of the third parties on which the Company relies.
Recent Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board ("FASB"). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on the Company's consolidated financial statements and related disclosures.
35
In October 2021, the FASB issued ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amends ASC 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations. The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This ASU should be applied prospectively to acquisitions occurring on or after the effective date of December 15, 2022, and early adoption is permitted. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on the Company's consolidated financial statements and related disclosures.
In November 2021, the FASB issued ASU 2021-10, Disclosures by Business Entities about Government Assistance. The FASB is issuing this Update to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity's accounting for the assistance, and (3) the effect of the assistance on an entity's financial statements. The ASU was effective for annual reporting periods after January 1, 2022. The adoption of this standard did not have a material impact on the Company's consolidated financial statements and related disclosures.
NOTE 3-DISAGGREGATION OF REVENUES
Our revenue is disaggregated based on product category and geographical region. We recognize revenue from the sale of scientific equipment for the life sciences and manufacturing industries. Our products range from non-mechanical Cyrometrix freezers, chillers, and original equipment manufacturer ("OEM") value-added products and components for the life sciences industry.
The Company's revenues for the years ended December 31, 2022 and 2021 are disaggregated as follows:
| Years Ended December 31, 2022 | ||||||||||||
| United States | International | Total | ||||||||||
| Revenues | ||||||||||||
| Freezers and chillers | $ | 793,953 | $ | 262,001 | $ | 1,126,428 | ||||||
| OEM and other | 722,194 | 263,149 | 914,869 | |||||||||
| Total Revenues | $ | 1,516,147 | $ | 525,150 | $ | 2,041,297 |
| Years Ended December 31, 2021 | ||||||||||||
| United States | International | Total | ||||||||||
| Revenues | ||||||||||||
| Freezers and chillers | $ | 1,047,363 | $ | 357,739 | $ | 1,502,437 | ||||||
| OEM and other | 739,074 | 670,494 | 1,312,233 | |||||||||
| Total Revenues | $ | 1,786,437 | $ | 1,028,233 | $ | 2,814,670 |
Service revenue of $70,474 and $97,335 are included in OEM and other revenues for the years ended December 31, 2022 and 2021, respectively.
NOTE 4-INVENTORIES
Inventories at December 31, 2022 and 2021 consisted of the following:
|
December 31, 2022 |
December 31, 2021 |
|||||||
| Finished goods | $ | 376,334 | $ | 342,835 | ||||
| Raw materials | 527,062 | 387,695 | ||||||
| Total inventories | 903,396 | 730,530 | ||||||
| Less reserve for obsolescence | (106,044 | ) | (106,044 | ) | ||||
| Total inventories, net | $ | 797,352 | $ | 624,486 |
36
Inventory balances are composed of finished goods. Raw materials and work in process inventory are immaterial to the consolidated financial statements.
NOTE 5-LEASES
The following was included in our consolidated balance sheet at December 31, 2022 and 2021:
|
December 31, 2022 |
December 31, 2021 |
|||||||
| Operating lease right-of-use assets | $ | 54,265 | $ | 110,483 | ||||
| Lease liabilities, current portion | 57,393 | 56,446 | ||||||
| Lease liabilities, long-term |
-
|
57,393 | ||||||
| Total operating lease liabilities | $ | 57,393 | $ | 113,839 | ||||
| Weighted-average remaining lease term (months) | 11 | 23 | ||||||
| Weighted average discount rate | 5.25% | 5.25% |
Total lease expense for the years ended December 31, 2022 and 2021 are as follows:
|
Years Ended December 31, |
||||||||
| 2022 | 2021 | |||||||
| Operating lease expense | $ | 60,864 | $ | 60,864 | ||||
| Variable lease expense | 6,457 | 6,368 | ||||||
| Total lease expense | $ | 67,321 | $ | 67,232 |
As of December 31, 2022, maturities of operating lease liabilities were as follows:
| Year Ending December 31, | Amount | |||
| 2023 | $ | 58,920 | ||
| Less: imputed interest | (1,527 | ) | ||
| Total operating lease liabilities | $ | 57,393 |
NOTE 6-ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 2022 and 2021 consisted of the following:
|
December 31, 2022 |
December 31, 2021 |
|||||||
| Trade accounts payable | $ | 55,011 | $ | 44,229 | ||||
| Credit cards payable | 23,958 | 22,608 | ||||||
| Total accounts payable and accrued expenses | $ | 78,969 | $ | 66,837 |
NOTE 7-CONCENTRATIONS OF RISK
Cash in Excess of Federally Insured Amount
During 2022 and 2021, the Company had cash balances that exceed the $250,000 FDIC insurance limit per depositor per banking institution. There were $1,131,927 and $1,223,924 on deposit that exceeded the FDIC limit at December 31, 2022 and 2021, respectively. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk with respect to its cash balances.
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Line of Credit
The Company has a credit line with a commercial bank of $100,000 secured by its inventory and accounts receivable bearing a variable interest rate, which was 9.75% as of the balance sheet date, and automatically renews so long as the Company is in compliance with the loan covenants. As of December 31, 2022 and 2021, there was $0 drawn against that line of credit, leaving an available balance of $100,000. The line automatically renews on April 1 of each year and the $100,000 credit amount was available at December 31, 2022 and 2021.
Sales and Accounts Receivable
The Company has four major customers who represent a significant portion of revenue. These four customers represented 51% and 45% of total sales revenue for the year ended December 31, 2022 and 2021, respectively. At December 31, 2022 and 2021, accounts receivable balances from these customers represent 71% and 70%, respectively, of the total receivables. The Company has strong relationships with each of these customers and does not believe this concentration poses a significant risk due to those long-term relationships and uniqueness of the products they purchase from the Company. We have identified primary and secondary sources for each of the products we purchase for resale and for the raw materials we use to manufacture our products, so do not anticipate any difficulty in filling the orders placed by our customers.
NOTE 8-STOCKHOLDERS' EQUITY
Preferred Stock
In November 2004 the Company amended its Articles of Incorporation so as to authorize 5,000,000 shares of preferred stock. Of this total, 750,000 shares have been designated as "Series A Convertible Preferred Stock". The following is a description of the rights of the Series A Convertible Preferred Stock:
Dividends. The holders of the Series A Preferred Stock would be entitled to dividends at the rate of 8 percent per year of the liquidation preference of $1.00 per share, payable annually, if and when declared by the board of directors. Dividends are not cumulative, and the board of directors is under no obligation to declare dividends.
Conversion Rights. The Series A Preferred Stock may be convertible into the Company's common stock by dividing $1.00 plus any unpaid dividends by 50% of the five day average closing bid price of the common shares.
As of December 31, 2022 and 2021, the Company had noshares of the preferred stock are issued and outstanding.
Common Stock
As of December 31, 2022 and 2021, the Company was authorized to issue 100,000,000 common shares. As of December 31, 2022 and 2021, the Company had 85,214,086 and 84,989,086 common shares issued and outstanding, respectively.
Restricted Stock Awards
On December 28, 2021, the Company granted 1,000,000 shares of restricted common stock to its patent attorney. The restricted stock vest over three years, with 250,000 shares vesting immediately on the grant date and 250,000 shares vesting on the next three anniversary dates. In December 2022, this issuance was modified from 1,000,000 shares of restricted common stock to 925,000 shares of restricted common stock. In accordance with ASC 718, the Company measured the incremental fair value, as the difference between the estimated fair value immediately after the modification as compared to the estimated fair value immediately before the modification, noting no increase in the incremental value. As of December 31, 2022, 475,000 shares have vested with an additional 225,000 shares to vest on each of the next twoanniversary dates as a result of this modification.
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Below is a table summarizing the changes in restricted stock awards outstanding during the years ended December 31, 2022 and 2021:
| Restricted Stock Awards |
Weighted-Average Exercise Price |
|||||||
| Outstanding at December 31, 2020 |
-
|
$ |
-
|
|||||
| Granted | 1,000,000 | 0.11 | ||||||
| Vested | (250,000 | ) | (0.11 | ) | ||||
| Outstanding at December 31, 2021 | 750,000 | $ | 0.11 | |||||
| Granted |
-
|
-
|
||||||
| Modified | (75,000 | ) | (0.11 | ) | ||||
| Vested | (225,000 | ) | (0.11 | ) | ||||
| Outstanding at December 31, 2022 | 450,000 | $ | 0.11 |
Stock-based compensation expense of $27,500 was recorded during the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2022, the remaining unrecognized stock-based compensation expense related to non-vested restricted stock awards is $55,000 and is expected to be recognized over 2.0 years.
NOTE 9-EARNINGS PER SHARE
The computation of weighted average shares outstanding and the basic and diluted earnings per share for the years ended December 31, 2022 and 2021 consisted of the following:
|
Years Ended December 31, |
||||||||
| 2022 | 2021 | |||||||
| Net income | $ | 89,396 | $ | 939,065 | ||||
| Weighted average shares outstanding | 84,990,935 | 84,739,770 | ||||||
| Basic earnings per share | $ | 0.00 | $ | 0.01 | ||||
| Weighted average shares outstanding | 84,990,935 | 84,739,770 | ||||||
| Effect on dilutive stock awards | 450,000 | 750,000 | ||||||
| Total potential shares outstanding | 85,440,935 | 85,489,770 | ||||||
| Diluted earnings per share | $ | 0.00 | $ | 0.01 |
NOTE 10-INCOME TAXES
The components of the provision for income taxes for the years ended December 31, 2022 and 2021, consisted of the following:
| December 31, 2022 | December 31, 2021 | |||||||
| Current Federal and State | $ | 702 | $ |
-
|
||||
| Deferred Federal and State |
-
|
-
|
||||||
| Total (benefit) provision for income taxes | $ | 702 | $ |
-
|
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Deferred income tax assets and liabilities at December 31, 2022 and 2021, consisted of the following temporary differences and carry-forward items:
| December 31, 2022 | December 31, 2021 | |||||||
| Deferred tax assets (liabilities) | ||||||||
| Loss carryforward | $ | 2,862,544 | $ | 2,853,471 | ||||
| Property and equipment | (30,307 | ) | (30,307 | ) | ||||
| Other | (19,694 | ) | (19,694 | ) | ||||
| Valuation Allowance | (2,812,543 | ) | (2,803,470 | ) | ||||
| Total net deferred income tax assets (liabilities) | $ |
-
|
$ |
-
|
The difference between the income tax expense (benefit) reported and amounts computed by applying the statutory federal rate of 21.0% to pretax income for the years ended December 31, 2022 and 2021, consisted of the following:
| December 31, 2022 | December 31, 2021 | |||||||
| Federal tax | $ | 18,921 | $ | 197,204 | ||||
| Meals and entertainment | 4,625 | 3,672 | ||||||
| Charitable contributions | 1,369 |
-
|
||||||
| Depreciation and amortization | (33,988 | ) | (30,307 | ) | ||||
| Other |
-
|
(23,366 | ) | |||||
| Change in valuation allowance | 8,371 | (147,203 | ) | |||||
| Total (benefit) provision for income taxes | $ | 702 | $ |
-
|
At December 31, 2022, the Company had net operating loss carryforwards of approximately $7,360,431 that may be available to reduce future years' taxable income indefinitely.
40