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.
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.
A description of “Documents Incorporated by Reference” is contained
in Part IV, Item 15, of this Annual Report.
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.”;
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.
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
* 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
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.
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.
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.
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."
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
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 |
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.
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.
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.
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
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.
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 |
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.
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
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).
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.
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.
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
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.
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.
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 |
|
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.
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
no shares 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 two anniversary dates as a result of this modification.
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 |
|
|
$ |
- |
|
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.