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." 11
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,
Critical Accounting Policies
Reflect Scientific'saccounting 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 Americarequires 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 Scientificis 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 Scientifichas 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, 2022revenue 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
December 2019, a novel coronavirus disease, or COVID-19, was initially reported and on March 11, 2020, the World Health Organizationcharacterized 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 12
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
future minimum lease payments under the operating lease at
Minimum Lease Payments Year Ending December 31, Building 2023
$ 58,92013 Results of Operations The following table sets forth key components of our results of operations during the years ended December 31, 2022and 2021, both in dollars and as a percentage of our revenues. Years Ended December 31, 2022 2021 % of % of Amount Revenues Amount Revenues Revenues $ 2,041,297100.0 % $ 2,814,670100.0 % 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
$ 89,3964.4 % $ 939,06533.4 % Revenues. Revenues decreased by $773,373, or 27.5%, to $2,041,297for the year ended December 31, 2022, as compared to $2,814,670for 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
Cost of goods sold. Cost of goods sold decreased by
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
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 $419,589for the year ended December 31, 2022, as compared to $436,399for 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. 14 Research and development. Research and development expenses increased by $15,085, or 25.9%, to $73,425for the year ended December 31, 2022, as compared to $58,340for 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
forgiveness of our PPP loans.
Net income. As a result of the cumulative effect of the factors described above, our net income was
$89,396for the year ended December 31, 2022, as compared to $939,065for 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
December 31, 2022and 2021, our current assets exceeded current liabilities by $2,179,237and $2,063,516, respectively, and we had cash and cash equivalents of $1,381,927and $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, 20222021
Net cash (used in) provided by operating activities
Net cash provided by investing activities
Net cash provided by financing activities -
Net change in cash and cash equivalents (91,997 )
Cash and cash equivalents at beginning of period 1,473,924 642,542
Cash and cash equivalents at end of period
$ 1,381,927 $ 1,473,924Net cash used in operating activities was $91,997for the year ended December 31, 2022, as compared to net cash provided by operating activities of $831,382for 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
© Edgar Online, source