UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10−Q
[X] (Mark One)
☒QUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Septemberended: June 30, 20172022
or
[ ] ☐TRANSITION REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT ofOF 1934
For the transition period from ______________________ to _______________________
Commission File Number Number: 000-31377
REFLECT SCIENTIFIC, INC.
(Exact name of registrant as specified in its charter)
Utah
87-0642556
(State or other jurisdiction of
(IRS Employer Identification No.)
incorporation or organization)
1266 South 1380 West Orem, Utah 84058
(Address
REFLECT SCIENTIFIC, INC. |
(Exact name of registrant as specified in its charter) |
Utah | 87-0642556 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1266 South 1380 West, Orem, UT | 84058 | |
(Address of principal executive offices) | (Zip Code) |
(801) 226-4100 |
(Registrant’s telephone number, including area code) |
N/A |
(Former name, former address and formal fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of principal executive offices) (Zip Code)
(801) 226-4100the Act: None
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant: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 Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Yes [X] No [ ]
Indicate by check mark whether the Registrantregistrant 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 an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
1
Large Accelerated filer [ ]
Accelerated filer [ ]
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
Emerging growth company ☐ |
Non-accelerated filer [ ]
Smaller reporting company [X]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complyingcomply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Yes [ ] No [X]
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405As of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes [X] No [ ]
1
Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years:
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d)August 9, 2022, there were 84,989,086 common shares of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.registrant issued and outstanding.
Not applicable.
REFLECT SCIENTIFIC, INC.
Applicable Only to Corporate Issuers:Quarterly Report on Form 10-Q
Indicate the number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date.
Period Ended June 30, 2022
Class
Outstanding as of November 13, 2017
65,401,086 shares of $0.01 par value common stock on November 13, 2017
2
TABLE OF CONTENTS
PART I –
FINANCIAL INFORMATION
Item 1: | Financial Statements | 4 |
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Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3: | Quantitative and Qualitative Disclosure about Market Risk |
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Item 4: | Controls and Procedures |
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PART II –
OTHER INFORMATION
Item 1: | Legal Proceedings | 19 |
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Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3: | Defaults Upon Senior Securities |
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Item 4: | Mine Safety Disclosure |
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Item 5: | Other Information | 20 |
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Item 6: | Exhibits |
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| 20 |
3
PART I
Part I - FINANCIAL INFORMATION
ItemITEM 1. Financial StatementsFINANCIAL STATEMENTS.
Reflect Scientific, Inc.
REFLECT SCIENTIFIC, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Page | ||
Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021 | 5 | |
Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) | 6 | |
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) | 7 | |
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited) | 8 | |
Notes to Condensed Consolidated Financial Statements (Unaudited) | 9 |
September 30, 2017
The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. However, in the opinion of management, all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position and results of operations for the periods presented have been made. These financial statements should be read in conjunction with the accompanying notes, and with the historical financial information of the Company.
4
REFLECT SCIENTIFIC, INC.
Condensed Consolidated Balance Sheets
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 1,247,754 | $ | 1,473,924 | ||||
Accounts receivable, net | 531,054 | 178,649 | ||||||
Inventories, net | 863,155 | 624,486 | ||||||
Prepaid expenses and other current assets | 3,100 | 28,306 | ||||||
Total Current Assets | 2,645,063 | 2,305,365 | ||||||
Operating lease right-of-use assets | 82,742 | 110,483 | ||||||
Goodwill | 60,000 | 60,000 | ||||||
Other long-term assets | 3,100 | 3,100 | ||||||
TOTAL ASSETS | $ | 2,790,905 | $ | 2,478,948 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 112,350 | $ | 66,837 | ||||
Customer deposits | 114,071 | 118,566 | ||||||
Current portion of operating lease liabilities | 59,638 | 56,446 | ||||||
Total Current Liabilities | 286,059 | 241,849 | ||||||
Operating lease liabilities, net of current portion | 26,760 | 57,393 | ||||||
TOTAL LIABILITIES | 312,819 | 299,242 | ||||||
Stockholders' Equity | ||||||||
Preferred Stock, $0.01 par value, 5,000,000 shares authorized; none issued and outstanding | - | - | ||||||
Common shares, $0.01 par value, 100,000,000 shares authorized; 84,989,086 shares issued and outstanding as of June 30, 2022 and December 31, 2021 | 849,890 | 849,890 | ||||||
Additional paid-in capital | 20,240,681 | 20,226,931 | ||||||
Accumulated deficit | (18,612,485 | ) | (18,897,115 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 2,478,086 | 2,179,706 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,790,905 | $ | 2,478,948 |
ASSETSThe accompanying notes are an integral part of these condensed consolidated financial statements.
5
REFLECT SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | $ | 555,615 | $ | 707,133 | $ | 1,309,191 | $ | 1,269,495 | ||||||||
Cost of goods sold | 195,821 | 235,179 | 430,110 | 378,974 | ||||||||||||
Gross profit | 359,794 | 471,954 | 879,081 | 890,521 | ||||||||||||
Operating Expenses | ||||||||||||||||
Salaries and wages | 159,565 | 146,116 | 329,844 | 282,720 | ||||||||||||
General and administrative | 103,775 | 135,601 | 220,953 | 272,364 | ||||||||||||
Research and development | 18,329 | 19,456 | 43,654 | 28,153 | ||||||||||||
Total Operating Expenses | 281,669 | 301,173 | 594,451 | 583,237 | ||||||||||||
INCOME FROM OPERATIONS | 78,125 | 170,781 | 284,630 | 307,284 | ||||||||||||
Other Income | ||||||||||||||||
Gain on forgiveness of debt | - | - | - | 111,265 | ||||||||||||
Total Other Income | - | - | - | 111,265 | ||||||||||||
NET INCOME BEFORE INCOME TAXES | 78,125 | 170,781 | 284,630 | 418,549 | ||||||||||||
INCOME TAX BENEFIT (EXPENSE) | - | - | - | - | ||||||||||||
NET INCOME | $ | 78,125 | $ | 170,781 | $ | 284,630 | $ | 418,549 | ||||||||
Earnings per common share | ||||||||||||||||
Basic | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||
Diluted | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 84,989,086 | 84,739,086 | 84,989,086 | 84,739,086 | ||||||||||||
Diluted | 85,739,086 | 84,739,086 | 85,739,086 | 84,739,086 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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| September 30, 2017 (Unaudited) |
| December 31, 2016 |
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CURRENT ASSETS |
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Cash | $ | 175,357 | $ | 263,964 |
Accounts receivable, net |
| 206,000 |
| 73,424 |
Inventory, net |
| 231,606 |
| 226,967 |
Prepaid assets |
| 3,100 |
| 3,100 |
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Total Current Assets |
| 616,063 |
| 567,455 |
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FIXED ASSETS, NET |
| - |
| - |
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OTHER ASSETS |
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Goodwill |
| 60,000 |
| 60,000 |
Deposits |
| 3,100 |
| 3,100 |
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Total Other Assets |
| 63,100 |
| 63,100 |
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TOTAL ASSETS | $ | 679,163 | $ | 630,555 |
REFLECT SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Three and Six Months Ended June 30, 2022
Common Shares | Additional Paid-In | Accumulated | Total Stockholders’ | ||||||||||||
Shares | Amount | Capital | Deficit | Equity | |||||||||||
Balance at December 31, 2021 | 84,989,086 | $ | 849,890 | $ | 20,226,931 | $ | (18,897,115 | ) | $ | 2,179,706 | |||||
Stock-based compensation | - | - | 12,844 | - | 12,844 | ||||||||||
Net income | - | - | - | 206,505 | 206,505 | ||||||||||
Balance at March 31, 2022 | 84,989,086 | 849,890 | 20,239,775 | (18,690,610 | ) | 2,399,055 | |||||||||
Stock-based compensation | - | - | 906 | - | 906 | ||||||||||
Net income | - | - | - | 78,125 | 78,125 | ||||||||||
Balance at June 30, 2022 | 84,989,086 | $ | 849,890 | $ | 20,240,681 | $ | (18,612,485 | ) | $ | 2,478,086 |
Three and Six Months Ended June 30, 2021
Common Shares | Additional Paid-In | Accumulated | Total Stockholders’ | |||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||
Balance at December 31, 2020 | 84,739,086 | $ | 847,390 | $ | 20,201,931 | $ | (19,836,180 | ) | $ | 1,213,141 | ||||||
Net income | - | - | - | 247,768 | 247,768 | |||||||||||
Balance at March 31, 2021 | 84,739,086 | 847,390 | 20,201,931 | (19,588,412 | ) | 1,460,909 | ||||||||||
Net income | - | - | - | 170,781 | 170,781 | |||||||||||
Balance at June 30, 2021 | 84,739,086 | $ | 847,390 | $ | 20,201,931 | $ | (19,417,631 | ) | $ | 1,631,690 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
57
REFLECT SCIENTIFIC, INC.
Condensed Consolidated Balance Sheets (Continued)CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 284,630 | $ | 418,549 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Stock-based compensation | 13,750 | - | ||||||
Gain on forgiveness of debt | - | (111,265 | ) | |||||
Amortization of right-of-use assets | 27,741 | 30,115 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (355,405 | ) | 136,428 | |||||
Inventories | (238,669 | ) | (85,475 | ) | ||||
Prepaid expenses and other current assets | 28,206 | (27,845 | ) | |||||
Accounts payable and accrued expenses | 45,513 | (10,442 | ) | |||||
Customer deposits | (4,495 | ) | 93,337 | |||||
Operating lease liabilities | (27,441 | ) | (28,237 | ) | ||||
Net cash (used in) provided by operating activities | (226,170 | ) | 415,165 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Net cash provided by investing activities | - | - | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Net cash provided by financing activities | - | - | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (226,170 | ) | 415,165 | |||||
CASH AND CASH EQUIVALENTS | ||||||||
Beginning of the period | 1,473,924 | 642,542 | ||||||
End of the period | $ | 1,247,754 | $ | 1,057,707 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for income taxes | $ | - | $ | - |
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| September 30, 2017 (Unaudited) |
| December 31, 2016 |
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CURRENT LIABILITIES |
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Accounts payable and accrued expense | $ | 37,526 | $ | 58,968 |
Customer deposits |
| 284 |
| - |
Income taxes payable |
| 100 |
| 100 |
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Total Current Liabilities |
| 37,910 |
| 59,068 |
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Total Liabilities |
| 37,910 |
| 59,068 |
COMMITMENTS AND CONTINGENCIES |
| - |
| - |
STOCKHOLDERS’ EQUITY |
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Preferred stock, $0.01 par value, authorized 5,000,000 shares; No shares issued and outstanding |
| - |
| - |
Common stock, $0.01 par value, authorized 100,000,000 shares; 65,401,086 and 65,401,086 issued and outstanding, respectively |
| 654,010 |
| 654,010 |
Additional paid in capital |
| 19,566,472 |
| 19,566,472 |
Accumulated deficit |
| (19,579,229) |
| (19,648,995) |
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Total Stockholders’ Equity |
| 641,253 |
| 571,487 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 679,163 | $ | 630,555 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
68
REFLECT SCIENTIFIC, INC.
Condensed Consolidated Statements of OperationsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)JUNE 30, 2022
(UNAUDITED)
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | |||||||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
REVENUES | $ | 325,870 | $ | 214,404 | $ | 880,072 | $ | 975,761 | ||||||||
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COST OF GOODS SOLD |
| 84,636 |
| 74,581 |
| 266,328 |
| 286,946 | ||||||||
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GROSS PROFIT |
| 241,234 |
| 139,823 |
| 613,744 |
| 688,815 | ||||||||
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OPERATING EXPENSES |
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Salaries and wages |
| 105,589 |
| 103,125 |
| 316,654 |
| 315,848 | ||||||||
Rent expense |
| 8,070 |
| 8,611 |
| 25,167 |
| 25,828 | ||||||||
Research and development expense |
| 12,710 |
| 11,131 |
| 30,677 |
| 57,724 | ||||||||
General and administrative expense |
| 55,808 |
| 66,821 |
| 171,480 |
| 221,351 | ||||||||
Total Operating Expenses |
| 182,177 |
| 189,688 |
| 543,978 |
| 620,751 | ||||||||
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OPERATING PROFIT |
| 59,057 |
| (49,865) |
| 69,766 |
| 68,064 | ||||||||
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OTHER INCOME (EXPENSE) |
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Interest expense – other |
| - |
| (55) |
| - |
| (300) | ||||||||
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Total Other Income (Expenses) |
| - |
| (55) |
| - |
| (300) | ||||||||
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NET INCOME BEFORE TAXES |
| 59,057 |
| (49,920) |
| 69,766 |
| 67,764 | ||||||||
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Income tax benefit (expense) |
| - |
| - |
| - |
| - | ||||||||
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NET INCOME | $ | 59,057 | $ | (49,920) | $ | 69,766 | $ | 67,764 | ||||||||
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NET INCOME (LOSS) PER SHARE: |
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Basic | $ | 0.00 | $ | (0.00) | $ | 0.00 | $ | 0.00 | ||||||||
Diluted | $ | 0.00 | $ | (0.00) | $ | 0.00 | $ | 0.00 | ||||||||
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WEIGHTED AVERAGE SHARES OUTSTANDING: |
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Basic |
| 65,401,086 |
| 60,958,514 |
| 65,401,086 |
| 60,958,514 | ||||||||
Diluted |
| 65,401,086 |
| 60,958,514 |
| 65,401,086 |
| 60,958,514 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
REFLECT SCIENTIFIC, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the
Nine Months Ended
September 30,
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| 2017 |
| 2016 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income | $ | 69,766 | $ | 67,764 |
Adjustments to reconcile net income to net cash |
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used in operating activities: |
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Amortization |
| - |
| 5,316 |
Changes in operating assets and liabilities: |
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Accounts receivable |
| (132,575) |
| 46,263 |
Inventory |
| (4,639) |
| 9,017 |
Accounts payable and accrued expenses |
| (21,443) |
| (39,798) |
Customer deposits |
| 284 |
| (56,417) |
Net Cash (used in) provided by Operating Activities |
| (88,607) |
| 32,145 |
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CASH FLOWS FROM INVESTING ACTIVITIES |
| - |
| - |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Payments on short-term lines of credit |
| - |
| (8,458) |
Net Cash used in Financing Activities |
| - |
| (8,458) |
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NET CHANGE IN CASH |
| (88,607) |
| 23,687 |
CASH AT BEGINNING OF PERIOD |
| 263,964 |
| 292,087 |
CASH AT END OF PERIOD | $ | 175,357 | $ | 315,774 |
SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash Paid For: |
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Interest | $ | - | $ | 300 |
Income taxes | $ | - | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
REFLECT SCIENTIFIC, INC.
Notes to the Condensed Consolidated Financial Statements
September 30, 2017
(Unaudited)
NOTE 1 -
1—BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Reflect Scientific, Inc. (the “Company,” “we,” “us,” or “our”) have been prepared by the Company pursuant to accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have(“GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The December 31, 2021 consolidated balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been condensed or omittedno material change in accordancethe information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with rules and regulations of the Securities and Exchange Commission.Commission on March 31, 2022. The information furnished in the interim unaudited condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which,should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, areall adjustments considered necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed consolidated financial statements, be read in conjunction with the Company’s most recent audited consolidated financial statements and notes thereto included in its December 31, 2016 financial statements.consisting solely of normal recurring adjustments, have been made. Operating results for the three and ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2022.
NOTE 2 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND LINE OF BUSINESS:
Cole, Inc. (the Company) was incorporated under the laws of the State of Utah on November 3, 1999. The Company was organized to engage in any lawful activity for which corporations may be organized under the Utah Revised Business Corporation Act. On December 30, 2003 the Company changed its name to Reflect Scientific, Inc.
Reflect Scientific designs, develops and sells scientific equipment for the Life Science and Manufacturing industries. The Company’s business activities include 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.
The Company’s chemical detector products serve the analytical instrumentation sector of the Life Sciences market. These optically based chemical detection instruments provide a cost-effective, high-performance alternative for original equipment manufacturers (OEM). One major use for these detectors is the analysis of whole blood for metabolic diseases.
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements include the accounts of Reflect Scientific, Inc. and its wholly owned subsidiaries, Cryometrix and Julie Martin Scientific Technology. Intercompany transactions and accounts have been eliminated in consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS
REVENUE RECOGNITION: Revenue is only recognized on product sales once the product has been shipped to the customer, persuasive evidence of an agreement exists, the price is fixed or determinable, and collectability is reasonably assured. The Company sells its products in bothconsiders the USapplicability and internationally through direct sales and independent distributors.
ACCOUNTS RECEIVABLE: Accounts receivables are presented netimpact of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2017 and December 31, 2016, the Company had accounts receivable, net of the allowance, of $206,000 and $73,424, respectively. At September 30, 2017 and December 31, 2016 the allowance for doubtful accounts was $4,000 and $4,000, respectively.
INVENTORY:
Inventories are presented net of an allowance for obsolescence and are stated at the lower of cost or market value based upon the average cost inventory method. The Company’s inventory consists of parts for scientific vial kits, refrigerant gases, components for detectors and ultra-low temperature freezers which it builds and other scientific items. At September 30, 2017, inventory was made up of $254,258 of finished goods, less an allowance for obsolescence of $22,652. At December 31, 2016, inventory was comprised of $249,619 of finished goods, less an allowance for obsolescence of $22,652. There were no raw materials or work in progress for either period presented.
INTANGIBLE ASSETS: Costs to obtain or develop patents are capitalized and amortized over the life of the patents. Patents are amortized from the date the Company acquires or is awarded the patent over their estimated useful lives, which range from 5 to 15 years. An impairment charge is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible assets as determined by projected discounted net future cash flows. We perform an impairment analysis on an annual basis. The Company’s analysis did not indicate any impairment of intangible assets as of the impairment analysis conducted December 31, 2016.
GOODWILL: Goodwill represents the excess of the Company’s acquisition cost over the fair value of net assets of the acquisition. Goodwill is not amortized, but is tested for impairment annually, or when a
triggering event occurs. As described in ACS 360, the Company has adopted the two step goodwill impairment analysis that includes quantitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. A fair-value-based test is applied at the overall Company level. The test compares the estimated fair value of the Company at the date of the analysis to the carrying value of its net assets. The analysis also requires various judgments and estimates, including general and macroeconomic conditions, industry and the Company’s targeted market conditions, as well as relevant entity-specific events, such as a change in the market for the Company’s products and services. After considering the qualitative factors that would indicate a need for interim impairment of goodwill and applying the two-step process described in ASC 360, management has determined that the value of Company’s assets is not more likely than not less than the carrying value of the Company including goodwill, and that no impairment charge needs be recognized during the reporting periods.
RESEARCH AND DEVELOPMENT EXPENSE - The Company accounts for research and development costs in accordance with the Financialall Accounting Standards Board's Accounting Standard Codification Topic 730 “Research and Development". Under ASC 730, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.
EARNINGS PER SHARE: The computation of basic earnings per share of common stock is based on the weighted average number of shares outstanding during the period. Diluted EPS is computedUpdates (“ASUs”) issued by dividing net earnings by the weighted-average number of common shares and dilutive common stock equivalents during the period. Common stock equivalents are not used in calculating dilutive EPS when their inclusion would be anti-dilutive. At September 30, 2017 and 2016, the Company had no common stock equivalents.
RECENT ACCOUNTING PRONOUNCEMENTS: In May 2017, the Financial Accounting Standards Board ("FASB"(“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 No. 2017-09, "Stock Compensation - Scope2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Modification Accounting".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 requires all modifications2019-10 to be accountedallow an extension on the adoption date for entities that qualify as a modification unlesssmall reporting company. The Company has elected this extension and the fair value, vesting conditions and classification ofeffective date for the award as equity or liability are the same as the classification of the original award immediately before the original award is modified. The amendments inCompany to adopt this ASU are effectivestandard will be for fiscal years beginning after December 15, 2017 and for interim periods therein.2022. The Company has not completed its assessment of the standard but does not believe this ASU willexpect the adoption to have a material impact on itsour condensed consolidated financial position, results of operation or cash flows.statements.
In February 2016,October 2021, the FinancialFASB issued ASU 2021-08 Business Combinations (Topic 805): Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-02, “Leases.” for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires lesseesamends ASC 805 to put most leases on their balance sheets butrequire acquiring entities to apply ASC 606 to recognize expensesand measure contract assets and contract liabilities in the income statement in a manner similar to current accounting treatment. This ASU changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases. For public business entities, thiscombinations. The ASU is effective for annual periodspublic entities for fiscal years beginning after December 15, 2018, and2022, including interim periods therein. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial
statements. The Company is currently evaluating the impact of this ASU on its financial statements and disclosures.
In August 2015, the ASB issued ASU 2015-14, Revenue from Contracts with Customer (Topic 606): Deferral of the Effective Date.within those fiscal years. This ASU defersshould be applied prospectively to acquisitions occurring on or after the effective date of ASU 2014-09, Revenue from Contracts with Customer (Topic 606) for all entities by one year. As a result, all entities will be required to apply the provisions of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early2022, and early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently assessing the adoption date and impact the guidance in this ASU will have, if any, on our consolidated results of operations, cash flows, or financial position.
permitted. The Company has reviewed all other recently issued,not completed its assessment of the standard but does not yet adopted, accounting standards in orderexpect the adoption to determine their effects, if any, on its consolidated results of operation, financial position and cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effectmaterial impact on its current or future earnings or operations.our condensed consolidated financial statements.
REFLECT SCIENTIFIC, INC.
NOTE 3 GOING CONCERNNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
The Company continues to accumulate significant operating losses and has an accumulated deficit of $19,579,229 at September 30, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Management has taken a number of actions to reduce expenses. Management is seeking additional funding through the capital markets to facilitate the settlement of the remaining debentures, as well as to provide operating capital for its operations. However, there is no assurance that additional funding will be available on acceptable terms, if at all.(UNAUDITED)
NOTE 4 – SUBSEQUENT EVENTS3—DISAGGREGATION OF REVENUES
In accordanceOur 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 three and six months ended June 30, 2022 and 2021 are disaggregated as follows:
Three Months Ended June 30, 2022 | ||||||||||||
United States | International | Total | ||||||||||
Revenues | ||||||||||||
Freezers and chillers | $ | 309,704 | $ | - | $ | 309,704 | ||||||
OEM and other | 195,604 | 50,307 | 245,911 | |||||||||
Total Revenues | $ | 505,308 | $ | 50,307 | $ | 555,615 |
Three Months Ended June 30, 2021 | ||||||||||||
United States | International | Total | ||||||||||
Revenues | ||||||||||||
Freezers and chillers | $ | 197,402 | $ | 295,991 | $ | 493,393 | ||||||
OEM and other | 159,453 | 54,287 | 213,740 | |||||||||
Total Revenues | $ | 356,855 | $ | 350,278 | $ | 707,133 |
Six Months Ended June 30, 2022 | ||||||||||||
United States | International | Total | ||||||||||
Revenues | ||||||||||||
Freezers and chillers | $ | 658,162 | $ | 153,236 | $ | 811,398 | ||||||
OEM and other | �� | 368,047 | 129,746 | 497,793 | ||||||||
Total Revenues | $ | 1,026,209 | $ | 282,982 | $ | 1,309,191 |
Six Months Ended June 30, 2021 | ||||||||||||
United States | International | Total | ||||||||||
Revenues | ||||||||||||
Freezers and chillers | $ | 271,098 | $ | 556,124 | $ | 827,222 | ||||||
OEM and other | 329,350 | 112,923 | 442,273 | |||||||||
Total Revenues | $ | 600,448 | $ | 669,047 | $ | 1,269,495 |
10
REFLECT SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 4—INVENTORIES
Inventories at June 30, 2022 and December 31, 2021 consisted of the following:
June 30, 2022 | December 31, 2021 | |||||||
Finished goods | $ | 280,470 | $ | 342,835 | ||||
Raw materials | 688,729 | 387,695 | ||||||
Total inventories | 969,199 | 730,530 | ||||||
Less reserve for obsolescence | (106,044 | ) | (106,044 | ) | ||||
Total inventories, net | $ | 863,155 | $ | 624,486 |
NOTE 5—LEASES
The following was included in our condensed consolidated balance sheet at June 30, 2022 and December 31, 2021:
June 30, 2022 | December 31, 2021 | |||||||
Operating lease right-of-use assets | $ | 82,742 | $ | 110,483 | ||||
Lease liabilities, current portion | 59,638 | 56,446 | ||||||
Lease liabilities, long-term | 26,760 | 57,393 | ||||||
Total operating lease liabilities | $ | 86,398 | $ | 113,839 | ||||
Weighted-average remaining lease term (months) | 17 | 23 | ||||||
Weighted average discount rate | 5.25% | 5.25% |
Total lease expense for the three and six months ended June 30, 2022 and 2021 is as follows:
Three Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Operating lease expense | $ | 15,216 | $ | 15,216 | ||||
Variable lease expense | 1,395 | 1,887 | ||||||
Total lease expense | $ | 16,611 | $ | 17,103 |
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Operating lease expense | $ | 30,432 | $ | 30,432 | ||||
Variable lease expense | 3,788 | 3,774 | ||||||
Total lease expense | $ | 34,220 | $ | 34,206 |
11
REFLECT SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
As of June 30, 2022, maturities of operating lease liabilities were as follows:
Year Ending December 31, | Amount | |||
2022 – remaining | $ | 30,958 | ||
2023 | 58,920 | |||
Total | 89,878 | |||
Less: imputed interest | (3,480 | ) | ||
Total operating lease liabilities | $ | 86,398 |
NOTE 6—STOCKHOLDERS’ EQUITY
Common Stock
As of June 30, 2022, the Company was authorized to issue 100,000,000 common shares. As of June 30, 2022 and December 31, 2021, the Company had 84,989,086 common shares issued and outstanding.
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 ASC 855-10 management reviewed all material events through250,000 shares vesting immediately on the grant date and 250,000 shares vesting on the next three anniversary dates.
Below is a table summarizing the changes in restricted stock awards outstanding during the six months ended June 30, 2022:
Restricted Stock Awards | Weighted-Average Exercise Price | |||||||
Outstanding at December 31, 2021 | 750,000 | $ | 0.11 | |||||
Granted | - | - | ||||||
Vested | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding at June 30, 2022 | 750,000 | $ | 0.11 |
Stock-based compensation expense of this report. There are no material subsequent events$906 and $12,844 was recorded during the three and six months ended June 30, 2022, respectively. Stock-based compensation expense was $nil during the three and six months ended June 30, 2021.
As of June 30, 2022, the remaining unrecognized stock-based compensation expense related to report.non-vested restricted stock awards is $68,750 and is expected to be recognized over 2.50 years.
12
REFLECT SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 7—EARNINGS PER SHARE
The computation of weighted average shares outstanding and the basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021 consisted of the following:
Three Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Net income | $ | 78,125 | $ | 170,781 | ||||
Weighted average shares outstanding | 84,989,086 | 84,739,086 | ||||||
Basic earnings per share | $ | 0.00 | $ | 0.00 | ||||
Weighted average shares outstanding | 84,989,086 | 84,739,086 | ||||||
Effect on dilutive stock awards | 750,000 | - | ||||||
Total potential shares outstanding | 85,739,086 | 84,739,086 | ||||||
Diluted earnings per share | $ | 0.00 | $ | 0.00 |
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Net income | $ | 284,630 | $ | 418,549 | ||||
Weighted average shares outstanding | 84,989,086 | 84,739,086 | ||||||
Basic earnings per share | $ | 0.00 | $ | 0.00 | ||||
Weighted average shares outstanding | 84,989,086 | 84,739,086 | ||||||
Effect on dilutive stock awards | 750,000 | - | ||||||
Total potential shares outstanding | 85,739,086 | 84,739,086 | ||||||
Diluted earnings per share | $ | 0.00 | $ | 0.00 |
For the three and six months ended June 30, 2022 there were 750,000 potentially dilutive shares that needed to be considered as common share equivalents.
13
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Item 2. Management’s Discussion
The following management’s discussion and Analysisanalysis of Financial Conditionfinancial condition and Resultsresults of Operationsoperations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our” and the “Company” refer to Reflect Scientific, Inc., and its consolidated subsidiaries.
Special Note Regarding Forward-LookingForward Looking Statements
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
● | Changes in Company-wide strategies, which may result in changes in the types or mix of businesses in which our Company is involved or chooses to invest; |
● | Changes in U.S., global or regional economic conditions; |
● | Changes in U.S. and global financial and equity markets, including significant interest rate fluctuations, which may impede our Company’s access to, or increase the cost of, external financing for our operations and investments; |
● | Increased competitive pressures, both domestically and internationally; |
● | Legal and regulatory developments, such as regulatory actions affecting environmental activities; |
● | The imposition by foreign countries of trade restrictions and changes in international tax laws or currency controls; |
● | Adverse weather conditions or natural disasters, such as hurricanes and earthquakes, labor disputes, which may lead to increased costs or disruption of operations. |
In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
14
The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of our Company. Our Company and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this Annual Report and other filings with the Securities and Exchange Commission and in reportsreport relate only to our Company’s stockholders. Management believes that all statements that express expectations and projections with respect to future matters,events or information as well as from developments beyond our Company’s control including changes in global economic conditions are forward-looking statements within the meaning of the Act. These statements are madedate on the basis of management’s views and assumptions, as
of the timewhich the statements are made regardingin this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
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 performance.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 canis 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 no assurance however,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.
Recent Developments
None.
Impact of Coronavirus Pandemic
Starting in late 2019, a novel strain of the coronavirus, or COVID-19, began to rapidly spread around the world and every state in the United States. Most states and cities have at various times instituted quarantines, restrictions on travel, “stay at home” rules, social distancing measures and restrictions on the types of businesses that management’s expectationscould continue to operate, as well as guidance in response to the pandemic and the need to contain it. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will necessarily comeimpact our business, operations and financial results.
The pandemic has impacted and may continue to pass. Factorsimpact some suppliers and manufacturers on some of our products. As a result, we have faced and may continue to face longer supply chain lead-times and higher logistics costs. Additionally, costs for raw materials have also started to increase due to availability, which could negatively affect its business and financial results.
The extent to which the 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, including the effectiveness of vaccines and other treatments for COVID-19, and other new information that may affect forward- looking statements include a wide rangeemerge concerning the severity of factors that could materially affectthe pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments and performance, including the following:
·
Changes in Company-wide strategies, which may result in changes in the types or mixglobal supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of businesses in which our Company is involved or chooses to invest;
·
Changes in U.S., global or regional economic conditions;
·
Changes in U.S. and global financial and equity markets, including significant interest rate fluctuations, which may impede our Company’s access to, or increase the cost of, external financing for our operations and investments;cash flows.
·
Increased competitive pressures, both domestically and internationally;15
·
Legal and regulatory developments, such as regulatory actions affecting environmental activities;
·
The imposition by foreign countries of trade restrictions and changes in international tax laws or currency controls;
·
Adverse weather conditions or natural disasters, such as hurricanes and earthquakes, labor disputes, which may lead to increased costs or disruption of operations.
This list of factors that may affect future performance and the accuracy of forward-looking statements are illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts reported in the unaudited Financial Statementsof assets, liabilities, revenues and accompanying notes. Management bases itsexpenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results couldmay differ from these estimates under different assumptions or conditions. The Company believes there have been no significant changes duringestimates.
For a description of the nine month period ended September 30, 2017, to the items disclosed as significant accounting policies that, in management's Notes tomanagement’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial StatementsCondition and Results of Operations – Critical Accounting Policies and Estimates” in the Company'sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2021 filed with the SEC on March 31, 2022.
PlanDuring the three and six months ended June 30, 2022, there were no significant changes in our accounting policies and estimates.
Results of OperationOperations
Comparison of the Three Months Ended June 30, 2022 and Business Growth2021
Our revenuesThe following table sets forth key components of our results of operations during the three month reporting periods increased 52% during 2017 compared to 2016 revenues.
Our efforts continue to be focused on increasing the salesmonths ended June 30, 2022 and 2021, both in dollars and as a percentage of our life science consumables and detectors while, at the same time, working to enhance the design of our liquid nitrogen refrigeration products. Of those liquid nitrogen refrigeration products, the ultra-low temperature freezer is receiving highest priority. We have received positive feedback of the improvements and enhancements made to the design of the ultra-low temperature freezer. We also continue work on the refrigerated trailer, or “reefer.” We have our first manufactured unit operational, have conducted a number of road tests and are working to develop alliances with contract manufacturers for those products.
revenues.
We also continue
Three Months Ended June 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | |||||||||||||
Revenues | $ | 555,615 | 100.0 | % | $ | 707,133 | 100.0 | % | ||||||||
Cost of goods sold | 195,821 | 35.2 | % | 235,179 | 33.3 | % | ||||||||||
Gross profit | 359,794 | 64.8 | % | 471,954 | 66.7 | % | ||||||||||
Operating expenses | ||||||||||||||||
Salaries and wages | 159,565 | 28.7 | % | 146,116 | 20.7 | % | ||||||||||
General and administrative | 103,775 | 18.7 | % | 135,601 | 19.2 | % | ||||||||||
Research and development | 18,329 | 3.3 | % | 19,456 | 2.8 | % | ||||||||||
Total operating expenses | 281,669 | 50.7 | % | 301,173 | 42.6 | % | ||||||||||
Income from operations | 78,125 | 14.1 | % | 170,781 | 24.2 | % | ||||||||||
Other income | ||||||||||||||||
Gain on forgiveness of debt | - | - | % | - | - | % | ||||||||||
Net income | $ | 78,125 | 14.1 | % | $ | 170,781 | 24.2 | % |
Revenues. Revenues decreased by $151,518, or 21.4%, to focus on the expansion of our detector. We believe that the enhanced functionality of our latest detector design, coupled with its low cost, provides us with a competitive edge over products currently being sold in that specialized market.
Concurrent with the development and commercialization of the above products, we have completed our on-line catalog and are making progress in enrolling new distributors for our consumable products.
An analysis of operating results for the three and nine months ended September 30, 2017 follows.
Results of Operations
Three Months Ended September 30, 2017 and 2016
|
| For the three months ended September 30, | ||||
|
| 2017 |
| 2016 |
| Change |
Revenues | $ | 325,870 | $ | 214,404 | $ | 111,466 |
Cost of goods sold |
| 84,636 |
| 74,581 |
| 10,055 |
Gross profit |
| 241,234 |
| 139,823 |
| 101,411 |
Operating expenses |
| 182,177 |
| 189,688 |
| (7,511) |
Other expense |
| - |
| (55) |
| 55 |
Net profit (loss) | $ | 59,057 | $ | (49,920) | $ | 108,977 |
Revenues increased during the quarter ended September 30, 2017, to $325,870 from $214,404 for the quarter ended September 30, 2016, an increase of $111,466. The increase results primarily from the sale of ultra-low temperature freezers which generated revenue of $106,400 in 2017 but no revenue in 2016. We are continuing work to increase our market penetration in the ultra-low temperature freezer market.
Cost of goods increased in the quarter ending September 30, 2017, as compared to September 30, 2016, to $84,636 from $74,581, an increase of $10,055. The small cost of goods increase, in comparison to the increase in revenue, is attributable to the sale of ultra-low temperature freezers, which carry higher margins than the specialty laboratory products. We realized a gross profit percentage of 74%$555,615 for the three months ended SeptemberJune 30, 2017, compared to 65%2022 from $707,133 for the three months ended SeptemberJune 30, 2016. The gross profit percentage is dependent on2021. Such decrease was primarily due to supply chain delays with manufactures and increased time it takes to receive products, resulting in decreased freezer and chiller sales during the mixsecond quarter.
Cost of product sales, which varies from quartergoods sold. Cost of good sold decreased by $39,358, or 16.7%, to quarter. We continue to actively work to obtain more favorable pricing from our vendors in order to increase the margins realized on all product lines.
Operating expenses decreased to $182,177 in the three months ended September 30, 2017, a decrease of $7,511 over the expenses of $189,688 incurred in the three month period ended September 30, 2016. The reduction is attributable to decreases in licenses, bank fees and auto expenses, offset by small increases in a number of other expense categories. While we continue to monitor and minimize operating costs, we also realize that certain levels of expenditures are required in order to commercialize the products and achieve market penetration.
The net profit for the three month period ended September 30, 2017 was $59,057, an increase of $108,977 from the $49,920 loss for the three month period ended September 30, 2016. Management continues to
look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.
The net profit of $59,057 for the three month period ended September 30, 2017 represents a profit of $0.00 per share. This compares to the net loss of $49,920, or $(0.00) per share,$195,821 for the three months ended SeptemberJune 30, 2016.
Nine Months Ended September 30, 2017 and 2016
|
| For the nine months ended June 30, | ||||
|
| 2017 |
| 2016 |
| Change |
Revenues | $ | 880,072 | $ | 975,761 | $ | (95,689) |
Cost of goods sold |
| 266,328 |
| 286,946 |
| (20,618) |
Gross profit |
| 613,744 |
| 688,815 |
| (75,071) |
Operating expenses |
| 543,978 |
| 620,751 |
| (76,773) |
Other expense |
| - |
| (300) |
| 300 |
Net profit (loss) | $ | 69,766 | $ | 67,764 | $ | 2,002 |
Revenues decreased during the nine month period ended September 30, 2017, to $880,0722022 from $975,761$235,179 for the nine month periodthree months ended SeptemberJune 30, 2016,2021. Such decrease was primarily due to decreased revenue, offset by increased product and shipping costs.
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Gross profit. Our gross profit as a decreasepercentage of $95,489.sales decreased to 64.8% for the three months ended June 30, 2022, compared to 66.7% for the three months ended June 30, 2021. The decrease resultsin gross profit percentage was primarily due to changes in product mix, and increased product and shipping costs.
Salaries and wages. Salaries and wages increased by $13,449, or 9.2%, to $159,565 for the three months ended June 30, 2022 from $146,116 for the salethree months ended June 30, 2021. Such increase was primarily due to increased headcount as well as stock-based compensation.
General and administrative. General and administrative expenses decreased by $31,826, or 23.5%, to $103,775 for the three months ended June 30, 2022 from $135,601 for the three months ended June 30, 2021. The lower expense level was not the result of ultra-low temperature freezers which generated revenuesignificant savings in any one expense category but is, rather, the cumulative result of $170,253small savings in 2017 comparednumerous expenses.
Research and development. Research and development expenses decreased by $1,127, or 5.8%, to $231,340 in 2016. We are continuing work to increase$18,329 for the three months ended June 30, 2022 from $19,456 for the three months ended June 30, 2021. Research and development expenses were comparable both periods.
Net income. As a result of the cumulative effect of the factors described above, our market penetration innet income was $78,125 for the ultra-low temperature freezer market.
Due to lower sales during the reporting period, cost of goods decreased in the nine month period ending Septemberthree months ended June 30, 2017,2022, as compared to September 30, 2016, to $266,328 from $286,946, a decreasenet income of $20,618. The change results from lower ultra-low temperature freezer sales, which carry higher margins than the specialty lab products. We realized a gross profit percentage of 70%$170,781 for the ninethree months ended SeptemberJune 30, 2017, compared to 71% for the nine months ended September 30, 2016. The gross profit percentage is dependent on the mix of product sales, which varies from quarter to quarter. We continue to actively work to obtain more favorable pricing from our vendors in order to increase the margins realized on all product lines.
Operating expenses decreased to $543,978 in the nine months ended September 30, 2017, a decrease of $76,733 over the expenses of $620,751 incurred in the nine month period ended September 30, 2016. The reduction was primarily the result of lower expenditures for research and development of $27,047, promotion expense of commission expense of $6,783, licenses of $11,031 and promotion expense of $3,313. While we continue to monitor and minimize operating costs, we also realize that certain levels of expenditures are required in order to commercialize the products and achieve market penetration.
The net profit for the nine month period ended September 30, 2017 was $69,766, an increase of $2,002 from the $67,764 profit for the nine month period ended September 30, 2016.2021. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.
Comparison of the Six Months Ended June 30, 2022 and 2021
The net profitfollowing table sets forth key components of $69,766our results of operations during the six months ended June 30, 2022 and 2021, both in dollars and as a percentage of our revenues.
Six Months Ended June 30, | ||||||||||||||||||
2022 | 2021 | |||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | |||||||||||||||
Revenues | $ | 1,309,191 | 100.0 | % | $ | 1,269,495 | 100.0 | % | ||||||||||
Cost of goods sold | 430,110 | 32.9 | % | 378,974 | 29.9 | % | ||||||||||||
Gross profit | 879,081 | 67.1 | % | 890,521 | 70.1 | % | ||||||||||||
Operating expenses | ||||||||||||||||||
Salaries and wages | 329,844 | 25.2 | % | 282,720 | 22.3 | % | ||||||||||||
General and administrative | 220,953 | 16.9 | % | 272,364 | 21.5 | % | ||||||||||||
Research and development | 43,654 | 3.3 | % | 28,153 | 2.2 | % | ||||||||||||
Total operating expenses | 594,451 | 45.4 | % | 583,237 | 45.9 | % | ||||||||||||
Income from operations | 284,630 | 21.7 | % | 307,284 | 24.2 | % | ||||||||||||
Other income | ||||||||||||||||||
Gain on forgiveness of debt | - | - | % | 111,265 | 8.8 | % | ||||||||||||
Net income | $ | 284,630 | 21.7 | % | $ | 418,549 | 33.0 | % | ||||||||||
Revenues. Revenues increased by $39,696, or 3.1%, to $1,309,191 for the nine month periodsix months ended SeptemberJune 30, 2017 represents2022 from $1,269,495 for the six months ended June 30, 2021. Such increase was primarily a result of increased freezer, chiller, and component sales during the first quarter, offset by decreased freezer and chiller sales during the second quarter as a result of supply chain delays with manufactures and increased time it takes to receive products.
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Cost of goods sold. Cost of good sold increased by $51,136, or 13.5%, to $430,110 for the six months ended June 30, 2022 from $378,974 for the six months ended June 30, 2021. Such decrease was primarily due to an increase in product and shipping costs.
Gross profit. Our gross profit as a percentage of $0.00 per share. This comparessales decreased to 67.1% for the six months ended June 30, 2022, compared to 70.1% for the six months ended June 30, 2021. The decrease in gross profit percentage was primarily due to changes in product mix, and increased product and shipping costs.
Salaries and wages. Salaries and wages increased by $47,124, or 16.7%, to $329,844 for the six months ended June 30, 2022 from $282,720 for the six months ended June 30, 2021. Such increase was primarily due to increased headcount as well as stock-based compensation.
General and administrative. General and administrative expenses decreased by $51,411, or 18.9%, to $220,953 for the six months ended June 30, 2022 from $272,364 for the six months ended June 30, 2021. The lower expense level was not the result of significant savings in any one expense category but is, rather, the cumulative result of small savings in numerous expenses.
Research and development. Research and development expenses increased by $15,501, or 55.1%, to $43,654 for the six months ended June 30, 2022 from $28,153 for the six months ended June 30, 2021. Such increase is a result of continued enhancements to the net profit of $67,764, or $0.00 per shareultra-cold CBD oil chiller.
Other income. Other income was $0 for the ninesix months ended SeptemberJune 30, 2016.2022 as compared to $111,265 for the six months ended June 30, 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 $284,630 for the six months ended June 30, 2022, as compared to net income of $418,549 for the six months ended June 30, 2021. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.
Seasonality and Cyclicality
We do not believe our business is cyclical.
Liquidity and Capital Resources
Our cash resources at SeptemberAs of June 30, 2017, were $175,357, with accounts receivable of $206,000, net of allowance, and inventory of $231,606, net of allowance. Our working capital on September 30, 2017, was $578,174. Working capital on2022and December 31, 2016 was $508,387.2021, our current assets exceeded current liabilities by $2,359,004 and $2,063,516, respectively, and we had cash and cash equivalents of $1,247,754 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.
For the nine month period ended September 30, 2017,Summary of Cash Flow
The following table provides detailed information about our net cash flow for the period indicated:
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Net cash (used in) provided by operating activities | $ | (226,170 | ) | $ | 415,165 | |||
Net cash provided by investing activities | - | - | ||||||
Net cash provided by financing activities | - | - | ||||||
Net change in cash and cash equivalents | (226,170 | ) | 415,165 | |||||
Cash and cash equivalents at beginning of period | 1,473,924 | 642,542 | ||||||
Cash and cash equivalents at end of period | $ | 1,247,754 | $ | 1,057,707 |
Net cash used byin operating activities was $88,607 which compares$226,170 for the six months ended June 30, 2022, as compared to $32,145 net cash provided by operating activities of $415,165 for the nine month periodsix months ended SeptemberJune 30, 2016. 2021. Significant factors affecting operating cash flows was primarily a result of increased inventory purchases, increased accounts receivables, and decreased net income during the six months ended June 30, 2022.
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Off-Balance Sheet Arrangements
We lease office and warehouse space underhave no off-balance sheet arrangements that have or are reasonably likely to have a non-cancelable operating leasecurrent or future effect on our financial condition, changes in Utah. The office lease has been extended through November 30, 2020. Future minimum lease payments under the operating lease at September 30, 2017, are $135,277 for that facility. In addition, on July 7, 2017, the Company entered into an automobile lease with a termfinancial condition, revenues or expenses, results of four years. . Future minimum lease payments under this lease are $30,816 at September 30, 2017. The lease has an expiration date of July 7, 2021.operations, liquidity, capital expenditures or capital resources.
ItemITEM 3. Quantitative and Qualitative Disclosure about Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required.applicable.
ItemITEM 4. Controls and ProceduresCONTROLS AND PROCEDURES.
(a)
Evaluation of Disclosure Controls and Procedures.Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our chief executive officer and chief principal officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e) of the end of the period covered by this Quarterly Report, weExchange Act, our management has carried out an evaluation, with the participation and under the supervision and with the participation of our Chief Executive Officerchief executive officer and Principal Financial Officer,principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures.procedures, as of June 30, 2022. Based upon, and as of the date of this evaluation, our Chief Executive Officerchief executive officer and Principal Financial Officer concludedprincipal financial officer determined 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 Chief Executive Officer 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 Principal Financial Officer have concluded that our disclosure controls and procedures are not effective at that reasonable assurance level as of the end of the period covered by this report based upon our current level of transactions and staff. However, 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
(b)
Changes in 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. Management reviewed our internal controls over financial reporting, and there have been no changes in our internal controls over financial reporting as of June 30, 2022 to the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the nine month periodfiscal year ended September 30, 2017 that have materially affected, or are like to affect,December 31, 2021, our internaldisclosure controls over financial reporting.and procedures were not effective.
PART II -
OTHER INFORMATION
ITEM 1. Legal ProceedingsLEGAL PROCEEDINGS.
None;From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. Unregistered Sales of Equity Securities and Use of ProceedsUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Recent Sales of Unregistered SecuritiesNone.
None; not applicable.
Use of Proceeds of Registered Securities
None; not applicable.
Purchases of Equity Securities by Us and Affiliated Purchasers
During the nine months ended September 30, 2017, we have not purchased any equity securities nor have any officers or directors of the Company.
ITEM 3. Defaults Upon Senior SecuritiesDEFAULTS UPON SENIOR SECURITIES.
NoneNone.
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ITEM 4. Mine Safety DisclosureMINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. Other Information.OTHER INFORMATION.
NoneNone.
ITEM 6. Exhibits
(a)Exhibits.
Exhibits.
Exhibit No. | Title of Document | Location if other than attached hereto |
Articles of Incorporation | 10-SB Registration Statement* | |
Articles of Amendment to Articles of Incorporation | 10-SB Registration Statement* | |
By-Laws | 10-SB Registration Statement* | |
Articles of Amendment to Articles of Incorporation | 8-K Current Report dated December 31, 2003* | |
Articles of Amendment to Articles of Incorporation | 8-K Current Report dated December 31, 2003* | |
Articles of Amendment | September 30, 2004 10-QSB Quarterly Report* | |
By-Laws Amendment | September 30, 2004 10-QSB Quarterly Report* | |
Debenture | 8-K Current Report dated June 29, 2007* | |
Form of Purchasers Warrant | 8-K Current Report dated June 29, 2007* | |
Registration Rights Agreement | 8-K Current Report dated June 29, 2007* | |
Form of Placement Agreement | 8-K Current Report dated June 29, 2007* | |
Securities Purchase Agreement | 8-K Current Report dated June 29, 2007* | |
Placement Agent Agreement | 8-K Current Report dated June 29, 2007* | |
Code of Ethics | December 31, 2003 10-KSB Annual Report* | |
Subsidiaries of the Company | December 31, 2004 10-KSB Annual Report* |
Exhibit No. | Title of Document | Location if other than attached hereto |
302 Certification of Kim Boyce | ||
302 Certification of Keith Merrell | ||
906 Certification |
Exhibits
Additional Exhibits Incorporated by Reference
* | ||
| 8-K Current Report dated December 31, 2003 | |
* | 8-K Current Report dated April 4, 2006 | |
* | 8-K Current Report dated September 27, 2006 | |
* | 8-K Current Report dated November 15, 2006 | |
* | 8-K Current Report dated November 17, 2006 | |
* | 8-KA Current Report dated November 17, 2006 | |
* | 8-KA Current Report dated November 15, 2006 |
* Previously filed and incorporated by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Reflect Scientific, Inc.
(Registrant)
Date:
November 13, 2017
By: /s/ Kim Boyce
Kim Boyce, CEO, President and Director
Dated: 8/10/2022 | Signature: /s/ Kim Boyce |
Kim Boyce | |
CEO, President and Director |
Dated: 8/10/2022 | Signature: /s/ Tom Tait |
Tom Tait | |
Vice President and Director |
Date:
Dated: 8/10/2022 | Signature: /s/ Kim Boyce |
Kim Boyce | |
CFO, Principal Financial Officer |
November 13, 2017
By: /s/ Tom Tait
Tom Tait, Vice President and Director
Date:
November 13, 2017
By: /s/ Keith Merrell
Keith Merrell, CFO, Principal Financial
Officer
21