UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q10−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 March 31,ended: September 30, 2022
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)
REFLECT SCIENTIFIC, INC. | |
(Exact name of registrant as specified in its charter) |
Utah | 87-0642556 | |
(State or |
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| (I.R.S. Employer Identification No.) |
1266 South 1380 West Orem, Utah 84058
(Address of principal executive offices) (Zip Code)
(801) 226-4100
(Registrant’s telephone number, including area code)
1266 South 1380 West, Orem, UT | 84058 | |
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(801) 226-4100 | ||
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N/A |
(Former name, former address and formal fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: None
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“large accelerated filer,” “accelerated“accelerated filer,” “smaller“smaller reporting company,”company” and “emerging“emerging growth company”company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging |
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 on its corporate Web site, if any, every
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Interactive Data File required to be submitted 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 such files).
Yes [X] No [ ]
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)November 7, 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.
Applicable Only to Corporate Issuers:
Indicate the number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date.REFLECT SCIENTIFIC, INC.
Quarterly Report on Form 10-Q
Period Ended September 30, 2022
Class
Outstanding as of May 13, 2022
84,989,086 shares of $0.01 par value common stock on May 13, 2022
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TABLE OF CONTENTS
PART I–
FINANCIAL INFORMATION
Item 1: | Financial Statements | 3 |
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Item 2: |
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Item 3: | Quantitative and Qualitative Disclosure about Market Risk | 18 |
Item 4: | Controls and Procedures | 18 |
PART II
–OTHER INFORMATION
Item 1: | Legal Proceedings | 18 |
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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 | 19 |
Item 4: | Mine Safety Disclosure | 19 |
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Item 6: | Exhibits | 19 |
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PART I
3
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 September 30, 2022 (Unaudited) and December 31, 2021 | 5 | |
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited) | 6 | |
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited) | 7 | |
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited) | 8 | |
Notes to Condensed Consolidated Financial Statements (Unaudited) | 9 |
March 31, 2022REFLECT SCIENTIFIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 1,324,706 | $ | 1,473,924 | ||||
Accounts receivable, net | 115,561 | 178,649 | ||||||
Inventories, net | 904,076 | 624,486 | ||||||
Prepaid expenses and other current assets | 15,430 | 28,306 | ||||||
Total Current Assets | 2,359,773 | 2,305,365 | ||||||
Operating lease right-of-use assets | 68,598 | 110,483 | ||||||
Goodwill | 60,000 | 60,000 | ||||||
Other long-term assets | 3,100 | 3,100 | ||||||
TOTAL ASSETS | $ | 2,491,471 | $ | 2,478,948 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 59,358 | $ | 66,837 | ||||
Customer deposits | 9,014 | 118,566 | ||||||
Current portion of operating lease liabilities | 61,286 | 56,446 | ||||||
Total Current Liabilities | 129,658 | 241,849 | ||||||
Operating lease liabilities, net of current portion | 10,774 | 57,393 | ||||||
TOTAL LIABILITIES | 140,432 | 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 September 30, 2022 and December 31, 2021 | 849,890 | 849,890 | ||||||
Additional paid-in capital | 20,247,556 | 20,226,931 | ||||||
Accumulated deficit | (18,746,407 | ) | (18,897,115 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 2,351,039 | 2,179,706 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,491,471 | $ | 2,478,948 |
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 10-K for the period ended December 31, 2021, accompanying notes and with the historicalare an integral part of these condensed consolidated financial information of the Company.statements.
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REFLECT SCIENTIFIC, INC.
Condensed Consolidated Balance SheetsCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
ASSETS
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | $ | 253,233 | $ | 716,145 | $ | 1,562,424 | $ | 1,985,640 | ||||||||
Cost of goods sold | 122,204 | 242,343 | 552,314 | 621,317 | ||||||||||||
Gross profit | 131,029 | 473,802 | 1,010,110 | 1,364,323 | ||||||||||||
Operating Expenses | ||||||||||||||||
Salaries and wages | 154,648 | 146,697 | 484,492 | 429,417 | ||||||||||||
General and administrative | 94,781 | 149,672 | 315,734 | 422,036 | ||||||||||||
Research and development | 14,820 | 17,544 | 58,474 | 45,697 | ||||||||||||
Total Operating Expenses | 264,249 | 313,913 | 858,700 | 897,150 | ||||||||||||
INCOME (LOSS) FROM OPERATIONS | (133,220 | ) | 159,889 | 151,410 | 467,173 | |||||||||||
Other Income | ||||||||||||||||
Gain on forgiveness of debt | - | - | - | 111,265 | ||||||||||||
Total Other Income | - | - | - | 111,265 | ||||||||||||
NET INCOME (LOSS) BEFORE INCOME TAXES | (133,220 | ) | 159,889 | 151,410 | 578,438 | |||||||||||
INCOME TAX BENEFIT (EXPENSE) | (702 | ) | - | (702 | ) | - | ||||||||||
NET INCOME (LOSS) | $ | (133,922 | ) | $ | 159,889 | $ | 150,708 | $ | 578,438 | |||||||
Earnings (loss) per common share | ||||||||||||||||
Basic | $ | (0.00 | ) | $ | 0.00 | $ | 0.00 | $ | 0.01 | |||||||
Diluted | $ | (0.00 | ) | $ | 0.00 | $ | 0.00 | $ | 0.01 | |||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 84,989,086 | 84,739,086 | 84,989,086 | 84,739,086 | ||||||||||||
Diluted | 84,989,086 | 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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March 31, 2022 (Unaudited) | December 31, 2021 | |||
CURRENT ASSETS | ||||
Cash | $ | 1,579,533 | $ | 1,473,924 |
Accounts receivable, net | 233,329 | 175,649 | ||
Inventory, net | 695,607 | 624,486 | ||
Prepaid assets | 3,510 | 31,306 | ||
Total Current Assets | 2,511,979 | 2,305,365 | ||
OTHER ASSETS | - | |||
Operating lease right-of-use assets | 96,702 | 110,483 | ||
Goodwill | 60,000 | 60,000 | ||
Deposits | 3,100 | 3,100 | ||
Total Other Assets | 159,802 | 173,583 | ||
TOTAL ASSETS | $ | 2,671,781 | $ | 2,478,948 |
REFLECT SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Three and Nine Months Ended September 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 | ||||||||||
Stock-based compensation | - | - | 6,875 | - | 6,875 | |||||||||||||||
Net loss | - | - | - | (133,922 | ) | (133,922 | ) | |||||||||||||
Balance at September 30, 2022 | 84,989,086 | $ | 849,890 | $ | 20,247,556 | $ | (18,746,407 | ) | $ | 2,351,039 |
Three and Nine Months Ended September 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 | ||||||||||||||
Net income | - | - | - | 159,889 | 159,889 | |||||||||||||||
Balance at September 30, 2021 | 84,989,086 | $ | 849,890 | $ | 20,201,931 | $ | (19,257,742 | ) | $ | 1,791,579 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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REFLECT SCIENTIFIC, INC.
Condensed Consolidated Balance Sheets (Continued)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 150,708 | $ | 578,438 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Stock-based compensation | 20,625 | - | ||||||
Gain on forgiveness of debt | - | (111,265 | ) | |||||
Amortization of right-of-use assets | 41,885 | 43,552 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 60,088 | 192,739 | ||||||
Inventories | (279,590 | ) | (146,451 | ) | ||||
Prepaid expenses and other current assets | 15,876 | 1,493 | ||||||
Accounts payable and accrued expenses | (7,479 | ) | 19,437 | |||||
Customer deposits | (109,552 | ) | (41,058 | ) | ||||
Operating lease liabilities | (41,779 | ) | (35,429 | ) | ||||
Net cash (used in) provided by operating activities | (149,218 | ) | 501,456 | |||||
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 | (149,218 | ) | 501,456 | |||||
CASH AND CASH EQUIVALENTS | ||||||||
Beginning of the period | 1,473,924 | 642,542 | ||||||
End of the period | $ | 1,324,706 | $ | 1,143,998 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for income taxes | $ | - | $ | - |
March 31, 2022 (Unaudited) | December 31, 2021 | |||
CURRENT LIABILITIES | ||||
Accounts payable and accrued expense | $ | 83,446 | $ | 66,837 |
Contract liabilities | 89,003 | 118,566 | ||
Operating lease liabilities – short term | 58,028 | 56,446 | ||
Total Current Liabilities | 230,477 | 241,849 | ||
LONG-TERM LIABILITIES | ||||
Operating lease liability – long-term | 42,249 | 57,393 | ||
Total Liabilities | 272,726 | 299,242 | ||
STOCKHOLDERS’ EQUITY | ||||
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; 84,989,086 and 84,989,086 issued and outstanding at March 31, 2022 and December 31, 2021, respectively | 849,890 | 849,890 | ||
Additional paid in capital | 20,239,775 | 20,226,931 | ||
Accumulated deficit | (18,690,610) | (18,897,115) | ||
Total Stockholders’ Equity | 2,399,055 | 2,179,706 | ||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,671,781 | $ | 2,478,948 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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REFLECT SCIENTIFIC, INC.
Condensed Consolidated Statements of Income
(Unaudited)
| For the Three Months Ended March 31, | |||
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REVENUES | $ | 753,576 | $ | 562,362 |
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COST OF GOODS SOLD |
| 234,289 |
| 143,795 |
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GROSS PROFIT |
| 519,287 |
| 418,567 |
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OPERATING EXPENSES |
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Salaries and wages |
| 170,279 |
| 136,604 |
Research and development |
| 25,325 |
| 8,697 |
General and administrative |
| 117,178 |
| 136,763 |
Total Operating Expenses |
| 312,782 |
| 282,064 |
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OPERATING INCOME |
| 206,505 |
| 136,503 |
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OTHER INCOME (EXPENSE) |
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Gain on forgiveness of loan |
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| 111,265 |
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NET INCOME BEFORE TAXES |
| 206,505 |
| 247,768 |
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Provision for income taxes |
| - |
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NET INCOME | $ | 206,505 | $ | 247,768 |
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NET INCOME PER SHARE – BASIC | $ | 0.00 | $ | 0.00 |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING – BASIC |
| 84,989,086 |
| 84,739,086 |
NET INCOME PER SHARE - DILUTED | $ | 0.00 | $ | 0.00 |
WEIGHTED AVAERAGE NUMBER OF SHARES OUTSTANDING - DILUTED |
| 85,739,086 |
| 84,739,086 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
REFLECT SCIENIFIC, INC.
Condensed Consolidated Statements of Stockholders’ Equity
For the Three Months Ended March 31, 2022 and 2021
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
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Shares | Amount |
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Balance, December 31, 2021 | 84,989,086 | $849,890 | $ 20,226,931 | $(18,897,115) | $2,179,706 | ||
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Stock-based compensation | - | - | 12,844 | - | 12,844 |
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Net income for the three-month period ended March 31, 2022 | - | - | - | 206,505 | 206,505 |
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Balance, March 31, 2022 | 84,989,086 | $849,890 | $20,239,775 | $(18,690,610) | $2,399,055 |
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Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total | ||
Shares | Amount | ||||
Balance, December 31, 2020 | 84,739,086 | $847,390 | $ 20,201,931 | $(19,836,180) | $1,213,141 |
Net income for the three-month period ended March 31, 2021 | - | - | - | 247,768 | 247,768 |
Balance, March 31, 2021 | 84,739,086 | $847,390 | $20,201,931 | $(19,588,412) | $1,460,909 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
REFLECT SCIENTIFIC, INC.
Condensed Consolidated Statements of Cash FlowsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three Months Ended March 31, | ||||
2022 | 2021 | |||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||
Net income | $ | 206,505 | $ | 115,095 |
Adjustments to reconcile net income to net cash provided by | ||||
(used in) operating activities: | ||||
Stock-based compensation | 12,844 | - | ||
Amortization of operating lease right-of-use asset | 13,871 | 14,969 | ||
Gain on forgiveness | - | (111,265) | ||
Changes in operating assets and liabilities: | ||||
Accounts receivable | (57,680) | 106,848 | ||
Inventory | (71,121) | (136,126) | ||
Prepaid expenses | 27,796 | 21,034 | ||
Accounts payable and accrued expenses | 16,609 | 73,686 | ||
Operating lease liabilities | (13,652) | (13,965) | ||
Customer deposits | (29,563) | 61,324 | ||
Net Cash from Operating Activities | 105,609 | 264,273 | ||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||
Net Cash from investing activities | - | - | ||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||
Net cash from financing activities | - | - | ||
NET CHANGE IN CASH | 105,609 | 264,273 | ||
CASH AT BEGINNING OF PERIOD | 1,473,924 | 642,542 | ||
CASH AT END OF PERIOD | $ | 1,579,533 | $ | 906,815 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
REFLECT SCIENTIFIC, INC.
Notes to the Condensed Consolidated Financial Statements
March 31,SEPTEMBER 30, 2022
(Unaudited)(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, 2021 financial statements.consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended March 31,September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
NOTE 2 -2—RECENT ACCOUNTING PRONOUNCEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
ORGANIZATION AND LINE OF BUSINESS:
Reflect Scientific, Inc. (the Company)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 incorporatedamended under ASU 2019-10 to allow an extension on the lawsadoption 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 Statestandard but does not expect the adoption to have a material impact on our condensed consolidated financial statements.
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 Utah on November 3, 1999 as Cole, Inc.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 our condensed consolidated financial statements.
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REFLECT SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
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 three and nine months ended September 30, 2022 and 2021 are disaggregated as follows:
Three Months Ended September 30, 2022 | ||||||||||||
United States | International | Total | ||||||||||
Revenues | ||||||||||||
Freezers and chillers | $ | 54,768 | $ | - | $ | 54,768 | ||||||
OEM and other | 129,695 | 68,770 | 198,465 | |||||||||
Total Revenues | $ | 184,463 | $ | 68,770 | $ | 253,233 |
Three Months Ended September 30, 2021 | ||||||||||||
United States | International | Total | ||||||||||
Revenues | ||||||||||||
Freezers and chillers | $ | 236,884 | $ | 56,381 | $ | 293,265 | ||||||
OEM and other | 190,200 | 232,680 | 422,880 | |||||||||
Total Revenues | $ | 427,084 | $ | 289,061 | $ | 716,145 |
Nine Months Ended September 30, 2022 | ||||||||||||
United States | International | Total | ||||||||||
Revenues | ||||||||||||
Freezers and chillers | $ | 712,930 | $ | 153,236 | $ | 866,166 | ||||||
OEM and other | 497,742 | 198,516 | 696,258 | |||||||||
Total Revenues | $ | 1,210,672 | $ | 351,752 | $ | 1,562,424 |
Nine Months Ended September 30, 2021 | ||||||||||||
United States | International | Total | ||||||||||
Revenues | ||||||||||||
Freezers and chillers | $ | 507,982 | $ | 612,505 | $ | 1,120,487 | ||||||
OEM and other | 519,550 | 345,603 | 865,153 | |||||||||
Total Revenues | $ | 1,027,532 | $ | 958,108 | $ | 1,985,640 |
9
REFLECT SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 4—INVENTORIES
Inventories at September 30, 2022 and December 31, 2021 consisted of the following:
September 30, 2022 | December 31, 2021 | |||||||
Finished goods | $ | 299,258 | $ | 342,835 | ||||
Raw materials | 710,862 | 387,695 | ||||||
Total inventories | 1,010,120 | 730,530 | ||||||
Less reserve for obsolescence | (106,044 | ) | (106,044 | ) | ||||
Total inventories, net | $ | 904,076 | $ | 624,486 |
NOTE 5—LEASES
The following was organizedincluded in our condensed consolidated balance sheet at September 30, 2022 and December 31, 2021:
September 30, 2022 | December 31, 2021 | |||||||
Operating lease right-of-use assets | $ | 68,598 | $ | 110,483 | ||||
Lease liabilities, current portion | 61,286 | 56,446 | ||||||
Lease liabilities, long-term | 10,774 | 57,393 | ||||||
Total operating lease liabilities | $ | 72,060 | $ | 113,839 | ||||
Weighted-average remaining lease term (months) | 14 | 23 | ||||||
Weighted average discount rate | 5.25% | 5.25% |
Total lease expense for the three and nine months ended September 30, 2022 and 2021 is as follows:
Three Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Operating lease expense | $ | 15,216 | $ | 15,216 | ||||
Variable lease expense | 1,334 | 1,887 | ||||||
Total lease expense | $ | 16,550 | $ | 17,103 |
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Operating lease expense | $ | 45,648 | $ | 45,648 | ||||
Variable lease expense | 5,122 | 5,661 | ||||||
Total lease expense | $ | 50,770 | $ | 51,309 |
10
REFLECT SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
As of September 30, 2022, maturities of operating lease liabilities were as follows:
Year Ending December 31, | Amount | |||
2022 – remaining | $ | 15,550 | ||
2023 | 58,920 | |||
Total | 74,470 | |||
Less: imputed interest | (2,410 | ) | ||
Total operating lease liabilities | $ | 72,060 |
NOTE 6—STOCKHOLDERS’ EQUITY
Common Stock
As of September 30, 2022, the Company was authorized to engage in any lawful activity for which corporations may be organized underissue 100,000,000 common shares. As of September 30, 2022 and December 31, 2021, the Utah Revised Business Corporation Act. Company had 84,989,086 common shares issued and outstanding.
Restricted Stock Awards
On December 30, 200328, 2021, the Company changedgranted 1,000,000 shares of restricted common stock to its namepatent 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.
Below is a table summarizing the changes in restricted stock awards outstanding during the nine months ended September 30, 2022:
Restricted Stock Awards | Weighted-Average Exercise Price | |||||||
Outstanding at December 31, 2021 | 750,000 | $ | 0.11 | |||||
Granted | - | - | ||||||
Vested | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding at September 30, 2022 | 750,000 | $ | 0.11 |
Stock-based compensation expense of $6,875 and $20,625 was recorded during the three and nine months ended September 30, 2022, respectively. Stock-based compensation expense was $nil during the three and nine months ended September 30, 2021.
As of September 30, 2022, the remaining unrecognized stock-based compensation expense related to non-vested restricted stock awards is $61,875 and is expected to be recognized over 2.25 years.
11
REFLECT SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 7—EARNINGS (LOSS) PER SHARE
The computation of weighted average shares outstanding and the basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021 consisted of the following:
Three Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Net income (loss) | $ | (133,922 | ) | $ | 159,889 | |||
Weighted average shares outstanding | 84,989,086 | 84,739,086 | ||||||
Basic earnings (loss) per share | $ | (0.00 | ) | $ | 0.00 | |||
Weighted average shares outstanding | 84,989,086 | 84,739,086 | ||||||
Effect on dilutive stock awards | - | - | ||||||
Total potential shares outstanding | 84,989,086 | 84,739,086 | ||||||
Diluted earnings (loss) per share | $ | (0.00 | ) | $ | 0.00 |
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Net income | $ | 150,708 | $ | 578,438 | ||||
Weighted average shares outstanding | 84,989,086 | 84,739,086 | ||||||
Basic earnings per share | $ | 0.00 | $ | 0.01 | ||||
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 | $ | 0.01 |
For the three months ended September 30, 2022 there were 750,000 common share equivalents excluded from the diluted earnings per share calculation as their effect is anti-dilutive. For the nine months ended September 30, 2022 there were 750,000 potentially dilutive shares that needed to be considered as common share equivalents.
12
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion and analysis of financial condition and results of operations 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 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.
13
The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in 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 designs, develops and sells scientific equipment for the Life Science and Manufacturing industries. The Company’s business activities includeis engaged in the manufacture and distribution of unique laboratory consumablesinnovative products targeted at the life science market. Our customers include hospitals, diagnostic laboratories, pharmaceutical and disposables such as filtrationbiotech companies, cold chain management, universities, government and purificationprivate 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 customized sample handling vials, electronic wiring assemblies, highto align with, and capitalize on, market needs. Our growing product portfolio includes ultra-low temperature silicone, graphitefreezers, blast freezers, solvent chillers and vespel/graphite sealing componentsrefrigerated 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 by original equipment manufacturers (“OEM”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.
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 chemical analysis industries, primarilyUnited 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 could 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 impact our business, operations and financial results.
The pandemic has impacted and may continue to impact 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 emerge concerning the severity of the 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 in the fieldglobal supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of gas/liquid chromatography. operations and cash flows.
14
Critical Accounting Policies and Estimates
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:The accompanyingpreparation of the unaudited condensed consolidated financial statements include the accounts of Reflect Scientific, Inc. and its wholly owned subsidiary, Cryometrix. 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 our 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 revenuerevenues and expenses, during the reporting periods. Actual results could differ from thoseand related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates.
CASH: The Company considers all deposit accounts and investment accounts with an original maturity of 90 days or less to be cash equivalents.
REVENUE RECOGNITION: We have applied the new revenue standard to all contracts from the date of initial application. We 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.
A part of our customer base is made up of international customers. The table below allocates revenue between domestic and international customers.
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Segments |
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| Total |
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|
|
| Total | |||||||||||||||||
Domestic |
| $ | 520,901 |
| 520,901 |
|
| $ | 243,593 |
| 243,593 | |||||||||||||||||
International |
|
| 232,675 |
| 232,675 |
|
|
| 318,769 |
| 318,769 | |||||||||||||||||
|
| $ | 753,576 |
| 753,576 |
|
| $ | 562,362 |
| 562,362 | |||||||||||||||||
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| |||||||||||||||||
Components |
|
| 251,882 |
| 251,882 |
|
|
| 228,533 |
| 228,533 | |||||||||||||||||
Equipment |
|
| 501,694 |
| 501,694 |
|
|
| 333,829 |
| 333,829 | |||||||||||||||||
|
| $ | 753,576 |
| 753,576 |
|
| $ | 562,362 |
| 562,362 |
COST OF SALES: Charges to cost of sales These estimates are made on a first-in first-out method (FIFO). In addition to the component costs, some labor costs are allocated to cost of goods for the direct labor utilized to build the sub-assemblies and finished goods.
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 andmanagement’s 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. At March 31, 2022 and December 31, 2021, the Company had accounts receivable, net of the allowance, of $233,401 and $175,649, respectively. At March 31, 2022 and December 31, 2021, the allowance for doubtful accounts was $4,000 and $4,000, respectively.
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 fixed assets are depreciated range from 5 to 7 years, except for computer equipment, which is depreciated over a 3-year life.
INVENTORIES: Inventories 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 the imaging and inspection systems which it builds, and other scientific items. An allowance is recorded when it is determined that the amount owing is at high risk.At March 31, 2022 and December 31, 2021, the Company had inventory consisting of raw materials and finished goods, net of allowance, of $695,607 and $624,486, respectively. At March 31, 2022 and December 31, 2021, the allowance for obsolescence was $106,044 and $106,044, respectively.
INTANGIBLE ASSETS: Intangible assets include trademarks, trade secrets, patents, customer lists and goodwill acquired through acquisition of subsidiaries. The patents have been registered with the United States Patent and Trademarks Office. The costs of obtaining patents are capitalized as incurred. Intangibles, except for goodwill, are amortized over their estimated useful lives. The Company regularly evaluates whether events or circumstances have occurred that indicate possible impairment and relies on a number of factors, including operating results, business plans, economic projections, and anticipated future cash flows. The Company uses an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether the assets are recoverable. Measurement of the amount of impairment, if any, is based upon the difference between the asset’s carrying value and estimated fair value. Fair value is determined through various valuation techniques, including cost-based, market and income approaches as considered necessary. The Company’s analysis did not indicate any impairment of intangible assets as of the impairment analysis conducted December 31, 2021. As of March 31, 2022 and December 31, 2021, all of the intangible assets were fully amortized.
GOODWILL: Goodwill represents the excess of the JMST assets acquired over the fair value of net assets acquired. Goodwill is not amortized but instead is tested for impairment, at a reporting unit level, annually and when events and circumstances warrant an evaluation. The Company evaluates goodwill on an annual basis, as of the end of the fourth quarter, and whenever events and changes in circumstances indicate that there may be a potential impairment. In making this assessment, management relies on a number of factors, including operating results, business plans, economic projections, anticipated future cash flows, business trends and market conditions. The Company’s analysis did not indicate any impairment of Goodwill as of the impairment analysis conducted December 31, 2021.
LEASES: In February of 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-02 - Leases (Topic 842), which significantly amends the way companies are required to account for leases. Under the updated leasing guidance, some leases that did not have to be reported previously are now required to be presented as an asset and liability on the balance sheet. In addition, for certain leases, what was previously classified as an operating expense must now be allocated between amortization expense and interest expense. The Company adopted this update as of January 1, 2019 using the modified retrospective transition method.
INCOME TAXES: Deferred taxes are provided on an asset and liability approach whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
STOCK BASED COMPENSATION: The Company, in accordance with ASC 718, Compensation – Stock Compensation, records all share-based payments to employees at the grant-date fair value of the equity instruments issued. In accordance with ASC 718-10-30-9, Measurement Objective – Fair Value at Grant Date, the Company uses the closing price of the stock, as quoted by NASDAQ, on the date of the grant. The Company believes this pricing method provides the best estimate of fair the fair value of the consideration given. Compensation cost is recognized over the requisite service period.
The Company, in accordance with ASC 718, Compensation – Stock Compensation, establishes the value of equity instruments issued to non-employees for goods and services by using the closing price of the stock, as quoted by NASDAQ, on the date of the grant. The Company believes this method fairly establishes the value of the goods and/or services received.
RESEARCH AND DEVELOPMENT - The Company accounts for research and development costs in accordance with the Financial 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 profit and loss per share of common stock is based on the weighted average number of shares outstanding during the period. Diluted EPS is computed 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 March 31, 2022 the Company had 750,000 common stock equivalents outstanding in the form of restricted stock units (“RSU’s”). These RSU’s are added to the shares issued and outstanding to calculate the diluted earnings per share. There were no common stock equivalents outstanding at March 31, 2021.
RECENT ACCOUNTING PRONOUNCEMENTS: The Company has reviewed all recently issued, but not yet adopted, accounting standards in order 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 effect on its current or future earnings or operations.
NOTE 3 - LEASES
We have operating leases for our office and warehouse facility as well as for an automobile. We used the lease termination dates of November 30, 2023 for the building and July 7, 2021 for the automobile to
calculate right of use (“ROU”) assets and lease liabilities.
The following was included in our consolidated condensed balance sheet as of March 31, 2022:
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We recognize lease expense on a straight-line basis over the term of the lease.
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Our building lease does not specify an implicit rate of interest. Therefore, we estimate our incremental borrowing rate, which is defined as the interest rate we would pay to borrow on a collateralized basis, considering such factors as length of lease term and the risks of the economic environment in which the leased asset operates. As of March 31, 2022, the following disclosures for remaining lease term and incremental borrowing rates were applicable:
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NOTE 4 – INVENTORIES
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 March 31, 2022 and December 31, 2021, the Company had inventory net of allowance, of $695,607 and $624,486, respectively. At March 31, 2022 and December 31, 2021, the allowance for obsolescence was $106,044 and $106,044, respectively.
14
Inventories consisted of the following at March 31, 2022 and December 31, 2021:
|
| March 31, 2022 |
| December 31, 2021 |
Finished goods | $ | 522,823 | $ | 342,835 |
Raw materials |
| 278,828 |
| 387,695 |
Inventory allowance |
| (106,044) |
| (106,044) |
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Total Inventories, net | $ | 695,607 | $ | 624,486 |
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NOTE 5 - SUBSEQUENT EVENTS
In accordance with ASC 855-10 management reviewed all material events through the date of this report. There are no material subsequent events to report.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding ForwardLooking Statements
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 reports to our Company’s stockholders. Management believes that all statements that express expectations and projections with respect to future matters, 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 made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and business performance. There can be no assurance however, that management’s expectations will necessarily come to pass. Factors that may affect forward- looking statements include a wide range of factors that could materially affect future developments and performance, including the following:
●
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.
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 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 that affect the amounts reported in the unaudited Financial Statements and accompanying notes. Management bases its estimates on historicalindustry 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 other significant changes duringestimates.
For a description of the three-month period ended March 31, 2022, 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 1010-K for the fiscal year ended December 31, 2021.2021 filed with the SEC on March 31, 2022.
During the three and nine months ended September 30, 2022, there were no significant changes in our accounting policies and estimates.
Plan
Results of OperationOperations
Comparison of the Three Months Ended September 30, 2022 and Business Growth2021
Our efforts continue to be focused on increasing the salesThe following table sets forth key components of our life science consumables while, atresults of operations during the same time, working to enhance the designthree months ended September 30, 2022 and 2021, both in dollars and as a percentage 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 maderevenues.
Three Months Ended September 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | |||||||||||||
Revenues | $ | 253,233 | 100.0 | % | $ | 716,145 | 100.0 | % | ||||||||
Cost of goods sold | 122,204 | 48.3 | % | 242,343 | 33.8 | % | ||||||||||
Gross profit | 131,029 | 51.7 | % | 473,802 | 66.2 | % | ||||||||||
Operating expenses | ||||||||||||||||
Salaries and wages | 154,648 | 61.1 | % | 146,697 | 20.5 | % | ||||||||||
General and administrative | 94,781 | 37.4 | % | 149,672 | 20.9 | % | ||||||||||
Research and development | 14,820 | 5.9 | % | 17,544 | 2.4 | % | ||||||||||
Total operating expenses | 264,249 | 104.4 | % | 313,913 | 43.8 | % | ||||||||||
Income (loss) from operations | (133,220 | ) | (52.6) | % | 159,889 | 22.3 | % | |||||||||
Other income | ||||||||||||||||
Gain on forgiveness of debt | - | - | % | - | - | % | ||||||||||
Net income before income taxes | (133,220 | ) | (52.6) | % | 159,889 | 22.3 | % | |||||||||
Income tax expense | (702 | ) | (0.3) | % | - | - | % | |||||||||
Net income | $ | (133,922 | ) | (52.9) | % | $ | 159,889 | 22.3 | % |
Revenues. Revenues decreased by $462,912, or 64.6%, to the design of the ultra-low temperature freezer. We also continue work on the refrigerated trailer, or “reefer.”
We are receiving considerable interest in our latest product introduction, which is an ultra-cold chiller used in the manufacture of CBD oil. This unit improves the efficiency of the manufacturing process and enables the production of a higher purity in the CBD oil produced.
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$253,233 for the three months ended March 31,September 30, 2022 and 2021 follows.
Results of Operations
Three Months Ended March 31, 2022 and 2021
For the three months ended March 31, | ||||||
2022 | 2021 | Change | ||||
Revenues | $ | 753,576 | $ | 562,362 | $ | 191,214 |
Cost of goods sold | 234,289 | 143,795 | 90,494 | |||
Gross profit | 519,287 | 418,567 | 100,720 | |||
Operating expenses | 312,782 | 282,064 | 30,718 | |||
Net income (loss) | $ | 206,506 | $ | 247,768 | $ | (41,263) |
Revenues increased during the three-month period ended March 31, 2022, to $753,576 from $562,362 for the three-month period ended March 31, 2021, an increase of $191,214. The increase in revenue is primarily attributable to a $167,865 increase in the sale of freezers and chillers. Cost of goods increased in the quarter ending March 31, 2022, as compared to March 31, 2021, to $234,289 from $143,795, an increase of $90,494. We realized a gross profit percentage of 69%$716,145 for the three months ended March 31, 2022, comparedSeptember 30, 2021. Such decrease was primarily due to 74%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 good sold decreased by $120,139, or 49.6%, to $122,204 for the three months ended March 31, 2021. The gross profit percentage is dependent on the mix of product sales, which variesSeptember 30, 2022 from quarter to quarter. The increased sale of freezers and chillers during the 2022 period was offset slightly by higher costs, resulting in the slightly lower margins. 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 were $312,782$242,343 for the three months ended March 31, 2022, an increase of $30,718 over the expenses of $282,064 incurred in the three-month period ended March 31,September 30, 2021. The increase results from a $33,675 increase in salaries and wages, as we have hired additional personnelSuch decrease was primarily due to meet the demand for freezersdecreased freezer and chillers sales, offset by increased product and shipping costs.
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Gross profit. Our gross profit as a $16,628 increase in research and development costs, offset in part by a $19,585 decrease in general and administrative expenses. While we continuepercentage of sales decreased 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.
Research and development expenses51.7% for the three months ended March 31,September 30, 2022, were $25,325, an increase of $16,628 in expenses for the same period in 2021, as enhancementscompared to the ultra-cold CBD oil chiller continue to be made.
Salaries and wages66.2% for the three months ended March 31, 2022 were $170,279, an increase of $33,675 as comparedSeptember 30, 2021. The decrease in gross profit percentage was primarily due to the expense for the three month period ended March 31, 2021. Additional personnel have been hireddecrease in orderfreezer and chiller sales, and increased product and shipping costs.
Salaries and wages. Salaries and wages increased by $7,951, or 5.4%, to enable the company to meet the sales demand for our chillers and freezers.
General and administrative expenses$154,648 for the three months ended March 31,September 30, 2022 were $117,178, a $19,585 decrease from the $136,763$146,697 for the same period inthree months ended September 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 $54,891, or 36.7%, to $94,781 for the three months ended September 30, 2022 from $149,672 for the three months ended September 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 decreased by $2,724, or 15.5%, to $14,820 for the three months ended September 30, 2022 from $17,544 for the three months ended September 30, 2021. Such decrease was primarily a result of decreased enhancements to the ultra-cold CBD oil chiller during the third quarter.
Net income (loss). As a result of the cumulative effect of the factors described above, our net loss was $133,220 for the three-month periodthree months ended March 31,September 30, 2022, was $206,506, a $41,263 decrease from the $282,064as compared to net income of $159,889 for the three-month periodthree months ended March 31,September 30, 2021. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table sets forth key components of our results of operations during the nine months ended September 30, 2022 and 2021, both in dollars and as a percentage of our revenues.
Nine Months Ended September 30, | ||||||||||||||||||
2022 | 2021 | |||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | |||||||||||||||
Revenues | $ | 1,562,424 | 100.0 | % | $ | 1,985,640 | 100.0 | % | ||||||||||
Cost of goods sold | 552,314 | 35.3 | % | 621,317 | 31.3 | % | ||||||||||||
Gross profit | 1,010,110 | 64.7 | % | 1,364,323 | 68.7 | % | ||||||||||||
Operating expenses | ||||||||||||||||||
Salaries and wages | 484,492 | 31.0 | % | 429,417 | 21.6 | % | ||||||||||||
General and administrative | 315,734 | 20.2 | % | 422,036 | 21.3 | % | ||||||||||||
Research and development | 58,474 | 3.7 | % | 45,697 | 2.3 | % | ||||||||||||
Total operating expenses | 858,700 | 55.0 | % | 897,150 | 45.2 | % | ||||||||||||
Income from operations | 151,410 | 9.7 | % | 467,173 | 23.5 | % | ||||||||||||
Other income | ||||||||||||||||||
Gain on forgiveness of debt | - | % | 111,265 | 5.6 | % | |||||||||||||
Net income before income taxes | 151,410 | 9.7 | % | 578,438 | 29.1 | % | ||||||||||||
Income tax expense | (702) | (0.0) | % | - | - | % | ||||||||||||
Net income | $ | 150,708 | 9.6 | % | $ | 578,438 | 29.1 | % | ||||||||||
Revenues. Revenues decreased by $423,216, or 21.3%, to $1,562,424 for the nine months ended September 30, 2022 from $1,985,640 for the nine months ended September 30, 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.
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Cost of goods sold. Cost of good sold decreased by $69,003, or 11.1%, to $552,314 for the nine months ended September 30, 2022 from $621,317 for the nine months ended September 30, 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 64.7% for the nine months ended September 30, 2022, compared to 68.7% for the nine months ended September 30, 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 $55,075, or 12.8%, to $484,492 for the nine months ended September 30, 2022 from $429,417 for the nine months ended September 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 $106,302, or 25.2%, to $315,734 for the nine months ended September 30, 2022 from $422,036 for the nine months ended September 30, 2021. Such decrease is a result of decreased revenues and operations, as well as, the cumulative result of small savings in numerous expenses.
Research and development. Research and development expenses increased by $12,777, or 28.0%, to $58,474 for the nine months ended September 30, 2022 from $45,697 for the nine months ended September 30, 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 nine months ended September 30, 2022 as compared to $111,265 for the nine months ended September 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 of $206,506was $150,708 for the three-month periodnine months ended March 31,September 30, 2022, represents income of $0.00 per share. This comparesas compared to net income of $282,064, or $0.00 per share,$578,438 for the threenine months ended March 31,September 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 March 31,As of September 30, 2022 were $1,579,533, with accounts receivable of $233,329, net of allowance, and inventory of $695,607, net of allowance. Our working capital on March 31, 2022, was $2,281,502. Working capital on December 31, 2021, our current assets exceeded current liabilities by $2,230,115 and $2,063,516, respectively, and we had cash and cash equivalents of $1,324,706 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:
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Net cash (used in) provided by operating activities | $ | (149,218 | ) | $ | 501,456 | |||
Net cash provided by investing activities | - | - | ||||||
Net cash provided by financing activities | - | - | ||||||
Net change in cash and cash equivalents | (149,218 | ) | 501,456 | |||||
Cash and cash equivalents at beginning of period | 1,473,924 | 642,542 | ||||||
Cash and cash equivalents at end of period | $ | 1,324,706 | $ | 1,143,998 |
Net cash used in operating activities was $2,063,516.
For$149,218 for the three-month periodnine months ended March 31,September 30, 2022, as compared to net cash provided by operating activities was $105,609, which is a decrease of $158,664 over the $264,273 net cash provided by operating activities$501,456 for the three-month periodnine months ended March 31,September 30, 2021. Significant factors affecting operating cash flows was primarily a result of increased inventory purchases, decreased customer deposits, and decreased net income during the nine months ended September 30, 2022.
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Off-Balance Sheet Arrangements
None.We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of 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 September 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 September 30, 2022 to the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the three-month periodfiscal year ended MarchDecember 31, 2022 that have materially affected, or are like to affect,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.18
Use of Proceeds of Registered Securities
None; not applicable.
Purchases of Equity Securities by Us and Affiliated Purchasers
During the three months ended March 31, 2022, 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.
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* |
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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:
May 13, 2022
By: /s/ Kim Boyce
Kim Boyce, CEO, President and Director
Date:
May 13, 2022
By: /s/ Tom Tait
Tom Tait, Vice President and Director
Date: | November 9, 2022 | By: /s/Kim Boyce | |
Kim Boyce, CEO, President and Director | |||
Date: | November 9, 2022 | By: /s/ Tom Tait | |
Tom Tait, Vice President and Director | |||
Date: | November 9, 2022 | By: /s/ Kim Boyce | |
Kim Boyce, CFO, Principal Financial Officer |
Date:
May 13, 2022
By: /s/ Kim Boyce___
Kim Boyce, CFO, Principal Financial Officer
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