UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31June 30, 2023

or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File Number: 000-31377

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

As of May 11,August 4, 2023, there were 85,214,086 common shares of the registrant issued and outstanding. 

REFLECT SCIENTIFIC, INC.

Quarterly Report on Form 10-Q

 Period Ended March 31,June 30, 2023

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

PART II

OTHER INFORMATION

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

REFLECT SCIENTIFIC, INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

REFLECT SCIENTIFIC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these condensed consolidated financial statements.

REFLECT SCIENTIFIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements.

REFLECT SCIENTIFIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements.

REFLECT SCIENTIFIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Three and Six Months Ended March 31,June 30, 2023

Three and Six Months Ended March 31,June 30, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements.

REFLECT SCIENTIFIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWSCASH FLOWS

(UNAUDITED)

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,June 30, 2023

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Reflect Scientific, Inc. (the “Company,” “we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all the information and footnotes required by GAAP for complete financial statements. The December 31, 2022, consolidated balance sheet data was derived from audited financial statements but dodoes not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2023. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three and six months ended March 31,June 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). The Company has evaluated all recent accounting pronouncements and determined that the adoption of pronouncements applicable to the Company has not had or is not expected to have a material impact on the Company's condensed consolidated financial statements.

 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 months ended March 31,June 30, 2023 and 2022 are disaggregated as follows:

The Company’s revenues for the six months ended June 30, 2023 and 2022 are disaggregated as follows:

NOTE 4—INVENTORIES

Inventories at March 31,June 30, 2023 and December 31, 2022 consisted of the following:

Inventory balances are composed of finished goods. Raw materialsgoods and workraw materials. Work in process inventory areis immaterial to the condensed consolidated financial statements.

NOTE 5—LEASES

The following was included in our condensed consolidated balance sheetsheets at March 31,June 30, 2023 and December 31, 2022:

Total lease expense for the three and six months ended March 31,June 30, 2023 and 2022 is as follows:

As of March 31,June 30, 2023, maturities of operating lease liabilities were as follows:

NOTE 6—STOCKHOLDERS’ EQUITY

Common Stock

As of March 31,June 30, 2023, the Company was authorized to issue 100,000,000 common shares. As of March 31,June 30, 2023 and December 31, 2022, the Company had 85,214,086 common shares issued and outstanding.

Restricted Stock Awards

Below is a table summarizing the changes in restricted stock awards outstanding during the threesix months ended March 31,June 30, 2023:

Stock-based compensation expense of $6,875 and $12,844$906 was recorded during the three months ended March 31,June 30, 2023 and 2022, respectively. Stock-based compensation expense of $13,750 was recorded during the six months ended June 30, 2023 and 2022, respectively.

As of March 31,June 30, 2023, the remaining unrecognized stock-based compensation expense related to non-vested restricted stock awards is $48,125$41,250 and is expected to be recognized over 1.751.5 years.

NOTE 7—EARNINGS (LOSS) PER SHARE

The computation of the basic and diluted weighted average shares outstanding and the basic and diluted earningsearnings(loss) per share for the three and six months ended March 31,June 30, 2023 and 2022 consisted of the following:

For the three and six months ended March 31,June 30, 2023,there were 450,000 common share equivalents excluded from the diluted earnings per share calculation as their effect is anti-dilutive.

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:

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.

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 is engaged in the manufacture and distribution of innovative products targeted at the life science market. Our customers include hospitals, diagnostic laboratories, pharmaceutical and biotech companies, cold chain management, universities, government and private sector research facilities, chemical and industrial companies.

Our goal is to provide our customers with the best solution for their needs. This philosophy extends into our business strategies and acquisition plans. Through a series of strategic acquisitions, we acquired technology that has enabled us to expand our line of products to align with, and capitalize on, market needs. Our growing product portfolio includes ultra-low temperature freezers, blast freezers, solvent chillers and refrigerated transportation in addition to supplying OEM products to the life sciences industry.

Our Cryometrix brand ultra-low temperature and blast freezers innovative design enables our customers to save substantially on energy costs related to cryogenic storage. Ultra-low temperature freezers are used worldwide for the storage of vaccines, DNA, RNA, proteins and many other biological and chemical substances. There is a growing need for energy efficient, reliable ultra-low temperature storage units. Our Cryometrix freezers are targeted to this growing market and we have had tremendous success in blood storage and pharmaceutical manufacturing applications. The application of this technology for use in refrigerated trailers (commonly called “reefers”) used to transport goods which need to be maintained in a cold environment significantly broadens the market for this technology. The utilization of this technology in reefers eliminates the current method of cooling, which uses engines run on hydrocarbon fuels. The Cryometrix technology is pollutant free and is more efficient and cost effective than the technologies currently used. Reflect Scientific has added a new product line of solvent chillers. Solvent chillers are used in natural products extraction for optimizing product yield and purity.

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 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 global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.

Critical Accounting Policies and Estimates

The preparation of the unaudited condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, 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 may differ from these estimates.

For a description of the accounting policies that, in management’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 Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 31, 2023.2022.

During the threesix months ended March 31,June 30, 2023, there were no significant changes in our accounting policies and estimates.

Results of Operations

Comparison of the Three Months Ended March 31,June 30, 2023 and 2022

The following table sets forth key components of our results of operations during the three months ended March 31,June 30, 2023 and 2022, both in dollars and as a percentage of our revenues.

Revenues. Revenues decreased by $512,449,$431,231, or 68.0%77.6%, to $241,127$124,384 for the three months ended March 31,June 30, 2023, from $753,576$555,615 for the three months ended March 31,June 30, 2022. The changeSuch decrease was primarily due to a significant decrease in freezer and chiller sales and ongoing supply chain delays with manufacturers.

Cost of goods sold. Cost of goodgoods sold decreased by $120,656,$131,971, or 51.5%67.4%, to $113,633$63,850 for the three months ended March 31,June 30, 2023,from $234,289$195,821 for the three months ended March 31,June 30, 2022. The changeSuch decrease was primarily due to decreased freezer and chillers sales.sales, offset by increased product costs.

Gross profit. Our gross profit as a percentage of sales decreased to 52.9%48.7% for the three months ended March 31,June 30, 2023, compared to 68.9%64.8% for the three months ended March 31,June 30, 2022. The changedecrease in gross profit percentage was primarily due to the decrease in freezer and chiller sales, (freezer and chillerswhich have higherbetter margins than other products) andproducts, offset by increased product costs.

Salaries and wages. Salaries and wages decreased by $8,004,$4,996, or 4.7%3.1%, to $162,275$154,569 for the three months ended March 31,June 30, 2023,from $170,279$159,565 for the three months ended March 31,June 30, 2022. Such decrease was primarily due to decreased headcount.

General and administrative. General and administrative expenses decreased by $10,186,$22,414, or 8.7%21.6%, to $106,992$81,361 for the three months ended March 31,June 30, 2023,from $117,178$103,775 for the three months ended March 31,June 30, 2022. The lower expense levelSuch decrease was notprimarily due to the result of significant savingsdecline in any one expense category but is, rather, the cumulative result of small savings in numerous expenses,operations, offset by increased public filing and insurance costs.

Research and development. Research and development expenses decreased by $19,259,$12,949, or 76.0%70.6%, to $6,066$5,380 for the three months ended March 31,June 30, 2023,from $25,325$18,329 for the three months ended March 31,June 30, 2022. The changeSuch decrease was primarily a result of decreased enhancements to the ultra-cold CBD oil chiller duringas a result of the quarter.decline in operations.

Net income (loss). As a result of the cumulative effect of the factors described above, our net loss was $147,839$181,088 for the three months ended March 31,June 30, 2023, as compared to net income of $206,505$78,125 for the three months ended March 31,June 30, 2022. 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, 2023 and 2022

The following table sets forth key components of our results of operations during the six months ended June 30, 2023 and 2022, both in dollars and as a percentage of our revenues.

Revenues. Revenues decreased by $943,680, or 72.1%, to $365,511 for the six months ended June 30, 2023, from $1,309,191 for the six months ended June 30, 2022. Such decrease was primarily due to a significant decrease in freezer and chiller sales and ongoing supply chain delays with manufacturers.

Cost of goods sold. Cost of goods sold decreased by $252,627, or 58.7%, to $177,483 for the six months ended June 30, 2023, from $430,110 for the six months ended June 30, 2022. Such decrease was primarily due to decreased freezer and chillers sales, offset by increased product costs.

Gross profit. Our gross profit as a percentage of sales decreased to 51.4% for the six months ended June 30, 2023, compared to 67.1% for the six months ended June 30, 2022. The decrease in gross profit percentage was primarily due to the decrease in freezer and chiller sales, which have better margins than other products, offset by increased product costs.

Salaries and wages. Salaries and wages decreased by $13,000, or 3.9%, to $316,844 for the six months ended June 30, 2023, from $329,844 for the six months ended June 30, 2022. Such decrease was primarily due to decreased headcount.

General and administrative. General and administrative expenses decreased by $32,600, or 14.8%, to $188,353 for the six months ended June 30, 2023, from $220,953 for the six months ended June 30, 2022. Such decrease was primarily due to the decline in operations, offset by increased public filing and insurance costs.

Research and development. Research and development expenses decreased by $32,208, or 73.8%, to $11,446 for the six months ended June 30, 2023, from $43,654 for the six months ended June 30, 2022. Such decrease was primarily a result of decreased enhancements to the ultra-cold CBD oil chiller as a result of the decline in operations.

Net income (loss). As a result of the cumulative effect of the factors described above, our net loss was $328,927 for the six months ended June 30, 2023, as compared to net income of $284,630 for the six months ended June 30, 2022. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.

Liquidity and Capital Resources

As of March 31,June 30, 2023 and December 31, 2022, our current assets exceeded current liabilities by $2,052,802$1,893,317 and $2,179,237, respectively, and we had cash and cash equivalents of $1,199,069$1,408,758 and $1,381,927, 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:

Net cash used inprovided by operating activities was $182,858$26,831 for the threesix months ended March 31,June 30, 2023, as compared to net cash provided byused in operating activities of $105,609$226,170 for the threesix months ended March 31,June 30, 2022. Significant factors affecting operating cash flows waswere primarily a result of increased customer deposits, accounts payable and accrued expense payments, and inventory purchases, offset by decreased accounts receivable and net income during the threesix months ended March 31,June 30, 2023.

We continue working to enhance our on-line ordering system to increase sales, develop the market for our ultra-low temperature freezers, work with current vendors to obtain more favorable pricing, and locate new vendors to provide opportunities to further reduce our cost of goods.

We will continue to focus our efforts on our core business activities while pursuing capital resources and evaluating potential future acquisitions which fit within and enhance our core business.

Off-Balance Sheet Arrangements

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and 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 Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of March 31,June 30, 2023. Based upon, and as of the date of this evaluation, our chief executive officer and principal financial officer determined that there have been no changes in our internal controls over financial reporting as of March 31,June 30, 2023 to the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, our disclosure controls and procedures were not effective.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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 PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. Exhibits

(a)     Exhibits.

Exhibits

Additional Exhibits Incorporated by Reference

* Previously filed and incorporated by reference.

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 11,August 8, 2023                                              By: /s/ Kim Boyce

Kim Boyce, CEO, President and Director

Date: May 11,August 8, 2023                                               By: /s/ Tom Tait

Tom Tait, Vice President and Director

Date: May 11,August 8, 2023                                               By: /s/ Kim Boyce

Kim Boyce, CFO, Principal Financial Officer