Reflect Scientific, Inc 10-Q for FY2021 Q3
Reflect Scientific, Inc. (RSCF)
About this 10-Q
Reflect Scientific, Inc filed this 10-Q on November 15, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $716.15K
- up 17.4% from $610.09K a year earlier
- Net income
- $159.89K
- down 21.7% from net income of $204.19K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from __________ to __________
Commission File Number
(Exact name of registrant as specified in its charter)
|
|
| |
|
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
|
| ||
|
| ||
|
(Address of principal executive offices) (Zip Code) | ||
|
| ||
|
( | ||
|
(Registrant’s telephone number, including area code) | ||
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.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ | |
|
|
|
☒ |
Smaller reporting company |
| |
|
|
|
Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
Indicate by check mark whether the Registrant has submitted electronically on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 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).
1
Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years:
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
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.
|
Class |
Outstanding as of November 15, 2021 |
2
TABLE OF CONTENTS
|
PART I – FINANCIAL INFORMATION | |
|
4 | |
|
Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited), and December 31, 2020 |
5 - 6 |
|
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited) |
7 |
|
Condensed Consolidated Statement of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (unaudited) |
8 - 9 |
|
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited) |
10 |
|
Notes to Condensed Consolidated Financial Statements |
11 |
| Item 2:Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 3:Quantitative and Qualitative Disclosure about Market Risk | 20 |
| Item 4:Controls and Procedures | 20 |
| PART II – OTHER INFORMATION | |
| Item 1:Legal Proceedings | 20 |
| Item 2:Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
| Item 3:Defaults Upon Senior Securities | 21 |
| Item 4:Mine Safety Disclosure | 21 |
| Item 5:Other Information | 21 |
| Item 6:Exhibits | 21 - 22 |
| Signatures | 23 |
3
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Reflect Scientific, Inc.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2021
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 10-12 6/A for the period ended December 31, 2020, accompanying notes, and with the historical financial information of the Company.
4
REFLECT SCIENTIFIC, INC.
Condensed Consolidated Balance Sheets
ASSETS
|
September 30, |
December 31, | |||||||
|
2021 |
2020 | |||||||
|
(Unaudited) | ||||||||
|
CURRENT ASSETS | ||||||||
|
| ||||||||
|
Cash |
$ |
|
$ |
| ||||
|
Accounts receivable, net |
|
| ||||||
|
Inventory, net |
|
| ||||||
|
Prepaid assets |
|
| ||||||
|
| ||||||||
|
Total Current Assets |
|
| ||||||
|
| ||||||||
|
OTHER ASSETS | ||||||||
|
| ||||||||
|
Operating lease right-of-use assets |
|
| ||||||
|
Goodwill |
|
| ||||||
|
Deposits |
|
| ||||||
|
| ||||||||
|
Total Other Assets |
|
| ||||||
|
| ||||||||
|
TOTAL ASSETS |
$ |
|
$ |
| ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
REFLECT SCIENTIFIC, INC.
Condensed Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
September 30, |
December 31, | |||||||
|
2021 |
2020 | |||||||
|
(Unaudited) | ||||||||
|
CURRENT LIABILITIES | ||||||||
|
| ||||||||
|
Accounts payable and accrued expense |
$ |
|
$ |
| ||||
|
Contract liabilities |
|
| ||||||
|
Operating lease liabilities – short term |
|
| ||||||
|
Income taxes payable |
|
| ||||||
|
| ||||||||
|
Total Current Liabilities |
|
| ||||||
|
| ||||||||
|
| ||||||||
|
LONG-TERM LIABILITIES | ||||||||
|
| ||||||||
|
Operating lease liability – long-term |
|
| ||||||
|
Loan – long-term |
|
| ||||||
|
| ||||||||
|
Total Liabilities |
|
| ||||||
|
| ||||||||
|
STOCKHOLDERS’ EQUITY | ||||||||
|
| ||||||||
|
Preferred stock, $ |
|
| ||||||
|
Common stock, $ |
|
| ||||||
|
Additional paid in capital |
|
| ||||||
|
Accumulated deficit |
( |
) |
( |
) | ||||
|
Total Stockholders’ Equity |
|
| ||||||
|
| ||||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ |
|
$ |
| ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
REFLECT SCIENTIFIC, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
|
For the Three Months Ended |
For the Nine Months Ended | |||||||||||||||
|
September 30, |
September 30, | |||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 | ||||||
|
REVENUES |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
COST OF GOODS SOLD |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
GROSS PROFIT |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
OPERATING EXPENSES | ||||||||||||||||
|
Salaries and wages |
|
|
|
| ||||||||||||
|
Research and development expense |
|
|
|
| ||||||||||||
|
General and administrative expense |
|
|
|
| ||||||||||||
|
Total Operating Expenses |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
OPERATING INCOME (LOSS) |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
OTHER INCOME (EXPENSE) | ||||||||||||||||
|
Gain on forgiveness of SBA loan |
|
|
|
| ||||||||||||
|
Other income |
|
|
|
( | ||||||||||||
|
Total Other Income (Expenses) |
|
|
|
( | ||||||||||||
|
| ||||||||||||||||
|
NET INCOME (LOSS) BEFORE TAXES |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Income tax benefit (expense) |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
NET INCOME (LOSS) |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
NET INCOME (LOSS) PER SHARE – BASIC AND DILUTED |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED |
|
|
|
| ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
REFLECT SCIENIFIC, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
For the Three and Nine Months Ended September 30, 2021
|
Additional | |||||||||||||||||||
|
Common Stock |
Paid-In |
Accumulated | |||||||||||||||||
|
Shares |
Amount |
Capital |
Deficit |
Total | |||||||||||||||
|
Balance, December 31, 2020 |
|
$ |
|
$ |
|
$ |
( |
$ |
| ||||||||||
|
| |||||||||||||||||||
|
Net income for the three-month period ended March 31, 2021 |
- |
- |
- |
|
| ||||||||||||||
|
| |||||||||||||||||||
|
Balance, March 31, 2021 |
|
|
|
( |
| ||||||||||||||
|
| |||||||||||||||||||
|
Net income for the three-month period ended June 30, 2021 |
- |
- |
- |
|
| ||||||||||||||
|
| |||||||||||||||||||
|
Balance – June 30, 2021 |
|
|
|
( |
| ||||||||||||||
|
| |||||||||||||||||||
|
Net income for the three-month period ended September 30, 2021 |
- |
- |
- |
|
| ||||||||||||||
|
| |||||||||||||||||||
|
Balance, September 30, 2021 |
|
$ |
|
$ |
|
$ |
( |
$ |
| ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
REFLECT SCIENIFIC, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
For the Three and Nine Months Ended September 30, 2020
|
Additional | |||||||||||||||||||
|
Common Stock |
Paid-In |
Accumulated | |||||||||||||||||
|
Shares |
Amount |
Capital |
Deficit |
Total | |||||||||||||||
|
Balance, December 31, 2019 |
|
$ |
|
$ |
|
$ |
( |
$ |
| ||||||||||
|
| |||||||||||||||||||
|
Net income for the three-month period ended March 31, 2020 |
- |
- |
- |
|
| ||||||||||||||
|
| |||||||||||||||||||
|
Balance, March 31, 2020 |
|
|
|
( |
| ||||||||||||||
|
| |||||||||||||||||||
|
Net loss for the three-month period ended June 30, 2020 |
- |
- |
- |
( |
( | ||||||||||||||
|
| |||||||||||||||||||
|
Balance – June 20, 2020 |
|
|
|
( |
| ||||||||||||||
|
| |||||||||||||||||||
|
Net profit for the three-month period ended September 30, 2020 |
- |
- |
- |
|
| ||||||||||||||
|
| |||||||||||||||||||
|
Balance, September 30, 2020 |
|
$ |
|
$ |
|
$ |
( |
$ |
| ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
REFLECT SCIENTIFIC, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
For the Nine Months Ended September 30, | ||||||||
|
2021 |
2020 | |||||||
|
| ||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
|
Net income |
$ |
|
$ |
| ||||
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
|
Depreciation |
|
| ||||||
|
Amortization of operating lease right-of-use asset |
|
| ||||||
|
Gain on forgiveness of SBA loan |
( |
| ||||||
|
Changes in operating assets and liabilities: | ||||||||
|
Accounts receivable |
|
( | ||||||
|
Inventory |
( |
( | ||||||
|
Prepaid expenses |
|
| ||||||
|
Accounts payable and accrued expenses |
|
( | ||||||
|
Operating lease liabilities |
( |
( | ||||||
|
Customer deposits |
( |
( | ||||||
|
Net Cash provided by (used in) Operating Activities |
|
( | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
- |
- | ||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
|
Net funds received from PPP loan |
|
| ||||||
|
Net funds received from line of credit |
|
( | ||||||
|
Net cash provided by financing activities |
|
| ||||||
|
| ||||||||
|
NET CHANGE IN CASH |
|
| ||||||
|
| ||||||||
|
CASH AT BEGINNING OF PERIOD |
|
| ||||||
|
CASH AT END OF PERIOD |
$ |
|
$ |
| ||||
|
| ||||||||
|
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
|
Cash Paid For: | ||||||||
|
Interest |
$ |
|
$ |
| ||||
|
Income taxes |
$ |
|
$ |
| ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
REFLECT SCIENTIFIC, INC.
Notes to the Condensed Consolidated Financial Statements
September 30, 2021
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements 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 been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are 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, 2020 financial statements. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND LINE OF BUSINESS:
Reflect Scientific, Inc. (the Company) was incorporated under the laws of the State of Utah on November 3, 1999 as Cole, Inc. The Company was organized to engage in any lawful activity for which corporations may be organized under the Utah Revised Business Corporation Act. On December 30, 2003 the Company changed its name to Reflect Scientific, Inc.
Reflect Scientific designs, develops and sells scientific equipment for the Life Science and Manufacturing industries. The Company’s business activities include the manufacture and distribution of unique laboratory consumables and disposables such as filtration and purification products, customized sample handling vials, electronic wiring assemblies, high temperature silicone, graphite and vespel/graphite sealing components for use by original equipment manufacturers (“OEM”) in the chemical analysis industries, primarily in the field of gas/liquid chromatography.
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The accompanying 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.
11
USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
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.
|
For the Three Months Ended |
For the Three Months Ended | |||||||||||
|
September 30, 2021 |
September 30, 2020 | |||||||||||
|
Segments |
Total |
Total | ||||||||||
|
Domestic |
$ |
|
$ |
|
$ |
|
$ |
| ||||
|
International |
|
|
|
| ||||||||
|
$ |
|
$ |
|
$ |
|
$ |
| |||||
|
| ||||||||||||
|
| ||||||||||||
|
Components |
$ |
|
$ |
|
$ |
|
$ |
| ||||
|
Equipment |
|
|
|
| ||||||||
|
$ |
|
$ |
|
$ |
|
$ |
| |||||
|
For the Nine Months Ended |
For the Nine Months Ended | |||||||||||
|
September 30, 2021 |
September 30, 2020 | |||||||||||
|
Segments |
Total |
Total | ||||||||||
|
Domestic |
$ |
|
$ |
|
$ |
|
$ |
| ||||
|
International |
|
|
|
| ||||||||
|
$ |
|
$ |
|
$ |
|
$ |
| |||||
|
| ||||||||||||
|
| ||||||||||||
|
Components |
$ |
|
$ |
|
$ |
|
$ |
| ||||
|
Equipment |
|
|
|
| ||||||||
|
$ |
|
$ |
|
$ |
|
$ |
| |||||
12
ACCOUNTS RECEIVABLE: Accounts receivables are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30, 2021 and December 31, 2020, the Company had accounts receivable, net of the allowance, of $
INVENTORY: Inventories are presented net of an allowance for obsolescence and are stated at the lower of cost or market value based upon the average cost inventory method. The Company’s inventory consists of parts for scientific vial kits, refrigerant gases, components for detectors and ultra-low temperature freezers which it builds and other scientific items. At September 30, 2021 and December 31, 2020, the Company had inventory consisting of raw materials and finished goods, net of allowance, of $
INTANGIBLE ASSETS: Costs to obtain or develop patents are capitalized and amortized over the life of the patents. Patents are amortized from the date the Company acquires or is awarded the patent over their estimated useful lives, which range from
GOODWILL: Goodwill represents the excess of the Company’s acquisition cost over the fair value of net assets of the acquisition. Goodwill is not amortized, but is tested for impairment annually, or when a triggering event occurs. As described in ACS 360, the Company has adopted the goodwill impairment analysis that includes quantitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. A fair-value-based test is applied at the overall Company level. The test compares the estimated fair value of the Company at the date of the analysis to the carrying value of its net assets. The analysis also requires various judgments and estimates, including general and macroeconomic conditions, industry and the Company’s targeted market conditions, as well as relevant entity-specific events, such as a change in the market for the Company’s products and services. After considering the qualitative factors that would indicate a need for interim impairment of goodwill and applying the two-step process described in ASC 360, management has determined that the value of Company’s assets is not more likely than not less than the carrying value of the Company including goodwill, and that no impairment charge needs be recognized during the reporting periods.
LEASES: The Company, in accordance with ASC 842, accounts for leases as right-of-use assets (“ROU”) and lease liabilities on the balance sheet. The Company elected not to separate lease and non-lease components, but to treat as single lease costs. 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. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.
13
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.
NET INCOME (LOSS) 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 September 30, 2021 and 2020, the Company had no common stock equivalents.
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
The following was included in our consolidated condensed balance sheet as of September 30, 2021:
|
Leases |
As of September 30, 2021 | |||
|
Assets | ||||
|
ROU operating lease assets |
$ |
| ||
|
| ||||
|
Liabilities | ||||
|
Operating lease liabilities – current portion |
$ |
| ||
|
Operating lease liabilities |
$ |
| ||
|
Total operating lease liabilities |
$ |
| ||
14
We recognize lease expense on a straight-line basis over the term of the lease.
|
Nine Months Ended | ||||
|
Lease Cost |
September 30, 2021 | |||
|
Operating lease cost | ||||
|
Administrative expenses |
$ |
| ||
|
Rent expense |
| |||
|
Total operating lease cost |
$ |
| ||
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 September 30, 2021, the following disclosures for remaining lease term and incremental borrowing rates were applicable:
|
Nine Months Ended | ||
|
Supplemental Disclosures |
September 30, 2021 | |
|
Weighted average remaining lease term |
| |
|
Weighted average discount rate |
|
NOTE 4 - INVENTORY
Inventories are presented net of an allowance for obsolescence and are stated at the lower of cost or market value based upon the average cost inventory method. The Company’s inventory consists of parts for scientific vial kits, refrigerant gases, components for detectors and ultra-low temperature freezers which it builds and other scientific items. At September 30, 2021 and December 31, 2020, the Company had inventory consisting of finished goods, net of allowance, of $
NOTE 5 - NOTE PAYABLE
On April 5, 2020, we received approval from our bank Chase Bank for the Paycheck Protection Program Loan (“PPP”). The terms of the loan were for
NOTE 6 - 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.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking 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 historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. The Company has adopted the new revenue recognition and lease accounting standards. The Company believes there have been no other significant changes during the nine-month period ended September 30, 2021, to the items disclosed as significant accounting policies in management's Notes to the Financial Statements in the Company's Form 10 for the year ended December 31, 2020.
16
Plan of Operation and Business Growth
Our efforts continue to be focused on increasing the sales of our life science consumables while, at the same time, working to enhance the design of our liquid nitrogen refrigeration products. Of those liquid nitrogen refrigeration products, the ultra-low temperature freezer is receiving highest priority. We have received positive feedback of the improvements and enhancements made to the design of the ultra-low temperature freezer. We also continue work on the refrigerated trailer, or “reefer.”
We 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 for the three months ended September 30, 2021 and 2020 follows.
Results of Operations
Three Months Ended September 30, 2021 and 2020
| For the three months ended September 30, | ||||||
| 2021 | 2020 | Change | ||||
| Revenues | $ | 716,145 | $ | 610,085 | $ | 106,060 |
| Cost of goods sold | 242,343 | 252,112 | (9,769) | |||
| Gross profit | 473,802 | 357,973 | 115,829 | |||
| Operating expenses | 313,913 | 153,785 | 160,128 | |||
|
Net income (loss) |
$ |
159,889 |
$ |
204,188 |
$ |
(44,299) |
Revenues increased during the three-month period ended September 30, 2021, to $716,145 from $610,085 for the three-month period ended September 30, 2020, an increase of $106,060. The increase is attributable to the increased sales of ultra-low temperature freezers and chillers. We are continuing work to increase our market penetration in the ultra-low temperature freezer market and in the ultra-cold chiller.
Cost of goods decreased in the quarter ending September 30, 2021, as compared to September 30, 2020, to $242,343 from $2252,112, an decrease of $(9,769). We realized a gross profit percentage of 66% for the three months ended September 30, 2021, compared to 59% for the three months ended September 30, 2020. The gross profit percentage is dependent on the mix of product sales, which varies from quarter to quarter. The increased sale of freezers and chillers during 2021 period resulted in the slightly higher 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 $313,913 for the three months ended September 30, 2021, a increase of $160,128 over the expenses of $153,785 incurred in the three-month period ended September 30, 2020. The decrease results primarily from the $16,790 decrease in research and development costs and a $68,996 reduction in salaries and wages and a $74,392 decrease in general and administrative expenses. While we continue to monitor and minimize operating costs, we also realize that certain levels of expenditures are required in order to commercialize the products and achieve market penetration.
17
Research and development expenses for the three months ended September 30, 2021 were $17,544, an increase of $754 in expenses for the same period in 2020, as the development work on the ultra-cold CBD oil chiller was escalated.
Salaries and wages for the three months ended September 30, 2021 were reduced by $74,342 as compared to the expense for the three month period ended September 30, 2020. The termination of two employees resulted in the lower expense level.
Net income for the three-month period ended September 30, 2021 was $159,889, a decrease of $44,299 from the $204,188 for the three-month period ended September 30, 2020. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.
The net income of $159,889 for the three-month period ended September 30, 2021 represents income of $0.00 per share. This compares to net income of $204,188, or $0.00 per share, for the three months ended September 30, 2020.
Nine Months Ended September 30, 2021 and 2020
| For the nine months ended September 30, | ||||||
| 2021 | 2020 | Change | ||||
| Revenues | $ | 1,985,640 | $ | 2,096,799 | $ | (111,159) |
| Cost of goods sold | 621,317 | 845,281 | (223,964) | |||
| Gross profit | 1,364,323 | 1,251,518 | 112,805 | |||
| Operating expenses | 897,150 | 907,057 | (9,907) | |||
|
Other income (expense) |
111,265 |
(132) |
111,397 | |||
|
Net profit (loss) |
$ |
578,438 |
$ |
344,329 |
$ |
234,109 |
Revenues decreased during the nine-month period ended September 30, 2021, to $1,985,640 from $2,096,799 for the nine-month period ended September 30, 2020, a decrease of $111,159. The decrease is attributable to the additional chillers shipped in 2020 as the backlog of orders resulting from delays in receiving component parts were assembled and shipped. We are continuing work to increase our market penetration in the ultra-low temperature freezer market and in the ultra-cold chiller.
Cost of goods decreased in the nine months ended September 30, 2021, as compared to September 30, 2020, to $621,317 from $845,281, a decrease of $223,964. We realized a gross profit percentage of 69% for the nine months ended September 30, 2021, compared to 58% for the nine months ended September 30, 2020.
18
The gross profit percentage is dependent on the mix of product sales, which varies from quarter to quarter. Work has been done to reduce the component and assembly costs of the freezers and chillers. 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 $897,150 for the nine months ended September 30, 2021, a decrease of $9,907 over the expenses of $907,057 incurred in the nine-month period ended September 30, 2020. The decrease results primarily from the $144,913 decrease in research and development costs and a $22,806 decrease in salaries and wages, offset in part by a $112,200 increase in general and administrative expenses. While we continue to monitor and minimize operating costs, we also realize that certain levels of expenditures are required in order to commercialize the products and achieve market penetration.
Research and development expenses for the nine months ended September 30, 2021 were $45,697, a decrease of $144,913 in expenses for the same period in 2020, as the development work on the ultra-cold CBD oil chiller was minimized.
Operating expenses were also reduced due to lower salaries and wages in the nine month period ended September 30, 2021 as compared to 2020. The $22,806 reduction resulted from the reduction of two full-time employees.
Net income for the nine-month period ended September 30, 2021 was $578,438, which compares to net income of $344,329 for the nine-month period ended September 30, 2020. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.
The net income of $578,438 for the nine-month period ended September 30, 2021 represents income of $0.01 per share. This compares to net income of $344,329, or income of $0.00 per share, for the nine months ended September 30, 2020.
Seasonality and Cyclicality
We do not believe our business is cyclical.
Liquidity and Capital Resources
Our cash resources at September 30, 2021, were $1,143,998, with accounts receivable of $147,688, net of allowance, and inventory of $585,057, net of allowance. Our working capital on September 30, 2021, was $1,676,451. Working capital on December 31, 2020 was $1,203,080.
For the nine-month period ended September 30, 2021, net cash provided by operating activities was $501,456, which is an improvement of $598,944 over the $97,488 net cash used by operating activities for the nine-month period ended September 30, 2020.
Off-Balance Sheet Arrangements
None.
19
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not required.
Item 4. Controls and Procedures
| (a) | Evaluation of Disclosure Controls and Procedures. |
As of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Principal Financial Officer concluded that information required to be disclosed is recorded, processed, summarized and reported within the specified periods, and is accumulated and communicated to management, including our 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 for the nine-month period ended September 30, 2021 that have materially affected, or are like to affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None; not applicable.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
None; not applicable.
20
Use of Proceeds of Registered Securities
None; not applicable.
Purchases of Equity Securities by Us and Affiliated Purchasers
During the nine months ended September 30, 2021, we have not purchased any equity securities nor have any officers or directors of the Company.
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Mine Safety Disclosure
Not applicable.
ITEM 5. Other Information.
None
21
ITEM 6. Exhibits
| Exhibit No. | Title of Document | Location if other than attached hereto |
| 31.1 | 302 Certification of Kim Boyce | |
| 31.2 | 302 Certification of Keith Merrell | |
| 32 | 906 Certification |
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Reflect Scientific, Inc. | |||
| (Registrant) | |||
| Date: | November 15, 2021 | By: | /s/ Kim Boyce |
| Kim Boyce, CEO, President and Director | |||
| Date: | November 15, 2021 | By: | /s/ Tom Tait |
| Tom Tait, Vice President and Director | |||
| Date: | November 15, 2021 | By: | /s/ Kim Boyce |
| Kim Boyce, CFO, Principal Financial Officer |
23
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kim Boyce certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Reflect Scientific, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Dated: 11/15/2021 Signature:/s/Kim Boyce
Kim Boyce
Chief Executive Officer and Director
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kim Boyce, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Reflect Scientific, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Dated: 11/15/2021 Signature:/s/Kim Boyce
Kim Boyce
Principal Financial Officer and CFO
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Reflect Scientific, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), We, Kim Boyce, our Chief Executive Officer and director and Kim Boyce, our Chief/Principal Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: 11/15/2021 /s/Kim Boyce
Kim Boyce
Chief Executive Officer and Director
Dated: 11/15/2021 /s/Kim Boyce
Kim Boyce
Principal Financial Officer and CFO