UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and formal fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of
the Act:
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 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).
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.
| 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 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
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As of November 8, 2023, there were
REFLECT SCIENTIFIC, INC.
Quarterly Report on Form 10-Q
Period Ended September 30, 2023
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
| Item 1: | Financial Statements | 2 |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| Item 3: | Quantitative and Qualitative Disclosure about Market Risk | 16 |
| Item 4: | Controls and Procedures | 16 |
PART II
OTHER INFORMATION
| Item 1: | Legal Proceedings | 17 |
| Item 1A. | Risk Factors | 17 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 17 |
| Item 3: | Defaults Upon Senior Securities | 17 |
| Item 4: | Mine Safety Disclosure | 17 |
| Item 5: | Other Information | 17 |
| Item 6: | Exhibits | 18 |
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
REFLECT SCIENTIFIC, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||
| Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022 | 3 | |
| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited) | 4 | |
| Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited) | 5 | |
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (Unaudited) | 6 | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 |
2
REFLECT SCIENTIFIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2023 |
December 31, 2022 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Other long-term assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Customer deposits | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liabilities, net of current portion | - | |||||||
| 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.
3
REFLECT SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| INCOME (LOSS) FROM OPERATIONS | ( |
) | ( |
) | ||||||||||||
| Other income | - | - | ||||||||||||||
| NET INCOME (LOSS) BEFORE INCOME TAXES | ( |
) | ( |
) | ||||||||||||
| INCOME TAX EXPENSE | - | ( |
) | ( |
) | ( |
) | |||||||||
| NET INCOME (LOSS) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||
| Earnings (loss) per common share | ||||||||||||||||
| Basic | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||
| Diluted | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
REFLECT SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Three and Nine Months Ended September 30, 2023
| Common Stock | Additional Paid-In | Accumulated | Total Stockholders' | |||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( |
) | $ | ||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||
| Net income | - | - | - | |||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( |
) | $ | ||||||||||||
Three and Nine Months Ended September 30, 2022
| Common Stock | Additional Paid-In | Accumulated | Total Stockholders' | |||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( |
) | $ | ||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Net income | - | |||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( |
) | $ | ||||||||||||
| Stock-based compensation | - | |||||||||||||||||
| Net income | - | |||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( |
) | $ | ||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | |||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( |
) | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
REFLECT SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | ( |
) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Amortization of right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( |
) | ( |
) | ||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ( |
) | ||||||
| Customer deposits | ( |
) | ||||||
| Operating lease liabilities | ( |
) | ( |
) | ||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| 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 | ( |
) | ( |
) | ||||
| CASH AND CASH EQUIVALENTS | ||||||||
| Beginning of the period | ||||||||
| End of the period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Operating lease right-of-use asset and liability remeasurement | $ | $ | - | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
REFLECT SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 does 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 nine months ended September 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.
7
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.
| Three Months Ended September 30, 2023 | ||||||||||||
| United States | International | Total | ||||||||||
| Revenues | ||||||||||||
| Freezers and chillers | $ | $ | $ | |||||||||
| OEM and other | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| Three Months Ended September 30, 2022 | ||||||||||||
| United States | International | Total | ||||||||||
| Revenues | ||||||||||||
| Freezers and chillers | $ | $ | $ | |||||||||
| OEM and other | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||
| United States | International | Total | ||||||||||
| Revenues | ||||||||||||
| Freezers and chillers | $ | $ | $ | |||||||||
| OEM and other | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||
| United States | International | Total | ||||||||||
| Revenues | ||||||||||||
| Freezers and chillers | $ | $ | $ | |||||||||
| OEM and other | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
NOTE 4—INVENTORIES
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| Total inventories | ||||||||
| Less reserve for obsolescence | ( |
) | ( |
) | ||||
| Total inventories, net | $ | $ | ||||||
8
Inventory balances are composed of finished goods and raw materials. Work in process inventory is immaterial to the condensed consolidated financial statements.
NOTE 5—LEASES
| September 30, | December 31, | ||||||
| 2023 | 2022 | ||||||
| Operating lease right-of-use assets | $ | $ | |||||
| Lease liabilities, current portion | |||||||
| Lease liabilities, long-term | |||||||
| Total operating lease liabilities | $ | $ | |||||
| Weighted-average remaining lease term (months) | |||||||
| Weighted average discount rate | % | % | |||||
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating lease expense | $ | $ | $ | $ |
$ | |||||||||||
| Variable lease expense | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
| Year Ending December 31, | Amount | |||
| 2023 – remaining | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | ||||
| Less: imputed interest | ( |
) | ||
| Total operating lease liabilities | $ | |||
NOTE 6—STOCKHOLDERS’ EQUITY
Common Stock
As of September 30, 2023, the Company was authorized
to issue
Restricted Stock Awards
9
| Restricted Stock Awards | Weighted-Average Exercise Price | |||||||
| Outstanding at December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Outstanding at September 30, 2023 | $ | |||||||
Stock-based compensation expense of $
As of September 30, 2023, the remaining unrecognized
stock-based compensation expense related to non-vested restricted stock awards is $
NOTE 7—EARNINGS (LOSS) PER SHARE
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net income (loss) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||
| Basic weighted average shares outstanding | ||||||||||||||||
| Basic earnings (loss) per share | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Effect on dilutive stock awards | ||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||
| Diluted earnings (loss) per share | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||
For the nine months ended September 30, 2023, there
were
10
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.
11
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.
12
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, 2022.
During the nine months ended September 30, 2023, there were no significant changes in our accounting policies and estimates.
Results of Operations
Comparison of the Three Months Ended September 30, 2023 and 2022
The following table sets forth key components of our results of operations during the three months ended September 30, 2023 and 2022, both in dollars and as a percentage of our revenues.
13
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Amount | % of Revenues | Amount | % of Revenues | |||||||||||||
| Revenues | $ | 525,874 | 100.0 | % | $ | 253,233 | 100.0 | % | ||||||||
| Cost of goods sold | 195,888 | 37.2 | % | 122,204 | 48.3 | % | ||||||||||
| Gross profit | 329,986 | 62.8 | % | 131,029 | 51.7 | % | ||||||||||
| Operating Expenses | ||||||||||||||||
| Salaries and wages | 155,677 | 29.6 | % | 154,648 | 61.1 | % | ||||||||||
| General and administrative | 84,331 | 16.0 | % | 94,781 | 37.4 | % | ||||||||||
| Research and development | 9,082 | 1.7 | % | 14,820 | 5.9 | % | ||||||||||
| Total Operating Expenses | 249,090 | 47.4 | % | 264,249 | 104.4 | % | ||||||||||
| Income (loss) from operations | 80,896 | 15.4 | % | (133,220 | ) | (52.6) | % | |||||||||
| Other income | 5,368 | 1.0 | % | - | - | % | ||||||||||
| Net income (loss) before income taxes | 86,264 | 16.4 | % | (133,220 | ) | (52.6) | % | |||||||||
| Income tax expense | - | - | % | (702 | ) | (0.3) | % | |||||||||
| Net income (loss) | $ | 86,264 | 16.4 | % | $ | (133,922 | ) | (52.9) | % | |||||||
Revenues. Revenues increased by $272,641, or 107.7%, to $525,874 for the three months ended September 30, 2023, from $253,233 for the three months ended September 30, 2022. Such increase was primarily due to heightened demand for freezer and chiller sales, driven by an up tick in customer capital expenditure during the period.
Cost of goods sold. Cost of goods sold increased by $73,684, or 60.3%, to $195,888 for the three months ended September 30, 2023,from $122,204 for the three months ended September 30, 2022. Such increase was primarily due to increased freezer and chillers sales.
Gross profit. Our gross profit as a percentage of sales increased to 62.8% for the three months ended September 30, 2023, compared to 51.7% for the three months ended September 30, 2022. The increase in gross profit percentage was primarily due to the increase in freezer and chiller sales, which have better margins than other products.
Salaries and wages. Salaries and wages increased by $1,029, or 0.7%, to $155,677 for the three months ended September 30, 2023,from $154,648 for the three months ended September 30, 2022. Such increase was primarily due to increased employee benefit costs.
General and administrative. General and administrative expenses decreased by $10,450, or 11.0%, to $84,331 for the three months ended September 30, 2023,from $94,781 for the three months ended September 30, 2022. Such decrease was primarily due to decreased advertising and marketing spend, offset by increased rent expense.
Research and development. Research and development expenses decreased by $5,738, or 38.7%, to $9,082 for the three months ended September 30, 2023,from $14,820 for the three months ended September 30, 2022. Such decrease was primarily a result of decreased enhancements to the ultra-cold CBD oil chiller.
Net income (loss). As a result of the cumulative effect of the factors described above, our net income was $86,264 for the three months ended September 30, 2023, as compared to a net loss of $133,922 for the three months ended September 30, 2022. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.
14
Comparison of the Nine Months Ended September 30, 2023 and 2022
The following table sets forth key components of our results of operations during the nine months ended September 30, 2023 and 2022, both in dollars and as a percentage of our revenues.
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Amount | % of Revenues | Amount | % of Revenues | |||||||||||||
| Revenues | $ | 891,385 | 100.0 | % | $ | 1,562,424 | 100.0 | % | ||||||||
| Cost of goods sold | 373,371 | 41.9 | % | 552,314 | 35.3 | % | ||||||||||
| Gross profit | 518,014 | 58.1 | % | 1,010,110 | 64.7 | % | ||||||||||
| Operating Expenses | ||||||||||||||||
| Salaries and wages | 472,521 | 53.0 | % | 484,492 | 31.0 | % | ||||||||||
| General and administrative | 272,684 | 30.6 | % | 315,734 | 20.2 | % | ||||||||||
| Research and development | 20,528 | 2.3 | % | 58,474 | 3.7 | % | ||||||||||
| Total Operating Expenses | 765,733 | 85.9 | % | 858,700 | 55.0 | % | ||||||||||
| Income (loss) from operations | (247,719 | ) | (27.8) | % | 151,410 | 9.7 | % | |||||||||
| Other income | 5,368 | 0.6 | % | - | - | % | ||||||||||
| Net income (loss) before income taxes | (242,351 | ) | (27.2) | % | 151,410 | 9.7 | % | |||||||||
| Income tax expense | (312 | ) | (0.0) | % | (702 | ) | (0.0) | % | ||||||||
| Net income (loss) | $ | (242,663 | ) | (27.2) | % | $ | 150,708 | 9.6 | % | |||||||
Revenues. Revenues decreased by $671,039, or 42.9%, to $891,385 for the nine months ended September 30, 2023, from $1,562,424 for the nine months ended September 30, 2022. Such decrease was primarily due to a reduced demand for freezer and chiller sales, influenced by a decline in customer capital expenditures amid the prevailing economic conditions.
Cost of goods sold. Cost of goods sold decreased by $178,943, or 32.4%, to $373,371 for the nine months ended September 30, 2023, from $552,314 for the nine months ended September 30, 2022. Such decrease was primarily due to decreased freezer and chillers sales.
Gross profit. Our gross profit as a percentage of sales decreased to 58.1% for the nine months ended September 30, 2023, compared to 64.7% for the nine months ended September 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 $11,971, or 2.5%, to $472,521 for the nine months ended September 30, 2023, from $484,492 for the nine months ended September 30, 2022. Such decrease was primarily due to decreased headcount.
General and administrative. General and administrative expenses decreased by $43,050, or 13.6%, to $272,684 for the nine months ended September 30, 2023, from $315,734 for the nine months ended September 30, 2022. Such decrease was primarily due to decreased advertising, marketing, and travel expenditures, partially offset by increased public filing costs and rent expense.
Research and development. Research and development expenses decreased by $37,946, or 64.9%, to $20,528 for the nine months ended September 30, 2023, from $58,474 for the nine months ended September 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.
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Net income (loss). As a result of the cumulative effect of the factors described above, our net loss was $242,663 for the nine months ended September 30, 2023, as compared to net income of $150,708 for the nine months ended September 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 September 30, 2023 and December 31, 2022, our current assets exceeded current liabilities by $1,955,867 and $2,179,237, respectively, and we had cash and cash equivalents of $1,339,446 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:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (42,481 | ) | (149,218 | ) | |||
| Net cash provided by investing activities | - | - | ||||||
| Net cash provided by financing activities | - | - | ||||||
| Net change in cash and cash equivalents | (42,481 | ) | (149,218 | ) | ||||
| Cash and cash equivalents at beginning of period | 1,381,927 | 1,473,924 | ||||||
| Cash and cash equivalents at end of period | $ | 1,339,446 | $ | 1,324,706 | ||||
Net cash used by operating activities was $42,481 and $149,218 for the nine months ended September 30, 2023 and 2022, respectively. Significant factors affecting operating cash flows were primarily a result of increased customer deposits, decreased accounts payable payments, and decreased inventory purchases, offset by decreased accounts receivable and net income during the nine months ended September 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
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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 September 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 September 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.
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ITEM 6. Exhibits
(a) Exhibits.
| Exhibit No. | Title of Document | Location if other than attached hereto |
| 3.1 | Articles of Incorporation | 10-SB Registration Statement* |
| 3.2 | Articles of Amendment to Articles of Incorporation | 10-SB Registration Statement* |
| 3.3 | By-Laws | 10-SB Registration Statement* |
| 3.4 | Articles of Amendment to Articles of Incorporation | 8-K Current Report dated December 31, 2003* |
| 3.5 | Articles of Amendment to Articles of Incorporation | 8-K Current Report dated December 31, 2003* |
| 3.6 | Articles of Amendment | September 30, 2004 10-QSB Quarterly Report* |
| 3.7 | By-Laws Amendment | September 30, 2004 10-QSB Quarterly Report* |
| 4.1 | Debenture | 8-K Current Report dated June 29, 2007* |
| 4.2 | Form of Purchasers Warrant | 8-K Current Report dated June 29, 2007* |
| 4.3 | Registration Rights Agreement | 8-K Current Report dated June 29, 2007* |
| 4.4 | Form of Placement Agreement | 8-K Current Report dated June 29, 2007* |
| 10.1 | Securities Purchase Agreement | 8-K Current Report dated June 29, 2007* |
| 10.2 | Placement Agent Agreement | 8-K Current Report dated June 29, 2007* |
| 14 | Code of Ethics | December 31, 2003 10-KSB Annual Report* |
| 21 | Subsidiaries of the Company | December 31, 2004 10-KSB Annual Report* |
| Exhibit No. | Title of Document | Location if other than attached hereto |
| 31.1 | 302 Certification of Kim Boyce | |
| 31.2 | 302 Certification of Kim Boyce | |
| 32 | 906 Certification |
Exhibits
Additional Exhibits Incorporated by Reference
| * | Reflect California Reorganization | 8-K Current Report dated December 31, 2003 |
| * | JMST Acquisition | 8-K Current Report dated April 4, 2006 |
| * | Cryomastor Reorganization | 8-K Current Report dated September 27, 2006 |
| * | Image Labs Merger Agreement Signing | 8-K Current Report dated November 15, 2006 |
| * | All Temp Merger Agreement Signing | 8-K Current Report dated November 17, 2006 |
| * | All Temp Merger Agreement Closing | 8-KA Current Report dated November 17, 2006 |
| * | Image Labs Merger Agreement Closing | 8-KA Current Report dated November 15, 2006 |
* Previously filed and incorporated by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Reflect Scientific, Inc.
(Registrant)
Date: November 9, 2023 By: /s/ Kim Boyce
Kim Boyce, CEO, President and Director
Date: November 9, 2023 By: /s/ Tom Tait
Tom Tait, Vice President and Director
Date: November 9, 2023 By: /s/ Kim Boyce
Kim Boyce, CFO, Principal Financial Officer
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