Reflect Scientific, Inc.: Form 10-Q for the period ended Jun 30, 2019

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 six-month period ended June 30, 2019, to the items disclosed as significant accounting policies in management's Notes to the Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Plan of Operation and Business Growth

Our revenues during the six-month reporting periods decreased 20% during 2019 compared to 2018 revenues, as freezer sales for the 2019 period were $64,419 lower than 2018 and our specialty lab product sales slowed. The major decreases were in sales of vials, purification products, and detectors. We discontinued our detector product at the end of 2018, so there were no 2019 sales compared to sales of $14,724 in 2018.

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 have our first manufactured unit operational, have conducted a number of road tests and are working to develop alliances with contract manufacturers for those products.

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 June 30, 2019 and 2018 follows.

Results of Operations

Three Months Ended June 30, 2019 and 2018

Revenues decreased during the three-month period ended June 30, 2019, to $284,567 from $334,659 for the three-month period ended June 30, 2018, a decrease of $50,092. The decrease results primarily from decreased sale of specialty lab supplies. We are continuing work to increase our market penetration in the ultra-low temperature freezer market.

Cost of goods decreased in the quarter ending June 30, 2019, as compared to June 30, 2018, to $105,629 from $120,527, a decrease of $14,898. We realized a gross profit percentage of 63% for the three months ended June 30, 2019, compared to 64% for the three months ended June 30, 2018. The gross profit percentage is dependent on the mix of product sales, which varies from quarter to quarter. We continue to actively work to obtain more favorable pricing from our vendors in order to increase the margins realized on all product lines.

Operating expenses decreased to $198,500 in the three months ended June 30, 2019, a decrease of $233,379 over the expenses of $431,879 incurred in the three-month period ended June 30, 2018. The decrease results primarily from the $208,000 charge recorded in 2018 for the issuance of stock for the payment of consulting services and stock-based compensation to an employee. There were no stock issuances for services in 2019. While we continue to monitor and minimize operating costs, we also realize that certain levels of expenditures are required in order to commercialize the products and achieve market penetration.

The net loss for the three-month period ended June 30, 2019 was $18,230, which compares to a net loss of $217,747 for the three-month period ended June 30, 2018. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.

The net loss of $18,230 for the three-month period ended June 30, 2019 represents a loss of $0.00 per share. This compares to the net loss of $217,747, or loss of $0.00 per share, for the three months ended June 30, 2018.

Six Months Ended June 30, 2019 and 2018

Revenues decreased during the quarter ended June 30, 2019, to $610,881 from $760,340 for the quarter ended June 30, 2018, a decrease of $149,459. The decrease results primarily from the sale of ultra-low temperature freezers which generated revenue of $157,769 in 2019 compared to revenue of $222,188 in 2018. We are continuing work to increase our market penetration in the ultra-low temperature freezer market.

Cost of goods decreased in the quarter ending June 30, 2019, as compared to June 30, 2018, to $199,535 from $229,837, a decrease of $30,302. We realized a gross profit percentage of 67% for the six months ended June 30, 2019, compared to 70% for the six months ended June 30, 2018. The gross profit percentage is dependent on the mix of product sales, which varies from quarter to quarter. We continue to actively work to obtain more favorable pricing from our vendors in order to increase the margins realized on all product lines.

Operating expenses decreased to $436,244 in the six months ended June 30, 2019, a decrease of $213,285 over the expenses of $649,529 incurred in the six-month period ended June 30, 2018. The increase results primarily from stock-based consulting fees and stock-based compensation paid in 2018. While we continue to monitor and minimize operating costs, we also realize that certain levels of expenditures are required in order to commercialize the products and achieve market penetration.

The net loss for the six-month period ended June 30, 2019 was $23,765, which compares to a net loss of $119,026 for the six-month period ended June 30, 2018. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.

The net loss of $23,765 for the six-month period ended June 30, 2019 represents a loss of $0.00 per share. This compares to the net loss of $119,026, or loss of $0.00 per share, for the six months ended June 30, 2018.

Seasonality and Cyclicality

We do not believe our business is cyclical.

Liquidity and Capital Resources

Our cash resources at June 30, 2019, were $205,456, with accounts receivable of $120,605, net of allowance, and inventory of $162,593, net of allowance. Our working capital on June 30, 2019, was $379,702. Working capital on December 31, 2018 was $446,877.

For the six-month period ended June 30, 2019, net cash used in operating activities was $14,383 which compares to $92,177 net cash used in operating activities for the six-month period ended June 30, 2018.

Off-Balance Sheet Arrangements

None.

(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 six-month period ended June 30, 2019 that have materially affected, or are like to affect, our internal controls over financial reporting.