Reflect Scientific, Inc.: Form 10-Q for the period ended Jun 30, 2024

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.

The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

Overview

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

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

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

Recent Developments

None.

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, 2023 filed with the SEC on March 29, 2024.

During the three months and six months ended June 30, 2024, there were no significant changes in our accounting policies and estimates.

Results of Operations

Comparison of the Three Months Ended June 30, 2024 and 2023

The following table sets forth key components of our results of operations during the three months ended June 30, 2024 and 2023:

Revenues. Revenues increased by $465,687, or 374.4%, to $590,071 for the three months ended June 30, 2024, as compared to $124,384 for the three months ended June 30, 2023. Such increase was primarily due to a heightened demand for freezer and chiller sales, driven by increased customer capital expenditures during the current period.

Cost of goods sold. Cost of goods sold increased by $167,664, or 263%, to $231,514 for the three months ended June 30, 2024, as compared to $63,850 for the three months ended June 30, 2023. Such increase was primarily due to increased freezer and chillers sales during the current period.

Gross profit. Our gross profit as a percentage of sales increased to 60.8% for the three months ended June 30, 2024, as compared to 48.7% for the three months ended June 30, 2023. The increase in gross profit percentage was primarily due to the increase in freezer and chiller sales during the current period, which have better margins than other products. This was partially offset by increased product costs during the current period.

Salaries and wages. Salaries and wages decreased by $6,515, or 4.2%, to $148,054 for the three months ended June 30, 2024, as compared to $154,569 for the three months ended June 30, 2023. Such decrease was primarily due to no stock-based compensation during the current period and decreased employee headcount.

General and administrative. General and administrative expenses increased by $26,194 or 32.2%, to $107,555 for the three months ended June 30, 2024, as compared to $81,361 for the three months ended June 30, 2023. Such increase was primarily due to increased advertising and marketing, professional fees, public filing costs, and rent expense during the current period.

Research and development. Research and development expenses decreased by $775, or 14.4%, to $4,605 for the three months ended June 30, 2024, as compared to $5,380 for the three months ended June 30, 2023. Such decrease was primarily a result of resource allocation to marketing and production.

Other income. Other income was $10,644 for the three months ended June 30, 2024, as compared to $0 for the three months ended June 30, 2023. The increase in the current period was from interest income earned on our business money market savings accounts, which were opened during the fourth quarter of 2023.

Net income. As a result of the cumulative effect of the factors described above, our net income was $108,987 for the three months ended June 30, 2024, as compared to a net loss of $181,088 for the three months ended June 30, 2023. Management continues to look for opportunities to increase sales, improve gross margins and control ongoing operating expenses.

Comparison of the Six Months Ended June 30, 2024 and 2023

The following table sets forth key components of our results of operations during the six months ended June 30, 2024 and 2023, both in dollars and as a percentage of our revenues.

Revenues. Revenues increased by $653,315, or 178.7%, to $1,018,826 for the six months ended June 30, 2024, from $365,511 for the six months ended June 30, 2023. Such increase was primarily due to a significant increase in freezer and chiller sales.

Cost of goods sold. Cost of goods sold increased by $240,997 or 135.8%, to $418,480 for the six months ended June 30, 2024, from $177,483 for the six months ended June 30, 2023. Such increase was primarily due to increased freezer and chillers sales, as well as increased production costs.

Gross profit. Our gross profit as a percentage of sales increased to 58.9% for the six months ended June 30, 2024, compared to 51.4% for the six months ended June 30, 2023. 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 decreased by $26,176, or 8.3%, to $290,668 for the six months ended June 30, 2024, from $316,844 for the six months ended June 30, 2023. Such decrease was primarily due to decreased headcount.

General and administrative. General and administrative expenses increased by $51,506, or 27.3%, to $239,859 for the six months ended June 30, 2024, from $188,353 for the six months ended June 30, 2023. Such increase was primarily due to the increased in public filing and insurance costs.

Research and development. Research and development expenses increased by $534, or 4.7%, to $11,980 for the six months ended June 30, 2024, from $11,446 for the six months ended June 30, 2023. Such increase was primarily a result of increased costs.

Net income (loss). As a result of the cumulative effect of the factors described above, our net income was $77,016 for the six months ended June 30, 2024, as compared to net loss of $328,927 for the six months ended June 30, 2023. Management has looked for opportunities to increase sales, improve gross margins and control ongoing operating expenses.

Liquidity and Capital Resources

As of June 30, 2024 and December 31, 2023, our current assets exceeded current liabilities by $1,847,430 and $1,773,784, respectively, and we had cash and cash equivalents of $1,102,696 and $1,277,951, respectively. To date, we have financed our operations primarily through revenue generated from operations, cash proceeds from financing activities, borrowings, and equity contributions by our shareholders.

Summary of Cash Flow

The following table provides detailed information about our net cash flow for the period indicated:

Net cash used in operating activities was $175,255 and provided by operating activities $26,831 for the six months ended June 30, 2024 and 2023, respectively. Significant factors affecting operating cash flows were primarily a result of increased accounts receivable during the current period.

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.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our chief executive officer and chief principal officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of June 30, 2024. 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 June 30, 2024 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, 2023, our disclosure controls and procedures were not effective.

PART II

OTHER INFORMATION