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 Reflect Scientific, Inc., a Utah
corporation (the 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 Quarterly Report and other filings with the Securities and Exchange
Commission (the SEC) 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:
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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;
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Changes in U.S., global or regional economic conditions;
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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;
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Increased competitive pressures, both domestically and internationally;
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Legal and regulatory developments, such as regulatory actions affecting environmental
activities;
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The imposition by foreign countries of trade restrictions and changes in international
tax laws or currency controls;
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Adverse weather conditions or natural disasters, such as hurricanes and earthquakes,
labor disputes, which may lead to increased costs or disruption of operations.
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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, 2021, to the items disclosed as significant accounting policies in management's Notes to the Financial Statements in the
Company's Registration Statement on Form 10 filed with the SEC on March 30, 2021, and amendments thereto.
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 June 30, 2021 and 2020 follows.
Results of
Operations
Three Months
Ended June 30, 2021 and 2020
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For
the three months ended June 30,
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2021
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2020
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Change
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Revenues
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$
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707,133
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$
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502,906
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$
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204,227
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Cost
of goods sold
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235,179
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122,538
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112,641
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Gross
profit
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471,954
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380,368
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91,586
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Operating
expenses
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301,173
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405,811
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(104,638)
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Other
expense
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-
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11
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(11)
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Net
income (loss)
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$
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170,781
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$
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(25,454)
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$
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196,235
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Revenues increased during the three-month period ended
June 30, 2021, to $707,133 from $502,906 for the three-month period ended June 30, 2020, an increase of $204,227. 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 increased in the quarter ending June
30, 2021, as compared to June 30, 2020, to $235,179 from $122,538, an increase of $112,641. We realized a gross profit percentage of 67%
for the three months ended June 30, 2021, compared to 76% for the three months ended June 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 lower 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 $301,173 for the three months
ended June 30, 2021, a decrease of $104,638 over the expenses of $405,811 incurred in the three-month period ended June 30, 2020. The
decrease results primarily from the $57,316 decrease in research and development costs and a $66,003 reduction in salaries and wages,
offset by higher 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 three months
ended June 30, 2021 were $19,456, a decrease of $57,316 in expenses for the same period in 2020, as the development work on the ultra-cold
CBD oil chiller was minimized.
Salaries and wages for the three months ended June
30, 2021 were reduced by $66,003 as compared to the expense for the three month period ended June 30, 2020. The termination of two employees
resulted in the lower expense level.
Net income for the three-month period ended June 30,
2021 was $170,781, which compares to a net loss of $25,454 for the three-month period ended June 30, 2020. Management continues to look
for opportunities to increase sales, improve gross margins and control ongoing operating expenses.
The net income of $170,781 for the three-month period
ended June 30, 2021 represents income of $0.00 per share. This compares to a net loss of $25,454, or loss of $0.00 per share, for the
three months ended June 30, 2020.
Six Months
Ended June 30, 2021 and 2020
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For
the six months ended June 30,
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2021
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2020
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Change
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Revenues
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$
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1,269,495
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$
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1,486,714
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$
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(217,219)
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Cost
of goods sold
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378,974
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593,169
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(214,195)
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Gross
profit
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890,521
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893,545
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(3,024)
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Operating
expenses
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583,237
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753,272
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(170,035)
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Other income (expense)
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111,265
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(132)
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111,397
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Net
profit (loss)
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$
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418,549
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$
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140,141
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$
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278,408
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Revenues decreased during the six-month period ended
June 30, 2021, to $1,269,495 from $1,486,714 for the six-month period ended June 30, 2020, a decrease of $217,219. The decrease is attributable
to the additional chillers shipped in 2020. 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 six months ending June
30, 2021, as compared to June 30, 2020, to $378,974 from $593,169, a decrease of $214,195. We realized a gross profit percentage of 70%
for the six months ended June 30, 2021, compared to 60% for the six months ended June 30, 2020. 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 $583,237 for the six months
ended June 30, 2021, a decrease of $170,035 over the expenses of $753,272 incurred in the six-month period ended June 30, 2020. The decrease
results primarily from the $161,703 decrease in research and development costs and a $46,190 decrease in salaries and wages. 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 six months
ended June 30, 2021 were $28,153, a decrease of $161,703 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 six month period ended June 30, 2021 as compared to 2020. The $46,190 reduction resulted from the reduction
of two full-time employees.
Net income for the six-month period ended June 30,
2021 was $418,549, which compares to net income of $140,141 for the six-month period ended June 30, 2020. Management continues to look
for opportunities to increase sales, improve gross margins and control ongoing operating expenses.
The net income of $418,549 for the six-month period
ended June 30, 2021 represents income of $0.00 per share. This compares to net income of $140,141, or income of $0.00 per share, for the
six months ended June 30, 2020.
Seasonality
and Cyclicality
We do not believe our business is cyclical.
Liquidity
and Capital Resources
Our cash resources at June 30, 2021, were $1,057,707,
with accounts receivable of $206,999, net of allowance, and inventory of $524,081, net of allowance. Our working capital on June 30, 2021,
was $1,512,703. Working capital on December 31, 2020 was $1,203,080.
For the six-month period ended June 30, 2021, net
cash provided by operating activities was $415,165, which is an improvement of $498,528 over the $83,363 net cash used by operating activities
for the six-month period ended June 30, 2020.
Off-Balance Sheet Arrangements
None.