UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q



[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 2016


or


[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT of 1934


For the transition period from __________ to __________


Commission File Number 000-31377


REFLECT SCIENTIFIC, INC.

(Exact name of registrant as specified in its charter)


Utah

87-0642556

(State or other jurisdiction of

(IRS Employer Identification No.)

incorporation or organization)


1266 South 1380 West Orem, Utah 84058

 (Address of principal executive offices) (Zip Code)


(801) 226-4100

 (Registrant’s telephone number, including area code)


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.

Yes [X]   No [   ]


Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):


Large Accelerated filer    ¨

Accelerated filer                     ¨

Non-accelerated filer       ¨

Smaller reporting company    x


Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ]   No [X]


Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  

Yes [ X ]   No [  ]



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.

1






 


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 August 11, 2016



60,958,514 shares of $0.01 par value common stock on August 11, 2016






2





TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION


Item 1

Financial Statements

 

 

Unaudited Condensed Balance Sheets

As of June 30, 2016, and December 31, 2015

5

 

 

 

 

Unaudited Condensed Statements of Operations

For the three and six months ended June 30, 2016 and 2015

7

 

 

 

 

Unaudited Condensed Statements of Cash Flows

For the six months ended June 30, 2016 and 2015

8

 

 

 

 

Notes to Unaudited Condensed Financial Statements

9

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

 

 

 

Item 3

Quantitative and Qualitative Disclosure about Market Risk

15

 

 

 

Item 4

Controls and Procedures

15


PART II – OTHER INFORMATION


Item 1

Legal Proceedings

16

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

16

 

 

 

Item 3

Defaults Upon Senior Securities

16

 

 

 

Item 4

Mine Safety Disclosure

16

 

 

 

Item 5

Other Information

16

 

 

 

Item 6

Exhibits

16

 

 

 

Signatures

18




3





Part I - FINANCIAL INFORMATION


Item 1.  Financial Statements

Reflect Scientific, Inc.


CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

June 30, 2016


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 accompanying notes, and with the historical financial information of the Company.




4






REFLECT SCIENTIFIC, INC.

Condensed Consolidated Balance Sheets



ASSETS



 

 

June 30,

2016

(Unaudited)

 

December 31,

2015

(Audited)

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 Cash

$

         237,986

$

292,087

 Accounts receivable, net of allowance for bad debts of

     $4,000 and $4,000

 

           224,952

 


136,362

 Inventories, net of allowance for obsolescence of $12,500 and      $12,500

 

         196,778

 


206,409

 Prepaid assets

 

           3,100

 

3,100

 

 

 

 

 

Total Current Assets

 

         662,816

 

637,958

 

 

 

 

 

FIXED ASSETS, NET

 

          -

 

-

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

 

 

 

   Intangible assets, net

 

         -

 

5,316

   Goodwill

 

60,000

 

60,000

   Deposits

 

3,100

 

3,100

 

 

 

 

 

      Total Other Assets

 

         63,100

 

68,416

 

 

 

 

 

   TOTAL ASSETS

$

         725,916

$

706,374















The accompanying notes are an integral part of these condensed consolidated financial statements.



5





REFLECT SCIENTIFIC, INC.

Condensed Consolidated Balance Sheets (Continued)



LIABILITIES AND SHAREHOLDERS’ DEFICIT



 

 

June 30,

2016

(Unaudited)

 

December 31,

2015

(Audited)

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

  Accounts payable

$

          43,579

$

          84,347

  Short-term lines of credit

 

           3,883

 

9,396

  Customer deposits

 

5,974

 

57,835

  Accrued expenses

 

 -

 

-

  Income taxes payable

 

100

 

100

 

 

 

 

 

      Total Current Liabilities

 

         53,536

 

         151,678

 

 

 

 

 

       Total Liabilities

 

53,536

 

151,678

 

 

 

 

 

SHAREHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

   Preferred stock, $0.01 par value, authorized

    5,000,000 shares; No shares issued and outstanding

 


-

 


-

   Common stock, $0.01 par value, authorized

    100,000,000 shares; 60,958,514 and 60,958,514

        issued and outstanding, respectively

 

           609,584

 

           609,584

   Additional paid in capital

 

       19,377,911

 

       19,377,911

   Accumulated deficit

 

       (19,315,115)

 

       (19,432,799)

 

 

 

 

 

      Total Shareholders’ Deficit

 

         672,380

 

         554,696

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT

$

         725,916

$

         706,374











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

June 30,

 

For the Six Months Ended

June 30,

 

 

2016

 

2015

 

2016

 

2015

REVENUES

$

        387,393

$

        198,076

$

        761,357

$

        511,298

 

 

 

 

 

 

 

 

 

COST OF GOODS SOLD

 

105,184

 

56,349

 

212,365

 

177,666

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

282,209

 

141,727

 

548,992

 

333,632

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

   Salaries and wages

 

105,516

 

105,167

 

212,723

 

209,361

   Rent expense

 

8,608

 

8,605

 

17,217

 

17,209

   Research and development

     expense

 

19,671

 

20,897

 

46,593

 

26,125

   General and administrative

     expense

 

66,517

 

54,910

 

154,530

 

130,512

      Total Operating Expenses

 

200,312

 

189,579

 

431,063

 

383,207

 

 

 

 

 

 

 

 

 

OPERATING PROFIT (LOSS)

 

81,897

 

(47,852)

 

117,929

 

(49,575)

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

  Other income

 

-

 

       -

 

-

 

-

  Interest expense – other

 

(102)

 

(263)

 

(245)

 

(566)

  Interest on debentures

 

-

 

(29,250)

 

-

 

(58,500)

  Gain on extinguishment of debt

 

 

 

1,355,375

 

-

 

1,355,375

 

 

 

 

 

 

 

 

 

      Total Other Income

      (Expenses)

 

(102)

 

1,325,862

 

(245)

 

1,296,309

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) BEFORE TAXES

 

81,795

 

1,278,010

 

117,684

 

1,246,734

 

 

 

 

 

 

 

 

 

Income tax benefit (expense)

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

$

81,795

$

1,278,010

$

117,684

$

1,246,734

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED

$

0.00

$

        0.02

$

0.00

$

0.02

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED

 

60,958,514

 

56,702,501

 

60,958,514

 

56,702,501






The accompanying notes are an integral part of these condensed consolidated financial statements.



7





REFLECT SCIENTIFIC, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the

Six Months Ended

June 30,

 

 

2016

 

2015

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net income (loss)

$

117,684

$

1,246,734

Adjustments to reconcile net income (loss) to net cash

 

 

 

 

 from operating activities:

 

 

 

 

 

 

 

 

 

  Amortization

 

5,316

 

16,043

  Gain on extinguishment of debt

 

-

 

(1,355,375)

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

  (Increase)/decrease in accounts receivable

 

(88,590)

 

162,429

  (Increase)/decrease in inventory

 

9,631

 

(24,221)

 

 

 

 

 

  Increase/(decrease) in accounts payable

    and accrued expenses

 

(40,768)

 

16,506

  Increase/(decrease) in customer deposits

 

(51,861)

 

(18,151)

       Net Cash from Operating Activities

 

(48,588)

 

43,965

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

  Payments made on lines of credit

 

(5,513)

 

(5,285)

       Net Cash from  Financing Activities

 

(5,513)

 

(5,285)

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

(54,101)

 

38,680

CASH AT BEGINNING OF PERIOD

 

292,087

 

271,053

CASH AT END OF PERIOD

$

237,986

$

309,733



SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

Cash Paid For:

 

 

 

 

    Interest

$

245

$

566

    Income taxes

$

-

$

-

 

 

 

 

 


The accompanying notes are an integral part of these condensed consolidated financial statements.


 

8





 

REFLECT SCIENTIFIC, INC.

Notes to the Condensed Consolidated Financial Statements

(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, 2015 financial statements.  Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.


NOTE 2 -

ORGANIZATION AND DESCRIPTION OF BUSINESS


Cole, Inc. (the Company) was incorporated under the laws of the State of Utah on November 3, 1999. 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.


NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS


The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, payables and notes payable.  The carrying amount of cash and cash equivalents and payables approximates fair value because of the short-term nature of these items.  The carrying amount of the notes payable approximates fair value as the individual borrowings bear interest at rates that approximate market interest rates for similar debt instruments.


NOTE 4 – SIGNIFICANT ACCOUNTING POLICIES


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 June 30, 2016 and December 31, 2015, the Company had accounts receivable of $228,952 and $140,362, respectively.  At June 30, 2016 and December 31, 2015 the allowance for doubtful accounts was $4,000 and $4,000, respectively.


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 June 30, 2016, inventory was made up of $209,278 of finished goods, less an allowance for obsolescence of $12,500.  At December 31, 2015, inventory was comprised of $218,909 of finished goods, less an allowance for obsolescence of $12,500.There were no raw materials or work in progress for either period presented.



9






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 5 to 15 years.  An impairment charge is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible assets as determined by projected discounted net future cash flows. The Company’s analysis did not indicate any impairment of intangible assets as of June 30, 2016.


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 two step 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.


EARNINGS PER SHARE: The computation of basic earnings 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 June 30, 2016 and 2015, the Company had no common stock equivalents.    


NOTE 5 – RECENT ACCOUNTING PRONOUNCEMENTS - UPDATE


In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-02, “L eases.”   This ASU requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current accounting treatment.  This ASU changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases.  For public business entities, this ASU is effective for annual periods beginning after December 15, 2018, and interim periods therein.  Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.  The Company is currently evaluating the impact of this ASU on its financial statements and disclosures.


In March 2016, the FASB issued ASU 2016-09, “ Improvements to Employee Share-Based Payment Accounting .” This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The guidance is effective for fiscal years beginning after December 15, 2016, although early adoption is permitted.  The Company is currently evaluating the impact of this ASU on its financial statements and disclosures.



10





 


The Company has reviewed all other 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 6 – SUBSEQUENT EVENTS


None.


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



11





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 believes there have been no significant changes during the six month period ended June 30, 2016, 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, 2015.


Plan of Operation and Business Growth


Our efforts continue to be focused on increasing the sales of our life science consumables and detectors while, at the same time, working to commercialize our liquid nitrogen refrigeration products.  Of those liquid nitrogen refrigeration products, the ultra-low temperature freezer is receiving highest priority.  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 also continue to focus on the expansion of our detector.  We believe that the enhanced functionality of our new detector, coupled with its low cost, provides us with a competitive edge over products currently being sold in that specialized market.


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.  


Our revenues during the three and six month reporting periods increased 96% and 49%, respectively, during 2016 compared to 2015 revenues.




12





Results of Operations


Three Months Ended June 30, 2016 and 2015


 

 

For the three months ended June 30,

 

 

           2016

 

       2015

 

        Change

Revenues

$

387,393

$

198,076

$

189,317

Cost of goods sold

 

105,184

 

56,349

 

48,835

Gross profit

 

282,209

 

141,727

 

140,482

Operating expenses

 

200,312

 

189,579

 

10,733

Other income (expense)

 

(102)

 

1,325,862

 

(1,325,964)

Net income (loss)

$

81,795

$

1,278,010

$

(1,196,215)


Revenues increased during the quarter ended June 30, 2015, to $387,393 from $198,076 for the quarter ended June 30, 2016, an increase of $189,317.  The increase in revenues seen during the quarter resulted from the increased sales levels of our specialized laboratory supplies and sales of ultra-low temperature freezers


With increased sales during the reporting period, cost of goods correspondingly increased in the quarter ending June 30, 2016, as compared to June 30, 2015 to $105,184 from $56,349, an increase of $48,835. The gross profit   percentage increased to 73% for the three months ended June 30, 2016, compared to 71% for the three months ended June 30, 2015.  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 our product lines.  


Our operating expenses we increased by $10,733 in the three-month period ended June 30, 2016 over the comparable 2015 period.  This increase results primarily from commissions paid on the sales of the ultra-low temperature freezers.  Operating expenses for the three months ended June 30, 2016 were $200,312, compared to operating expenses of $189,579 for the three-month period ended June 30, 2015. Management continues to look for operating efficiencies which will reduce operating expense levels. Operating expenses for the remaining six months of 2016 are expected to approximate the expense levels shown for the three-month period ended June 30, 2016.


The net income for the three-month period ended June 30, 2016 was $81,795, a decrease of $1,196,215 from the $1,278,010 profit for the three-month period ended June 30, 2015.  That period benefited from the $1,355,375 one-time gain realized on extinguishment of debt.  Management continues to look for opportunities to increase sales, improve gross margins and reduce ongoing operating expenses


The net income for the three months ended June 30, 2016 was $0.00 per share.  This compares to a net income of $0.02 per share for the three-month period ended June 30, 2015.  




13





Six Months Ended June 30, 2016 and 2015


 

 

For the six months ended June 30,

 

 

          2016

 

       2015

 

        Change

Revenues

$

761,357

$

511,298

$

250,059

Cost of goods sold

 

212,365

 

177,666

 

34,699

Gross profit

 

548,992

 

333,632

 

215,360

Operating expenses

 

431,063

 

383,207

 

47,856

Other income (expense)

 

(245)

 

1,296,309

 

(1,296,554)

Net profit (loss)

$

117,684

$

1,246,734

$

(1,129,050)


Revenues increased during the six-month period ended June 30, 2015 to $761,357 from $511,298 for the six- month period ended June 30, 2015, an increase of $250,059.  The revenues were generated from our specialized laboratory supplies, detectors and ultra-low temperature freezers.  We are beginning to see sales increases resulting from having completed our catalog web site.  


Due to the increase in sales, cost of goods in the six-month period ending June 30, 2016 increased by $34,699, to $212,365 from $177,666 for the six-month period ended June 30, 2015. The gross profit percentage increased to 72% for the six-month period ended June 30, 2016, compared to 65% for the six months ended June 30, 2015.  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 our product lines.  


Operating expenses for the six-month period ended June 30, 2016 increased to $431,063 compared to $383,207 for the six months ended June 30, 2015, an increase of $47,856. As we continue to work to commercialize the ultra-low temperature product line we anticipate expenses levels for the remaining six months of 2016 will remain close to the level experienced through the initial six months


Net income for the six-month period ended June 30, 2016 was $117,684, a $1,129,050 decline from the $1,246,734 net income for the six-month period ended June 30, 2015, which benefited from the one-time gain on extinguishment of debt of $1,355,375.  Management continues to look for opportunities to increase revenue, improve gross margins and reduce ongoing operating expenses in order to achieve profitability.


Earnings for the six months ended June 30, 2016 was $0.00 per share.  Earnings for the six months ended June 30, 2015 was $0.02 per share.


Seasonality and Cyclicality


We do not believe our business is cyclical.


Liquidity and Capital Resources


Our cash resources at June 30, 2015, were $237,986, with accounts receivable of $224,952, net of allowance, and inventory of $196,778, net of allowance. Accounts receivable increased $88,590 as the result of ultra-low temperature sales, which customer deposits decreased by $51,861, as the deposits made with orders were applied to invoiced amounts upon shipment of the freezers.  To this point in time we have relied on revenues and sales of equity and debt securities for our cash resources.   Our working capital on June 30, 2016, was $609,280, which is an increase of $123,000 over the working capital on December 31, 2015 of $486,280.



14






For the six-month period ended June 30, 2016, net cash used for operating activities was $48,588 which compares to $43,965 net cash provided from operating activities for the six-month period ended June 30, 2015, a change of $92,553. The change results primarily from the paying down of accounts payable, the application of customer deposits held, and  the increase in accounts receivable  which have resulted from increased sales levels.


Off-Balance Sheet Arrangements


We lease office and warehouse space under a non-cancelable operating lease in Utah which runs through November 30, 2017.  Future minimum lease payments under the operating lease at June 30, 2016 are $52,700 for that facility.  In addition, on May 9, 2014, the Company entered into an automobile lease. Future minimum lease payments under this lease are $8,112 at June 30, 2016, with minimum lease payments of $3,744 due for the remainder of 2016 and $4,368 in 2017.


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 quarter ended June 30, 2016 that have materially affected, or are like to affect, our internal controls over financial reporting.

 


 




15





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.


Use of Proceeds of Registered Securities


None; not applicable.


Purchases of Equity Securities by Us and Affiliated Purchasers


During the six months ended June 30, 2015, we have not purchased any equity securities nor have any officers or directors of the Company.


ITEM 3.  Defaults Upon Senior Securities


In June 2015, management received from legal counsel an opinion that the statute of limitations had expired on the debentures and the related default penalty and accrued interest.  Accordingly, management elected to remove those liabilities from their financial records, resulting in the recognition of a gain on extinguishment of debt of $1,355,375.


ITEM 4.  Mine Safety Disclosure


Not applicable.


ITEM 5.  Other Information.


None

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*

31.1

302 Certification of Kim Boyce

 

31.2

302 Certification of Keith Merrell

 

32

906 Certification

 

16







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.





17





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:

August 11, 2016

By:   /s/ Kim Boyce

       Kim Boyce, CEO, President and Director


Date:

August 11, 2016

By:   /s/ Tom Tait

        Tom Tait, Vice President and Director


Date:

August 11, 2016

By:   /s/ Keith Merrell

        Keith Merrell, CFO, Principal Financial

Officer





18




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