0001548123-12-000233.txt : 20120813 0001548123-12-000233.hdr.sgml : 20120813 20120813165123 ACCESSION NUMBER: 0001548123-12-000233 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20120630 FILED AS OF DATE: 20120813 DATE AS OF CHANGE: 20120813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REFLECT SCIENTIFIC INC CENTRAL INDEX KEY: 0001103090 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 870642556 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31377 FILM NUMBER: 121028215 BUSINESS ADDRESS: STREET 1: 1270 S 1380 W CITY: OREM STATE: UT ZIP: 84058 BUSINESS PHONE: 801-226-4100 MAIL ADDRESS: STREET 1: 1270 S 1380 W CITY: OREM STATE: UT ZIP: 84058 FORMER COMPANY: FORMER CONFORMED NAME: COLE INC DATE OF NAME CHANGE: 20000711 10-Q 1 f10qq212v51.htm QUARTERLY REPORT ON FORM 10Q FOR THE QUARTER ENDED JUNE 30, 2012 UNITED STATES

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, 2012


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 [ ]   No [ X ]






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.


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 10, 2012


45,766,890 shares of $0.01 par value common stock on August 10, 2012






2




TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION


Item 1:  Financial Statements


Condensed Consolidated Balance Sheets

As of June 30, 2012 and December 31, 2011

  

              5


Condensed Consolidated Statements of Operations

For the three and six months ended June 30, 2012 and 2011

 

  6


Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2012 and 2011

   

         

  8


Notes to Condensed Consolidated 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

15


Item 2:  Unregistered Sales of Equity Securities and Use of Proceeds

15


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, 2012


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

(Unaudited)


ASSETS



 

 

June 30,

2012

 

December 31,

2011

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 Cash

$

         279,641

$

346,697

 Accounts receivable, net

 

           143,437

 

143,278

 Inventories

 

         370,872

 

393,004

 Prepaid assets

 

           3,100

 

3,100

 

 

 

 

 

   Total Current Assets

 

         797,050

 

886,079

 

 

 

 

 

FIXED ASSETS, NET

 

          14,443

 

19,242

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

 

 

 

   Intangible assets, net

 

         2,424,913

 

2,563,951

   Goodwill

 

652,149

 

652,149

   Deposits

 

3,100

 

3,100

 

 

 

 

 

      Total Other Assets

 

         3,080,162

 

3,219,200

 

 

 

 

 

   TOTAL ASSETS

$

         3,891,655

$

4,124,521

















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




5




REFLECT SCIENTIFIC, INC.

Condensed Consolidated Balance Sheets (Continued)

(Unaudited)

LIABILITIES AND SHAREHOLDERS’ DEFICIT



 

 

June 30,

2012

 

December 31,

2011

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

  Accounts payable

$

           81,846

$

           89,641

  Short-term lines of credit

 

           101,855

 

109,721

  Convertible debenture

 

         2,925,000

 

         2,925,000

  Interest payable

 

1,579,500

 

1,316,250

  Customer deposits

 

1,829

 

4,829

  Accrued expenses

 

           7,507

 

           12,363

  Loan from related party

 

           24,000

 

24,000

  Income taxes payable

 

100

 

400

 

 

 

 

 

      Total Current Liabilities

 

         4,721,637

 

         4,482,204

 

 

 

 

 

      Total Liabilities

 

4,721,637

 

4,482,204

 

 

 

 

 

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; 44,791,890 and 44,791,890

        issued and outstanding, respectively

 

           447,919

 

           447,919

   Additional paid in capital

 

       17,810,045

 

       17,810,045

   Additional paid in capital – Shares to be issued

 

75,000

 

-

   Stock subscription receivable

 

(75,000)

 

-

   Accumulated deficit

 

       (19,087,946)

 

       (18,615,647)

 

 

 

 

 

      Total Shareholders’ Deficit

 

         (829,982)

 

         (357,683)

 

 

 

 

 


TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT


$


         3,891,655



$              4,124,521








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,

 

 

2012

 

2011

 

2012

 

2011

REVENUES

$

        357,697

$

        493,830


$

        682,714


$

        1,081,412

 

 

 

 

 

 

 

 

 

 

COST OF GOODS SOLD

 

163,894

 

260,032

 

335,989

 

555,812

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

193,803

 

233,798

 

346,725

 

525,600

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

   Salaries and wages

 

102,379

 

252,229

 

208,888

 

344,712

 

   Rent expense

 

9,412

 

14,140

 

19,518

 

27,715

 

   Research and development expense

 

2,719

 

7,256

 

9,831

 

7,256

 

   General and administrative expense

 

158,968

 

217,114

 

314,166

 

461,413

 

      Total Operating Expenses

 

273,478

 

490,739

 

552,403

 

841,096

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

(79,675)

 

(256,941)

 

(205,678)

 

(315,496)

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

  Interest income

 

-

 

1

 

-

 

1

 

  Interest expense – other

 

(1,705)

 

(1,991)

 

(3,371)

 

(4,043)

 

  Interest on debentures

 

(131,625)

 

(131,625)

 

(263,250)

 

(263,250)

 

 

 

 

 

 

 

 

 

 

 

      Total Other Expenses

 

(133,330)

 

(133,615)

 

(266,621)

 

(267,292)

 

 

 

 

 

 

 

 

 

 

 

NET LOSS BEFORE TAXES

 

(213,005)

 

(390,556)

 

(472,299)

 

(582,788)

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit (expense)

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

$

(213,005)

   $

(390,556)

$

(472,299)

$

(582,788)

 

 

 

 

 

 

 

 

 

 

 

LOSS PER SHARE - BASIC AND DILUTED


$

(0.01)


   $

(0.01)


$

(0.01)


$

(0.02)

 

 

 

 

 

 

 

 

 

 

 


WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED


44,791,890

 

44,066,615


44,791,890

 

38,906,255


 

 

 

 

 

 

 

 

 

 

 

 

 




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,

 

 

2012

 

2011

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net loss

$

(472,299)

$

(582,788)

Adjustments to reconcile net loss to net cash

 

 

 

 

 from operating activities:

 

 

 

 

  Depreciation

 

4,799

 

16,736

  Amortization

 

139,038

 

148,896

  Stock-based compensation

 

-

 

153,426

  Common stock issued for services

 

-

 

94,577

Changes in operating assets and liabilities:

 

 

 

 

  (Increase)/decrease in accounts receivable

 

(159)

 

430

  (Increase)/decrease in inventory

 

22,133

 

(57,207)

  Increase/(decrease) in accounts payable

    and accrued expenses

 

250,299

 

229,499

  Increase/(decrease) in customer deposits

 

(3,000)

 

-

       Net Cash from Operations

 

(59,189)

 

3,569

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

           Net Cash from Investing Activities

 

-

 

-

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

  Principal payments on capital leases

 

-

 

(5,244)

  Payments made against lines of credit

 

(7,867)

 

(7,807)

       Net Cash from  Financing Activities

 

(7,867)

 

(13,051)

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

(67,056)

 

(9,482)

CASH AT BEGINNING OF PERIOD

 

346,697

 

242,136

CASH AT END OF PERIOD

$

279,641

$

232,654


 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

Cash Paid For:

 

 

 

 

    Interest

$

3,371

$

4,043

    Income taxes

$

-

$

-

 

 

 

 

 

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



8




REFLECT SCIENTIFIC, INC.

Notes to 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, 2011 financial statements.  Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.


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 – GOING CONCERN


The Company is currently in default on its issued and outstanding debentures (See note 4).  While the Company is working diligently to secure funding to enable it to retire the debenture obligations, there can be no assurance that such funding will be available.  The Company has also accumulated significant operating losses. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.


Management has taken a number of actions to reduce expenses. Management has reached settlement agreements on the majority of the debentures that are in default, which settlement is contingent upon their ability to make a cash payment of $75,000.  Subsequent to the end of the quarter, the Company was able to secure funding to facilitate this settlement.  See Note 9.


NOTE 4 – DEFAULT ON CONVERTIBLE DEBENTURES


At December 31, 2011, the outstanding indebtedness for the debentures and penalty resulting from forfeiture was $2,925,000. Assuming all debentures and warrants were converted, 48,651,895 shares of restricted common stock would be issued.  As a result of the default the debentures now bear an 18% interest rate.


In June 2012, management reached agreement with all but one of the debenture holders on a plan to settle the debentures held by them that are in default.  The settlement agreement is contingent upon the Company making a cash payment to them in the amount of $75,000 in full satisfaction of the



9




indebtedness.  In exchange for the $75,000 payment, the debenture holder would cancel the debentures, penalty, interest and warrants. Subsequent to the end of the reporting period the Company was able to secure the funding to enable it to fulfill the payment obligation under this agreement (See note 9).   The holder of the remaining debentures is involved in bankruptcy proceedings in the Cayman Islands and the resolution of those debentures and accrued interest is undetermined.


NOTE 5 – EQUITY TRANSACTIONS


The Company opened a Private Placement Memorandum (“PPM”) to raise the funds to meet the agreed upon settlement with all but one of the debenture holders.  As of June 30, 2012 there were 975,000 shares to be issued under this PPM for proceeds of $75,000.   The $75,000 was included as a stock subscription receivable as the funds were being held in escrow as of June 30, 2012. Please see Note 9.


NOTE 6 – RELATED PARTY TRANSACTIONS


As of June 30, 2012, a shareholder of the Company had advanced $24,000 in funding in the form of a loan to the Company.  It is the intent of the Company to repay this loan upon the closing of a major capital raise.


NOTE 7 – 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 8 – RECENT ACCOUNTING PRONOUNCEMENTS


The Company has reviewed all 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 9 – SUBSEQUENT EVENTS


The Company opened a Private Placement Memorandum to raise the funds necessary to meet the obligations of the agreement entered into with all but one of the debenture holders.  As of June 30, 2012 adequate subscriptions had been received to enable the Company to meet that obligation.  At June 30, 2012, all of the subscription funds, representing $75,000 (for which 975,000 shares of restricted common stock will be issued) had been received and were held in escrow by the attorney handling the transaction.  


On July 10, 2012, the attorney handling the transaction wired $75,000 to the debenture holders with which agreements had been made.  The $75,000 payment was in full settlement of $3,401,125 in principal, penalty and interest on the debentures in default and also extinguished the warrants which would have been exercisable for 43,749,999 shares of restricted common stock.  The principal, penalty and interest on the remaining debentures is $971,750 after the completion of the settlement agreement earlier described.  




10




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Special Note Regarding Forward-Looking Statements


This periodic report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Plan of Operations provided below, including information regarding the Company’s financial condition, results of operations, business strategies, operating efficiencies or

synergies, competitive positions, growth opportunities, and the plans and objectives of management. The statements made as part of the Plan of Operations that are not historical facts are hereby identified as "forward-looking statements."


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 believes there have been no significant changes during the six month period ended June 30, 2012, 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, 2011.


Plan of Operation and Business Growth


Our focus over the coming months will continue to be on the development and commercialization of products acquired and developed over the last several years.  The ultra low temperature refrigerator line with the refrigerated trailer, known as a “reefer”, is receiving highest priority.  Significant information was collected using an operational prototype unit.  Our first manufactured unit is currently in production, with delivery of the unit expected later this year.


Additionally, we will continue to develop and expand our focus on solutions to retrofit server and computer rooms to reduce the cost of cooling such rooms.  We believe that, in addition to reducing operating costs, our technology will provide a more reliable and efficient method to cool such rooms.   We also continue to focus on the expansion of our detector line and contract manufacturing operations.  Our new detector unit has received very positive reviews from beta tests with two of our current customers.  We believe that its enhanced functionality, coupled with its low cost, will provide us with a competitive edge over products currently being sold into that specialized market.


Our revenues during the reporting period decreased during 2012 compared to 2011 revenues.  A slow-down in European sales, coupled with the discontinuance of some product lines offered by one of our major distributors are the major reason for the declining revenue.  We are currently working to bring on new distributors who will carry our entire line of products.  While some of our products are relatively new to the marketplace and we expect the demand for those to grow as customers become more familiar them, there are a number of our product lines which are well established and have strong, consistent demand. If the Company is successful in adding new distribution channels it expects that sales will increase above the current levels by the end of the year.  




11




Results of Operations


Three Months Ended June 30, 2012 and 2011


 

 

For the three months ended June 30,

 

 

2012

 

2011

 

Change

Revenues

$

357,697

$

493,830

$

(136,133)

Cost of goods sold

 

163,894

 

260,032

 

(96,138)

Gross profit

 

193,803

 

233,798

 

(39,995)

Operating expenses

 

273,478

 

490,739

 

(217,261)

Other income (expense)

 

(133,330)

 

(133,615)

 

285

Net loss

$

(213,005)

$

(390,556)

$

177,551


Revenues decreased during the three months ended June 30, 2012, to $357,697 from $493,830 for the three months ended June 30, 2011, a decrease of $136,133.  All of the revenues were generated from our specialized laboratory supplies and detector sales, as we are continuing to refine and commercialize the ultra low temperature freezer technologies.  Our largest distributor reduced the sale of our products, removing a number of our products from their catalog. We are currently working to bring on additional distributors to expand the distribution channels for our products. If the Company is successful in its efforts to bring on new and additional distribution channels it expects to see sales volumes increase by the end of the year.   


With decreased sales during the reporting period, cost of goods decreased in the quarter ending June 30, 2012, as compared to June 30, 2011 to $163,894 from $260,032, a decrease of $96,138. The gross profit percentage increased to 54% for the three months ended June 30, 2012 from the 47% margin attained for the three months ended June 30, 2011.  While the gross profit percentage is dependent on the mix of product sales, we feel our continuing strategy to actively work to obtain more favorable pricing from our current vendors in order to increase the margins realized on our product lines is delivering positive results.  


Our continued focus on operating expenses resulted in a reduction of operating expenses in the current period.  This reduction is the result of cost reduction efforts implemented by management and an ongoing quest to gain additional operating efficiencies.  Operating expenses for the three months ended June 30, 2012 were $273,478, a decrease of $217,261 from the $490,739 in operating expenses recorded for the three month period ended June 30, 2011.  The decrease is primarily attributable to reductions in stock-based compensation expense and consulting services.  Operating expenses for the remaining reporting periods in 2012 are expected to remain close to the expense levels shown for the three month period of this report.


The net loss for the three month period ended June 30, 2012 was $213,005, a $177,551 decrease from the $390,556 loss for the three month period ended June 30, 2011.  Management continues to look for opportunities to improve gross margins and reduce ongoing operating expenses in order to achieve profitability.


The net loss for the three months ended June 30, 2012 was $0.01 per share.  The net loss for the three months ended June 30, 2011 was also $0.01 per share.






12




Six Months Ended June 30, 2012 and 2011


 

 

For the six months ended June 30,

 

 

2012

 

2011

 

Change

Revenues

$

682,714

$

1,081,412

$

(398,698)

Cost of goods sold

 

335,989

 

555,812

 

(219,823)

Gross profit

 

346,725

 

525,600

 

(178,875)

Operating expenses

 

552,403

 

841,096

 

(288,693)

Other income (expense)

 

(266,621)

 

(267,292)

 

671

Net loss

$

(472,299)

$

(582,788)

$

110,489


Revenues decreased during the six months ended June 30, 2012, to $682,714 from $1,081,412 for the six months ended June 30, 2011, a decrease of $398,698.  All of the revenues were generated from our specialized laboratory supplies and detector sales, as we are continuing to refine and commercialize the ultra low temperature freezer technologies.  Our largest distributor has reduced their sale of our products, removing a number of our products from their catalog. We are currently working to bring on additional distributors to expand the distribution channels for our products and recapture our market share in that market.  If the Company is successful in its efforts to bring on new and additional distribution channels it expects to see sales volumes increase by the end of the year.


It is not expected that the revenue shortfall for the first six months can be made up; therefore sales for the year 2012 will end lower than the 2011 sales.  


With decreased sales during the reporting period, cost of goods decreased in the six months ending June 30, 2012, as compared to June 30, 2011 to $335,989 from $555,812, a decrease of $219,823. The gross profit   percentage increased to nearly 51% for the six months ended June 30, 2012, compared to 48% for the six months ended June 30, 2011.  While the gross profit percentage is dependent on the mix of product sales, 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 continued focus on operating expenses resulted in a reduction of operating expenses in the current period.  This reduction is the result of cost reduction efforts implemented by management and an ongoing quest to gain additional operating efficiencies.  Operating expenses for the six months ended June 30, 2012 were $552,403, a decrease of $288,693 from the $841,096 in operating expenses recorded for the six month period ended June 30, 2011.  The decrease results primarily reductions in stock-based compensation and consulting fees.  Operating expenses for the remaining reporting periods in 2012 are expected to remain close to the expense levels shown for the period of this report.


The net loss for the six month period ended June 30, 2012 was $472,299, a $110,489 reduction from the $582,788 loss for the six month period ended June 30, 2011.  Management continues to look for opportunities to improve gross margins and reduce ongoing operating expenses in order to achieve profitability.


The net loss for the six months ended June 30, 2012 was $0.01 per share.  The net loss for the six months ended June 30, 2011 was $0.02 per share.






13




Seasonality and Cyclicality


We do not believe our business is cyclical.


Liquidity and Capital Resources


Our cash resources at June 30, 2012, were $279,641, with accounts receivable of $143,437 and inventory of $370,872, both net of provisions. To date we have relied on revenues and sales of equity and debt securities for our cash resources.   Our working capital deficit on June 30, 2012, was $3,924,587, due primarily to the $2,925,000 in outstanding debentures and $1,579,500 in accrued interest on those debentures.  Working capital on December 31, 2011 was a deficit of $3,596,125.  Subsequent to the end of the reporting period management was able to obtain the financing required to retire $3,401,125 of the outstanding debentures.  Additional funding is needed to commercialize the low temperature freezer and refrigeration technology.  There can be no assurance that funds will be available, or that terms of available funds will be acceptable to the Company.  The inability of the Company to obtain funding at acceptable terms could negatively impact its ability to execute its business plan.


For the six month period ended June 30, 2012, net cash used for operating activities was $59,189 which compares to $3,569 of net cash provided from operations six month period ended June 30, 2011.  


Off-Balance Sheet Arrangements


We lease office and warehouse space under a non-cancelable operating lease in Utah.  Future minimum lease payments under the operating lease at June 30, 2012 are $91,100 for that facility.  In addition, we have automobile leases with future minimum lease payments of $7,860.


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.




14




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.


Item 3.  Quantitative and Qualitative Disclosure about Market Risk


Not required


Item 4.   Controls and Procedures


The Company maintains (a) disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, (the “Exchange Act”)), and (b) internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).


The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.


There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



PART II - OTHER INFORMATION


ITEM 1.  Legal Proceedings


On October 16, 2009, the Company filed a complaint in the Third District Court in the State of Utah in which it seeks the return of the stock issued for the acquisition of Cryomastor.  The action alleges misrepresentation and, in addition to the return of the stock, seeks monetary damages.


In December 2011 the case was submitted to arbitration and a settlement agreement was reached.  As a part of the settlement two patents were assigned to the Company, the royalty agreement was terminated and agreement was reached on the return of stock issued as a part of the acquisition of Cryomastor.  As of the date of this filing, the defendant has assigned the patents but has not submitted the stock agreed upon and is thus in breach of the terms of the settlement agreement.  Notice of such breach has been sent.


ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds


Recent Sales of Unregistered Securities


We have not sold any restricted securities during the six months ended June 30, 2012.  Subscription funds from our Private Placement Memorandum were in escrow at June 30, 2012, but the funds had not been made available to the Company and the stock represented by those subscriptions has not been issued.




15




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, 2012, we have not purchased any equity securities nor have any officers or directors of the Company.


ITEM 3.  Defaults Upon Senior Securities


As of June 30, 2012 the Company was in default on its Senior Secured Convertible Debenture.  The Company was unable to repay the debenture as demanded by the debenture holders.  The total amount under default was $2,300,000 plus a default principal of 30% or $690,000.  The total amount in default was $2,925,000 after $65,000 of the debentures and penalty were converted in September 2009.  Under the terms of the debenture the interest rate increases from 12% to 18% upon default.  The Company was not current on its interest payments.  


In June 2012, management reached agreement with all but one of the debenture holders on a plan to settle the debentures held by them that are in default.  The settlement agreement was contingent upon the Company making a cash payment to them in the amount of $75,000 in full satisfaction of the indebtedness. Subsequent to the end of the reporting period the Company was successful in securing the required funding to enable it to fulfill the payment obligation under this agreement.  


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 13, 2012

By:  /s/ Kim Boyce

       Kim Boyce, CEO, President and Director


Date:

August 13, 2012

By:  /s/ Tom Tait

        Tom Tait, Vice President and Director


Date:

August 13, 2012

By:  /s/ Keith Merrell

        Keith Merrell, CFO, Principal Financial

Officer

















18



EX-31 2 ex311.htm 302 CERTIFICATION OF KIM BOYCE Exhibit 31

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


     I, Kim Boyce certify that:


     1.   I have reviewed this Quarterly Report on Form 10-Q of Reflect Scientific, Inc.;


     2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


     3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;


     4.   The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:


a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  


b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and


     5.   The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);


a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and


b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


Dated: 08/13/2012                           Signature:/s/Kim Boyce

                                                         Kim Boyce

                                                         Chief Executive Officer and Director




EX-31 3 ex312.htm 302 CERTIFICATION OF KEITH MERRELL Exhibit 31

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


     I, Keith L. Merrell certify that:


     1.   I have reviewed this Quarterly Report on Form 10-Q of Reflect Scientific, Inc.;


     2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


     3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;


     4.   The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:


a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and


     5.   The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);


a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and


b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


Dated: 08/13/2012                           Signature:/s/Keith Merrell

                                                          Keith Merrell

                                                          Principal Financial Officer and CFO




EX-32 4 ex32.htm 906 CERTIFICATION Exhibit 32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Quarterly Report of Reflect Scientific, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), We, Kim Boyce, our Chief Executive Officer and director and Keith Merrell, our Chief/Principal Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


     (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


Dated: 08/13/2012                             /s/Kim Boyce

                                                           Kim Boyce

                                                           Chief Executive Officer and Director



Dated: 08/13/2012                            /s/Keith Merrell

                                                          Keith Merrell

                                                          Principal Financial Officer and CFO





EX-101.INS 5 rscf-20120630.xml XBRL INSTANCE DOCUMENT 10-Q 2012-06-30 false REFLECT SCIENTIFIC INC 0001103090 --12-31 Smaller Reporting Company Yes No No 2012 Q2 <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>NOTE 1<b> -&#160;&#160; </b>BASIS OF FINANCIAL STATEMENT PRESENTATION</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>&nbsp;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:.25in;line-height:200%;text-autospace:none;margin:0in;margin-bottom:.0001pt;text-align:justify;line-height:normal'>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.&#160; 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.&#160; 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&#146;s most recent audited consolidated financial statements and notes thereto included in its December 31, 2011 financial statements.&#160; Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:.25in;line-height:200%;text-autospace:none;margin:0in;margin-bottom:.0001pt;line-height:normal'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>NOTE 2 -&#160;&#160; ORGANIZATION AND DESCRIPTION OF BUSINESS</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>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.&#160; On December 30, 2003 the Company changed its name to Reflect Scientific, Inc.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:12.0pt'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:12.0pt'>NOTE 3 &#150; GOING CONCERN</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:12.0pt'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>The Company is currently in default on its issued and outstanding debentures (See note 4). &nbsp;While the Company is working diligently to secure funding to enable it to retire the debenture obligations, there can be no assurance that such funding will be available. &nbsp;The Company has also accumulated significant operating losses. These factors raise substantial doubt about the Company&#146;s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>Management has taken a number of actions to reduce expenses. Management has reached settlement agreements on the majority of the debentures that are in default, which settlement is contingent upon their ability to make a cash payment of $75,000.&#160; Subsequent to the end of the quarter, the Company was able to secure funding to facilitate this settlement.&#160; See Note 9.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.75in;text-indent:-.75in'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.75in;text-indent:-.75in'>NOTE 8 &#150; RECENT ACCOUNTING PRONOUNCEMENTS</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>The Company has reviewed all 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.&#160; 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.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.75in;text-indent:-.75in'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:12.0pt'>NOTE 4 &#150; DEFAULT ON CONVERTIBLE DEBENTURES</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:12.0pt'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify'>At December 31, 2011, the outstanding indebtedness for the debentures and penalty resulting from forfeiture was $2,925.000. Assuming all debentures and warrants were converted, 48,651,895 shares of restricted common stock would be issued. &nbsp;The debentures now bear an 18% interest rate.</p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify'>&nbsp;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify'>In June 2012, management reached agreement with all but one of the debenture holders on a plan to settle the debentures held by them that are in default. &nbsp;The settlement agreement is contingent upon the Company making a cash payment to them in the amount of $75,000 in full satisfaction of the indebtedness. &nbsp;In exchange for the $75,000 payment, the debenture holder would cancel the debentures, penalty, interest and warrants. Subsequent to the end of the reporting period the Company was able to secure the funding to enable it to fulfill the payment obligation under this agreement (See note 9). &nbsp; The holder of the remaining debentures is involved in bankruptcy proceedings in the Cayman Islands and the resolution of those debentures and accrued interest is undetermined.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>NOTE 5 &#150; EQUITY TRANSACTIONS</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>The Company opened a Private Placement Memorandum (&#147;PPM&#148;) to raise the funds to meet the agreed upon settlement with all but one of the debenture holders.&#160; As of June 30, 2012 there were 975,000 shares to be issued under this PPM for proceeds of $75,000.&#160;&#160; The $75,000 was included as a stock subscription receivable as the funds were being held in escrow as of June 30, 2012. Please see Note 9. </p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.75in;text-indent:-.75in'>NOTE 6 &#150; RELATED PARTY TRANSACTIONS</p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify'>As of June 30, 2012, a shareholder of the Company had advanced $24,000 in funding in the form of a loan to the Company. &nbsp;It is the intent of the Company to repay this loan upon the closing of a major capital raise.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.75in;text-indent:-.75in'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.75in;text-indent:-.75in'>NOTE 7 &#150; FAIR VALUE OF FINANCIAL INSTRUMENTS</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>The Company&#146;s financial instruments consist of cash and cash equivalents, accounts receivable, payables and notes payable.&nbsp;&nbsp;The carrying amount of cash and cash equivalents and payables approximates fair value because of the short-term nature of these items.&nbsp;&nbsp;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.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>NOTE 1<b> -&#160;&#160; </b>BASIS OF FINANCIAL STATEMENT PRESENTATION</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>&nbsp;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:.25in;line-height:200%;text-autospace:none;margin:0in;margin-bottom:.0001pt;text-align:justify;line-height:normal'>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.&#160; 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.&#160; 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&#146;s most recent audited consolidated financial statements and notes thereto included in its December 31, 2011 financial statements.&#160; Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:.25in;line-height:200%;text-autospace:none;margin:0in;margin-bottom:.0001pt;line-height:normal'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>NOTE 2 -&#160;&#160; ORGANIZATION AND DESCRIPTION OF BUSINESS</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>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.&#160; On December 30, 2003 the Company changed its name to Reflect Scientific, Inc.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:12.0pt'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:12.0pt'>NOTE 3 &#150; GOING CONCERN</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:12.0pt'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>The Company is currently in default on its issued and outstanding debentures (See note 4). &nbsp;While the Company is working diligently to secure funding to enable it to retire the debenture obligations, there can be no assurance that such funding will be available. &nbsp;The Company has also accumulated significant operating losses. These factors raise substantial doubt about the Company&#146;s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>Management has taken a number of actions to reduce expenses. Management has reached settlement agreements on the majority of the debentures that are in default, which settlement is contingent upon their ability to make a cash payment of $75,000.&#160; Subsequent to the end of the quarter, the Company was able to secure funding to facilitate this settlement.&#160; See Note 9.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.75in;text-indent:-.75in'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.75in;text-indent:-.75in'>NOTE 8 &#150; RECENT ACCOUNTING PRONOUNCEMENTS</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:justify'>The Company has reviewed all 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.&#160; 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.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.75in;text-indent:-.75in'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.75in;text-indent:-.75in'>NOTE 7 &#150; 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Related Party Transactions
6 Months Ended
Jun. 30, 2012
Related Party Transactions:  
Related Party Transactions

 

NOTE 6 – RELATED PARTY TRANSACTIONS

 

As of June 30, 2012, a shareholder of the Company had advanced $24,000 in funding in the form of a loan to the Company.  It is the intent of the Company to repay this loan upon the closing of a major capital raise.

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Equity Transactions
6 Months Ended
Jun. 30, 2012
Equity Transactions:  
Equity Transactions

 

NOTE 5 – EQUITY TRANSACTIONS

 

The Company opened a Private Placement Memorandum (“PPM”) to raise the funds to meet the agreed upon settlement with all but one of the debenture holders.  As of June 30, 2012 there were 975,000 shares to be issued under this PPM for proceeds of $75,000.   The $75,000 was included as a stock subscription receivable as the funds were being held in escrow as of June 30, 2012. Please see Note 9.

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REFLECT SCIENTIFIC, INC. Condensed Consolidated Balance Sheets (Unaudited) (USD $)
Jun. 30, 2012
Dec. 31, 2011
CURRENT ASSETS    
Cash $ 279,641 $ 346,697
Accounts receivable, net 143,437 143,278
Inventories 370,872 393,004
Prepaid assets 3,100 3,100
Total Current Assets 797,050 886,079
FIXED ASSETS, NET 14,443 19,242
OTHER ASSETS    
Intangible assets, net 2,424,913 2,563,951
Goodwill 652,149 652,149
Deposits 3,100 3,100
Total Other Assets 3,080,162 3,219,200
TOTAL ASSETS 3,891,655 4,124,521
CURRENT LIABILITIES    
Accounts payable 81,846 89,641
Short-term lines of credit 101,855 109,721
Convertible debenture 2,925,000 2,925,000
Interest payable 1,579,500 1,316,250
Customer deposits 1,829 4,829
Accrued expenses 7,507 12,363
Loan from related party 24,000 24,000
Income taxes payable 100 400
Total Current Liabilities 4,721,637 4,482,204
Total Liabilities 4,721,637 4,482,204
SHAREHOLDERS' DEFICIT    
Preferred stock, $0.01 par value, authorized 5,000,000 shares; No shares issued and outstanding 0 0
Common stock, $0.01 par value, authorized 100,000,000 shares; 44,791,890 and 44,791,890 issued and outstanding, respectively 447,919 447,919
Additional paid in capital 17,810,045 17,810,045
Additional paid in capital - Shares to be issued 75,000 0
Stock subscription receivable (75,000) 0
Accumulated deficit (19,087,946) (18,615,647)
Total Shareholders' Deficit (829,982) (357,683)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 3,891,655 $ 4,124,521
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Organization, Consolidation and Presentation of Financial Statements
6 Months Ended
Jun. 30, 2012
Organization, Consolidation and Presentation of Financial Statements:  
Organization, Consolidation and Presentation of Financial Statements

 

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, 2011 financial statements.  Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

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 – GOING CONCERN

 

The Company is currently in default on its issued and outstanding debentures (See note 4).  While the Company is working diligently to secure funding to enable it to retire the debenture obligations, there can be no assurance that such funding will be available.  The Company has also accumulated significant operating losses. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Management has taken a number of actions to reduce expenses. Management has reached settlement agreements on the majority of the debentures that are in default, which settlement is contingent upon their ability to make a cash payment of $75,000.  Subsequent to the end of the quarter, the Company was able to secure funding to facilitate this settlement.  See Note 9.

 

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS

 

The Company has reviewed all 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.

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Default On Convertible Debentures
6 Months Ended
Jun. 30, 2012
Default On Convertible Debentures:  
Default On Convertible Debentures

 

NOTE 4 – DEFAULT ON CONVERTIBLE DEBENTURES

 

At December 31, 2011, the outstanding indebtedness for the debentures and penalty resulting from forfeiture was $2,925.000. Assuming all debentures and warrants were converted, 48,651,895 shares of restricted common stock would be issued.  The debentures now bear an 18% interest rate.

 

In June 2012, management reached agreement with all but one of the debenture holders on a plan to settle the debentures held by them that are in default.  The settlement agreement is contingent upon the Company making a cash payment to them in the amount of $75,000 in full satisfaction of the indebtedness.  In exchange for the $75,000 payment, the debenture holder would cancel the debentures, penalty, interest and warrants. Subsequent to the end of the reporting period the Company was able to secure the funding to enable it to fulfill the payment obligation under this agreement (See note 9).   The holder of the remaining debentures is involved in bankruptcy proceedings in the Cayman Islands and the resolution of those debentures and accrued interest is undetermined.

XML 20 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
Reflect Scientific, Inc. Balance Sheet (Parenthetical) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Preferred stock authorized 5,000,000 5,000,000
Preferred stock par value $ 0.01 $ 0.01
Preferred stock outstanding 0 0
Common stock authorized 100,000,000 100,000,000
Common stock par value $ 0.01 $ 0.01
Common stock outstanding 44,791,890 44,791,890
XML 21 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Subsequent Events (Details) (USD $)
6 Months Ended
Jun. 30, 2012
Jul. 10, 2012
PPM proceeds held in escrow $ 75,000  
PPM shares to be issued 975,000  
Settlement cash payment made   75,000
Debenture principal, penalty and interest full settlement amount   3,401,125
Amount of restricted shares convertible extinguished with settled debentures   43,749,999
Remaining debenture principal, penalty and interest outstanding $ 971,750  
XML 22 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document and Entity Information
6 Months Ended
Jun. 30, 2012
Aug. 10, 2012
Document and Entity Information    
Entity Registrant Name REFLECT SCIENTIFIC INC  
Document Type 10-Q  
Document Period End Date Jun. 30, 2012  
Amendment Flag false  
Entity Central Index Key 0001103090  
Current Fiscal Year End Date --12-31  
Entity Common Stock, Shares Outstanding   45,766,890
Entity Filer Category Smaller Reporting Company  
Entity Current Reporting Status Yes  
Entity Voluntary Filers No  
Entity Well-known Seasoned Issuer No  
Document Fiscal Year Focus 2012  
Document Fiscal Period Focus Q2  
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REFLECT SCIENTIFIC, INC. Condensed Consolidated Statements of Operations (Unaudited) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
REVENUES $ 357,697 $ 493,830 $ 682,714 $ 1,081,412
COST OF GOODS SOLD 163,894 260,032 335,989 555,812
GROSS PROFIT 193,803 233,798 346,725 525,600
OPERATING EXPENSES        
Salaries and wages 102,379 252,229 208,888 344,712
Rent expense 9,412 14,140 19,518 27,715
Research and development expense 2,719 7,256 9,831 7,256
General and administrative expense 158,968 217,114 314,166 461,413
Total Operating Expense 273,478 490,739 552,403 841,096
OPERATING LOSS (79,675) (256,941) (205,678) (315,496)
OTHER INCOME (EXPENSE)        
Interest income 0 1 0 1
Interest expense - other (1,705) (1,991) (3,371) (4,043)
Interest on debentures (131,625) (131,625) (263,250) (263,250)
Total Other Expenses (133,330) (133,615) (266,621) (267,292)
NET LOSS BEFORE TAXES (213,005) (390,556) (472,299) (582,788)
Income tax benefit (expense) 0 0 0 0
NET LOSS $ (213,005) $ (390,556) $ (472,299) $ (582,788)
LOSS PER SHARE - BASIC AND DILUTED $ (0.01) $ (0.01) $ (0.01) $ (0.02)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED 44,791,890 44,066,615 44,791,890 38,906,255
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Organization, Consolidation and Presentation of Financial Statements (Policies)
6 Months Ended
Jun. 30, 2012
Policies (Detail level 2):  
Basis of Financial Statement Presentation

 

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, 2011 financial statements.  Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

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.

Going Concern

 

NOTE 3 – GOING CONCERN

 

The Company is currently in default on its issued and outstanding debentures (See note 4).  While the Company is working diligently to secure funding to enable it to retire the debenture obligations, there can be no assurance that such funding will be available.  The Company has also accumulated significant operating losses. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Management has taken a number of actions to reduce expenses. Management has reached settlement agreements on the majority of the debentures that are in default, which settlement is contingent upon their ability to make a cash payment of $75,000.  Subsequent to the end of the quarter, the Company was able to secure funding to facilitate this settlement.  See Note 9.

Fair Value of Financial Instruments

 

NOTE 7 – 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.

Recent Accounting Pronouncements

 

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS

 

The Company has reviewed all 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.

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Subsequent Events
6 Months Ended
Jun. 30, 2012
Subsequent Events:  
Subsequent Events

NOTE 9 – SUBSEQUENT EVENTS

The Company opened a Private Placement Memorandum to raise the funds necessary to meet the obligations of the agreement entered into with all but one of the debenture holders.  As of June 30, 2012 adequate subscriptions had been received to enable the Company to meet that obligation.  At June 30, 2012, all of the subscription funds, representing $75,000 (for which 975,000 shares of restricted common stock will be issued) had been received and were held in escrow by the attorney handling the transaction. 

 

On July 10, 2012, the attorney handling the transaction wired $75,000 to the debenture holders with which agreements had been made.  The $75,000 payment was in full settlement of $3,401,125 in principal, penalty and interest on the debentures in default and also extinguished the warrants which would have been exercisable for 43,749,999 shares of restricted common stock.  The principal, penalty and interest on the remaining debentures is $971,750 after the completion of the settlement agreement earlier described.
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Equity Transactions (Details) (USD $)
6 Months Ended
Jun. 30, 2012
PPM shares to be issued 975,000
PPM proceeds $ 75,000
PPM proceeds held in escrow $ 75,000
XML 27 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
Organization, Consolidation and Presentation of Financial Statements (Details) (USD $)
Jun. 30, 2012
Settlement cash payment $ 75,000
XML 28 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
Default On Convertible Debentures (Details) (USD $)
6 Months Ended
Jun. 30, 2012
Dec. 31, 2011
Convertible debenture $ 2,925,000 $ 2,925,000
Total amount of restricted shares convertible with all debentures 48,651,895  
Convertible Debentures Interest Rate 18.00%  
Settlement cash payment $ 75,000  
XML 29 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
Related Party Transactions (Details) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Loan from related party $ 24,000 $ 24,000
XML 30 R5.htm IDEA: XBRL DOCUMENT v2.4.0.6
REFLECT SCIENTIFIC, INC. Condensed Consolidated Statements of Cash Flows(Unaudited) (USD $)
6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Net loss $ (472,299) $ (582,788)
Depreciation 4,799 16,736
Amortization 139,038 148,896
Stock-based compensation 0 153,426
Common stock issued for services 0 94,577
(Increase)/decrease in accounts receivable (159) 430
(Increase)/decrease in inventory 22,133 (57,207)
Increase/(decrease) in accounts payable and accrued expenses 250,299 229,499
Increase/(decrease) in customer deposits (3,000) 0
Net Cash from Operations (59,189) 3,569
Net Cash from Investing Activities 0 0
Principal payments on capital leases 0 (5,244)
Payments made against lines of credit (7,867) (7,807)
Net Cash from Financing Activities (7,867) (13,051)
NET INCREASE (DECREASE) IN CASH (67,056) (9,482)
CASH AT BEGINNING OF PERIOD 346,697 242,136
CASH AT END OF PERIOD 279,641 232,654
Interest 3,371 4,043
Income taxes $ 0 $ 0
XML 31 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 2012
Fair Value of Financial Instruments:  
Fair Value of Financial Instruments

 

NOTE 7 – 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.

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