Reflect Scientific, Inc.: Form 10-Q for the period ended Jun 30, 2016

Special Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of our Company. Our Company and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this Annual Report and other filings with the Securities and Exchange Commission and in reports to our Company’s stockholders. Management believes that all statements that express expectations and projections with respect to future matters, as well as from developments beyond our Company’s control including changes in global economic conditions are forward-looking statements within the meaning of the Act. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and business performance. There can be no assurance however, that management’s expectations will necessarily come to pass. Factors that may affect forward- looking statements include a wide range of factors that could materially affect future developments and performance, including the following:

Changes in Company-wide strategies, which may result in changes in the types or mix of businesses in which our Company is involved or chooses to invest;

Changes in U.S., global or regional economic conditions;

Changes in U.S. and global financial and equity markets, including significant interest rate fluctuations, which may impede our Company’s access to, or increase the cost of, external financing for our operations and investments;

Increased competitive pressures, both domestically and internationally;

Legal and regulatory developments, such as regulatory actions affecting environmental activities;

The imposition by foreign countries of trade restrictions and changes in international tax laws or currency controls;

Adverse weather conditions or natural disasters, such as hurricanes and earthquakes, labor disputes, which may lead to increased costs or disruption of operations.

This list of factors that may affect future performance and the accuracy of forward-looking statements are illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited Financial Statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. The Company 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.

Results of Operations

Three Months Ended June 30, 2016 and 2015

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.

Six Months Ended June 30, 2016 and 2015

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.

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.

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.

(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.