REFLECT SCIENTIFIC INC

A new development using a similar liquid nitrogen cooling technology is the solvent chiller.  Solvent chillers are used for providing chilled solvent for extracting a final commercial product from plant materials.  The extraction solvent is rapidly chilled to a temperature that will optimize the extraction and recovery of the final product of interest.  Solvent chillers are being sold into the CBD extraction market.

Ultra-low temperature freezers sold to customers are built to order.  Generally 50% of the value of the contract is paid by the customer prior to work beginning on manufacturing the freezer.  Upon completion of manufacturing and testing the customer will then sign an acceptance of the unit and make payment of the remaining balance on the contract, at which title passes to the customer.  The units are FOB ship point.  The customer may either arrange to transport the unit with a carrier he uses or ask the Company to arrange such shipment, the charges of which are the responsibility of the customer.  A customer may, after accepting the unit, request that it be upgraded with additional hardware or software options.  Those options are installed under a new contract, with the deposit and final payment requirements being the same as on the original order.

Contract Balances. We have elected to use the practical expedient in ASC 340-40-25-4 (regarding recognition of the incremental costs of obtaining a contact) for costs related to contracts that are estimated to be completed within one year. In other words. We do not have any material accrued contract costs; however, we do require customer deposits to be made on freezer purchases.  As of December 31, 2019, we have $349,441 of contract liabilities related to these customer deposits and no contract assets.

On January 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet. We adopted this standard using the modified retrospective approach with an effective date as of the beginning of January 2019. Prior year financial statements were not restated under the new standard. We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the lease term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU No. 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of a business or as acquisitions (or disposals) of assets. ASU No. 2017-01 is effective for annual periods beginning after December 15, 2018, with early adoption permitted under certain circumstances. The amendments of ASU No. 2017-01 were adopted by the Company effective January 1, 2019. The adoption of this standard had no impact on our consolidated financial position or results of operations.