Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended December 31, 2015
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to_________
Commission File Number: 0-6658
______________________
SCIENTIFIC INDUSTRIES, INC.
_______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 04-2217279
____________________________ _________________________________
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or
organization)
80 Orville Drive, Ste. 102, Bohemia, New York 11716
______________________________________________________________________
(Address of principal executive offices) (Zip Code)
(631)567-4700
____________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
_____________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act 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, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer,"
"Accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act.
Large accelerated filer Accelerated Filer ____
Non-accelerated filer Smaller reporting company X
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
The number of shares outstanding of the issuer's common stock par
value, $0.05 per share, as of February 2, 2016 was 1,489,112 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Page
____
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Comprehensive
Income Loss 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS 15
ITEM 4 CONTROLS AND PROCEDURES 18
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURE 19
EXHIBITS 20
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2015 2015
_____________ __________
Current Assets: (Unaudited)
Cash and cash equivalents $ 666,900 $ 482,000
Restricted cash 300,000 300,000
Investment securities 278,200 281,800
Trade accounts receivable, net 870,100 1,081,700
Inventories 3,262,500 2,213,700
Prepaid expenses and other current assets 55,600 68,600
Deferred taxes 109,700 114,200
_________ _________
Total current assets 5,543,000 4,542,000
Property and equipment at cost, net 206,500 235,200
Intangible assets, net 1,281,200 1,451,900
Goodwill 705,300 705,300
Other assets 52,500 52,500
Deferred taxes 190,400 154,500
__________ __________
Total assets $7,978,900 $7,141,400
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 372,100 $ 227,600
Customer advances 110,100 76,400
Bank line of credit 470,000 -
Notes payable, current portion 200,000 200,000
Accrued expenses and taxes 779,500 519,900
Contingent consideration, current portion 128,900 106,800
__________ __________
Total current liabilities 2,060,600 1,130,700
Contingent consideration, less
current portion 137,300 260,300
__________ __________
Total liabilities 2,197,900 1,391,000
__________ __________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,508,914 outstanding at
December 31, 2015 and June 30, 2015 75,400 75,400
Additional paid-in capital 2,487,900 2,486,700
Accumulated other comprehensive loss ( 8,200) ( 3,300)
Retained earnings 3,278,300 3,244,000
___________ __________
5,833,400 5,802,800
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
__________ __________
Total shareholders' equity 5,781,000 5,750,400
__________ __________
Total liabilities and
shareholders' equity $7,978,900 $7,141,400
========== ==========
See notes to unaudited condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
__________ __________ __________ __________
2015 2014 2015 2014
__________ __________ __________ __________
Revenues $2,028,200 $1,691,100 $3,472,600 $3,353,200
Cost of sales 1,190,500 1,081,700 2,039,800 2,163,900
__________ __________ __________ __________
Gross profit 837,700 609,400 1,432,800 1,189,300
__________ __________ __________ __________
Operating Expenses:
General & administrative 395,700 446,400 803,900 852,600
Selling 227,200 229,400 394,200 524,700
Research & development 84,100 116,100 169,500 223,200
__________ __________ __________ __________
Total operating
expenses 707,000 791,900 1,367,600 1,600,500
__________ __________ __________ __________
Income (loss) from
operations 130,700 ( 182,500) 65,200 ( 411,200)
__________ __________ __________ __________
Other income (expense):
Investment income 5,000 7,400 5,400 9,600
Other 1,400 ( 5,900) ( 3,300) ( 1,100)
Interest expense ( 14,000) ( 1,400) ( 22,100) ( 2,700)
__________ __________ _________ __________
Total other income,
(expense) net ( 7,600) 100 ( 20,000) 5,800
__________ __________ _________ __________
Income (loss) before
income tax expense
(benefit) 123,100 ( 182,400) 45,200 ( 405,400)
__________ __________ _________ __________
Income tax expense (benefit):
Current 40,900 ( 33,800) 40,900 ( 91,000)
Deferred ( 12,200) ( 10,600) ( 30,000) ( 15,100)
__________ __________ __________ __________
Total income tax
expense (benefit) 28,700 ( 44,400) 10,900 ( 106,100)
___________ __________ __________ __________
Net income (loss) $ 94,400 ($ 138,000) $ 34,300 ($299,300)
=========== ========== ========== ==========
Basic and diluted earnings
(loss) per common share $ .06 ($ .09) $ .02 ($ .20)
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
___________________ __________________
2015 2014 2015 2014
________ __________ ________ __________
Net income (loss) $ 94,400 ($138,000) $ 34,300 ($299,300)
Other comprehensive loss:
Unrealized holding loss on investments
arising during period,
net of tax ( 1,100) ( 3,800) ( 4,900) ( 4,500)
__________ _________ __________ __________
Comprehensive income (loss) $ 93,300 ($141,800) $ 29,400 ($303,800)
========== ========= ========== ==========
See notes to unaudited condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Month Periods Ended
December 31, 2015 December 31, 2014
_________________ _________________
Operating activities:
Net income (loss) $ 34,300 ($ 299,300)
__________ ____________
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Loss on sale of investments - 1,300
Loss on asset disposal 2,700 -
Depreciation and amortization 210,800 220,100
Deferred income tax benefit ( 30,000) ( 15,100)
Stock-based compensation 1,200 2,100
Income tax benefit of stock options exercised - 4,900
Changes in operating assets and liabilities:
Accounts receivable 211,600 25,700
Inventories (1,048,800) ( 106,900)
Prepaid expenses and other current assets 13,000 ( 37,200)
Other assets - ( 25,400)
Accounts payable 144,500 48,700
Customer advances 33,700 ( 77,500)
Accrued expenses and taxes 259,600 ( 149,200)
____________ ____________
Total adjustments ( 201,700) ( 108,500)
____________ ____________
Net cash used in
operating activities ( 167,400) ( 407,800)
____________ ____________
Investing activities:
Purchase of investment securities,
available-for-sale ( 2,700) ( 3,800)
Capital expenditures ( 8,400) ( 52,900)
Purchase of intangible assets ( 5,700) ( 3,400)
Redemption of investment securities, available
for sale - 75,000
____________ ____________
Net cash provided by
(used in) investing activities ( 16,800) 14,900
____________ ____________
Financing activities:
Line of credit proceeds 470,000 250,000
Payment of contingent consideration ( 100,900) ( 98,900)
Proceeds from exercise of stock options - 18,800
Principal payments on note payable - ( 26,700)
____________ _____________
Net cash provided by financing
activities 369,100 143,200
____________ _____________
See notes to unaudited condensed consolidated financial statements
4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Month Periods Ended
December 31, 2015 December 31, 2014
_________________ _________________
Net increase (decrease) in cash
and cash equivalents 184,900 ( 249,700)
Cash and cash equivalents, beginning of year 482,000 493,700
__________ __________
Cash and cash equivalents, end of period $ 666,900 $ 244,000
__________ __________
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ 18,500 $ 3,500
Interest 4,400 2,700
Non-cash investing and financing activities (Note 3)
See notes to unaudited condensed consolidated financial statements
5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
General: The accompanying unaudited interim condensed consolidated
financial statements are prepared pursuant to the Securities
and Exchange Commission's rules and regulations for reporting
on Form 10-Q. Accordingly, certain information and footnotes
required by accounting principles generally accepted in the
United States for complete financial statements are not
included herein. The Company believes all adjustments
necessary for a fair presentation of these interim statements
have been included and that they are of a normal and
recurring nature. These interim statements should be read in
conjunction with the Company's financial statements and notes
thereto, included in its Annual Report on Form 10-K, for the
fiscal year ended June 30, 2015. The results for the three
and six months ended December 31, 2015, are not necessarily
an indication of the results for the full fiscal year ending
June 30, 2016.
1. Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of Scientific Industries, Inc. ("Scientific", a Delaware
corporation), Altamira Instruments, Inc.("Altamira", a wholly-owned
subsidiary and Delaware corporation), Scientific Packaging Industries,
Inc. (an inactive wholly-owned subsidiary and New York corporation)
and Scientific Bioprocessing, Inc. ("SBI", a wholly-owned subsidiary
and Delaware corporation). All are collectively referred to as the
"Company". All material intercompany balances and transactions have
been eliminated.
2. New Accounting Pronouncements:
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers amending revenue recognition requirements for multiple-deliverable
revenue arrangements. This update provides guidance on how revenue is
recognized to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for the goods or services. This determination is
made in five steps: (i) identify the contract with the customer: (ii)
identify the performance obligations in the contract; (iii) determine the
transaction price; (iv) allocate the transaction price to the performance
obligations in the contract; and (v) recognize revenue when (or as) the
entity satisfies a performance obligation. In July 2015, the FASB deferred
the effective date to fiscal years beginning after December 15, 2018, or the
Company's fiscal year ending June 30, 2020, and early adoption of the
standard is permitted, but not before the original effective date of
December 15, 2017. The Company is evaluating the effect this guidance will
have on the consolidated financial statements and related disclosures.
6
In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation
(Topic 718): Accounting for Share-Based Payments When the Terms of an Award
Provide that a Performance Target Could be Achieved After the Requisite
Service Period. This update affects reporting entities that grant their
employee's targets that affects vesting could be achieved after the
requisite service period. The new standard requires that a performance
target that affects vesting and that could be achieved after the requisite
services period be treated as a performance condition. The new standard will
be effective for the Company beginning July 1, 2016, and early adoption is
permitted. The Company expects the adoption will not have a material impact
on its financial condition, results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory: Simplifying the
Measurement of Inventory", that requires inventory not measured using
either the last in, first out (LIFO) or the retail inventory method to be
measured at the lower of cost and net realizable value. Net realizable value
is the estimated selling prices in the ordinary course of business, less
reasonably predictable cost of completion, disposal and transportation. The
new standard will be effective for fiscal years beginning after December 15,
2016, including interim periods within those fiscal years, and will be
applied prospectively. Early adoption is permitted. The Company is
evaluating the impact that this standard will have on its consolidated
financial statements.
In November 2015, the FASB issued new guidance simplifying the balance sheet
classification of deferred taxes. The new guidance requires that deferred
tax liabilities and assets be classified as noncurrent in a classified
statement of financial position. The current requirement that deferred tax
liabilities and assets of a tax-paying component of an entity be offset and
presented as a single amount is not affected by the new guidance. The
guidance is effective for public companies for interim and annual reporting
periods beginning after December 15, 2016, with early adoption permitted as
of the beginning of an interim or annual reporting period. The new guidance
may be applied either prospectively to all deferred tax liabilities and
assets or retrospectively to all periods presented. The Company is
evaluating the impact that the new guidance will have on its consolidated
financial statements and related disclosures.
3. Acquisition:
On February 26, 2014, the Company acquired substantially all the assets of a
privately owned company consisting principally of inventory, fixed assets, and
intangible assets related to the production and sale of a variety of
laboratory and pharmacy balances and scales. The acquisition was pursuant to
an asset purchase agreement whereby the Company paid the sellers $700,000 in
cash, 126,449 shares of Common Stock valued at $427,500 and agreed to make
additional cash payment based on a percentage of net sales of the business
acquired equal to 8% for the period ended June 30, 2014 annualized, 9% for the
year ended June 30, 2015, 10% for the year ending June 30, 2016 and 11% for
the year ending June 30, 2017, estimated at a present value of $460,000 on the
date of acquisition. Payments related to this contingent consideration for
each period are due in September following the fiscal year. Contingent
consideration payments amounted to $100,900 and $98,900 during the six month
periods ended December 31, 2015 and 2014, respectively.
7
The products, which are similar to the Company's other Benchtop Laboratory
Equipment, and in many cases used by the same customers, are marketed under
the Torbal(R) brand. The principal customers are pharmacies, pharmacy schools,
universities, government laboratories, and industries utilizing precision
scales. The products are sold primarily on a direct basis, including the
Company's e-commerce site.
Management of the Company allocated the purchase price based on its
valuation of the assets acquired, as follows:
Current assets $ 144,000
Property and equipment 118,100
Goodwill* 115,400
Other intangible assets 1,210,000
__________
Total Purchase Price $1,587,500
==========
*See Note 8, "Goodwill and Other Intangible Assets".
Of the $1,210,000 of the acquired other intangible assets, $570,000 was
assigned to technology and websites with a useful life of 5 years, $120,000
was assigned to customer relationships with an estimated useful life of 9
years, $140,000 was assigned to the trade name with an estimated useful
life of 6 years, $110,000 was assigned to the IPR&D with an estimated
useful life of 3 years, and $270,000 was assigned to non-compete agreements
with an estimated useful life of 5 years.
In connection with the acquisition, the Company entered into a three-year
employment agreement with the previous Chief Operating Officer of the
acquired business as President of the Company's new Torbal Division and
Director of Marketing for the Company. The agreement may be extended by
mutual consent for an additional two years.
4. Segment Information and Concentrations:
The Company views its operations as three segments: the manufacture and
marketing of standard benchtop laboratory equipment for research
in university, hospital and industrial laboratories sold primarily
through laboratory equipment distributors ("Benchtop Laboratory
Equipment"), the manufacture and marketing of custom-made catalyst research
instruments for universities, government laboratories, and chemical and
petrochemical companies sold on a direct basis ("Catalyst Research
Instruments") and the marketing and production of bioprocessing systems for
laboratory research in the biotechnology industry sold directly to
customers and through distributors ("Bioprocessing Systems").
8
Segment information is reported as follows (foreign sales are principally
to customers in Europe and Asia):
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended December 31, 2015:
Revenues $1,583,500 $ 414,500 $ 30,200 $ - $2,028,200
Foreign Sales 764,400 105,500 - - 869,900
Income (Loss) from
Operations 187,700 ( 10,100) ( 32,900) ( 14,000) 130,700
Assets 4,352,600 2,319,200 728,800 578,300 7,978,900
Long-Lived Asset
Expenditures 1,900 - 5,700 - 7,600
Depreciation and
Amortization 74,200 7,000 24,400 - 105,600
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended December 31, 2014:
Revenues $1,247,000 $ 419,600 $ 24,500 $ - $1,691,100
Foreign Sales 722,400 315,700 - - 1,038,100
Loss from
Operations ( 67,200 ( 70,600) ( 44,700) - ( 182,500)
Assets 4,032,700 1,387,900 774,100 585,800 6,780,500
Long-Lived Asset
Expenditures 33,200 - 2,300 - 35,500
Depreciation and
Amortization 76,300 9,200 24,500 - 110,000
Approximately 53% and 50% of net sales of benchtop laboratory equipment
(41% and 37% of total revenues) for the three month periods ended
December 31, 2015 and 2014, respectively, were derived from the Company's
main product, the Vortex-Genie 2(R) mixer, excluding accessories.
Approximately 19% and 21% of net sales of benchtop laboratory equipment
(15% of total revenues for both periods) were derived from Torbal brand
products for the three months ended December 31, 2015 and 2014,
respectively.
Two customers accounted in the aggregate for approximately 14% and 18%
of the net sales of the Benchtop Laboratory Equipment Operations and 11%
and 13% of total revenues for the three months ended December 31, 2015,
and 2014, respectively. Sales of catalyst research instruments generally
comprise a few very large orders averaging at least $100,000 per order
to a limited number of customers, who differ from order to order. Sales
to three different customers represented approximately 92% and 84% of
the Catalyst Research Instrument Operations' net sales, respectively,
and 19% and 21% of total revenues for the three months ended
December 31, 2015 and 2014, respectively.
9
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Six months ended December 31, 2015:
Revenues $2,846,500 $ 567,500 $ 58,600 $ - $3,472,600
Foreign Sales 1,363,400 113,300 - - 1,476,700
Income (Loss) from
Operations 242,400 ( 92,200) ( 62,900) ( 22,100) 65,200
Assets 4,352,600 2,319,200 728,800 578,300 7,978,900
Long-Lived Asset
Expenditures 8,400 - 5,700 - 14,100
Depreciation and
Amortization 148,000 13,900 48,900 - 210,800
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Six months ended December 31, 2014:
Revenues $2,333,400 $ 970,700 $ 49,100 $ - $3,353,200
Foreign Sales 1,133,500 759,200 - - 1,892,700
Loss from
Operations ( 185,300 ( 140,800) ( 85,100) - ( 411,200)
Assets 4,032,700 1,387,900 774,100 585,800 6,780,500
Long-Lived Asset
Expenditures 51,500 900 3,900 - 56,300
Depreciation and
Amortization 152,300 19,000 48,800 - 220,100
Approximately 50% and 48% of net sales of benchtop laboratory equipment
(41% and 33% of total revenues) for the six month periods ended December
31, 2015 and 2014, respectively, were derived from the segment's main
product, the Vortex-Genie 2(R) mixer, excluding accessories.
Two benchtop laboratory equipment customers, accounted in the aggregate
for approximately 13% and 16% of the segment's net sales for the six month
periods ended December 31, 2015 and 2014, and 11% of total revenues for
each of the six month periods ended December 31, 2015 and 2014.
Approximately 20% of net sales of benchtop laboratory equipment were
derived from Torbal brand products for each of the six months ended
December 31, 2015 and 2014, and 16% and 14% of total revenues,
respectively.
For the six month periods ended December 31, 2015 and 2014, catalyst
research Instruments sales to three and six different customers in each
of the six month periods, accounted for approximately 88% and 97% of
the segment's net sales and 14% and 28% of total revenues, respectively.
5. Fair Value of Financial Instruments:
The FASB defines the fair value of financial instruments as the amount
that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement
date. Fair value measurements do not include transaction costs.
10
The accounting guidance also expands the disclosure requirements around
fair value and establishes a fair value hierarchy of valuation inputs.
The hierarchy prioritizes the inputs into three levels based on the extent
to which inputs used in measuring fair value are observable in the market.
Each fair value measurement is reported in one of the three levels, which
is determined by the lowest level input that is significant to the fair
value measurement in its entirety. These levels are described below:
Level 1 Inputs that are based upon unadjusted quoted prices for
identical instruments traded in active markets.
Level 2 Quoted prices in markets that are not considered to be
active or financial instruments for which all significant inputs are
observable, either directly or indirectly.
Level 3 Prices or valuation that require inputs that are both
significant to the fair value measurement and unobservable.
The following tables set forth by level within the fair value hierarchy
the Company's financial assets that were accounted for at fair value on a
recurring basis at December 31, 2015 and June 30, 2015 according to the
valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
December 31, 2015 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $ 666,900 $ 666,900 $ - $ -
Restricted cash 300,000 300,000 - -
Available for sale securities 278,200 278,200 - -
__________ __________ _______ _________
Total $1,245,100 $1,245,100 $ - $ -
========== ========== ======== =========
Liabilities:
Contingent consideration $ 266,200 $ - $ - $266,200
========== ========== ======== =========
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
June 30, 2015 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $ 482,000 $ 482,000 $ - $ -
Restricted cash 300,000 300,000 - -
Available for sale securities 281,800 281,800 - -
__________ __________ _______ ________
Total $1,063,800 $1,063,800 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 367,100 $ - $ - $367,100
========== ========== ======= ========
11
Investments in marketable securities classified as available-for-sale by
security type at December 31, 2015 and June 30, 2015 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At December 31, 2015:
Available for sale:
Equity securities $ 29,300 $ 38,200 $ 8,900
Mutual funds 257,100 240,000 (17,100)
_________ _________ ____________
$ 286,400 $ 278,200 $ ( 8,200)
========= ========= ============
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2015:
Available for sale:
Equity securities $ 29,300 $ 35,800 $ 6,500
Mutual funds 255,800 246,000 ( 9,800)
__________ _________ __________
$ 285,100 $ 281,800 $ ( 3,300)
========== ========= ==========
6. Inventories:
Inventories for financial statement purposes are based on perpetual
inventory records at December 31, 2015 and based on a physical count as
of June 30, 2015. Components of inventory are as follows:
December 31, June 30,
2015 2015
____________ __________
Raw Materials $1,439,000 $1,420,800
Work in process 1,510,400 442,900
Finished Goods 313,100 350,000
__________ __________
$3,262,500 $2,213,700
========== ==========
7. Earnings (loss) per common share:
Basic earnings (loss) per common share are computed by dividing net income
(loss) by the weighted-average number of shares outstanding. Diluted
earnings per common share include the dilutive effect of stock options, if
any.
12
Earnings (loss) per common share was computed as follows:
For the Three Month For the Six Month
Periods Ended Period Ended
December 31, December 31,
____________________________ ______________________
2015 2014 2015 2014
Net income (loss) $ 94,400 ($ 138,000) $ 34,300 ($ 299,300)
============ ============= ========= ===========
Weighted average common
shares outstanding 1,489,112 1,479,112 1,489,112 1,475,960
Dilutive securities - - - -
__________ __________ __________ __________
Weighted average dilutive
common shares outstanding 1,489,112 1,479,112 1,489,112 1,475,960
========== ========== ========== ==========
Basic and diluted earnings
(loss) per common share $ .06 ($ .09) $ .02 ($ .20)
====== ======== ====== ========
Approximately 38,500 and 51,000 shares of the Company's Common Stock
issuable upon the exercise of outstanding stock options were excluded from
the calculation of diluted earnings per common share for the three and six
month periods ended December 31, 2015 and 2014, respectively, because the
effect would be anti-dilutive.
8. Goodwill and Other Intangible Assets:
Goodwill represents the excess of the purchase price over the fair value
of the net assets acquired in connection with the Company's acquisition of
Altamira and SBI's acquisition of assets. Goodwill amounted to $705,300
as of December 31, 2015 and June 30, 2015, all of which is deductible for
tax purposes.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
______ __________ ____________ _________
At December 31, 2015:
Technology, trademarks 5/10 yrs. $1,215,800 $ 682,600 $ 533,200
Trade names 6 yrs. 140,000 42,800 97,200
Websites 5 yrs. 210,000 77,000 133,000
Customer relationships 9/10 yrs. 357,000 246,500 110,500
Sublicense agreements 10 yrs. 294,000 121,300 172,700
Non-compete agreements 5 yrs. 384,000 210,900 173,100
Intellectual Property,
Research & Development
(IPR&D) 3 yrs. 110,000 67,200 42,800
Other intangible assets 5 yrs. 169,800 151,100 18,700
__________ __________ __________
$2,880,600 $1,599,400 $1,281,200
========== ========== ==========
13
Useful Accumulated
Lives Cost Amortization Net
______ __________ ____________ _________
At June 30, 2015:
Technology, trademarks 5/10 yrs. $1,226,800 $ 624,200 $ 602,600
Trade names 6 yrs. 140,000 31,100 108,900
Websites 5 yrs. 210,000 56,000 154,000
Customer relationships 9/10 yrs. 357,000 236,200 120,800
Sublicense agreements 10 yrs. 294,000 106,600 187,400
Non-compete agreements 5 yrs. 384,000 182,700 201,300
Intellectual Property,
Research & Development
(IPR&D) 3 yrs. 110,000 48,900 61,100
Other intangible assets 5 yrs. 164,000 148,200 15,800
__________ __________ __________
$2,885,800 $1,433,900 $1,451,900
========== ========== ==========
Total amortization expense was $87,500 and $88,200 for the three months ended
December 31, 2015 and 2014, respectively and $173,800 and $176,300 for the six
months ended December 31, 2015 and 2014, respectively. As of December 31,
2015, estimated future amortization expense related to intangible assets is
$160,600 for the remainder of the fiscal year ending June 30, 2016, $337,000
for fiscal 2017, $324,000 for fiscal 2018, $246,600 for fiscal 2019, $80,400
for fiscal 2020 and $132,600 thereafter.
14
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis or Plan of Operations
Certain statements contained in this report are not based on historical facts,
but are forward-looking statements that are based upon various assumptions
about future conditions. Actual events in the future could differ materially
from those described in the forward-looking information. Numerous unknown
factors and future events could cause such differences, including but not
limited to, product demand, market acceptance, impact of competition, the
ability to reach final agreements, the ability to finance and produce to
customers' specifications catalyst research instruments, and to develop
marketable bioprocessing systems, adverse economic conditions, and other
factors affecting the Company's business that are beyond the Company's
control. Consequently, no forward-looking statement can be guaranteed.
We undertake no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or
otherwise.
Liquidity and Capital Resources
Cash and cash equivalents increased by $184,900 to $666,900 as of December 31,
2015 from $482,000 as of June 30, 2015.
Operating activities used $167,400 of cash for the six months ended December
31, 2015 compared to $407,800 used during the six months ended December 31,
2014. The current year period reflected significantly higher amounts of work-
in-process inventories related to a large impending order for catalyst research
instruments, partially offset by the income generated during the period
compared to a loss in same period last year. Cash used in investing
activities during the six months ended December 31, 2015 was $16,800 compared
to cash provided of $14,900 for the six months ended December 31, 2014
primarily due to decreased capital expenditures and no redemptions of
investment securities in the current year period. Net cash provided by
financing activities increased to $369,100 for the six months ended December
31, 2015 compared to $143,200 in the prior year period due primarily to
increased loan advances under the export-related line of credit to finance the
export-related inventory purchases of catalyst research instruments.
The Company's working capital increased by $71,100 to $3,482,400 as of December
31, 2015 from working capital of $3,411,300 at June 30, 2015, mainly due to the
income generated during the period.
The Company has two lines of credit with First National Bank of Pennsylvania -
an Export-Related Revolving Line of Credit which is guaranteed by the Export-
Import Bank of the United States which provides for export-related borrowings
of up to $998,500 bearing interest at prime plus 2% (currently 5.50%) and an
annual fee of 1.75%; and a second one-year Demand Line of Credit which provides
for borrowings of up to $300,000 for regular working capital needs, bearing
interest at prime, which is collaterized by a cash collateral account of
$300,000 which will be released upon certain financial criteria being met or
the line being paid and terminated, which ever comes first. Advances on both
lines are also secured by a pledge of the Company's assets including inventory,
accounts, chattel paper, equipment and general intangibles of the Company. As
of December 31, 2015 $470,000 was outstanding under the Export-Related line and
no borrowings were made under the second line.
15
Management believes that the Company will be able to meet its cash flow needs
during the next 12 months from its available financial resources which include
its cash and investment securities, lines of credit, and operations.
Results of Operations
Financial Overview
The Company recorded income before income tax expense of $123,100 and $45,200
for the three and six month periods ended December 31, 2015 compared to a loss
before income tax benefit amounting to $182,400 and $405,400 for the three and
six month periods ended December 31, 2014, respectively. The improvement is
primarily due to higher sales and margins generated by the Benchtop Laboratory
Equipment Operations which produced income for the segment compared to losses
last year. The results reflect non-cash amounts for depreciation and
amortization of $105,600 and $210,800 for the three and six months ended
December 31, 2015 compared to $110,000 and $220,100 respectively.
The Three Months Ended December 31, 2015 Compared With the Three Months Ended
December 31, 2014
Net revenues for the three months ended December 31, 2015 increased by $337,100
(19.9%) to $2,028,200 from $1,691,100 for the three months ended December 31,
2014, primarily as a result of a $336,500 increase in revenues by the Benchtop
Laboratory Equipment Operations, which reflected $295,500 of Torbal brand
products sales compared to $256,000 in the prior year comparable period. Sales
of the benchtop laboratory equipment products generally are pursuant to many
small purchase orders from distributors, while catalyst research instruments
are sold pursuant to a small number of larger orders, typically averaging over
$100,000 each, resulting in significant swings in revenues. The backlog of
orders for catalyst research instruments was $3,102,000 as of December 31,
2015, the majority of which are anticipated to be delivered by June 30, 2016;
the backlog as of December 31, 2014 was $949,000.
The increase in gross profit percentage for the three months ended December 31,
2015 to 41.3% from 36.0% for the year earlier three month period was primarily
due to the product mix and lower overhead costs of the Benchtop Laboratory
Equipment Operations.
General and administrative expenses for the three month comparative periods
ended December 31, 2015 and December 31, 2014 decreased by $50,700 (11.4%) to
$395,700 from $446,400 primarily due to expenses incurred in the 2014 period by
the Benchtop Laboratory Equipment Operations associated with the Bohemia
facility move.
Selling expenses for the three months ended December 31, 2015 decreased by
$2,200 to $227,200 from $229,400 for the three months ended December 31, 2014.
Research and development expenses for the three months ended December 31, 2015
decreased $32,000 (27.6%) to $84,100 from $116,100 for the three months ended
December 31, 2014, primarily the result of decreased new product development by
the Company's Benchtop Laboratory Equipment Operations due to the release of a
new product.
Total other income (expense), net for the three month period ended December 31,
2015 decreased by $7,700 to ($7,600) from $100 for the three month period ended
December 31, 2014 due to increased interest expense.
16
For the three months ended December 31, 2015, income tax expense was $28,700
compared to income tax benefit of $44,400 for the three months ended December
31, 2014 due to the income for the period compared to a loss in the prior year
period.
As a result, the net income for the three months ended December 31, 2015 was
$94,400 compared to a net loss of $138,000 for the three months ended December
31, 2014.
The Six Months Ended December 31, 2015 Compared With the Six Months
Ended December 31, 2014
Net revenues for the six months ended December 31, 2015 increased by
$119,400 (3.6%) to $3,472,600 compared to $3,353,200 for the six months
ended December 31, 2014, primarily due to increases of $513,100 in sales of
benchtop laboratory equipment, partially offset by a $403,200 decrease in
catalyst research instruments sales and an increase of $9,500 in revenues of
the Bioprocessing Systems Operations. The 2015 benchtop laboratory equipment
sales included $565,400 of Torbal brand product sales compared to $467,500 in
the prior year period. Sales of benchtop laboratory equipment products
generally are comprised of many small purchase orders from distributors, while
sales of catalyst research instruments are comprised of a small number of large
orders, typically averaging over $100,000 each, resulting in significant swings
in revenues.
The gross profit percentage for the six months ended December 31, 2015
increased to 41.3% compared to 35.5% for the six months ended December 31,
2014, due principally to product mix and lower overhead costs of the Benchtop
Laboratory Equipment Operations.
General and administrative expenses decreased by $48,700 (5.7%) to $803,900 for
the six months ended December 31, 2015 from $852,600 for the comparable period
of the prior year, due primarily to the expenses in the prior year period for
the Benchtop Laboratory Equipment Operations, associated with the Bohemia
facility move.
Selling expenses for the six months ended December 31, 2015 decreased by
$130,500 (24.9%) to $394,200 from $524,700 for the six months ended December
31, 2014, primarily the result of decreased commissions due to sales mix and
exhibitions expense for the Catalyst Research Instruments Operations.
Research and development expenses for the six months ended December 31,
2015 decreased $53,700 (24.1%) to $169,500 compared to $223,200 for the
six months ended December 31, 2014, primarily the result of decreased new
product development by the Benchtop Laboratory Equipment Operations and the
Catalyst Research Instruments Operations as new products were launched.
Total other income (expense), net, for the six month period ended December 31,
2015 decreased to ($20,000) from $5,800 for the six months ended December 31,
2014 primarily due to increased interest expense.
For the six month period ended December 31, 2015 income tax expense was $10,900
compared to income tax benefit of $106,100 for the comparable period of the
prior fiscal year due to the income for the period compared to a loss in the
prior year period.
17
As a result, the net income for the six months ended December 31, 2015 was
$34,300 compared to a net loss of $299,300 for the six months ended December
31, 2015.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of the end of the period
covered by this report, based on an evaluation of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934), the Chief Executive and Chief Financial
Officer of the Company has concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in its Exchange Act reports is recorded, processed, summarized and
reported within the applicable time periods specified by the SEC's rules and
forms. The Company also concluded that information required to be disclosed in
such reports is accumulated and communicated to the Company's management,
including its principal executive and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There was no change in
the Company's internal controls over financial reporting that occurred during
the most recently completed fiscal quarter that materially affected or is
reasonably likely to materially affect the Company's internal controls over
financial reporting.
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number: Description
31.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
Report dated January 26, 2016 reporting under Item 1.01 and 5.07.
18
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Scientific Industries, Inc.
Registrant
/s/ Helena R. Santos
__________________________________
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Principal Executive, Financial and
Accounting Officer
Date: February 12, 2016
19
